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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-6262
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BP AMOCO P.L.C.
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(Exact name of Registrant as specified in its charter)
ENGLAND AND WALES
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(Jurisdiction of incorporation or organization)
BRITANNIC HOUSE
1 FINSBURY CIRCUS
LONDON EC2M 7BA
ENGLAND
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
<TABLE>
<S> <C>
Title of each class Name of each exchange
on which registered
ORDINARY SHARES OF 50C EACH NEW YORK STOCK EXCHANGE*
- - --------------------------------------------- -----------------------------------------------------
*Not for trading, but only in connection
with the registration of American Depositary
Shares, pursuant to the requirements of the
Securities and Exchange Commission
</TABLE>
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
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Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
<TABLE>
<S> <C>
ORDINARY SHARES OF 50C EACH................................. 9,683,010,023
CUMULATIVE FIRST PREFERENCE SHARES OF L1 EACH............... 7,232,838
CUMULATIVE SECOND PREFERENCE SHARES OF L1 EACH.............. 5,473,414
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No. _____
Indicate by check mark which financial statement item the Registrant has
elected to follow.
Item 17 _____ Item 18 X
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Certain Definitions......................................... 3
Exchange Rates.............................................. 4
PART I Item 1 Description of Business..................................... 5
General..................................................... 5
Exploration and Production.................................. 8
Refining and Marketing...................................... 22
Chemicals................................................... 27
Other Businesses and Corporate.............................. 31
Regulation of the Group's Business.......................... 32
Environmental Protection.................................... 34
Additional Factors Which May Affect Business................ 39
Item 2 Description of Property..................................... 39
Item 3 Legal Proceedings........................................... 40
Item 4 Control of Registrant....................................... 40
Item 5 Nature of Trading Market.................................... 41
Item 6 Exchange Controls and Other Limitations Affecting Security
Holders..................................................... 42
Item 7 Taxation.................................................... 42
Item 8 Selected Financial Data..................................... 46
Summarized Financial Information............................ 46
Dividends................................................... 48
Item 9 Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 49
Item 9A Quantitative and Qualitative Disclosures about Market
Risk........................................................ 59
Item 10 Directors and Officers of Registrant........................ 65
Item 11 Compensation of Directors and Officers...................... 67
Item 12 Options to Purchase Securities from Registrant or
Subsidiaries................................................ 76
Item 13 Interest of Management in Certain Transactions.............. 76
PART III Item 15 Defaults upon Senior Securities............................. 77
Item 16 Changes in Securities, Changes in Security for Registered
Securities
and Use of Proceeds......................................... 77
PART IV Item 18 Financial Statements........................................ 78
Item 19 Financial Statements and Exhibits........................... 78
</TABLE>
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Note: Omitted items are inapplicable.
2
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CERTAIN DEFINITIONS
Unless the context indicates otherwise, the following terms have the
meanings shown below:
OIL AND NATURAL GAS RESERVES
'Proved reserves' -- Estimated quantities of crude oil or natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions, i.e. prices and costs as of the date the estimate is made.
'Proved developed reserves' -- Reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing natural forces
and mechanisms of primary recovery are included as 'proved developed reserves'
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
'Proved undeveloped reserves' -- Reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled acreage
are limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units are claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances are estimates of proved undeveloped reserves attributable
to acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same reservoir.
MISCELLANEOUS TERMS
'ADR' -- American Depositary Receipt.
'ADS' -- American Depositary Share.
'Amoco' -- Amoco Corporation and its subsidiaries.
'Associated undertaking' -- An undertaking in which the BP Amoco Group has a
participating interest and over whose operating and financial policy the BP
Amoco Group exercises a significant influence (presumed to be the case where 20%
or more of the voting rights are held) and which is not a subsidiary
undertaking.
'Barrel' -- 42 US gallons.
'Billion' -- 1,000,000,000.
'BP' or 'BP Group' -- The British Petroleum Company p.l.c. and its subsidiaries.
'BP p.l.c.' -- The British Petroleum Company p.l.c.
'BP Amoco', 'BP Amoco Group' or the 'Group' -- The Company and its subsidiaries.
'Cent' or 'c' -- One hundredth of the US dollar.
The 'Company' -- BP Amoco p.l.c.
'Crude oil' -- Includes condensate and natural gas liquids.
'Dollar' or '$' -- The US dollar.
'Gas' -- Natural Gas.
'LNG' -- Liquefied Natural Gas.
'London Stock Exchange' or 'LSE' -- London Stock Exchange Limited.
'LPG' -- Liquefied Petroleum Gas.
'NGL' -- Natural Gas Liquids.
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'Noon Buying Rate' -- The noon buying rate in New York City for cable transfers
in pounds as certified for customs purposes by the Federal Reserve Bank of New
York.
'OECD' -- Organization for Economic Cooperation and Development.
'Oil' -- Crude oil, condensate and natural gas liquids.
'OPEC' -- The Organization of Petroleum Exporting Countries.
'Ordinary Shares' -- Ordinary fully paid shares in BP Amoco p.l.c. of 50c each.
'Pence' or 'p' -- One hundredth of a pound.
'Pound', 'sterling' or 'L' -- The pound sterling.
'Preference Shares' -- Cumulative First Preference Shares and Cumulative Second
Preference Shares in BP Amoco p.l.c. of L1 each.
'Subsidiary undertaking' -- An undertaking in which the BP Amoco Group holds a
majority of the voting rights.
'Tonne' or 'metric ton' -- 2,204.6 pounds.
'Trillion' -- 1,000,000,000,000.
'UK' -- United Kingdom of Great Britain and Northern Ireland.
'UK GAAP' -- Generally Accepted Accounting Practice in the UK.
'Undertaking' -- A body corporate, partnership or an unincorporated association,
carrying on a trade or business.
'US' or 'USA' -- United States of America.
'US GAAP' -- Generally Accepted Accounting Principles in the USA.
EXCHANGE RATES
The following table sets forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rate for the pound in New York
City for cable transfers in pounds as certified for customs purposes by the
Federal Reserve Bank of New York. This is expressed in dollars per L1.
<TABLE>
<CAPTION>
Calendar year at Year End Average(a) High Low
- - ------------- ----------- ---------- ---- ----
<S> <C> <C> <C> <C>
1994.................................................. 1.57 1.54 1.64 1.46
1995.................................................. 1.55 1.58 1.64 1.53
1996.................................................. 1.71 1.57 1.71 1.49
1997.................................................. 1.64 1.64 1.70 1.58
1998.................................................. 1.66 1.66 1.72 1.61
1999 (through March 29)(b)............................ -- -- 1.66 1.60
</TABLE>
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(a) The average of the Noon Buying Rates on the last day of each month during
the calendar year.
(b) The Noon Buying Rate on March 29, 1999 was $1.61 = L1.
4
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PART I
ITEM 1 -- DESCRIPTION OF BUSINESS
GENERAL
Unless otherwise indicated, information in this Item reflects 100% of the
assets and operations of the Company and its subsidiaries which were
consolidated at the date or for the periods indicated, without the exclusion of
minority interests. Also, unless otherwise indicated, figures for business
turnover include sales between BP Amoco businesses.
BP Amoco was created on December 31, 1998 by the merger of Amoco
Corporation of the USA and The British Petroleum Company p.l.c. of the UK. The
merger was effected by BP p.l.c. issuing ordinary shares to holders of Amoco
common stock with an exchange ratio of 3.97:1. Following this merger, Amoco
Corporation became a wholly owned subsidiary of BP p.l.c. and was renamed BP
Amoco Corporation, and The British Petroleum Company p.l.c. was renamed BP Amoco
p.l.c. Amoco Corporation was incorporated in Indiana, USA, in 1889 and The
British Petroleum Company p.l.c. was incorporated in 1909 in England.
BP Amoco's worldwide headquarters is located in London, UK. Amoco's former
head office in Chicago, Illinois, USA, is the headquarters for our North
American refining, marketing and transportation business.
BP Amoco's operations are substantially US dollar-based. The share capital
of BP p.l.c. was redenominated into US dollars at the time of the merger.
Dividends are announced in US dollars. To reflect this, we now report our annual
results and other financial information in US dollars under UK GAAP.
BP Amoco has accounted for the merger using the merger method of accounting
under UK GAAP. The merger qualifies for the pooling-of-interests method of
accounting under US GAAP.
Our main businesses are Exploration and Production, Refining and Marketing,
and Chemicals. Exploration and Production's activities include oil and natural
gas exploration and field development and production (upstream activities),
together with pipeline transportation, gas processing and gas marketing
(midstream activities). The activities of Refining and Marketing include oil
supply and trading as well as refining and marketing (downstream activities).
Chemicals activities include petrochemicals manufacturing and marketing. The
Group provides high quality technological support for all its businesses through
its research and engineering activities.
We have well established operations in Europe, the USA, Canada, South
America, Australasia and parts of Africa.
The proposal, in August 1998, to merge BP and Amoco was a ground-breaking
deal for the oil industry. Our aim was to create a new 'super-major' with
significantly greater competitive strengths than either partner could achieve on
its own. We believe there will be increased opportunities for the merged
enterprise in remote regions of the world which have recently become accessible
to the international exploration and production industry, and for satisfying
increased energy and petrochemical demand in a number of the emerging markets.
We also believe that combining the two companies' technical skills and
commercial experience will enable us to achieve ongoing performance improvement
relative to our main competitors.
As a result of the merger, BP Amoco is Britain's largest company and one of
the world's top three oil companies on the basis of market capitalization and
proved reserves. The newly merged Group:
-- has a daily production worldwide of 2.0 million barrels of crude oil and
5.8 billion cubic feet of natural gas
-- is the largest producer of both oil and natural gas in the USA and in
the UK, producing respectively 1.25 and 0.74 million barrels of oil
equivalent a day
-- has reserves of more than 14.9 billion barrels of oil and gas on an oil
equivalent basis
-- has 16,300 service stations in the USA and 12,000 in the rest of the
world
-- has chemicals revenues of $9 billion a year
-- is one of the world's leading businesses in photovoltaics and solar
power
5
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-- is founded on a secure base with more than 70% of its capital invested
in OECD countries with approximately one half of the Group's fixed
assets located in the USA, and about one third located in the UK and the
Rest of Europe.
We believe that the merger will bring benefits to our three main
businesses:
-- Exploration and Production: in the USA BP's established oil production
base in Alaska and its increasing presence in the Gulf of Mexico were
combined with Amoco's Gulf of Mexico interests and its extensive oil and
natural gas production in the Lower 48 states to create the largest
producer of both oil and natural gas in the USA. The addition of Amoco's
UK North Sea oil and natural gas operations and infrastructure to BP's
existing position as the largest oil producer in the UK means that BP
Amoco is the largest producer of both oil and natural gas from UK
fields. The two companies also had complementary presences in several
areas including Latin America, the Caspian Sea region and Africa.
-- Refining and Marketing: Amoco's strong presence and brand in the
midwest, east and southeast of the USA was reinforced by BP's business
in the midwest and southeast. BP has a strong retail position in Europe
(through its joint venture with Mobil) and in certain other markets
where Amoco was not represented. The Amoco brand is expected to be
extended over time to all of BP's retail, gasoline and convenience store
outlets in the USA. Retail sites elsewhere in the world are expected to
carry the BP brand.
-- Chemicals: BP's strong position in the technology and production of
olefins and derivative products, (polyethylene, acetic acid and
acrylonitrile) was complemented by Amoco's leading position in aromatics
and derivative products (purified terephthalic acid (PTA), paraxylene
and metaxylene).
We believe that the merged enterprise will be able to achieve $2 billion
per annum of cost savings before tax by early 2000. The estimated cost savings,
which are in addition to cost savings previously targeted by the two companies
separately, are expected to come from staff reductions in areas of overlap, more
focused exploration efforts, standardization and simplification of business
processes, improved procurement and elimination of duplicated operations. We
expect to bear a substantial part of the costs associated with this
restructuring, likely to be around $1.5 billion pre-tax, during 1999.
The following table summarizes the Group's turnover, results and capital
expenditure for the last five years and total assets at the end of each of those
years.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
Turnover.................................... 83,732 108,564 102,064 84,216 76,809
Less: Joint ventures........................ 15,428 16,804 -- -- --
------- ------- ------- ------- -------
Group turnover (sales to third parties)..... 68,304 91,760 102,064 84,216 76,809
Total replacement cost operating profit..... 6,437 10,583 10,544 8,170 7,004
Profit for the year *....................... 3,260 6,030 7,241 3,602 4,352
Capital expenditure and acquisitions........ 10,362 11,420 10,288 8,380 6,710
Total assets................................ 84,500 85,947 88,315 81,165 78,679
</TABLE>
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* After minority shareholders' interest
Information for 1998, 1997 and 1996 concerning the profits and assets
attributable to the businesses and to the geographical areas in which the Group
operates is set forth in Item 18 -- Note 46 of Notes to Financial Statements.
6
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The following table shows our production for the last five years and the
estimated proved oil and natural gas reserves at the end of each of those years.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total crude oil production (thousand barrels
per day) (a).............................. 2,049 1,930 1,903 1,873 1,933
Total natural gas production (million cubic
feet per day) (a)......................... 5,808 5,858 5,917 5,485 5,490
Total estimated net proved crude oil
reserves (million barrels) (b)............ 7,304 7,612 7,325 6,987 6,790
Total estimated net proved natural gas
reserves (billion cubic feet) (b)......... 31,001 30,374 30,349 29,534 28,766
</TABLE>
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(a) Includes BP Amoco's share of equity-accounted entities.
(b) Net proved reserves of crude oil and natural gas exclude production
royalties due to others and reserves of equity-accounted entities.
During 1998, 1,339 million barrels of oil and natural gas, on an oil
equivalent* basis (mmboe), were added to BP Amoco's proved reserves, more than
replacing the volume produced. After allowing for production which amounted to
1,012 mmboe and sales net of purchases totalling 527 mmboe, BP Amoco's proved
reserves decreased to 12,649 mmboe. These proved reserves are mainly located in
the USA (47%), the UK (18%) and Trinidad and Tobago (13%).
RECENT DEVELOPMENT
On April 1, 1999 we announced that we had reached agreement to combine with
the Atlantic Richfield Company ('ARCO') of Los Angeles. The all-share
transaction, approved by the boards of both companies, provides for the exchange
of 0.82 of a BP Amoco American Depositary Share (4.92 BP Amoco Ordinary Shares)
for each share of ARCO common stock. Completion of the transaction is subject to
certain conditions including the approval of shareholders of both companies and
the consent of various state and regulatory authorities including the US Federal
Trade Commission and the European Commission. Our report on Form 6-K, dated
April 1, 1999, filed with the Securities and Exchange Commission contains
additional information regarding this announcement.
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* Natural gas is converted to oil equivalent at 5.8 billion cubic feet = 1
million barrels.
7
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EXPLORATION AND PRODUCTION
The activities of our Exploration and Production business include oil and
natural gas exploration and field development and production -- the upstream
activities -- as well as processing and marketing natural gas and the management
of crude oil and natural gas pipeline assets -- the midstream activities. We
have Exploration and Production interests in 26 countries, with the main
concentration in the USA and in the UK sector of the North Sea. Production
during 1998 came from 19 countries. Our most significant midstream activities
are the Trans Alaska Pipeline System (BP Amoco 50%), the Forties Pipeline System
(BP Amoco 100%), the Central Area Transmission System pipeline (BP Amoco 29.5%)
in the UK sector of the North Sea, and the Atlantic LNG Project (BP Amoco 34%)
in Trinidad.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
------- ------ ------
($ million)
<S> <C> <C> <C>
Turnover (a)................................................ 17,276 23,171 23,404
Total replacement cost operating profit..................... 3,147 7,285 7,673
Total assets................................................ 47,393 45,692 44,114
Capital expenditure and acquisitions........................ 6,318 7,879 6,433
($ per barrel)
Average BP Amoco oil realizations........................... 12.1 18.3 19.5
($ per thousand cubic feet)
Average BP Amoco US natural gas realizations................ 1.8 2.2 1.9
</TABLE>
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(a) Excludes BP Amoco's share of joint venture turnover of $348 million in 1998,
$112 million in 1997 and nil in 1996.
Our Exploration and Production strategy has two key elements. The first is
to maximize the value realized from our existing assets and resource base. This
includes the following actions:
-- We actively manage existing producing assets to maintain and improve the
net income and operating cash flow realized from our oil and natural gas
production. In addition, we strive to reduce the cost and improve the
efficiency of new investment projects. Significant savings have been
achieved by developing closer relationships with partners, contractors
and suppliers, and by agreeing with these parties common incentives to
improve productivity. We also link internal compensation to operating and
investment efficiency, as well as safety and environmental performance.
-- We seek opportunities for profitable growth in both the upstream and
midstream activities, within the context of the market environment and
Group financial policies. This includes the use of decline management and
enhanced recovery technologies to increase recoveries and temper the
volume decline in mature fields. It also includes investing in midstream
activities which are relatively unaffected by oil and natural gas price
movements, and using our pipeline infrastructure and natural gas
marketing expertise to secure additional revenue by transporting and
processing volumes owned by other companies.
-- We continually upgrade the quality of our asset portfolio by focusing
investments in core areas and disposing of non-strategic assets. This can
be achieved through asset swaps, purchases and sales. Examples of recent
strategic divestments include our $1.8 billion sale of non-core North
American assets in 1997 and 1998, and our exit from Papua New Guinea in
1998.
The second element of our Exploration and Production strategy is to renew
the business and to provide growth for the future. We do this through
exploration and selected business development activity, as described below:
-- Our exploration program focuses on areas which have been relatively
unexplored for political or technical reasons, and where we believe
substantial volumes of low cost, high value reserves remain to be found.
We are concentrating our exploration activity in areas of recent success,
such as Angola, Azerbaijan, Colombia, Egypt, Trinidad, UK waters west of
the Shetland Islands, the deep waters of the US Gulf of Mexico and
Venezuela.
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-- Our business development activities focus on obtaining an interest in
already discovered reserves and extending our interests into selected
midstream areas. For example, we are building business relationships in
Kuwait with technical service agreements, and have secured long-term
opportunities in a range of areas including Algeria, Kazakhstan and, in
alliance with A O Sidanco, Siberia. We have also captured opportunities
which broaden our position and capitalize on the rapid growth of
midstream natural gas and power markets in such countries as Argentina,
Netherlands, Trinidad and the UK.
BP Amoco is acquiring an interest in Rusia, an Irkutsk-based company, from
A O Sidanco, by contributing to the appraisal costs of Rusia's Siberian fields,
which include the major gas condensate field Koviktinskoye. The investment in A
O Sidanco has been written down by $200 million to reflect recent developments
in the Russian economy.
The merger of BP and Amoco will benefit both elements of our strategy. We
expect to be able to capitalize on cost reduction opportunities where we had
parallel operations, and can now draw on the best practices and experience of
two successful companies to optimize further our operations and investment
program. The merger has also provided a better geographic, oil/natural gas and
upstream/midstream balance in our portfolio.
UPSTREAM ACTIVITIES
EXPLORATION
The Group explores for and produces oil and natural gas under a wide range
of licensing, joint venture and other contractual agreements. We may do this
alone or, more frequently, with partners. BP Amoco acts as operator for many of
these ventures.
The Group's worldwide capital expenditure on exploration and appraisal in
1998 was $1,644 million, a decrease of $312 million or 16% compared with 1997.
We expect further reductions in the near term because of the low oil price
environment and the high-grading opportunities provided by merging the BP and
Amoco exploration portfolios. In 1998, we participated in 191 gross (95.6 net)
exploration and appraisal wells in 17 countries. The principal areas of activity
were Algeria, Angola, Canada, Colombia, Egypt, the UK, the USA and Venezuela.
In 1998, BP Amoco obtained upstream rights in several new tracts, which are
expected to provide a foundation for continued exploration success. These
include the following:
-- In Alaska, BP Amoco and partners won more than 90% of the blocks bid for
in Offshore Continental Shelf Lease Sale 170.
-- In Algeria, we signed an agreement with Sonatrach, the Algerian state
oil and gas company, covering the In Amenas area in southern Algeria. BP
Amoco and Sonatrach expect to develop jointly several fields containing
more than 3 trillion cubic feet (tcf) of natural gas and 200 million
barrels (mmb) of liquids, build pipeline infrastructure, and construct a
700 million cubic feet per day (mmcf/d) gas treatment plant. First gas
production is expected to occur in 2002. This is in addition to the 1995
agreement with Sonatrach to explore and produce gas in the Sahara desert
in Algeria with the aim of marketing to Europe through the In Salah
marketing company. Our In Salah appraisal program continued in 1998.
-- In Angola, we acquired a 20% interest in a production sharing agreement
covering deep water block 21. This new block is adjacent and geologically
similar to other acreage where BP Amoco and partners have discovered
several large fields.
-- On Australia's North West Shelf, we obtained an additional license (BP
Amoco 20%) as part of the 1997 Gazettal round.
-- In Azerbaijan, we obtained operating rights and 15% ownership interest
in the Alov, Araz and Sharg production sharing agreement, as well as a
25% interest in production sharing rights in the Inam geological
structure in the offshore Caspian Sea.
-- In Colombia, we were awarded two blocks in July 1998. We signed an
agreement with Arco in October 1998 to jointly explore this acreage.
Geological and geophysical analyses are now underway.
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<PAGE> 10
-- In Kazakhstan, BP Amoco and a subsidiary of the national oil company of
Turkey, as equal partners, established a joint venture company to explore
for and produce oil and natural gas. We expect to begin drilling in
mid-1999.
-- In Mozambique, we were awarded a production sharing agreement providing
exploration and development rights in the offshore Zambesi area (BP Amoco
100%).
In 1998, we announced significant discoveries in Angola, Canada, Norway,
the UK, the USA and Venezuela. In most cases, reserve bookings from these fields
will depend on the results of ongoing technical and commercial evaluations,
including appraisal drilling. Our 1998 discoveries included the following:
-- In Angola, we participated in the Rosa-1 discovery in Block 17 (BP Amoco
16.7%), close to the Girassol and Dalia finds announced in 1997, as well
as the Kissanje, Marimba, Hungo and Dikanza discoveries in Block 15 (BP
Amoco 26.7%).
-- In Canada, we drilled the Weejay discovery (BP Amoco 51%) in British
Columbia, which was tested at 20 mmcf/d. We are proceeding with a
multi-well drilling program, including a second well, West Ojay, to be
tested in May 1999.
-- In Norway, the Barden well confirmed significant natural gas reserves in
the southern extension of the Ormen Lange Dome (BP Amoco 45%). We also
made a significant oil and natural gas discovery approximately 200
kilometres off the coast of Helgeland (BP Amoco 30%).
-- In Venezuela, we drilled the Tropical-1X exploratory discovery on the
Quiriquire block (BP Amoco 45%) and participated in the Cotoperi-2X
discovery on the Jusepin block (BP Amoco 45%).
-- Offshore in the UK, we completed well 49/23-9, which confirmed the
economic viability of the Bell field.
-- In the US Gulf of Mexico, we participated in the Crosby deep water
discovery (BP Amoco 44.4%) close to the Mars field.
-- Also in the USA, BP Amoco made a new natural gas discovery at a record
depth of 22,000 feet in the Judge Digby Field (BP Amoco 85%), onshore
Louisiana. We put the well into immediate production at around 30 mmcf/d.
This was the 19th successful well in the ongoing Tuscaloosa Trend
drilling program, where application of new technology has enabled us
significantly to enhance the value of a core onshore US producing area.
In 1998, total additions to our proved reserves (excluding purchases and
sales) amounted to 1,339 mmboe. We added 1,141 mmboe through extensions to
existing fields and discoveries of new fields, and a further 198 mmboe through
revisions to previous estimates and the application of improved recovery
techniques. The principal reserve additions were in Angola, Egypt and Trinidad
as follows:
-- In Angola, appraisal drilling has confirmed 101 million barrels of oil
reserves in the Girassol field (BP Amoco 16.7%). We approved full
development of the field in June 1998.
-- In Egypt, we added 758 billion cubic feet (bcf) of natural gas reserves
following successful gas sales contract negotiation. This includes 304
bcf in the Ha'py and East Baltim natural gas fields (BP Amoco 29%) and a
further 259 bcf net in the Temsah discovery (BP Amoco 25%).
-- In Trinidad and Tobago, we added through discoveries and extensions
1,760 bcf of natural gas reserves. This followed successful drilling in
the Immortelle and Flamboyant fields, as well as the Perang discovery
(all BP Amoco 100%). Out of 21 exploratory wells drilled in Trinidad over
the last 5 years, 15 were successful, establishing net natural gas
reserves exceeding 8,400 bcf for growing domestic and liquefied natural
gas (LNG) export markets.
RESERVES AND PRODUCTION
We annually review our total reserves of crude oil, condensate, natural gas
liquids and natural gas to take account of production, field reassessments, the
application of improved recovery techniques, the addition of new reserves from
discoveries and economic factors. We also conduct selective periodic reserve
reviews for individual fields.
10
<PAGE> 11
Details of our net proved reserves of crude oil, condensate, natural gas
liquids and natural gas at December 31, 1998, 1997, and 1996 and production for
each of the three years then ended are set out in the Supplementary Oil and Gas
Information in Item 19 -- Financial Statements and Exhibits.
On an oil equivalent basis, natural gas represents some 42% of the Group's
hydrocarbon reserves (excluding equity-accounted entities).
Our total hydrocarbon production (including equity-accounted entities)
during 1998 averaged 3,050,000 barrels of oil equivalent per day (boe/d), an
increase of 110,000 boe/d compared with 1997. About 41% of production was in the
USA and 24% in the UK.
11
<PAGE> 12
The following tables show BP Amoco's estimated proved oil and natural gas
reserves at December 31, 1998 and production by major field (asterisks denote
major fields operated by BP Amoco) for the last three years:
CRUDE OIL (a)
<TABLE>
<CAPTION>
Net proved
reserves as of Net production
December 31, ------------------------
Field or Area Interest 1998 1998 1997 1996
------------- --------- ----------------- ------ ------ ------
(%) (million barrels) (thousand barrels per
day)
<S> <C> <C> <C> <C> <C> <C>
Alaska (b) Prudhoe Bay* 51.2/13.8(c) 1,143 232 266 297
Kuparuk 39.2 445 92 90 93
Milne Point* 91.2 257 43 40 30
Point McIntyre 32.2 47 36 44 43
Endicott* 67.9 139 30 36 43
Other Various 305 21 22 25
----------------- ------ ------ ------
Total Alaska 2,336 454 498 531
Lower 48 onshore (b) Wasson* 43.0 253 28 28 6
Other Various 883 234 257 259
----------------- ------ ------ ------
Total Lower 48 onshore 1,136 262 285 265
Gulf of Mexico (b) Pompano* 75.0 42 34 29 24
Mars 28.5 111 29 22 4
Other Various 336 54 34 35
----------------- ------ ------ ------
Total Gulf of Mexico 489 117 85 63
----------------- ------ ------ ------
TOTAL USA 3,961 833 868 859
----------------- ------ ------ ------
UK North Sea (b) Forties* 95.4 153 76 75 93
Magnus* 85.0 106 61 59 81
Harding* 70.0 100 60 50 25
Foinaven* 72.0 193 51 3 --
Andrew* 62.8 64 43 37 11
Miller* 40.0 18 31 43 54
ETAP Various 307 30 -- 10
Other Various 490 118 124 136
----------------- ------ ------ ------
Total UK North Sea 1,431 470 391 410
Onshore Wytch Farm* 50.5 96 48 45 47
Other Various 1 -- 1 1
----------------- ------ ------ ------
TOTAL UK 1,528 518 437 458
----------------- ------ ------ ------
Rest of Europe
Norway (b) Various Various 269 103 113 78
Netherlands Various Various 2 2 2 2
----------------- ------ ------ ------
TOTAL REST OF EUROPE Various 271 105 115 80
----------------- ------ ------ ------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Net proved
reserves as of Net production
December 31, ------------------------
Field or Area Interest 1998 1998 1997 1996
------------- --------- ----------------- ------ ------ ------
(%) (million barrels) (thousand barrels per
day)
<S> <C> <C> <C> <C> <C> <C>
Rest of World
Egypt October 30.4 50 30 38 40
Other Various 100 75 66 71
Canada (b) Primrose* 99.0 206 29 16 8
Other Various 157 39 45 52
Colombia Various Various 195 54 33 26
Trinidad Various Various 181 47 48 51
Venezuela Various Various 215 31 21 12
Australia Various 16.7 102 30 28 25
Azerbaijan Chirag 34.1 184 16 -- --
Other (b) Various Various 154 34 43 57
----------------- ------ ------ ------
TOTAL REST OF WORLD 1,544 385 338 342
----------------- ------ ------ ------
TOTAL GROUP 7,304 1,841 1,758 1,739
================= ====== ====== ======
Equity-accounted entities
Abu Dhabi (d) Various Various 1,791 124 118 116
Argentina Various Various 135 45 48 48
Other Various Various 87 39 6 --
----------------- ------ ------ ------
TOTAL EQUITY-ACCOUNTED
ENTITIES 2,013 208 172 164
----------------- ------ ------ ------
TOTAL GROUP AND BP AMOCO
SHARE OF EQUITY-ACCOUNTED
ENTITIES 9,317 2,049 1,930 1,903
================= ====== ====== ======
</TABLE>
13
<PAGE> 14
NATURAL GAS (a)(e)
<TABLE>
<CAPTION>
Net proved
reserves as of Net production
December 31, ------------------------
Field or Area Interest 1998 1998 1997 1996
------------- --------- -------------------- ------ ------ ------
(%) (billion cubic feet) (million cubic feet per day)
<S> <C> <C> <C> <C> <C> <C>
Lower 48 onshore (b) Colorado Coal* Various 1,269 172 154 222
Hugoton* Various 467 122 172 202
Moxa Arch* Various 313 110 59 82
New Mexico Coal* Various 298 104 93 146
Red Oak* Various 512 83 92 104
Wamsutter* Various 428 82 80 73
Port Hudson* Various 105 73 70 75
Other Various 3,700 997 1,229 1,215
-------------------- ------ ------ ------
Total Lower 48 onshore 7,092 1,743 1,949 2,119
Alaska Various Various 2,387(f) 10 12 15
Gulf of Mexico (b) Various Various 1,816 568 488 516
-------------------- ------ ------ ------
TOTAL USA 11,295 2,321 2,449 2,650
-------------------- ------ ------ ------
UK North Sea (b) Bruce* 37.0 601 182 202 233
Village Fields* 100.0 234 153 282 239
West Sole* 100.0 424 102 99 73
Armada 18.2 173 74 14 --
East Leman* 48.4 182 71 49 72
Braes Various 477 69 76 44
Other Various 2,547 601 695 668
Onshore Various Various 5 6 6 6
-------------------- ------ ------ ------
TOTAL UK 4,643 1,258 1,423 1,335
-------------------- ------ ------ ------
Netherlands Various Various 200 141 126 124
Norway Various Various 162 59 69 49
-------------------- ------ ------ ------
TOTAL REST OF EUROPE 362 200 195 173
-------------------- ------ ------ ------
Canada (b) Various Various 2,077 767 764 803
Trinidad Flamboyant* 100.0 564 187 121 123
Immortelle* 100.0 1,280 125 105 108
Other Various 6,565 127 104 125
Sharjah Sajaa 40.0 270 157 134 136
Other Various 74 62 97 88
Australia Various 16.7 1,755 211 202 203
Indonesia Pagerungan 40.0 683 108 129 119
Other (b) Various Various 1,433 64 22 54
-------------------- ------ ------ ------
TOTAL REST OF WORLD 14,701 1,808 1,678 1,759
-------------------- ------ ------ ------
TOTAL GROUP 31,001 5,587 5,745 5,917
==================== ====== ====== ======
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Net proved
reserves as of Net production
December 31, ------------------------
Field or Area Interest 1998 1998 1997 1996
------------- -------- -------------------- ------ ------ ------
(%) (billion cubic feet) (million cubic feet per day)
<S> <C> <C> <C> <C> <C> <C>
Equity-accounted entities
Argentina Various Various 939 128 19 --
Other Various Various 827 93 94 --
-------------------- ------ ------ ------
TOTAL EQUITY-ACCOUNTED ENTITIES 1,766 221 113 --
-------------------- ------ ------ ------
TOTAL GROUP AND BP AMOCO SHARE OF
EQUITY-ACCOUNTED ENTITIES 32,767 5,808 5,858 5,917
==================== ====== ====== ======
</TABLE>
- - ------------
(a) Net proved reserves of crude oil and natural gas, stated as of December 31,
1998, exclude production royalties due to others, and include minority
interests in fully consolidated operations.
(b) In 1998, BP Amoco sold its interests in Papua New Guinea, and non-core
interests in the USA and the UK sector of the North Sea were sold, purchased
or swapped.
In 1997 BP Amoco sold, purchased or swapped a number of interests in the
North Sea. These transactions increased our interest in a number of fields,
including Ula, Gyda and Draugen in Norway and Amethyst and Ravenspurn North
in the UK sector of the Southern North Sea. We also sold non-core assets in
the USA. Late in 1997, BP Amoco purchased a 10% interest in A O Sidanco, a
Russian oil company, for which reserves are included within associated
undertakings in 1998.
In 1996 BP Amoco sold or swapped a number of minor interests in the North
Sea and the Gulf of Mexico. This was offset by increases in BP Amoco's
interest in a number of fields including Forties and elsewhere in the North
Sea, Norway and Milne Point in Alaska. Additionally, in the USA and Canada
we added to core operating areas while selling interests in non-core areas.
(c) BP Amoco has a 51.2% interest in the oil rim and a 13.8% interest in the
gas cap.
(d) The BP Amoco Group holds proportionate interests, through associated
undertakings, in onshore and offshore concessions in Abu Dhabi expiring in
2014 and 2018, respectively.
(e) Natural gas production volumes exclude gas consumed in operations.
(f) Includes natural gas to be consumed in operations.
15
<PAGE> 16
United States
We are the largest producer of both oil and natural gas in the USA. Our
1998 US oil production averaged 833,000 barrels per day (b/d), with an
additional 8,000 b/d from equity-accounted entities. This was a decline of 3%
from 1997. Approximately 55% of 1998 oil production came from Alaska, 31% from
onshore Lower 48 states, and the remainder from the Gulf of Mexico. Our 1998 US
natural gas production averaged 2,321 mmcf/d, with an additional 80 mmcf/d from
equity-accounted entities. This was down 5% from 1997. Our current principal
producing fields in Alaska are in production decline. Several developments are
either planned or under construction to temper this decline and enable Alaska to
remain a major producing area for the foreseeable future. Elsewhere in the USA,
we expect increases in the Gulf of Mexico to more than offset the decline
onshore.
Development expenditure in the USA (excluding pipelines) during 1998 was
$1,670 million, compared with $1,744 million in 1997.
Current development activity in Alaska includes the following:
-- The Badami oil field (BP Amoco 70% and operator) came onstream in the
third quarter of 1998, but we temporarily suspended production in early
1999 in order to perform well work and analyze additional reservoir
data.
-- The first phase of development of the Northstar field (BP Amoco 98% and
operator) began in 1998. We are now building an ice road needed to
construct the gravel island where field facilities will be located.
However, we suspended facility fabrication work for one year due to low
oil prices. We now expect production to commence in 2001 with a plateau
rate of 52,000 b/d net.
Onshore in the Lower 48 states, BP Amoco's production of crude oil,
condensate, NGL and natural gas averaged 563,000 boe/d, down from 621,000 boe/d
in 1997. Production comes from a large number of fields situated principally in
the states of Alabama, Colorado, Kansas, Louisiana, New Mexico, Oklahoma, Texas
and Wyoming. In the Permian Basin area of west Texas and southeast New Mexico
our production activity is conducted through Altura Energy Ltd. (Altura), a
partnership with Shell Oil Company in which we have a 64% interest. Since Altura
was formed in 1997, the partnership has achieved significant progress in
reducing costs and capitalizing on economies of scale. In 1998, Altura produced
135,000 b/d of crude oil and 132 mmcf/d of natural gas.
In the areas of our Lower 48 portfolio not operated through Altura, our
production is predominantly natural gas. Through divestments and property
exchanges, we have focused our onshore producing activities in areas where we
are a leading producer. Major activity areas include the following:
-- Overthrust Belt, Moxa Arch and Wamsutter -- southern Wyoming
-- San Juan Basin coal and conventional gas fields -- Colorado and New
Mexico
-- Hugoton and Panoma fields -- western Kansas
-- Oklahoma and Texas panhandles (through Crescendo Resources, a joint
venture with YPF, a major Argentina based energy company)
-- Red Oak and Wilburton fields -- Arkoma Basin, eastern Oklahoma
-- Cotton Valley trend -- east Texas
-- Tuscaloosa trend -- Louisiana.
In the Gulf of Mexico, combined offshore oil and natural gas production
increased from some 169,000 boe/d net to 215,000 boe/d in 1998. Significant 1998
development activity in the Gulf of Mexico included the following:
-- In the Mars field (BP Amoco 28.5%) we brought three new wells online.
Production increased to 135,000 boe/d gross, and is expected to peak at
150,000 boe/d gross in 1999.
-- In the Troika field (BP Amoco 33.3% and operator) we started production
from a third well, with two or three more wells planned for the future.
Production averaged 77,000 boe/d gross compared with 59,000 boe/d gross
in 1997.
-- Ram/Powell (BP Amoco 31%) development continued following the
commencement of production in September 1997. Production averaged 84,000
boe/d gross in 1998.
16
<PAGE> 17
-- Development of the Marlin project (BP Amoco 88% and operator) continued
during 1998, with initial production expected in the second half of
1999. The Marlin facilities now being built will serve as a hub for
future BP Amoco developments in the area.
-- Development continued on the Ursa oil and natural gas field (BP Amoco
22.7%), which is located 13 kilometres east of the Mars field.
Production is scheduled to begin in 1999 and peak at 200,000 boe/d gross
in 2001.
-- Development of the Hoover/Diana oil and natural gas fields (BP Amoco
33.3%) continued in 1998. This simultaneous development of two fields,
with combined resources of 300 mmboe gross, represents BP Amoco's
deepest water project to date. It is also our first deep water
development in the western Gulf of Mexico. Facilities fabrication work
is ongoing. First production is targeted for mid-2000.
United Kingdom
We are the largest producer of both oil and natural gas in the UK. Our 1998
UK oil production of 518,000 b/d was 81,000 b/d higher than in 1997, as
production from the recently commissioned fields more than offset declines in
mature fields. Our UK natural gas production fell 12% from 1,423 mmcf/d in 1997
to 1,258 mmcf/d in 1998. This reflected the decline at older UK offshore fields,
which is expected to be offset in the future by new production from the Eastern
Trough Area Project (ETAP).
Our 1998 development expenditure in the UK (excluding pipelines) was $1,432
million, compared with $1,463 million in 1997. Significant 1998 activity
included the following:
-- Production continued to build up from the first phase of the Foinaven
field (BP Amoco 72% and operator), which was brought on line in November
1997. Development was completed in 1998. Located in waters 500 metres
deep, Foinaven was the first producing oil field in the deep water
Atlantic Margin, west of the Shetland Islands. Oil flows from the well
through flexible flow lines to a floating production storage and
offshore loading vessel (FPSO) and is then carried by dedicated shuttle
tanker to the Flotta oil terminal, Orkney. Plateau production level is
estimated at 85,000 b/d gross.
-- Schiehallion (BP Amoco 33.4% and operator), our second west of Shetland
development, commenced production in the third quarter of 1998 and is
expected to reach 148,000 b/d gross in 1999.
-- ETAP achieved first production in the summer of 1998. The project
comprises seven initial fields -- Marnock, Machar, Mungo and Monan (BP
Amoco-operated) and Heron, Egret and Skua (Shell-operated). We have no
equity interest in the Shell-operated fields. This integrated
development project includes central processing facilities over the
Marnock field, a normally unmanned facility over the Mungo field and
subsea facilities for the other fields linked back to the central
facilities.
-- We established first production in late 1998 from the Phase 2 expansion
of Bruce field (BP Amoco 37% and operator). This expansion involves
subsea development of the western area of the field, linked by a bundled
pipeline to a new steel platform.
-- The Viking Phoenix project (BP Amoco 50%) achieved first natural gas
production in 1998. This project also includes modernization and
rationalization for the existing Viking B complex to convert it to a
normally unmanned installation by the year 2000, and is expected to
increase Viking natural gas recovery by 350 bcf gross.
Rest of Europe
Our oil production in Norway decreased from 111,000 b/d in 1997 to 101,000
b/d in 1998 as a result of field decline. Net production was 35,000 b/d from
Draugen (BP Amoco 18.4%), 24,000 b/d from Valhall (BP Amoco 28.1% and operator),
23,000 b/d from Ula (BP Amoco 80% and operator), 19,000 b/d from Gyda (BP Amoco
56% and operator).
In the Netherlands, BP Amoco has supplemented long-standing upstream
operations with recent investments in natural gas storage activities. In 1998,
our upstream production increased to 141 mmcf/d from 126 mmcf/d in 1997. This
included an increase to 73 mmcf/d from 42 mmcf/d in the P/18-2 field (BP
17
<PAGE> 18
Amoco 48.7% and operator). We also completed facilities to process production at
the Q/16 development, expanding our position as a processing hub for other
operators.
Rest of World
The Group's net share of oil production from the rest of the world
increased 15% from 1997, averaging 585,000 b/d in 1998. This included 200,000
b/d from associated undertakings, of which 124,000 b/d came from Abu Dhabi,
where we have equity interests of 9.5% and 14.7% in onshore and offshore
concessions expiring in 2014 and 2018, respectively. Other areas of oil
production in 1998 were Australia, Argentina, Azerbaijan, Bolivia, Canada,
China, Colombia, Egypt, Indonesia, Papua New Guinea, Russia, Sharjah, Trinidad
and Venezuela.
Our share of natural gas production from the rest of the world increased
13% from 1997, averaging 1,949 mmcf/d in 1998 including 141 mmcf/d from
associated undertakings. The largest part of the 1998 production came from
Canada, with the remainder from Argentina, Australia, Bolivia, Colombia, Egypt,
Indonesia, Papua New Guinea, Sharjah and Trinidad and Tobago. In Australia, our
share of LNG from the North West Shelf gas development (BP Amoco 16.7%) remained
in line with that of the previous year at 1.3 million tonnes (approximately
equivalent to 180 mmcf/d of gas).
Development expenditure in the rest of the world (excluding pipelines)
amounted to $1,569 million in 1998, compared with $1,714 million in 1997. In
1998, this expenditure was primarily in Colombia, Venezuela, Canada and
Trinidad:
-- In Colombia, the second phase of the Cusiana/Cupiagua development (BP
Amoco 19% and operator) started up. This includes a pipeline from Cusiana
to the Covenas terminal, upgraded by replacement with a new pipeline in
some places and by installation of additional pumping stations, and the
start-up of the Cupiagua reservoir. Following disappointing performance
from the Opon natural gas reservoir, we wrote down the carrying value of
the field and related assets by $214 million. We subsequently dismantled
and sold the major equipment of the associated electric power generation
operation.
-- In Venezuela, we own varying interests in five blocks in the eastern
part of the country. Our activities include exploration, development, and
reactivation of old reservoirs. In 1998, we continued appraisal and
development work in the Quiriquire reactivation program (BP Amoco 45%)
and drilled a number of wells as part of the second phase of development
of the Pedernales field (BP Amoco 100% and operator) in the Orinoco
Delta. We drilled and brought into production four wells, including a new
discovery, in the Jusepin Block (BP Amoco 45%), where net production
reached 15,000 b/d in 1998. We completed 3-D seismic programs and began
exploration drilling in the Punta Pescador (BP Amoco 50% and operator)
and Guarapiche (BP Amoco 75% and operator) blocks.
-- In Canada, we have substantial heavy oil operations in the Primrose,
Wolf Lake and Wabasca areas near Edmonton, Alberta. We suspended our
drilling program in the area in the first quarter of 1998 due to the
sharp decline in heavy oil prices. In 1997, we entered into an agreement
with CU Power International Limited to develop a co-generation plant in
the Primrose area, which will reduce operating costs and provide steam
and power for field use, and electricity sales to third parties. The
plant was completed in 1998. We are evaluating opportunities to increase
well productivity and reduce future development costs. A resumption of
development activity is largely dependent on improvements in both costs
and prices. In the Alberta foothills, we brought into production a new
natural gas well producing over 70 mmcf/d (BP Amoco 55%). This new well
increases our share of production from the Blackstone Swan Hills pool by
70%.
-- We have been engaged in exploration and production activities in
Trinidad and Tobago since 1961. We hold a 100% interest in 121 tax and
royalty licenses and a partial interest in production sharing contracts
on two recently acquired licenses. Our Trinidad operations are in a
transition from primarily oil to a balance of oil and natural gas
activities. Our 1998 oil production decreased 2% to 47,000 b/d, while our
natural gas production increased 33% to 439 mmcf/d. Since 1994, we have
discovered oil and natural gas resources, and established markets
sufficient to record 8.4 tcf of proved natural gas reserves at the end of
1998. In addition to domestic sales contracts for up to 700 mmcf/d with
the National Gas Company of Trinidad and Tobago, and varying interests in
local power and industrial companies, we hold a 34% ownership interest in
Atlantic LNG Company of
18
<PAGE> 19
Trinidad and Tobago's liquefied natural gas plant. We will supply 100% of
the plant's initial natural gas requirement of approximately 450 mmcf/d
beginning in mid-1999. In 1998 an alliance was formed between Amoco and
the Spanish integrated oil company, Repsol S.A. The alliance will pursue
new gas-fired power generation projects in Spain and natural gas
opportunities in Latin America and the Caribbean. Subject to government
and partner approval of an expanded LNG infrastructure, natural gas is
expected to be supplied to the expanded facilities largely by Amoco for
LNG sales primarily into Spanish markets.
-- In early 1998, we achieved first production from the
Azeri-Chirag-Gunashli (ACG) early oil project in the Caspian Sea,
offshore Azerbaijan. The ACG complex is operated by the Azerbaijan
International Operating Company (AIOC), a consortium in which we are the
leading participant with a 34.1% interest. Production from the early oil
project is expected to plateau at 105,000 b/d gross by 1999. We have
developed two pipeline routes to meet short-term export requirements.
Several additional development phases are planned, with total capital
investment projected to exceed $8 billion gross over the 30-year term of
AIOC's contract. Approximately half of this investment is expected to
occur over the next five years.
-- Through the Gulf of Suez Petroleum Company (GUPCO), a joint operating
company with the Egyptian General Petroleum Corporation, we operate seven
production sharing contracts in the Gulf of Suez and the Western Desert.
GUPCO operates 45 fields, including more than 600 oil and natural gas
wells and has established substantial infrastructure. In 1998, GUPCO
produced its 4 billionth barrel of oil from these areas. GUPCO produces
approximately 300,000 b/d (105,000 b/d net), which is 37% of Egypt's
total oil production. In early 1999, we agreed with the Egyptian
government to modernize our principal Gulf of Suez and Western Desert
contracts in order to enable sustained profitable investment in the
current oil price environment.
-- BP Amoco entered the Nile Delta in the early 1990's, in a variety of
partnerships with AGIP, Egyptian General Petroleum Corporation and
others. We are currently developing the Ha'py and East Baltim natural gas
fields with start-up expected in 1999 and 2000, respectively. In 1998, we
signed an additional gas sales agreement which provides a market for
initial development of the Temsah natural gas field. Collectively, we
have agreements in place to supply 250 mmcf/d of gas from these and other
Nile Delta fields to the domestic Egyptian market. We are also pursuing
natural gas export opportunities in the Eastern Mediterranean.
Through our equity-accounted investments in Empresa Petrolera Chaco S.A.
(Chaco) (BP Amoco 30%) and Pan American Energy (PAE) (BP Amoco 60%), we are the
second largest energy producer in the southern cone of South America, behind
Argentina's YPF. In 1998, these entities produced 48,000 b/d of oil and 155
mmcf/d of natural gas (net to BP Amoco) in Argentina and Bolivia. Chaco and PAE
also have significant interests in natural gas liquids plants, oil and gas
pipelines, electric generation plants, and other midstream infrastructure. In
1998, the Uruguayan government selected a consortium including PAE to build, own
and operate a 215-kilometre network gas pipeline linking Argentina to
Montevideo, Uruguay, where PAE owns 34% of the local gas distribution company.
This project is expected to involve gross investment of $140 million over two
years, and is the first part of a gas pipeline system which is intended to
ultimately serve the major gas markets in southeast Brazil.
MIDSTREAM ACTIVITIES
GAS PROCESSING, TRANSPORTATION AND MARKETING
In addition to midstream activities associated directly with upstream
operations, as described above, the Group has substantial natural gas
transportation, processing and marketing operations in North America, Europe and
Abu Dhabi as described below.
We are the largest producer-marketer of natural gas in North America. Our
1998 gas sales volumes averaged 5.3 billion cubic feet per day (bcf/d) from the
USA and Canada. This consisted of 3.3 bcf/d from BP Amoco producing operations
(including royalty volumes we marketed under terms of our lease agreements),
plus supplies we purchased from third parties. As a result of the deregulation
of the US natural gas markets since the late 1980s, approximately 70% of our
North American natural gas production is now sold pursuant to short term gas
contracts which are renegotiated on a monthly, yearly or other short term basis,
thereby allowing us flexibility in production and distribution. As the North
19
<PAGE> 20
American energy markets continue to evolve, we are investigating ways to enhance
our current positions in the upstream and midstream natural gas businesses, as
we have done successfully in Europe.
BP Amoco's policy toward natural gas price risk in the North American
markets is described in Item 9A -- Quantitative and Qualitative Disclosures
about Market Risk.
BP Gas is a UK natural gas marketing company which started trading in 1996
as a result of the restructuring of Alliance Gas Limited, in which BP Amoco had
a 50% interest. Its principal business is gas sales to industrial, commercial
and power generation customers in the UK, as well as gas sales to continental
Europe. In addition, we provide facilities and combined heat and power
development and contract energy management services to industrial customers in
the UK. The significance of long-term gas supply contracts with large customers
such as Centrica, the prices of which are typically indexed against oil or
electricity, has been declining as BP Gas takes advantage of increasingly liquid
UK gas markets to make more short-term sales to commercial and industrial
companies. The breakdown of gas sale arrangements in 1998 was as follows: 37% of
production sold to Centrica, 20% pursuant to other long-term arrangements, and
43% in the commercial and industrial and spot markets. The main source of gas is
BP Amoco's equity share of gas from UK North Sea fields. We also have a 50%
interest in Beacon Gas Limited, whose principal activity is the retail
distribution of natural gas in the UK. In late 1998, we began construction of a
400 megawatt capacity gas fired power plant (BP Amoco 60%) at Great Yarmouth in
the UK.
We have a 25.5% interest in Ruhrgas, Germany's largest gas distribution
company. In 1997 BP Amoco signed a 15-year agreement to supply 15 billion cubic
meters of natural gas valued in excess of $1 billion to Ruhrgas, commencing
October 1, 1998. We supply this gas from our UK North Sea fields, delivered via
the Interconnector, which is described below.
The Interconnector is a 240-kilometre, 40-inch subsea natural gas pipeline
linking the UK national grid system at Bacton in Norfolk to the continental grid
system at Zeebrugge in Belgium. Construction work began in late 1996, and first
operation of the pipeline was in October 1998. We are one of ten international
energy companies with shareholdings in the Interconnector, which has a shipping
capacity of 1.9 bcf/d (BP Amoco 10%).
BP Amoco has a 29.5% interest in, and operates, the Central Area
Transmission System (CATS), a 400-kilometre natural gas pipeline system in the
UK sector of the North Sea. CATS has a capacity of 1.7 bcf/d, and carries both
proprietary and other companies' volumes to the Teesside natural gas terminal.
During 1998 it handled 1.1 bcf/d.
We also have a 10% equity shareholding in the Abu Dhabi Gas Liquefaction
Company (ADGAS), which in 1998 supplied 5.4 million tonnes of LNG.
OIL TRANSPORTATION
The Group has direct or indirect interests in certain crude oil
transportation systems, the principal of which are the Trans Alaska Pipeline
System in the USA and the Forties Pipelines System in the UK Sector of the North
Sea. Our onshore US crude and product pipelines and related transportation
assets are included under Refining and Marketing.
The Trans Alaska Pipeline System (TAPS) consists of a 48-inch diameter
crude oil pipeline running approximately 1,300 kilometres from Prudhoe Bay to a
tank farm and marine terminal at the ice-free port of Valdez on Alaska's
southern coast. Alyeska Pipeline Service Company operates the pipeline and
terminal at Valdez. BP Amoco owns a 50% interest in TAPS, with the balance owned
by six other companies. Each of the TAPS participants uses its undivided
interest in TAPS as a common carrier, separately publishing tariffs and
receiving tenders for shipments through its share in the capacity of TAPS, and
paying its respective share of operating costs. At peak throughput the TAPS
system carried around 2 million b/d. In 1998, TAPS transported production from
Prudhoe Bay and the other North Slope fields averaging 1.22 million b/d.
For a description of the procedures relating to the tariffs to be charged
to users of TAPS and a general description of pipeline regulation, see
Regulation of the Group's Business -- United States.
Various protests have been filed by the State of Alaska and others with
regard to the yearly tariffs (for 1989 to 1999) which are filed and which set
out the charges for shipping oil through TAPS. The protesters seek to exclude
from the tariff various costs incurred by the TAPS owners in relation to the
pipeline.
20
<PAGE> 21
These items are in the process of resolution at the Federal Energy Regulatory
Commission (FERC) and the Alaska Public Utilities Commission.
The dispute among the TAPS owners as to the method of allocation of
capacity in the pipeline (known as the 'TAPS capacity litigation') was settled
between the TAPS owners and the State of Alaska in 1997, and approval of the
settlement was given by the FERC in 1998.
The use of US-built and US-flagged ships when transporting Alaskan oil to
markets in the USA and abroad is required by law. In accordance with this, BP
America Inc. has a chartered fleet of US-flagged tankers to transport Alaskan
crude oil to markets. Over the next few years, we plan to begin replacing our
US-flagged fleet as existing ships are retired in accordance with the Oil
Pollution Act of 1990. For discussion of the Oil Pollution Act of 1990, see
Regulation of the Group's Business -- Environmental Protection. For a discussion
of the proceedings arising from the Exxon Valdez oil spill, see Item 3 -- Legal
Proceedings.
The Forties Pipeline System in the UK (BP Amoco 100%) is an integrated oil
and natural gas liquids transportation and processing system which handles
production from over 20 fields in the central North Sea. The system was upgraded
in 1993 and has a capacity of more than 1 million b/d. During 1998, it handled
approximately 880,000 b/d, compared with 873,000 b/d in 1997.
As noted previously, we also own 34.1% of the Azerbaijan International Oil
Company which operates part of the International Northern Export Route Pipeline
between Baku in Azerbaijan and Novorossiysk on the Black Sea coast in Russia.
Construction of this pipeline is complete and the first exports were made in
1998. The tested capacity is 125,000 b/d. Work is nearing completion on the
Western Export Route pipeline from Baku west to the related terminal and loading
systems at Supsa on the Black Sea coast of Georgia which is expected to provide
an additional export capacity of in excess of 100,000 b/d. First lifting from
Supsa is planned for April 1999. Additional oil export pipelines from the
Caspian region are the subject of discussions between the upstream participants
in Azerbaijan, the Azerbaijan government and the governments of neighbouring
countries.
21
<PAGE> 22
REFINING AND MARKETING
Our Refining and Marketing business is responsible for the supply and
trading, refining, marketing and transportation of crude oil and petroleum
products to wholesale and retail customers, and the wholesale marketing of NGL
in the USA and Canada. BP Amoco markets its products in about 100 countries. It
has operations in Europe, the USA and Australasia and in parts of South East
Asia and Africa.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Turnover (a)................................................ 48,437 67,704 78,741
Total replacement cost operating profit..................... 2,564 2,292 1,708
Total assets................................................ 21,029 24,055 27,646
Capital expenditure and acquisitions........................ 1,937 1,824 1,731
($ per barrel)
Indicative industry global refining margin (b).............. 1.7 1.8 2.2
</TABLE>
- - ------------
(a) Excludes BP Amoco's share of joint venture turnover of $15,080 million in
1998, $16,692 million in 1997, and nil in 1996.
(b) The indicative industry global refining margin is a weighted average of
global margins for the whole refining industry and is calculated by BP
Amoco. It reflects the margins generated by a standard cracking refinery,
running similar quality crudes, to similar yields, located in each refining
market. The weighting used reflects the presence of BP Amoco's refineries in
these markets -- principally those of the USA, Europe, Australasia, Southern
Africa and Singapore.
Refining and Marketing aims to manage a portfolio of assets which are
believed to be competitively advantaged across the chain of downstream
activities. Such advantage may derive from several factors, including location,
operating cost and physical asset quality.
The merger of BP and Amoco has created a top-tier player in refining and
marketing. Prior to the merger, Amoco was one of the leading gasoline marketers
in the USA and a market-leader in premium gasoline. BP had a strong retail
business in the midwest and southeastern USA, supported by refining assets. BP
also had extensive retail and commercial businesses in the UK, the rest of
Europe, Australasia, Africa and South East Asia. On the basis of 1997 sales, the
merger will create a strong competitor in the USA where the BP Amoco Group will
share top place for retail sales east of the Rocky Mountains, with first or
second position in some 20 states. Worldwide, we will continue to be a leading
marketer of fuels, served by a global refining network with key refineries among
the top performers in their regions.
As part of the Federal Trade Commission's approval process for the merger,
we undertook to complete the sale of nine terminals formerly owned by Amoco in
the southeast of the USA where there was an overlap with existing BP terminals.
In addition, in order to resolve antitrust concerns relating to the sale of
gasoline, BP and Amoco agreed to the divestiture of 134 service stations in six
states where there were ownership overlaps. The divestitures are to be completed
by the end of June 1999.
In the UK and the rest of Europe, BP Amoco's refining and marketing
operations in fuels and lubricants are operated as part of a joint venture with
Mobil Corporation (Mobil). The international aviation, marine, oil trading and
shipping activities are excluded from the joint venture. Under the terms of the
joint venture, BP Amoco operates and has a 70 per cent interest in the fuels
refining and marketing operation, and Mobil operates and has a 51 per cent
interest in the lubricants business. A charge of $532 million before tax was
made to income in 1996 to cover the anticipated costs of the implementation of
the joint venture. These costs were incurred by the end of 1998, with some $400
million having been spent by the end of 1997. The benefits originally foreseen
from the joint venture through cost-sharing, the elimination of duplication and
the realization of economies of scale, amounting to some $500 million per annum,
have now been achieved.
REFINING
In refining, our key objective is to operate a deficit refining system
(i.e. where Marketing's requirements for product exceed the output from the
Group's refineries) more profitably than those of our
22
<PAGE> 23
competitors. We have been achieving this by reducing operating costs, optimizing
yields and focusing production at a few key sites.
In the USA, BP Amoco owns and operates seven refineries: Texas City, Texas;
Whiting, Indiana; Alliance, Louisiana; Toledo, Ohio; Mandan, North Dakota;
Yorktown, Virginia; and Salt Lake City, Utah. BP Amoco's refinery at Lima, Ohio,
was sold in mid-1998.
As operator of the fuels business of the BP/Mobil joint venture, we operate
seven European fuels refineries on behalf of the joint venture. These are
Bayernoil (Germany), Castellon (Spain), Coryton (UK), Grangemouth (UK), Lavera
(France), Mersin (Turkey) and Nerefco (the Netherlands). Additionally, BP Amoco
has an interest in the Reichstett refinery in France. All the refineries are
wholly-owned by BP Amoco or Mobil, except for Bayernoil, Mersin, Nerefco and
Reichstett where BP Amoco's and Mobil's combined interest is 55%, 69%, 69% and
17%, respectively.
Mobil's refinery at Gravenchon (France), which is primarily a lubricants
refinery, and BP Amoco's two lubricants base oil refineries in France and
Germany are operated by Mobil on behalf of the joint venture. BP Amoco's UK base
oil refinery at Llandarcy was closed in 1998 as part of a major restructuring of
the lubricants business.
In the rest of the world we operate three other principal refineries:
Brisbane and Kwinana in Australia, and one in Singapore. We also have interests
in three other refineries: Mombasa in Kenya, Durban in South Africa and
Whangerei in New Zealand.
The following tables set out by area the crude oil and other feedstocks
processed in the years 1996 through 1998 by the BP Amoco Group for its own
account and for third parties, and for the Group by other refiners under
processing agreements, and the Group's refinery capacity utilization.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
REFINERY THROUGHPUTS (thousand barrels per day)
<S> <C> <C> <C>
United Kingdom (a).......................................... 296 299 206
Rest of Europe (a).......................................... 551 583 642
United States............................................... 1,489 1,600 1,609
Rest of World............................................... 362 373 347
------- ------- -------
2,698 2,855 2,804
For BP Amoco by others...................................... 13 12 8
------- ------- -------
Total....................................................... 2,711 2,867 2,812
======= ======= =======
REFINERY CAPACITY UTILIZATION
Crude distillation capacity at December 31, (b)............. 2,815 2,937 3,027
Crude distillation capacity utilization (c)................. 94% 96% 97%
</TABLE>
- - ------------
(a) Includes the BP Amoco share of the BP/Mobil joint venture.
(b) The crude distillation capacity figures are based on gross rated capacity
which assumes no loss of capacity due to shutdowns. The figures for 1998
reflect the disposal of the Lima refinery in mid-1998. The figures for 1997
reflect the impact of the BP/Mobil joint venture for those countries for
which implementation was completed by the end of 1997. The figures for 1996
reflect the impact of the BP/Mobil joint venture in the UK and Turkey from
the date of implementation. The implementation of the joint venture did not
have a material impact on BP Amoco's overall crude distillation capacity in
Europe.
(c) Crude distillation capacity utilization is defined as the percentage
utilization of capacity per calendar day over the year after making
allowances for average annual shutdowns at BP Amoco refineries (net rated
capacity).
In 1998, we operated our refineries in the USA at an average of 95% of net
rated capacity (1997, 95% and 1996, 96%), our European refineries at 95% (1997,
98% and 1996, 100%) and our refineries in the rest of the world at 89% (1997,
99% and 1996, 96%).
In the past three years, BP Amoco has spent approximately $1.0 billion on
upgrading refineries in Europe, the USA, Australia, Singapore and South Africa.
During 1996 at our Grangemouth refinery in the
23
<PAGE> 24
UK, projects to upgrade the fluidized catalytic cracker and hydrocracker were
begun. The hydrocracker and the first phase of the fluidized catalytic cracker
projects being completed in 1997. The second phase aimed at increasing middle
distillate yields was completed in 1998. We are investing some $235 million
upgrading the Toledo refinery, which should enable the refinery to process
lower-cost heavy sour crude oil. The project is expected to be completed in
1999. In view of current low refining margins we expect our investment in
refineries to be at a lower level in the future.
MARKETING
We market a comprehensive range of refined oil products worldwide. These
products include gasoline, gasoil, marine and aviation fuels, heating fuels,
LPG, lubricants and bitumen.
The following table sets out refined product sales by area.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
Sales of refined products (a) (thousand barrels per day)
<S> <C> <C> <C>
Marketing sales:
United Kingdom (b)(c)..................................... 261 260 242
Rest of Europe (b)........................................ 769 752 672
United States............................................. 1,504 1,465 1,439
Rest of World............................................. 603 606 571
------- ------- -------
Total marketing sales (d)................................... 3,137 3,083 2,924
Trading/supply sales (d).................................... 1,665 1,592 1,530
------- ------- -------
Total refined products...................................... 4,802 4,675 4,454
======= ======= =======
($ million)
Proceeds from sale of refined products (b).................. 44,446 57,026 53,809
</TABLE>
- - ------------
(a) Excludes sales to other BP Amoco businesses.
(b) Includes the BP Amoco share of the BP/Mobil joint venture in 1998 and 1997.
(c) UK area includes the UK-based international activities of Refining and
Marketing.
(d) Marketing sales are sales to service stations, end-consumers, bulk buyers,
jobbers and small resellers. Trading/supply sales are to large unbranded
resellers and other oil companies.
The following table sets out marketing sales by major product group.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
MARKETING SALES BY PRODUCT (thousand barrels per day)
<S> <C> <C> <C>
Aviation fuel............................................... 292 271 258
Gasolines................................................... 1,256 1,204 1,164
Middle distillates.......................................... 796 780 770
Fuel oil.................................................... 322 410 322
Other products.............................................. 471 418 410
------- ------- -------
Total marketing sales....................................... 3,137 3,083 2,924
======= ======= =======
</TABLE>
Our retail network is concentrated in Europe and the USA, with established
operations in Australasia and Southern Africa. Networks are being grown in
China, Poland, Russia and Venezuela.
BP Amoco is continuing to improve the efficiency of its retail network by
reducing operating costs and improving customer service, through a process of
regularly reviewing the network. Actions taken include divesting the least
profitable sites, upgrading existing sites and investing in new sites. An
essential element of this strategy is the development of convenience stores and
the provision of related services. Such facilities are often provided through
alliances or other arrangements with partners. This strategy is applied to all
our retail networks, including those operated as part of the BP/Mobil joint
venture. At
24
<PAGE> 25
December 31, 1998, there were approximately 28,300 BP and Amoco branded service
stations worldwide, including those associated with the BP/Mobil joint venture.
At December 31, 1998 BP Amoco's retail network in the USA comprised some
16,300 service stations concentrated in the midwest, east and southeast. In 1998
34 new 'Split Second' convenience stores were opened in Atlanta, Georgia;
Philadelphia, Pennsylvania; Denver, Colorado; and south Florida, bringing the
total to 59 stores.
In the UK and the Rest of Europe, BP Amoco's network covered about 8,400
service stations at December 31, 1998, including some 2,900 Mobil service
stations which had been integrated into the joint venture. The rebranding of the
Mobil service stations to BP brand green is substantially complete; around 700
were completed during 1998, bringing the total number of rebranded stations to
some 2,800.
Other significant developments in Europe during 1998 included the
following:
-- Following a successful pilot scheme, BP Amoco entered into a joint
venture agreement with Safeway plc to redevelop some 100 sites in the UK
incorporating a Safeway convenience store. By December 31, 1998, nine
such sites had been redeveloped.
-- In Portugal, the development of Modelo Express stores at BP Amoco's
service stations continued with a further six new stores being opened.
Following the results of the pilot sites we have set a target of 50
sites.
-- In Poland and Russia, we continue to grow our retail network towards our
target of 300 sites, with the construction of a further 50 retail sites
during 1998.
-- As part of the continued drive to improve the Group's asset base, the
retail networks in both Belgium and the Czech Republic were divested
during 1998. In addition, agreement was reached to divest the retail
network in Hungary in early 1999.
At December 31, 1998, BP Amoco's retail network in the rest of the world
(primarily Australia, New Zealand, Southern Africa and South East Asia)
comprised some 3,600 service stations. BP Amoco now has over 100 new branded
sites in the new markets of Venezuela, China and Japan. In addition, through the
Amoxxo joint venture with Femsa, the Group now has a network of 27 convenience
stores in Mexico.
We also operate a Commercial and Industrial business in Australasia,
Europe, South Africa and the USA. This business includes the supply of fuel,
LPG, bitumen and, outside Europe, lubricants to industrial and domestic users.
In Europe, the Group has a 49% interest in the lubricants activity operated by
Mobil in the BP/Mobil joint venture. In 1998, we continued to reshape our
Commercial and Industrial portfolio where we believe it to be appropriate.
-- In the USA, the lubricants business unit of Amoco was sold to Chevron
Products Co.
-- In the UK, BP Amoco's LPG business expanded its market share in
Scotland, through the acquisition of Border Gas.
The aviation business sells jet and other aviation fuels to airlines and
general aviation customers as well as providing technical services to airlines
and airports. During the last few years, the aviation business has strengthened
its position in established markets and pursued opportunities in new or emerging
markets. In 1998, BP Amoco's aviation business entered three new markets:
Romania, Georgia and the Lebanon. The business now markets in some 82 countries.
It is the third largest jet fuel supplier globally.
BP Amoco's marine business sells ship's fuel and lubricants to a variety of
customers including ship owners and operators, covering a wide range of vessels,
from large oil tankers to small fishing boats. We operate a network of offices
and supply points in more than 900 ports across 90 countries, reflecting the
international nature of this marketing operation. BP Amoco is continuing to
develop the marine business, and is pursuing new market opportunities in Latin
America, Asia and the Middle East.
SUPPLY AND MARKETING OF NGL
In the USA and Canada, BP Amoco is engaged in the wholesale marketing of
NGL, which consists of ethane, propane, butanes and pentanes extracted from
natural gas. The majority of BP Amoco's NGL is marketed on a wholesale basis
under annual supply contracts which provide for price redetermination based on
prevailing market prices. Sales volumes of NGL for 1998 averaged 318,000 b/d
(1997 298,000 b/d and 1996 296,000 b/d).
25
<PAGE> 26
We own or have an interest in four fractionator plants in Canada and the
United States. Two are located in Canada in Fort Saskatchewan, Alberta and
Sarnia, Ontario and two are located in the United States in Hobbs, New Mexico
and Mont Belvieu, Texas.
SUPPLY AND TRADING
We are one of the world's major traders of crude oil and refined products,
dealing extensively in physical and futures markets. Our portfolio of purchases
and sales is spread among spot, term, exchange and other arrangements, and
covers a range of sources and customers to match the location and quality
requirements of the Group's refineries and the various markets, while seeking to
ensure flexibility and cost-competitiveness. In addition, the Group's
oil-trading division undertakes trading in physical and paper markets in order
to contribute to the Group's income.
TRANSPORTATION
Our Refining and Marketing business owns, operates or has an interest in
extensive transportation facilities for crude oil, refined products, NGL, carbon
dioxide and petrochemical feedstocks in the US. It also has interests in a
number of crude oil and product pipelines in the UK and the Rest of Europe.
We transport crude oil to our refineries principally by ship and through
pipelines linking our refineries with import terminals. We have interests in
eight major crude oil pipelines in the UK and the Rest of Europe and a further
thirteen in the USA.
Bulk products are transported between refineries and storage terminals by
ship, barge, pipeline and rail. Onward delivery to customers is primarily by
road. We have interests in nine major product pipelines in the UK and the Rest
of Europe and four in the USA. We also have interests in a major gas pipeline,
four NGL pipelines, two carbon dioxide pipelines and many smaller pipelines. In
total, we have interests in some 33,000 kilometres of pipeline, of which about
three-quarters are located in North America.
In 1998 the most significant development in this area of BP Amoco's
operations was the completion of the Destin gas trunk line from offshore in the
Gulf of Mexico to Pascagoula, Mississippi and inland. BP Amoco's share of
investment was approximately $122 million. The connection of lateral pipelines
to the main line is expected to be completed in 1999 (BP Amoco share $15
million). This will allow connection with a number of other gas pipelines and
access to numerous natural gas markets throughout the southeast and the east
coast of the USA.
SHIPPING
BP Amoco Shipping owns or operates an international fleet of crude and
product tankers carrying cargoes for the Group and for third parties. It also
offers a wide range of services to Group and third party marine customers.
At December 31, 1998 the Group owned an international fleet of 13 tankers,
totalling approximately 1.76 million deadweight tons (dwt).
Excluding BP America Inc., the Group had 11 tankers (three Very Large Crude
Carriers, seven Medium Crude Carriers, one Product Carrier) and four barges,
totalling 1.82 million dwt on long-term charter at December 31, 1998.
BP America Inc. had 15 tankers, totalling about 2.0 million dwt, on
long-term charter from third parties, although four of these vessels, totalling
0.65 million dwt, were in lay-up at the end of the year.
In addition, a large number of small coastal vessels are used by Group
companies around the world.
BP Shipping Limited has contracted to bareboat charter four Very Large
Crude Carriers for delivery during 1999 and 2000.
26
<PAGE> 27
CHEMICALS
Our Chemicals business is a major producer of petrochemicals through
subsidiaries and associated undertakings. BP Amoco has operations principally in
the USA and Europe, and increasingly, in the Asia-Pacific region. Chemicals is
also responsible for the supply, marketing and distribution of chemical products
to bulk, wholesale and retail customers.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Turnover.................................................... 9,691 11,445 10,979
Total replacement cost operating profit..................... 1,100 1,530 1,654
Total assets................................................ 12,562 12,141 12,128
Capital expenditure and acquisitions........................ 1,606 1,145 1,964
(thousand tonnes)
Production (a).............................................. 20,073 19,491 17,498
</TABLE>
- - ------------
(a) Includes BP Amoco's share of associated undertakings and other interests in
production.
Chemicals margins are driven by the economics of supply and demand and, as
a result, are cyclical in nature. An illustration of this is the industry
integrated ethylene/low density polyethylene cash margin, which rose from 523
Deutschmarks (DM) per tonne in 1996 to DM 890 per tonne in 1997, then fell to DM
812 per tonne in 1998.
In 1999, the chemicals industry is facing a weaker external environment,
which is expected to cause competitive pressures to increase. This has been
caused by recent new capacity growth at the same time as demand is weakening due
to a general slowdown in the global economy.
The continued effect of the Asian economic crisis has had an impact upon
short-term growth rates in the region. While BP Amoco intends to continue to
expand into Asia, the pace of development will take into account the prevailing
market conditions.
Our strategy is to create competitive advantage in petrochemicals by
investing in world-scale integrated sites to optimize manufacturing; by
selectively owning the best technology; and by focusing on key products and
markets which offer potential for growth.
The potential for integration has been increased by the merger, with BP's
leading positions in olefins and polyolefins complemented by Amoco's leading
positions in aromatics and aromatic derivatives. Furthermore, both BP and Amoco
Chemicals separately had created footholds in Asia. While still a small part of
the combined portfolio, together these positions create a solid base from which
to deal with the current environment and to position the Group for growth when
conditions improve.
The drive for integration covers not only different elements of chemicals
production but also integration with oil supply and refining activities to
achieve cost savings and production synergies. The strategy is illustrated in
the major polyolefins expansion program currently underway at Grangemouth in
Scotland. Integration of the project with the existing Chemicals facilities and
the upstream and downstream facilities on site, combined with the utilization of
our proprietary Innovene polyethylene technology, results in a competitively
advantaged facility. Polypropylene and metaxylene expansions at Chocolate Bayou
and Texas City, respectively, are two other examples of capacity additions at
integrated sites; they are both in close proximity to, and use feedstocks from,
our Texas City refinery.
Technology will continue to distinguish the most successful companies from
their competitors. We intend to maintain and extend our leadership in the
fundamental technologies which underpin our core businesses. By way of example,
our strengths in catalysis, oxidation and fluid bed technology continue to
enhance our leadership positions across the portfolio from polymers to basic
petrochemicals. In the last quarter of 1998 we announced investments in
butanediol, vinyl acetate and ethyl acetate which are all based upon
proprietary, leading-edge technologies and bear testimony to our ability to
innovate and rapidly translate in-house development to commercial reality.
Further examples of investments based on BP Amoco technology include the
commissioning of new acrylonitrile capacity in the US and the debottlenecking of
an acetic acid plant in Korea.
27
<PAGE> 28
We will continue to focus our portfolio in areas where we have clear
competitive advantage driven by the strategy elements described above. For
example, we purchased the Styrenix Kunststoffe business in early 1998 and
integrated it into our existing styrenics business over the remainder of the
year. We sold our speciality chemicals distribution business and Adibis, a fuels
and lubricants additive business, during 1998, and a further specialities
business, Verdugt, in early 1999.
BP Amoco has large-scale manufacturing facilities in Europe and the USA.
The Group's major sites, with our share of their capacities in thousands of
metric tonnes per annum (ktepa), are Grangemouth (2,160 ktepa) and Hull (1,415
ktepa) in the UK; Lavera (1,765 ktepa) in France; Marl (1,610 ktepa) and
Dormagen (2,330 ktepa) in Germany; Geel (1,135 ktepa) in Belgium; and Texas
City, Texas (2,825 ktepa), Chocolate Bayou, Texas (2,740 ktepa), Decatur,
Alabama (2,220 ktepa), and Cooper River, South Carolina (1,310 ktepa) in the
USA.
BP Amoco's European and US manufacturing base remains key to its continued
success. We also aim to grow in the Asia Pacific region, which offers prospects
for demand growth. The intention is to build upon the existing bridgeheads which
the Group now holds in Indonesia, China, Malaysia and Korea. Our share of
capacity in Asia (largely through joint ventures) amounts to nearly 3 million
tonnes as follows: Indonesia (440 ktepa), Korea (620 ktepa), Malaysia (880
ktepa), Taiwan (730 ktepa), China (80 ktepa) and Singapore (140 ktepa).
The following table shows BP Amoco's production capacity by major product
and by business at December 31, 1998.
<TABLE>
<CAPTION>
Chemical Performance
Feedstocks Intermediates Polymers Products Total (a)
------------ ------------- ------------ ------------ ------------
(thousand tonnes per annum)
<S> <C> <C> <C> <C> <C>
Purified terephthalic acid
(PTA)....................... -- 4,870 -- -- 4,870
Ethylene...................... 2,865 -- 455 -- 3,320
Paraxylene.................... 2,360 -- -- -- 2,360
Polypropylene................. -- -- 1,650 -- 1,650
Styrenics..................... -- -- 1,750 -- 1,750
Polyethylene.................. -- -- 1,605 -- 1,605
Acetic Acid/Anhydride......... -- -- -- 1,295 1,295
Linear/poly alpha olefins..... -- -- -- 855 855
Acrylonitrile................. -- 660 150 -- 810
Other......................... 2,020 625 1,525 3,245 7,415
------------ ------------ ------------ ------------ ------------
Total......................... 7,245 6,155 7,135 5,395 25,930
============ ============ ============ ============ ============
</TABLE>
- - ------------
(a) This includes the Group's proportionate interest through associated
undertakings in production capacity and production from third-party
facilities made available to BP Amoco under long-term agreements.
BP Amoco's petrochemical products are sold to companies in a number of
industries that manufacture components used in a wide range of applications,
including the agriculture, automotive, construction, furniture, household
products, insulation, packaging, paint, pharmaceuticals and textile industries.
BP Amoco's petrochemical products are marketed through a network of sales
personnel and agents that also provides technical services.
Our Chemicals business is organized into four broad groupings:
-- Feedstocks, including olefins and aromatics;
-- Chemical Intermediates, including nitriles and PTA;
-- Polymers, including polyethylene, polypropylene and styrenics; and
-- Performance Products, including acetyls, plastic fabrications, solvents,
fabric and fibers.
FEEDSTOCKS
Our feedstocks group produces and markets the basic petrochemical building
blocks which are used primarily as raw material for other chemical products.
These basic petrochemicals include ethylene, propylene, butadiene, paraxylene
and metaxylene.
28
<PAGE> 29
BP Amoco manufactures and markets chemicals produced from the steam
cracking of liquid and gaseous hydrocarbon feedstocks. The olefins -- ethylene,
propylene and butadiene -- are produced by crackers at Grangemouth, UK; Lavera,
France (BP Amoco 50%); Dormagen, Germany by Erdolchemie (BP Amoco 50%); Wilton,
UK (BP Amoco 20%); Chocolate Bayou, Texas; and Kertih, Malaysia (BP Amoco 15%).
These crackers produce the raw materials for the production of derivative
products including polyethylene, polypropylene, acrylonitrile, styrene, ethanol
and ethylene oxide, which are also produced at various BP Amoco plants.
BP Amoco is the world's largest producer of the aromatics paraxylene (PX)
and metaxylene (MX), the feedstocks for PTA and purified isophthalic acid (PIA),
respectively. We recover PX and MX from reformed gasoline streams at BP Amoco
and other refineries and then deliver this into our aromatic acids plants. PX is
produced at Texas City, Texas and Decatur, Alabama in the USA and at Singapore
Aromatics (BP Amoco 45%). MX is produced at Texas City.
-- In October 1998, a 350 ktepa PX unit was started up in Decatur. The unit
employs a new proprietary catalyst that was first commercialized in 1997.
The catalyst allows the unit to operate with lower total recovery costs.
-- In Belgium, work proceeded on the construction of a 420 ktepa PX unit at
our Geel site. This unit will employ our technology for PX
crystallization and will incorporate new process and catalyst
technologies commercialized at Decatur in 1997. The project is scheduled
for start-up in early 2000.
-- BP Amoco's second MX unit was brought on line in October, 1998 at the
Texas City chemical site. The 100 ktepa unit is the largest unit that
uses UOP's Sorbex technology to recover the MX. The Sorbex technology,
sale and integration with existing xylene recovery units makes this unit
extremely cost competitive.
CHEMICAL INTERMEDIATES
The Chemical intermediates group produces and markets PTA, which is the
preferred raw material for the manufacture of polyester; acrylonitrile, a raw
material for acrylic fiber, varieties of synthetic rubber, a range of plastics
and other chemical products; linear alpha olefins (LAO) used for polyethylene,
detergents and plasticizers; PIA used for isopolyester resins and gel coats; and
napthalene dicarboxylate (NDC), used for photographic film and specialized
packaging.
BP Amoco is the world's largest producer of PTA, with an interest in
approximately 23% of the world's PTA capacity. PTA is manufactured at Cooper
River, South Carolina and Decatur, Alabama, in the USA, Geel in Belgium, and
Kuantan in Malaysia. We also produce PTA through joint ventures in Korea (BP
Amoco 35%), Taiwan (BP Amoco 50%), Brazil (BP Amoco 49%), Mexico (BP Amoco
8.55%) and Indonesia (BP Amoco 50%). The Taiwan joint venture operation, Cooper
River, and Decatur represent the three largest PTA production sites in the
world.
-- In 1998, a new 500 ktepa PTA unit at the Geel, Belgium site was
completed. The project marked the latest in a series of recent global PTA
investments to support expected long-term growth in polyester demand. The
unit was subsequently shut down because of a fire, but is expected to
come back on line during the second quarter of 1999.
BP Amoco is the world's largest producer and marketer of acrylonitrile. It
operates two acrylonitrile plants located at Green Lake, Texas and Lima, Ohio.
Green Lake, with a capacity of 460 ktepa, is the largest acrylonitrile
production site in the world. Acrylonitrile is also produced by Erdolchemie. BP
Amoco markets acrylonitrile throughout the world to a variety of industrial
customers.
-- In September 1998, we announced the construction of a $10 million
demonstration unit for our proprietary propane-to-acrylonitrile
technology process at the Green Lake manufacturing facility. The project
involves the construction of an innovative recovery and purification unit
of unique design which will be integrated with one of the three fluid-bed
reactors at the Green Lake plant.
In 1998, BP Amoco and Sterling Chemicals, Inc. announced the establishment
of Anexco LLC., a 50/50 joint venture marketing company which markets
acrylonitrile in Asia and South America on behalf of both partners. The joint
venture is expected to sell some 500 ktepa.
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The construction of the Company's first world-scale 1,4-butanediol (BDO)
plant in Lima, Ohio and the foundation of a new butanediol business unit marks
the company's entry into the worldwide BDO market. Butanediol and its
derivatives are used in pharmaceuticals, a variety of personal care products,
plastics, auto parts and sports clothing.
LAO is produced at Texas City, Texas and Feluy, Belgium. A $45 million
project to expand Feluy's capacity by 100 ktepa is expected to come on line in
the second quarter of 1999. In early 1999, we authorized the construction of a
new 250 ktepa LAO plant in Alberta, Canada; this plant is scheduled to come on
line late in 2001.
PIA is produced in Joliet, Illinois, Geel and by the AGIC joint venture (BP
Amoco 50%) in Japan. NDC is produced at our plant in Decatur, Alabama.
POLYMERS
The polymers product line includes polypropylene, used for molded products,
fibers and films; polyethylene, used for packaging, pipes and containers;
engineering polymers used for medical, automotive and electronic applications;
carbon fibers used in sporting goods and aerospace applications; and styrene
monomers and polymers used in packaging and containers.
We are the second-largest producer of polypropylene in the world.
Polypropylene is manufactured at Chocolate Bayou and Cedar Bayou, Texas and
Geel, Belgium. Appryl (BP Amoco 49%) operates plants at Lavera and at
Gonfreville, France. Much of the Group's polypropylene output is consumed
internally in its Fabrics and Fibers business. BP Amoco has its own proprietary
polypropylene technology.
We are one of Europe's leading producers and suppliers of polyethylene, the
world's most widely used plastic. BP Amoco operates linear low density
polyethylene (LLDPE) and high density polyethylene (HDPE) plants at Grangemouth,
Lavera, Merak in Indonesia (BP Amoco 51%) and at Kertih in Malaysia (BP Amoco
60%). A low density polyethylene (LDPE) plant is operated at Wilton, UK.
Erdolchemie (BP Amoco 50%) also produces LLDPE and LDPE at Dormagen in Germany.
Innovene, our proprietary gas-phase production process for polyethylene
based on a clean and cost-effective technology has been licensed to 24 different
companies in 16 countries as of December 1998. In July 1997, we launched an
enhanced version of our High Productivity technology and are also working with
The Dow Chemical Company (Dow) to develop and license a combination of Innovene
polyethylene technology and Dow's constrained geometry catalyst technology.
We completed the purchase of the Styrenix Kunststoffe business in February
1998. The process of integrating this business with the existing BP Amoco
styrenics business took place during the remainder of the year. We operate
styrene monomer plants at Texas City, Texas in the USA, Baglan Bay in the UK and
Marl in Germany. Polystyrene plants are operated at Marl, Wingles in France and
Trelleborg in Sweden. Expanded polystyrene plants are operated at Wingles and
Marl.
BP Amoco's Engineering Polymers and Carbon Fibers business has
manufacturing facilities at Marietta, Ohio; Greenville and Rock Hill, South
Carolina; and Atlanta and Augusta, Georgia in the USA.
Over the last year a number of capital investment projects were progressed
at various sites around the world, including:
-- In the UK, work is continuing on a major $825 million development
program. The first stage, a 50 ktepa expansion of ethylene capacity at
Grangemouth, will be commissioned in the first quarter of 1999. A second
270 ktepa expansion is underway with completion scheduled for the first
quarter of 2001. When the second expansion is complete Grangemouth will
have 1 million tonnes of ethylene capacity. This additional production is
intended to feed a new 300 ktepa polyethylene plant which is currently
under construction. This is the major part of the UK development program
expected to be realized over the next three years.
-- Appryl (BP Amoco 49%) commenced the construction of a 250 ktepa
polypropylene plant at Grangemouth, with commissioning expected in 1999.
-- At PT Peni (BP Amoco 51%) in Indonesia, the expansion of polyethylene
capacity from 250 to 450 ktepa was brought on stream in 1998. In
addition, we have announced plans for the construction of a 900-ktepa
ethylene cracker integrated with the polyethylene plant. The project will
be progressed at a pace appropriate to the prevailing market conditions.
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-- BP Amoco continued feasibility studies on the $2.5 billion project for
an integrated ethylene cracker complex at Jinshan, China, with the
Shanghai Petrochemical Company. The timing of this plant will be
contingent on the outcome of the feasibility studies and on market
conditions.
-- We continued construction of a 250 ktepa polypropylene expansion in
Chocolate Bayou which will commence operations in 1999.
-- We commenced construction of a 250 ktepa polyethylene plant for the
Bataan Polyethylene Corporation (BP Amoco 38%) in the Philippines, which
will use BP Amoco's Innovene technology. The plant is due on stream in
2000.
PERFORMANCE PRODUCTS
This group of businesses covers the following: Acetic Acid/Anhydride,
Oxygenated Solvents, Industrial Products, Polybutenes, Plastic Fabrications
Group, and Fabrics and Fibers. These businesses add value to raw materials
produced by our other chemicals businesses.
We are a major supplier of acetic acid, a versatile chemical used in a
variety of products, such as foodstuffs, textiles, paints, dyes and
pharmaceuticals. Chemicals has acetyls operations in Europe, the USA and Korea
(BP Amoco 51%), and commissioned a 150 ktepa acetic acid plant in Sichuan,
China, with local partners (BP Amoco 51%) in late 1998.
In Korea, the Asian Acetyls Company (BP Amoco 34%) operates a 150 ktepa
vinyl acetate monomer plant.
We are investing with Petroliam Nasional Berhad (Petronas) in an acetic
acid plant at Kertih, Malaysia, with a capacity of 400 ktepa (BP Amoco 70%).
Construction of the plant, which will use our Cativa technology, started in
1998, and production is scheduled to commence at the end of 1999.
The Oxygenated Solvents business manufactures and markets acetate esters,
iso-propanol, acetone, glycol esters, aerosols and ethanol at plants in the UK,
France, Belgium, Italy and Korea. The products have many applications including
pharmaceuticals, inks and paints. A major asset restructuring was announced in
1998 with plans to construct a 220 ktepa ethyl acetate plant at Hull and 110
ktepa ethanol plant at Grangemouth, both scheduled for completion in 2001. The
ethyl acetate investment is based on BP Amoco's innovative proprietary 'direct
addition' method for making ethyl acetate from ethylene and acetic acid which
does not require ethanol as a raw material.
In Korea, the International Esters Company's acetate esters plant (BP Amoco
45%) was expanded from 45 to 75 ktepa in 1998 by the application of the new BP
Amoco technology.
Our other Performance Product businesses include Industrial Products, which
comprises ethylene oxide, ethanolamines, brake fluids, antifreeze, oxo alcohols,
oilfield chemicals and plasticizers; Polybutenes, used in fuel additives,
adhesives and sealants; Plastic Fabrications, with a number of European and US
sites converting polymer resins into plastic films, rigid containers, non-woven
fibers and engineering components; and Fabrics and Fibers, which makes products
for carpet backing, home furnishings, and industrial uses such as civil
engineering fabrics and bulk bags.
The speciality chemicals distribution business and Adibis, the fuels and
lubricants additives business, were sold during 1998. Amoco's European
polybutenes business was sold in late 1998 to facilitate the merger. In the
first quarter of 1999, the disposal of a further specialities business, Verdugt,
was completed.
OTHER BUSINESSES AND CORPORATE
Other Businesses and Corporate comprises Finance, the solar businesses, the
Group's remaining coal asset, interest income and costs relating to corporate
activities worldwide.
FINANCE manages the Group's financial assets and liabilities. From
locations in the UK, Europe, the USA and the Asia-Pacific region, it provides
the link between BP Amoco and the international financial markets, and makes
available a range of financial services to the Group including supporting the
financing of BP Amoco's projects around the world.
In 1999 both Moody's and Standard and Poor's assigned long-term debt
ratings of Aa1 and AA+, respectively, to BP Amoco.
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Finance has in place a Debt Issuance Program, under which the Group may
raise an aggregate of $2 billion of debt for maturities of one month or longer.
At March 29, 1999, the amount drawn down against this program was $1,134
million.
Our SOLAR businesses are involved in the manufacture and marketing of
photovoltaic cells and modules, and the development of solar-powered electric
generation facilities.
BP Solar, excluding Solarex, is one of the largest businesses in the solar
energy industry and the most international. The principal manufacturing and
marketing units are located in Australia, India, Spain and the USA. In early
1998 BP Solar opened a thin-film solar manufacturing plant in California and
towards the end of the year capacity was increased at the manufacturing facility
in Spain.
Solarex is a 50/50 joint venture established between Amoco and Enron
Corporation. In 1998, it made significant progress on the introduction of the
new Millenia amorphous silicon module, the world's first large-area, monolithic
double-junction thin film module. The modules were used in grid-connected solar
systems installed in Japan, Germany, Sweden and the USA.
COAL activity consists of our 50% interest in PT Kaltim Prima Coal, an
Indonesian company. This company operates an opencast coal mine at Sangatta in
Kalimantan, Indonesia.
RESEARCH, TECHNOLOGY AND ENGINEERING activities are carried out by each of
the major business streams on the basis of a distributed program coordinated by
the BP Amoco Technology Council. This body provides leadership for scientific,
technical and engineering activities throughout the Group and in particular
promotes cross-business initiatives and the transfer of best practice between
businesses. In addition, a group of eminent industrialists and academics form
the Technology Advisory Council, which advises senior management on the state of
technology within the Group and helps identify current trends and future
developments in technology.
Research and development is carried out using a balance of internal and
external resources. The principal sites for the internal activities are located
in the USA, the UK and France. The allocation of work to each location is
currently under review as part of the process of achieving synergies resulting
from the merger.
The innovative application of technology makes a key contribution to
improving BP Amoco's business performance, particularly in the areas of safety,
the environment, cost reduction and efficiency of business operations. Involving
third parties in the various steps of technology development and application
enables a wider range of technology solutions to be considered and implemented,
improving the productivity of research and development activities.
INSURANCE. Although practice differed in certain respects between BP and
Amoco in 1998, the combined Group generally restricts its purchase of insurance
to situations where this is required for legal or contractual reasons. This is
because external insurance is not considered economic for BP Amoco. Losses will
therefore be borne as they arise, rather than being spread over time through
insurance premia. The position will be reviewed each year.
REGULATION OF THE GROUP'S BUSINESS
UNITED KINGDOM
LICENSING. Pursuant to, among other things, the Petroleum (Production) Act
1934, all petroleum existing in its natural condition in strata in the UK or
beneath its territorial waters (including its continental shelf) is the property
of the Crown, and licenses to explore for and produce it may be granted, subject
to conditions, by the Secretary of State for Trade and Industry (Secretary of
State). These conditions include provisions relating to the term of the license,
the imposition of specific drilling obligations, environmental protection
controls, controls over the development and decommissioning of a field
(including restrictions on production) and the payment of royalties.
DEVELOPMENT OF OIL AND NATURAL GAS RESERVES. The development and production of
UK oil and natural gas reserves (including rates of production) require the
approval or consent of the Secretary of State. There have been a number of
policy statements by various UK Governments over the years with respect to
production controls. Although successive Governments have made it clear that the
imposition of production cut-backs in order to facilitate a coherent depletion
policy has been kept under review, the steps taken by the Government since the
early 1980s have tended to concentrate on encouraging
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exploration, development and production and no significant cut-backs of
previously agreed rates of production are known to have been imposed.
OTHER CONTROLS. In addition to the regulatory powers of the Government referred
to above, the Secretary of State has wide powers over the oil field operations,
including gas flaring, the installation, use and tariffs of sub-marine
pipelines, the construction or expansion of refining capacity and powers to
impose programs for the eventual decommissioning of offshore installations.
Furthermore, the Secretary of State for Transport has powers to control the
positioning of offshore installations if the chosen location is in or close to a
shipping lane. The UK Health and Safety Executive has wide powers and duties in
relation to offshore health and safety. BP Amoco is also subject to European
Union legislation, in particular the Procurement Directive which regulates the
procedure for awarding major contracts.
PETROLEUM REVENUE TAX. Petroleum revenue tax (PRT) was abolished in the Finance
Act 1993 in respect of oil and natural gas fields given development consent on
or after March 16, 1993 (Non-Taxable Fields). Profits from Non-Taxable Fields
are charged to corporation tax under general principles. PRT is still charged on
profits from fields given development consent before that date (Taxable Fields).
PRT is charged in relation to Taxable Fields on profits from oil (which includes
gas except where specifically excluded by statute) won under licenses granted
under either the Petroleum (Production) Act 1934 or the Petroleum (Production)
Act (Northern Ireland) 1964. It is charged on a field-by-field basis, at the
rate of 50% for chargeable periods ending after June 30, 1993 (75% for periods
ending on or before that date), on the assessable profit arising in each
chargeable period (normally the six months ending on June 30 and December 31 in
each year), as reduced by any allowable losses and by an oil allowance (unless
the maximum amount of oil allowance has already been used), and subject in
certain years to an overall limit (safeguard). PRT is also chargeable on any
consideration received in connection with the use by other fields and the
disposal of certain 'qualifying assets', the expenditure on which is allowable
for PRT, subject to an allowance in the case of the use of assets.
The assessable profit reflects, very broadly, the market value of oil won
less the costs of discovery and production, including any Government royalties
payable. Interest and other financing costs are not deductible in determining
the assessable profit; instead, certain costs are designated as qualifying for a
supplement of 35% (uplift). Uplift ceases for costs incurred after the end of
the chargeable period in which the field's cumulative income exceeds its
cumulative expenditure (payback).
Oil allowance exempts certain amounts from PRT. For each onshore field and
offshore field given development consent before April 1982, an allowance of up
to 250,000 tonnes of oil per chargeable period is available, subject to a
cumulative total of 5 million tonnes. For each onshore field and each offshore
field situated in the Southern Basin of the North Sea given development consent
after March 1982, the oil allowance for chargeable periods ending after June 30,
1988 is 125,000 tonnes per chargeable period and the cumulative total is 2.5
million tonnes. For each offshore field not situated in the Southern Basin given
development consent after March 1982, the allowance is 500,000 tonnes per
chargeable period subject to a cumulative total of 10 million tonnes. The oil
allowance is shared by the participants in each field in proportion to their
shares of oil. Safeguard provides that the total PRT payable in respect of a
field is limited to 80% of the amount (if any) by which the PRT profits for a
chargeable period (specially adjusted for this purpose) exceed 15% of
accumulated expenditure (as adjusted). Safeguard remains available after payback
has been reached for half as many periods again as it took to reach payback from
the first chargeable period.
Allowable losses in any chargeable period can be set off against the
assessable profits of subsequent or, after making an appropriate claim, previous
periods from the same field but, in relation to losses arising in respect of
chargeable periods ending after June 30, 1993, the PRT repayment plus any
interest thereon arising from the set-off of losses against profits of previous
periods cannot exceed 60% of the losses set off (85% in respect of chargeable
periods ending after June 30, 1991 and on or before June 30, 1993). In addition,
relief is available against the assessable profit from a field for certain
expenditure incurred outside the field. There are restrictions to prevent the
obtaining of relief for expenditure incurred in connection with Non-Taxable
Fields against profits from Taxable Fields. Exploration or appraisal expenditure
incurred on or after March 16, 1983 and before March 16, 1993, in respect of an
area for which no development decision has been made, may be set against the
assessable profits of any Taxable Field together with any such expenditure
incurred prior to that date which is designated as abortive. There is no relief
for exploration and appraisal incurred after March 16, 1993 unless the Company
was already committed to it at that date and it is incurred on or before March
16, 1995. There is an additional transitional
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relief for exploration and appraisal expenditure, subject to certain conditions,
limited to a maximum of L10 million for expenditure incurred on or after March
16, 1993 and before January 1, 1995. Finally, a loss from a Taxable Field in
which the winning of oil has permanently ceased which cannot be relieved against
the assessable profits of that field can be claimed against the assessable
profit from any other Taxable Field. The offset of reliefs is limited to prevent
a company buying into mature oil fields and setting pre-acquisition expenditures
against the assessable profits of that field.
CORPORATION TAX. Companies are also subject to corporation tax on their profits
or gains from oil extraction activities, although PRT is deductible in computing
any corporation tax liability. There are restrictions on using reliefs from
other activities against profits or gains from oil extraction activities, or
from the disposal of interests in oil or of assets used in connection with a
field in the UK or a designated area. There is also an exemption from capital
gains taxation and capital allowance clawback for certain exchanges of license
interests before the development stage. An election can be made in relation to
expenditure incurred after June 30, 1991 for 100% reliefs for certain net
offshore decommissioning expenditure. Losses created by these decommissioning
reliefs are available for set-off against profits of the previous three years.
In his Budget of July 1997 the UK Chancellor announced a review of the
North Sea fiscal regime to ensure that an appropriate share of North Sea profits
is being taxed while continuing to maintain a high level of oil industry
interest in the future development of the UK's oil and gas reserves. In BP
Amoco's submission to the review it argued that the existing fiscal regime
broadly succeeds in both areas. In September 1998 the Chancellor announced that
the existing regime would not be changed.
UNITED STATES
TAX. The State of Alaska imposes various taxes on the Group's operations in
Alaska. At present, these include a severance tax on oil and natural gas
produced, an ad valorem tax on all oil and gas exploration, production and
pipeline equipment and a corporate income tax on companies doing business in
Alaska. Following the Exxon Valdez oil spill, the State of Alaska passed an act
to finance the State's Oil and Hazardous Substance Release Response Fund by
imposing a conservation surcharge of $0.05 per barrel on all oil subject to the
State's oil and gas properties production tax. Subsequently, the State amended
the surcharge to suspend $0.02 per barrel of it when the balance in the Response
Fund exceeds $50 million, and as a result the net surcharge is $0.03 per taxable
barrel unless there is a spill that draws the Fund's balance below $50 million.
Further, losses occurring in connection with a catastrophic oil discharge are
not deductible as business expenses in determining the gross value of oil for
tax purposes in the State of Alaska.
PIPELINE REGULATIONS. The Interstate Commerce Act requires common carriers
engaged in the transport by pipeline of oil in interstate or foreign commerce to
file tariffs with the Federal Energy Regulatory Commission (the FERC) showing
all rates, classifications, rules and practices between all points on their
system. It also prohibits them from collecting any different compensation for
transportation from that specified in their approved tariffs. Third parties, or
the FERC on its own motion, may initiate an investigation of any proposed
tariff, which involves the scheduling of a hearing. If the FERC, at the
conclusion of a hearing, finds that a new or increased rate is unreasonable or
discriminatory, or otherwise in violation of the Interstate Commerce Act, it may
order the carrier to cease and desist from charging that rate, may prescribe a
rate for the future and order refunds to shippers of collected amounts found to
be unreasonable.
ENVIRONMENTAL PROTECTION
HEALTH, SAFETY AND ENVIRONMENTAL REGULATION
The Group is subject to numerous national and local environmental laws and
regulations concerning its products, operations and other activities. These laws
and regulations may require the Group to take future action to remediate or
otherwise redress the effects on the environment of prior disposal or release of
chemicals or petroleum substances by the Group or other parties. Such
contingencies may exist for various sites including refineries, chemicals
plants, oil fields, service stations, terminals and waste disposal sites. In
addition, the Group may have obligations relating to prior asset sales or closed
facilities. Provisions for environmental restoration and remediation are made
when a clean-up is probable and the amount is reasonably determinable.
Generally, their timing coincides with the commitment to a formal
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plan of action or, if earlier, on divestment or on closure of inactive sites.
The provisions made are considered by management to be sufficient for known
requirements.
The extent and cost of future environmental restoration and remediation
programs are inherently difficult to estimate. They depend on the magnitude of
any possible contamination, the timing and extent of the corrective actions
required and BP Amoco's share of liability relative to that of other responsible
parties. Though the costs of future restoration and remediation could be
significant, and may be material to the results of operations in the period in
which they are recognized, it is not expected that such costs will have a
material impact on the Group's financial position or liquidity.
Management cannot predict future developments, such as increasingly strict
requirements of environmental laws and enforcement policies thereunder, that
might affect the Group's operations or affect the exploration for new reserves
or the products merchandized by the Group. A risk of increased environmental
costs and liabilities is inherent in particular operations and products of the
Group and there can be no assurance that material costs and liabilities will not
be incurred in the future. In general, the Group does not expect that it will be
affected differently from other companies with comparable assets engaged in
similar businesses. Management believes that the Group's activities are in
compliance in all material respects with applicable environmental laws and
regulations.
For a discussion of the Group's environmental expenditures see Item 9 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Investment.
In December 1997, at the Third Conference of the Parties to the United
Nations Framework Convention on Climate Change in Kyoto, Japan, the participants
agreed on a system of differentiated internationally legally binding targets for
the first commitment period of 2008-2012. The range in Annex I countries (OECD,
former Soviet Union and Eastern Bloc countries) is from -8% to +10%. The USA
agreed on a reduction of 7%, and the European Union on a reduction of 8%, on
1990 levels of emissions of greenhouse gases. Projections of the increase in
emissions without any reduction measures are estimated at 32% for the USA and
19% for the European Union. If these targets are to be met a major reduction in
the use of fossil fuels would be required, and this would be likely to have a
significant effect on BP Amoco's main businesses, but the Group does not expect
that it will be affected differently from other companies with comparable assets
engaged in similar businesses.
The following is a summary of significant health, safety and environmental
legislation affecting the Group in 1998.
UNITED STATES
The Clean Air Act Amendments of 1990 (the Amendments) and regulations
issued pursuant thereto require, among other things, enhanced monitoring of
major sources of specified pollutants, more stringent limits on chemical plant,
refinery, marine and distribution terminal emissions, risk management plans for
storage of hazardous substances, and new fuel specifications.
Title V of the Amendments requires major emission sources to obtain new air
permits. This permitting effort is underway at the Group's US operations. Title
V also requires continuous and more comprehensive measurement of specified air
pollutants from major emission sources. Two aims of this regulation are to
provide regulating bodies with accurate data on emissions from major sources,
and to enable regulatory authorities to better evaluate compliance with
applicable emission limitations. Federal continuous monitoring requirements have
recently been promulgated.
Risk Management Plan regulations will require that any non-exempted
facility that processes or stores a threshold amount of a regulated substance
prepare and implement a risk management plan to detect, prevent and minimize
accidental releases. Undertaking an offsite hazard assessment, preparing a
response plan and dialogue with the local community are the primary components
of the program.
Additionally, the Amendments imposed new specifications for motor vehicle
fuels that significantly impact petroleum refining and marketing operations. In
nine urban areas with the highest ozone levels, reformulated gasoline (RFG)
containing oxygenates and lower levels of benzene, and having lower levels of
volatility was introduced beginning January 1995. The emission reduction
requirements came into effect in 1998, with further requirements scheduled for
2000. BP Amoco manufactures and markets fuels in some of these nine areas, as
well as in other areas that chose to join the RFG program.
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Since 1992, gasoline sold during the winter in approximately 40
metropolitan areas with high carbon monoxide levels must have higher levels of
oxygenates such as methyl-tertiary-butyl-ether (MTBE) and ethanol. BP Amoco is
providing such oxygenated fuels in a number of US markets. Seven metropolitan
areas have been able to achieve compliance with carbon monoxide standards and
terminate their oxygenated fuels programs.
Beginning 1993, the Amendments limited highway diesel fuel sulfur content
to 0.05%. BP Amoco has been producing this fuel in many of its US markets. The
Amendments also require service stations located in certain ozone non-attainment
areas to install equipment to capture gasoline vapors released during
refuelling.
The Amendments also require installation of 'maximum achievable control
technology' (MACT) over a ten-year period at certain types of industry
facilities that release certain specified toxic chemicals. Additional controls
could be required if the US Environmental Protection Agency (EPA) determines
that an unacceptable residual risk remains after installation of MACT. The EPA
has finalized MACT control requirements for certain categories of chemical
plants, refineries, gasoline marketing terminals and marine terminals.
Additional regulations on some sources in petroleum refineries were proposed in
1998. These are expected to be finalized in 1999 with compliance required in
2002.
The Clean Water Act regulates the discharge of wastewater and other
pollutants into US waters. Facilities are required to obtain permits for most
discharges and implement operational controls and preventative measures.
Requirements under the Clean Water Act have become more stringent in recent
years, including coverage of storm and surface water discharges at many
facilities. The trustee agencies for the Clean Water Act and the Endangered
Species Act formalized agreements linking those statutes with the potential to
limit access because of habitat concerns to certain areas with development
potential. During 1995 a final federal rule was issued regarding protection of
the Great Lakes watershed which will have local and national impacts on water
protection requirements. During 1998, individual states in the Great Lakes
watershed were working on regulations implementing the federal rule.
The Oil Pollution Act of 1990 (the Oil Pollution Act) significantly
increased oil spill prevention requirements, spill response planning obligations
and spill liability for vessels, offshore facilities (such as platforms) and
onshore terminals. To provide compensation for oil spill response where the
spiller is unable to do so, the Oil Pollution Act created a $1 billion fund,
funded by a tax on imported and domestic oil.
The Oil Pollution Act also requires double hulls on all new tankers
operating in US waters and double hulls installed on existing tankers on a
phased schedule between the years 1995 to 2015. Major oil shippers and handling
facilities are expected to be most affected by the expanded technical and
operational requirements for tankers under the Oil Pollution Act. Regulations
require businesses covered by this Act to carry specified levels of insurance or
other documentation of financial responsibility and maintain facility response
plans that, among other things, identify and prepare for worst case spill
scenarios. Facilities must also conduct emergency response programs in
coordination with area and national response plans.
BP Amoco has set performance objectives to enhance emergency preparedness
and crisis management at all facilities, and to promote compliance with all
related legislation such as the Oil Pollution Act. These objectives are designed
to be met through appropriate assessment, planning, training and routine
exercises, and by the provision or identification of sufficient human and
physical resources.
The Resource Conservation and Recovery Act (RCRA) regulates the storage,
handling, treatment and disposal of hazardous and non-hazardous wastes. It also
requires the investigation and remediation of locations where such wastes have
been previously handled or disposed of. RCRA requirements have become
increasingly stringent in recent years. BP Amoco facilities generate a number of
wastes regulated by RCRA and have units that have been used for the storage,
handling or disposal of RCRA wastes.
The Prince William Sound port-specific vessel escort plan required by
regulations that became effective late in 1994, was updated during 1995,
including operational requirements such as enhanced tanker steering
capabilities, rudder failure response procedures, and reduced speed in the
Valdez Narrows, plus directives on communications and training.
Under the Comprehensive Environmental Response, Compensation, and Liability
Act (also known as CERCLA or Superfund), waste generators, site owners, facility
operators and certain other parties may be
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liable for the entire cost of addressing sites contaminated by spills or waste
disposal. Additionally, most states have laws similar to CERCLA.
BP Amoco has been identified as a Potentially Responsible Party (PRP) under
CERCLA and similar state statutes at approximately 390 sites. A PRP has a joint
and several liability for site remediation costs and so BP Amoco may be required
to assume the cost share attributed to insolvent, unidentified or other parties.
BP Amoco is the PRP identified as having the most significant exposure for
remediation costs at 27 of these sites. For the remaining sites the number of
PRPs ranges generally from 20 to 200, and BP Amoco expects its share of
remediation costs in respect of these sites to be small. BP Amoco has estimated
its potential exposure at all sites where it has been identified as a PRP and
has accrued provisions accordingly. BP Amoco does not anticipate that its
ultimate liability at these sites individually, or in aggregate, will be
significant. The Group is also subject to claims made for natural resource
damage under several federal and state laws.
Other relevant legislation includes the Toxic Substances Control Act which,
among other things, regulates the development, testing, import, export and
introduction of new chemical products into commerce; the Occupational Safety and
Health Act which, among other things, imposes workplace safety and health,
training and process standards to reduce the risks of chemical exposure and
injury to employees; and the Emergency Planning and Community Right-to-Know Act
which requires emergency planning and spill notification as well as public
disclosure of chemical usage and emissions. The Occupational Safety and Health
Administration's Process Safety Management (PSM) rule formalizes the procedures
used in operating and maintaining a covered facility and also in conducting
formal documented hazard reviews of all covered processes.
UNITED KINGDOM AND EUROPEAN UNION
Part 1 of the UK Environmental Protection Act 1990 introduced the concept
of Integrated Pollution Control (IPC) of pollution to air, water and land by
requiring each prescribed process (including petroleum and gasification
processes) to be authorized. The controls apply to new processes in England and
Wales from April 1, 1991 and in Scotland from April 1, 1992. The standard to be
achieved by each process is the Best Available Techniques Not Entailing
Excessive Cost (BATNEEC). Existing petroleum and gasification processes were
required to have applied for an IPC authorization by June 30, 1992. These
processes were to be upgraded to the BATNEEC standard at the earliest
opportunity and generally for petroleum and gasification processes by April 1,
1998. BP Amoco has registered all sites affected by the IPC legislation and is
carrying out monitoring and upgrading of processes as required. Onshore oil
production facilities are covered by separate guidance notes issued in November
1995. BP Amoco has IPC authorizations for its onshore production facilities
which effectively equate to BATNEEC compliance. Where they do not, the
authorization includes an agreed improvement program which BP Amoco is working
towards with its Environment Agency IPC Inspector.
A European Commission directive for a similar system of Integrated
Pollution Prevention and Control (IPPC) is based on a combined approach of Best
Available Technology and Environmental Quality Standards. This encompasses,
among other things, most activities and processes undertaken by the oil industry
within the European Union. The European Commission has stated that it hopes that
all processes to which it applies will be licensed by July 2005. When
implemented, this directive will replace the IPC regulation in the UK.
The European Union Large Combustion Plant Directive sets emission limit
values for sulfur dioxide, nitrogen oxides and particulates from large
combustion plants; it also requires phased reductions in emissions from existing
large combustion plants. Implementation by Member States was required by June
1990. In the UK, it has been given effect through the authorization mechanism in
Part 1 of the Environmental Protection Act 1990. Large combustion plants
required an IPC application to be made by April 30, 1991. Upgrading to the
BATNEEC standard is required at the earliest opportunity, at the latest by April
1, 2001. The European Commission has considered proposals to impose emission
limit values on small combustion plants. A revised Large Combustion Plant
Directive was proposed by the Commission in 1998 to be considered by the Council
and Parliament during 1999-2000.
As part of its overall program to combat air pollution, the European Union
has set stringent emission limits for new cars and commercial vehicles which are
being implemented in stages. From October 1994, the sulfur content of diesel
fuel was limited to 0.2% and from October 1996 the limit was further reduced to
0.05%. Heating oils were initially limited to 0.2% with further reductions
subject to review. Additional
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<PAGE> 38
controls on heating and marine gas oils are also anticipated. The UK
Environmental Protection Act may also impose new investigation and remediation
obligations on the Group's UK facilities upon the adoption of implementing
regulations.
In June 1996, the Commission proposed emission limits for cars to apply
from year 2000, together with specifications for gasoline and diesel fuel to
apply from that date. During 1997, the Commission followed this with proposed
emission limits for light and heavy commercial vehicles, also based on the
Auto/Oil Program conclusions. These proposals are now with the Council of
Ministers and the European Parliament. In December 1998, the Council reached
agreement on a common position to set more stringent truck and bus emission
limits in 2000, 2005 and 2008. The Commission is also undertaking a second
Auto/Oil Program to agree further changes to fuels and cars after 2005.
As part of its overall approach to improving air quality, in 1997 the
Commission proposed its Acidification Strategy, and followed this with its
proposal for a strategy to combat tropospheric ozone. The Ozone Strategy was
adopted in 1998. Four air quality targets have been adopted as Commission
Directives, two more have been proposed and more are expected in 1999. Upon
adoption by the Council, these targets will be the reference point for further
environmental controls of industrial installations.
As part of a package to stabilize carbon dioxide (CO(2)) emissions at 1990
levels by the year 2000, the European Commission proposed a combined
CO(2)/energy tax. In March 1997, the Commission adopted an energy tax proposal
that is intended to be fiscally neutral when applied by Member States. Formally,
the proposal replaces the CO(2)/energy tax proposal that was blocked in Council
but has as its main objective to provide a harmonized framework for national
excise taxes, and to allow Member States greater flexibility to offer tax
incentives based on environmental criteria, whilst avoiding barriers to trade
within the Single Market.
Europe is also taking action on volatile organic compounds (VOCs). In late
1994, the European Union adopted Stage 1 VOC controls which requires a 90% cut
in emissions over ten years from petrol transport and storage. In November 1996,
the Commission proposed a directive on control of emissions of organic solvents
from the solvent-using industry which has the goal of combating low-level ozone
by setting emission limits and, as an alternative, targets to be met by national
plans. Existing installations would be required to reach compliance by 2007
(VOC). This proposal was adopted as a directive during 1998.
The European Union enacted the Major Hazards (Seveso) Directive (the Seveso
Directive) in 1982. The intention of this legislation is to identify industrial
sites which have the potential to suffer a major accident which would impact on
the neighboring population. Such sites are defined by the hazards that exist on
them, in some cases by the process in operation, but mainly by exceeding the
defined threshold quantities of various categories of 'dangerous substances' in
storage or use on the premises. It is the responsibility of the site to evaluate
their hazards. Those which fall into the category of a major hazard site must
produce a safety case which contains the evaluation of the hazards, an
assessment of the consequences of the most serious credible incidents which can
occur, and a description of the emergency plan which they have in place to deal
with them. The safety case must be submitted to the national regulator, who acts
on behalf of the local authority. The site is also expected to communicate the
relevant aspects of its emergency plan to the local community. All BP Amoco
sites in Europe are in compliance with the Seveso Directive as has been enacted
in each specific country. The European Union has now adopted a revised Seveso
Directive known as the Control of Major Accident Hazards Regulation, which came
into force in February 1999. Detailed guidance on the changes is still awaited.
The UK Offshore Safety Act 1992 came into force on March 6, 1992. Detailed
implementation is through regulations made under existing health and safety
legislation enforced by the UK Health and Safety Executive. The Offshore
Installations (Safety Case) Regulations 1992 came into force in May 1993. BP
Amoco submitted all safety cases by the required date of November 1993. This
included 22 operational safety cases, all of which have been accepted, and two
design safety cases on new installations. As part of the safety case, BP Amoco
was required to justify continued operation and outline remedial measures
identified as part of the risk assessment completed. Work on these remedial
works was completed by the November 1995 deadline.
MANAGEMENT OF HEALTH, SAFETY AND ENVIRONMENTAL ISSUES
The Group's world-wide HSE policy is developed within a framework set by BP
Amoco p.l.c.'s board of directors. The policy is implemented through targets in
the corporate and business performance
38
<PAGE> 39
contracts and programs ranging from pollution prevention through safety
management and product stewardship. Each part of the BP Amoco Group reviews its
own performance and an assurance report is presented annually to the Group Chief
Executive. The Ethics and Environment Assurance Committee of the board of
directors, comprising five non-executive directors, reviews policies and
processes which bear upon the Group's health, safety and environmental
relationships.
ADDITIONAL FACTORS WHICH MAY AFFECT BUSINESS
In order to utilize the 'Safe Harbor' provisions of the United States
Private Securities Litigation Reform Act of 1995, BP Amoco is providing the
following cautionary statement. This document contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of BP Amoco and certain of the plans and objectives of BP Amoco with
respect to these items. In particular, among other statements, certain
statements in Item 1 -- Description of Business and Item 9 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations with
regard to management aims and objectives, planned expansion, investment or other
projects, expected or targeted production volume, capacity or rate, the date or
period in which production is scheduled or expected to come on stream or a
project or action is scheduled or expected to be completed, and the statements
in Item 9 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations with regard to trends in results of operations, margins,
overall market trends, risk management and exchange rates are forward-looking in
nature. By their nature, forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will occur in the
future. There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by these
forward-looking statements. In addition to factors set forth elsewhere in this
report, the following are important factors, although not exhaustive, that may
cause actual results and developments to differ materially from those expressed
or implied by these forward-looking statements.
There is strong competition, both within the oil industry and with other
industries, in supplying the fuel needs of commerce, industry and the home. The
oil industry is also particularly subject to regulation and intervention by
governments throughout the world in such matters as the award of exploration and
production interests, the imposition of specific drilling obligations,
environmental protection controls, control over the development and
decommissioning of a field (including restrictions on production) and, possibly,
nationalization, expropriation or cancellation of contract rights. The oil
industry is also subject to the payment of royalties and taxation, which tend to
be high compared with those payable in respect of other commercial activities.
Exploration and production require high levels of investment and have
particular economic risks and opportunities. They are subject to natural hazards
and other uncertainties including those relating to the physical characteristics
of an oil or natural gas field.
Oil prices are subject to international supply and demand. Political
developments (especially in the Middle East) and the outcome of meetings of OPEC
can particularly affect world oil supply and oil prices. The refining industry
is suffering from severe oversupply. Crude oil prices are generally set in
dollars while sales of refined products may be in a variety of currencies.
Fluctuation in exchange rates can therefore give rise to foreign exchange
exposures.
Sectors of the chemicals industry are also subject to fluctuations in
supply and demand within the chemicals market, with consequent effect on prices
and profitability, and to governmental regulation and intervention in such
matters as safety and environmental controls.
ITEM 2 -- DESCRIPTION OF PROPERTY
BP Amoco has freehold and leasehold interests in real estate in numerous
countries throughout the world, but no one individual property is significant to
the Group as a whole. See Item 1 -- Description of Business for a description of
the Group's reserves and sources of crude oil and natural gas.
39
<PAGE> 40
ITEM 3 -- LEGAL PROCEEDINGS
Save as disclosed in the following paragraph, no member of the Group is a
party to, and no property of a member of the Group is subject to, any pending
legal proceedings which are significant to the Group.
Approximately 200 lawsuits were filed in State and Federal Courts in Alaska
seeking compensatory and punitive damages arising out of the Exxon Valdez oil
spill in Prince William Sound in March 1989. Most of those suits named Exxon,
Alyeska Pipeline Service Company (Alyeska), which operates the oil terminal at
Valdez, and the seven oil companies which own Alyeska. Alyeska initially
responded to the spill until the response was taken over by Exxon. BP Amoco owns
a 50% interest in Alyeska through a subsidiary of BP America Inc. Alyeska and
its owners have settled all of the claims against them under these lawsuits.
Exxon has indicated that it may file a claim for contribution against Alyeska
for a portion of the costs and damages which it has incurred. If any claims are
asserted by Exxon which affect Alyeska and its owners, BP Amoco would defend the
claims vigorously.
The Internal Revenue Service (IRS) has challenged the application of
certain foreign income taxes as credits against BP Amoco Corporation's US taxes
that otherwise would have been payable for the years 1980 to 1992. On June 18,
1992, the IRS issued a statutory Notice of Deficiency for additional taxes in
the amount of $466 million, plus interest, relating to 1980 to 1982. BP Amoco
filed a petition in the US Tax Court contesting the IRS statutory Notice of
Deficiency. Trial on the matter was held in April 1995, and a decision was
rendered by the US Tax Court in March 1996, in BP Amoco's favour. The IRS has
appealed the Tax Court's decision to the US Court of Appeals for the Seventh
Circuit and on March 11, 1998, the Seventh Circuit affirmed the Tax Court's
prior decision. A comparable adjustment of foreign tax credits for each year has
been proposed for the years 1983 to 1992 based upon subsequent IRS audits. BP
Amoco Corporation believes that the foreign income taxes have been reflected
properly in its US federal tax returns. Consequently, this dispute is not
expected to have a material adverse effect on liquidity, results of operations,
or the financial position of the Group.
In February 1998, a jury in a Texas state court awarded compensatory and
punitive damages in the aggregate amount of $115 million to former employees of
a steel company. The plaintiffs had alleged that they suffered injuries
following their use of products containing asbestos, sold during 1965 to 1983 by
Carborundum, a former subsidiary of BP America. These proceedings have now been
settled between the parties on the basis of an annulment of the court judgement.
Other such claims will be defended vigorously.
In 1994, BP Amoco agreed a $1.4-billion settlement with the State of Alaska
in respect of disputed taxes for 1978-91. The settlement was reduced by federal
tax offsets and did not affect the results of operations, since adequate
provisions had already been made. The effects were a net cash payment of $575
million in 1994, a net receipt of $360 million in 1995 and a net payment of $300
million in 1996.
ITEM 4 -- CONTROL OF REGISTRANT
The following table sets forth certain shareholding information as of March
29, 1999, concerning the directors and the secretary of BP Amoco p.l.c.
<TABLE>
<CAPTION>
Title of class Identity of person or group Number owned Percent of class
- - -------------- --------------------------- ------------ ----------------
<S> <C> <C> <C>
Ordinary Shares of Directors and the
50 cents each secretary of BP Amoco p.l.c. 2,490,119(a) less than 1/10th of 1%
</TABLE>
- - ------------
(a) Includes 1,034,956 Ordinary Shares held by directors in the form of ADSs.
There are no interests of more than 10% of the Company's Ordinary Shares,
other than Morgan Guaranty Trust Company of New York as Depositary for the ADRs
evidencing the ADSs. See Item 5 -- Nature of Trading Market.
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<PAGE> 41
ITEM 5 -- NATURE OF TRADING MARKET
The primary market for the Company's Ordinary Shares is the London Stock
Exchange. The Company's Ordinary Shares are a constituent element of the
Financial Times Stock Exchange 100 Index. The Company's Ordinary Shares are also
traded on stock exchanges in France, Germany, Japan and Switzerland.
Trading of BP Amoco's shares on the LSE is primarily through the use of the
Stock Exchange Electronic Trading Service (SETS), introduced in 1997 for the
largest companies in terms of market capitalization whose primary listing is the
LSE. Under SETS, buy and sell orders at specific prices may be sent to the
exchange electronically by any firm which is a member of the LSE, on behalf of a
client or on behalf of itself acting as a principal. The orders are then
anonymously displayed in the order book. When there is a match on a 'buy' and a
'sell' order, the trade is executed and automatically reported to the LSE.
Trading is continuous from 9:00 a.m. to 4:30 p.m. UK time, but in the event of a
10% movement in the share price either way the LSE may impose a temporary halt
in the trading of that company's shares in the order book, to allow the market
to re-establish equilibrium. Dealings in the Company's Ordinary Shares may also
take place between an investor and a market-maker, via a member firm, outside
the electronic order book.
In the United States the Company's securities are traded in the form of
American Depositary Shares (ADSs), for which Morgan Guaranty Trust Company of
New York is the depositary (the 'Depositary') and transfer agent. Each ADS
represents six Ordinary Shares. ADSs are listed on the New York Stock Exchange,
and are also traded on the Chicago, Pacific and Toronto Stock Exchanges.
The Ordinary Shares represented by ADSs issued pursuant to the merger
between BP and Amoco were issued in bearer form at the time of the merger. As at
March 29, 1999, 3,182,944,491 Ordinary Shares in bearer form are held by the
Depositary in London, with 89,127,309 Ordinary Shares being held by Boston
Equiserve Limited, as exchange agent on behalf of Amoco shareholders that have
yet to exchange their Amoco shares for BP Amoco ADSs.
The following table sets forth for the periods indicated the highest and
lowest middle market quotations for the Ordinary Shares of The British Petroleum
Company p.l.c. for 1997 and 1998, and of BP Amoco p.l.c. for 1999. These are
derived from the Daily Official List of the LSE, and the highest and lowest
sales prices of ADSs as reported on the New York Stock Exchange composite tape.
<TABLE>
<CAPTION>
American
Depositary
Ordinary Shares Shares (a)
---------------- --------------
High Low High Low
------ ------ ----- -----
(Pence) (Dollars)
<S> <C> <C> <C> <C>
1997: First quarter..................................... 748 663 73 1/2 64 7/8
Second quarter.................................... 759 670 75 3/8 65 11/16
Third quarter..................................... 956 756 93 74 5/8
Fourth quarter.................................... 939 797 91 7/8 79
1998: First quarter..................................... 934 746 96 73 3/4
Second quarter.................................... 968 833 97 5/16 82 7/8
Third quarter..................................... 910 737 91 3/4 73
Fourth quarter.................................... 957 815 95 3/8 81 7/16
1999: First quarter (through March 29).................. 1,077 822 105 81 1/8
</TABLE>
- - ------------
(a) With effect from June 6, 1997, the Company split existing ADSs on a
two-for-one basis so that an ADS is now equivalent to six Ordinary Shares.
Market prices for the Ordinary Shares on the LSE and in after-hours trading
off the LSE, in each case while the New York Stock Exchange is open, and the
market prices for ADSs on the New York Stock Exchange and other North American
stock exchanges, are closely related due to arbitrage among the various markets,
although differences may exist from time to time due to various factors
including UK stamp duty reserve tax. Trading in ADSs began on the LSE on August
3, 1987.
On March 29, 1999, 544,861,253 ADSs (equivalent to 3,269,167,518 Ordinary
Shares or some 33.6% of the total) were outstanding and were held by
approximately 107,000 ADR holders. Of these, about 105,000 had registered
addresses in the USA at that date.
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<PAGE> 42
On March 29, 1999, there were approximately 366,000 holders of record of
Ordinary Shares. Of these holders, around 1,170 had registered addresses in the
United States and held a total of some 1,670,000 Ordinary Shares. In addition,
certain accounts of record with registered addresses other than in the United
States hold Ordinary Shares, in whole or in part, beneficially for United States
persons.
ITEM 6 -- EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no UK foreign exchange controls or restrictions on
remittances of dividends on the Ordinary Shares or on the conduct of the
Company's operations.
There are no limitations, either under the laws of the UK or under the
Articles of Association of BP Amoco p.l.c., restricting the right of
non-resident or foreign owners to hold or vote Ordinary or Preference Shares in
the Company.
ITEM 7 -- TAXATION
The following summary of the principal UK and certain US tax consequences
of ownership of ADSs or Ordinary Shares is based in part on representations of
Morgan Guaranty Trust Company of New York as Depositary for the ADRs evidencing
the ADSs and assumes that each obligation in the deposit agreement among the
Company, the Depositary and the holders from time to time of ADRs and any
related agreement will be performed in accordance with its terms.
Beneficial owners of ADSs who are resident in the USA are treated as the
owners of the underlying Ordinary Shares for the purposes of the income tax
convention between the USA and the UK (the Convention) and for the purposes of
the US Internal Revenue Code of 1986, as amended (the Code). Unless otherwise
stated, references to 'shareholders' or 'shareholder' below are to persons who
are the beneficial owners of the underlying Ordinary Shares. It should be noted
that the UK Inland Revenue is currently negotiating with the US Internal Revenue
Service about updating and revising the Convention.
UK TAXATION OF DIVIDENDS
POSITION FOR DIVIDENDS PAID BEFORE APRIL 6, 1999
BP Amoco p.l.c. is required, when paying a cash dividend, to account to the
UK Inland Revenue for a payment of advance corporation tax (ACT). The current
rate of ACT is 1/4 of the net dividend (equivalent to 20% of the combined
dividend and ACT).
Under current UK law, an individual shareholder resident in the UK for UK
income tax purposes is treated as having taxable income equal to the sum of any
dividend paid plus a tax credit equal to 1/4 of the amount of the net dividend.
The tax credit is available to be set against the individual's tax liability on
the dividend, and may in appropriate cases be refunded. A UK resident corporate
shareholder will not generally be liable to UK corporation tax on any dividend
received.
Under the Convention, a beneficial owner of the Company's shares who for
the purposes of the Convention is a resident of the USA and is not a resident of
the UK (a US Holder) and whose holding of the Company's shares is not
effectively connected with (i) a permanent establishment in the UK through which
the US Holder carries on a business in the UK, or (ii) a fixed base from which
the US Holder performs independent personal services in the UK, will generally
be entitled to receive from the UK Inland Revenue, in addition to any dividend
paid by the Company, an amount equal to the tax credit available to individual
shareholders resident in the UK in respect of such dividend, less a withholding
tax equal to 15% of the aggregate of such tax credit and such dividend (the
Refund).
For example, a dividend of $8.00 will entitle such a US Holder to receive a
Refund of $0.50 (a tax credit of $2.00, less a withholding of $1.50), giving a
total net receipt, after UK taxes but before US taxes, of $8.50.
Special rules may apply under certain circumstances if the US Holder (a) is
exempt from tax in the USA on dividends paid by the Company, or (b) is an
investment or holding company, 25% of the capital of which is held directly or
indirectly by one or more persons who are not individual residents or nationals
of the USA and (i) which has imposed on it by the USA, in respect of the
dividend, a tax substantially less than the tax generally imposed by the USA on
corporate profits, or (ii) which receives more than 80% of its gross income from
sources outside the USA as determined in accordance with the Convention. Special
rules apply to a US Holder who owns 10% or more of the Ordinary Shares and to US
corporate
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<PAGE> 43
shareholders which directly or indirectly control, alone or with one or more
associated corporations, at least 10% of the voting power of the Company or are
residents of the UK.
Arrangements exist with the UK Inland Revenue under which a holder of ADRs
resident in the USA that is (i) a US corporation whose business is not managed
and controlled in the UK, (ii) an individual resident in the USA and not
resident in the UK, or (iii) a trust or estate, all the beneficiaries of which
are resident in the USA, will receive payment of the Refund to which such holder
is entitled, together with payment of the associated cash dividend, provided
that the holder is not subject to the special rules described in the preceding
paragraph, completes the declaration on the reverse of the dividend check and
presents the check for payment within three months from its date of issue. The
holder must declare, among other things, that he is neither engaged in business
nor performing independent personal services through a permanent establishment
or fixed base in the UK. These arrangements can be terminated without notice by
the UK Inland Revenue.
A US Holder who does not receive the Refund to which such US Holder is
entitled must, in order to obtain payment, file in the manner and at the time
described in Revenue Procedure 80-18, 1980-1 C.B. 623 (as amended by Revenue
Procedure 90-61, 1990-2 C.B. 657) and Revenue Procedure 81-58, 1981-2 C.B. 678,
a claim for payment identifying the dividends with respect to which the ACT was
paid. The first claim by such a US Holder for a payment is made by sending the
appropriate UK tax form in duplicate to the Director of the Internal Revenue
Service Center with which the US Holder's last Federal income tax return was
filed. Forms may be obtained from the IRS Assistant Commissioner
(International), 950 L'Enfant Plaza South, S.W., Washington, D.C. 20024. If the
US Holder qualifies as a US resident, the Internal Revenue Service (IRS) will
certify the form to that effect and forward it to the UK tax authorities. Claims
must be made within six years of the end of the UK year of assessment (generally
the 12-month period ending April 5 in each year) in which the related dividend
was paid. As a claim is not considered made until the UK tax authorities receive
the appropriate form from the IRS, forms should be sent to the IRS well before
the end of the applicable limitation period. Any Refund claim by a US Holder
after the first claim should be filed directly with the Financial Intermediaries
and Claims Office (International), FitzRoy House, PO Box 46, Nottingham, NG2
1BD, England.
Legislation exists in the UK which, if brought into effect, could withdraw
the entitlement of a US corporation to a Refund if it or an associated company
has a qualifying presence (as defined) in a State which operates a unitary
system of corporate taxation. The legislation, as currently drafted, will only
apply to US corporations which either alone or together with one or more
associated corporations control, directly or indirectly, at least 10% of the
voting stock of the Company. The likelihood of this legislation being brought
into effect, its effective date (and whether retrospective or not) and its
precise form cannot be predicted.
Dividends (including amounts in respect of the tax credit and any amounts
withheld) must be included in gross income by a shareholder subject to US
taxation and will generally be treated as foreign source 'passive income' or, in
the case of certain US holders, 'financial services income' for Federal income
tax purposes. Such dividends will generally not be eligible for the dividends
received deduction allowed to US corporations. Subject to certain limitations,
the applicable UK withholding tax will be treated as a foreign tax eligible for
credit against such shareholder's US Federal income tax.
Whether shareholders who reside in countries other than the USA are
entitled to the tax credit in respect of dividends on such shares depends in
general upon the provisions of such conventions or agreements as may exist
between such countries and the UK. In addition to that with the USA, conventions
or agreements presently exist between the UK and, among other countries,
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden and Switzerland.
POSITION FOR DIVIDENDS PAID ON OR AFTER APRIL 6, 1999
The Finance (No 2) Act 1997 introduced new legislation which will
significantly alter the tax treatment of dividends paid on or after April 6,
1999. As from that date the tax credit for an individual shareholder resident in
the UK will be reduced to 1/9 (or 10% of the net dividend plus the tax credit)
of the amount of the net dividend. This tax credit will continue to be available
to set against the individual's tax liability on the dividend, but will no
longer be refundable to the individual.
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<PAGE> 44
For a US Holder as defined above this amendment will have the effect of
reducing the Refund available under the Convention to nil, since the amount of
the withholding tax (at 15%) will exceed the 10% tax credit available to
individual shareholders resident in the UK. Following the example given above, a
dividend of $8.00 will result in a net receipt after UK tax but before US tax of
$8.00, rather than $8.50 (the withholding tax will not reduce the dividend below
the net dividend of $8.00).
The Finance Act 1998 also abolished the requirement for UK companies to pay
ACT on cash dividends as from April 1, 1999. This will not affect the tax
treatment of dividends described above.
SHARE DIVIDEND CHOICE FOR BP AMOCO ADR HOLDERS
ADR holders electing to receive ADSs instead of a cash dividend (see Item 8
- - -- Selected Financial Data -- Dividends) will not be entitled to any Refund from
the UK Inland Revenue, nor will the 15% withholding tax apply, with respect to
such dividends.
For US tax purposes the receipt of additional ADSs will be treated as a
dividend distribution. An ADR holder who is subject to US taxation will
generally be treated as having received gross income equal to the fair market
value of the ADSs (or fraction thereof) on the date of the share distribution in
London (with no reduction for the stamp duty reserve tax referred to below). The
US resident ADR holder will receive a tax basis in the ADSs equal to such fair
market value. Corporations will not be entitled to a dividends received
deduction on receipt of a share dividend.
FOREIGN INCOME DIVIDENDS
The Finance Act 1994 introduced new legislation under which companies are
able on or after July 1, 1994 to elect to pay a 'foreign income dividend' with
special tax treatment. ACT would be payable by the Company on such a dividend,
but surplus ACT not creditable against mainstream corporation tax liabilities
may be repayable to the Company later, based on the extent to which the dividend
was shown to have been paid out of sufficiently taxed foreign source profits.
Shareholders would obtain no tax credit. However, they would be treated for UK
tax purposes as having received income which had suffered tax at 20%. No Refund
would be available to US Holders in respect of any such dividends. BP Amoco has
not elected to pay a foreign income dividend.
The Finance (No. 2) Act 1997 repeals the foreign income dividend
legislation with effect from April 6, 1999.
UK TAXATION OF CAPITAL GAINS
A US Holder will be liable to UK tax on capital gains realized on the sale
or other disposition of Ordinary Shares only if the US Holder is resident (or,
in the case of an individual, ordinarily resident) for UK tax purposes in the UK
or if he carries on a trade, profession or vocation in the UK through a
permanent establishment and the Ordinary Shares are (i) used for the purposes of
the trade, profession or vocation, or (ii) used, held or acquired for the
purposes of the permanent establishment.
The liability to UK capital gains tax for US holders of ADRs is the same as
that for a US holder of Ordinary Shares, except that a US holder of ADRs who is
resident but not domiciled in the UK will not be taxed on gains realized on the
sale or other disposition of ADSs if the proceeds are not remitted to the UK.
UK INHERITANCE TAX
UK capital transfer tax was restructured and renamed 'inheritance tax' in
1986. The US-UK double taxation convention relating to estate and gift taxes
(the Estate Tax Convention) applies to inheritance tax. ADRs held by an
individual who is domiciled for the purposes of the Estate Tax Convention in the
USA and is not for the purposes of the Estate Tax Convention a national of the
UK will not be subject to inheritance tax on death or on transfer during the
individual's lifetime unless, among other things, the ADSs are part of the
business property of a permanent establishment situated in the UK or pertain to
a fixed base situated in the UK used for the performance of independent personal
services. In the exceptional case where ADSs are subject both to inheritance tax
and to US Federal gift or estate tax, the Estate Tax Convention generally
provides for tax paid in the UK to be credited against tax payable in the USA or
for tax paid in the USA to be credited against tax payable in the UK based on
priority rules set forth in the Estate Tax Convention.
44
<PAGE> 45
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
The statements below relate to what is understood to be the current
practice of the UK Inland Revenue under existing law.
Provided that the instrument of transfer is not executed in the UK and
remains at all times outside the UK, and the transfer does not relate to any
matter or thing done or to be done in the UK, no UK stamp duty is payable on the
acquisition or transfer of ADSs. Neither will an agreement to transfer ADSs in
the form of ADRs give rise to a liability to stamp duty reserve tax.
Purchases of Ordinary Shares, as opposed to ADSs, through the CREST system
of paperless share transfers will be subject to stamp duty reserve tax at a rate
of 0.5%. The charge will arise as soon as there is an agreement for the transfer
of the shares (or, in the case of a conditional agreement, when the condition is
fulfilled). The stamp duty reserve tax will apply to agreements to transfer
Ordinary Shares even if the agreement is made outside the UK between two
non-residents. Purchases of Ordinary Shares outside the CREST system are subject
either to stamp duty at a rate of 50 pence per L100 (or part), or stamp duty
reserve tax at 0.5%. Stamp duty and stamp duty reserve tax are generally the
liability of the purchaser. A subsequent transfer of Ordinary Shares to the
Depositary's nominee will give rise to further stamp duty at the rate of L1.50
per L100 (or part) or stamp duty reserve tax at the rate of 1.5% of the value of
the Ordinary Shares at the time of the transfer.
A transfer of the underlying Ordinary Shares to an ADR holder upon
cancellation of the ADSs without transfer of beneficial ownership will give rise
to UK stamp duty at the rate of 50 pence per transfer (which is increased to L5
in the 1999 UK budget).
An ADR holder electing to receive ADSs instead of a cash dividend will be
responsible for the stamp duty reserve tax due on issue of shares to the
Depositary's nominee and calculated at the rate of 1.5% on the issue price of
the shares. Current UK Inland Revenue practice is to calculate the issue price
by reference to the total cash receipt (i.e. cash dividend plus the Refund if
any) to which a US Holder would have been entitled had the election to receive
ADSs instead of a cash dividend not been made. ADR holders electing to receive
ADSs instead of the cash dividend authorize the Depositary to sell sufficient
shares to cover this liability.
45
<PAGE> 46
ITEM 8 -- SELECTED FINANCIAL DATA
SUMMARIZED FINANCIAL INFORMATION
The information shown below for 1998, 1997 and 1996 has been extracted or
derived from the audited financial statements of the BP Amoco Group presented
elsewhere herein. The unaudited pro forma financial information for 1995 and
1994 has been derived by combining historical financial information for BP and
Amoco (after adjusting onto a UK GAAP basis). In presenting this information the
merger is assumed to have occurred on January 1, 1994. See Item 9 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
($ million except per share amounts)
<S> <C> <C> <C> <C> <C>
UK GAAP
INCOME STATEMENT DATA
Turnover................................. 83,732 108,564 102,064 84,216 76,809
Less: Joint ventures..................... (15,428) (16,804) -- -- --
------- ------- ------- ------- -------
Group turnover........................... 68,304 91,760 102,064 84,216 76,809
Total replacement cost operating profit
(a).................................... 6,437 10,583 10,544 8,170 7,004
Replacement cost profit before
exceptional items (b).................. 3,999 6,649 6,696 4,962 3,945
Profit for the year...................... 3,260 6,030 7,241 3,602 4,352
Per Ordinary Share:
Profit for the year:
Basic............................... $ 0.34 $0.63 $0.76 $0.38 $0.46
Diluted............................. $ 0.34 $0.63 $0.75 $0.38 $0.46
Dividends (c)............................ $0.395 $0.36 $0.31 $0.27 $0.21
BALANCE SHEET DATA
Total assets............................. 84,500 85,947 88,315 81,165 78,679
BP Amoco Shareholders' interest.......... 41,786 41,748 41,019 35,851 34,255
Finance debt due after more than one
year................................... 10,918 10,021 10,088 11,375 13,284
Debt to borrowed and invested capital
(d).................................... 20% 19% 20% 24% 28%
OTHER DATA
Per Ordinary Share:
Replacement cost profit before
exceptional items................... $ 0.42 $0.69 $0.70 $0.52 $0.42
Net cash inflow from operating activities
(e).................................... 9,586 15,558 13,679 12,682 11,877
Net cash outflow from capital expenditure
acquisitions and disposals............. 6,520 10,056 8,056 7,183 4,629
US GAAP
INCOME STATEMENT DATA
Revenues................................. 68,304 91,760 102,064 84,216 76,809
Profit for the year...................... 2,826 5,686 6,795 3,991 4,050
Comprehensive income..................... 2,848 4,106 7,218 4,346 4,918
Profit per Ordinary Share (f):
Basic.................................. $ 0.29 $0.59 $0.71 $0.42 $0.43
Diluted................................ $ 0.29 $0.59 $0.71 $0.42 $0.43
Profit per American Depositary Share
(f)(g):
Basic.................................. $ 1.74 $3.54 $4.26 $2.52 $2.58
Diluted................................ $ 1.74 $3.54 $4.26 $2.52 $2.58
BALANCE SHEET DATA
Total assets............................. 85,538 87,076 89,934 89,929 80,615
BP Amoco Shareholders' interest.......... 37,334 37,504 37,259 32,475 30,413
OTHER DATA
Net cash used in investing activities.... 6,861 10,151 8,311 7,160 4,594
Net cash used in financing activities.... 2,161 3,449 3,239 3,723 4,102
</TABLE>
- - ------------
(a) Operating profit is a UK GAAP measure of trading performance. It excludes
profits and losses on the sale of businesses and fixed assets and
fundamental restructuring costs, interest expense and taxation.
46
<PAGE> 47
BP Amoco determines operating profit on a replacement cost basis, which
eliminates the effect of inventory holding gains and losses. For the oil
and gas industry, the price of crude oil can vary significantly from period
to period; hence the value of crude oil (and products) also varies. As a
consequence, the amount that would be charged to cost of sales on a
first-in, first-out (FIFO) basis of inventory valuation would include the
effect of oil price fluctuations on oil and products inventories. BP Amoco
therefore charges cost of sales with the average cost of supplies incurred
during the period rather than the historical cost of supplies on a FIFO
basis. For this purpose, inventories at the beginning and end of the period
are valued at the average cost of supplies incurred during the period
rather than at their historical cost. These valuations are made quarterly
by each business unit, based on local oil and product price indices
applicable to their specific inventory holdings, following a methodology
that has been consistently applied by BP Amoco for many years. Operating
profit on the replacement cost basis is used by BP Amoco management as the
primary measure of business unit trading performance and BP Amoco
management believes that this measure assists investors to assess BP
Amoco's underlying trading performance from period to period.
Replacement cost is not a US GAAP measure. The major US oil companies apply
the last-in, first-out (LIFO) basis of inventory valuation. The LIFO basis
is not permitted under UK GAAP. The LIFO basis eliminates the effect of
price fluctuations on crude oil and product inventory except where an
inventory drawdown occurs in a period. BP Amoco management believes that
where inventory volumes remain constant or increase in a period, operating
profit on the LIFO basis will not differ materially from operating profit
on BP Amoco's replacement cost basis.
Where an inventory drawdown occurs in a period, cost of sales on a LIFO
basis will be charged with the historical cost of the inventory drawn down,
whereas BP Amoco's replacement cost basis charges cost of sales at the
average cost of supplies for the period. To the extent that the historical
cost on the LIFO basis of the inventory drawn down is lower than the
current cost of supplies in the period, operating profit on the LIFO basis
will be greater than operating profit on BP Amoco's replacement cost basis.
To the extent that the historical cost on the LIFO basis of the inventory
drawdown is greater than the current cost of supplies in the period
operating profit on the LIFO basis will be lower than operating profit on
BP Amoco's replacement cost basis.
(b) Replacement cost profit before exceptional items excludes profits and losses
on the sale of businesses and fixed assets and fundamental restructuring
costs, which are defined by UK GAAP. This is the measure of profit used by
the BP Amoco board in setting targets for and monitoring performance within
BP Amoco. BP Amoco's management believes this indicator provides the most
relevant and useful measure for investors because it most accurately
reflects underlying trading performance.
(c) BP Amoco dividends per share represent historical dividends per share paid
by BP.
(d) Finance debt due after more than one year, compared with such debt plus BP
Amoco and minority shareholders' interests.
(e) The net cash inflows from operating activities are presented in accordance
with the requirements of Financial Reporting Standard No. 1 (Revised 1996)
issued by the UK Accounting Standards Board. For a cash flow statement
prepared on a US GAAP basis see Item 18 -- Note 45 of Notes to Financial
Statements.
(f) FASB Statement of Financial Accounting Standards No. 128 -- 'Earnings per
Share' (SFAS 128) was adopted for the accounting period ending December 31,
1997. Amounts for prior periods have been restated as required by SFAS 128.
(g) With effect from June 6, 1997, the Company split existing ADSs on a
two-for-one basis so that an ADS is now equivalent to six Ordinary Shares.
Comparative figures for 1994 to 1996 inclusive have been restated
accordingly.
47
<PAGE> 48
DIVIDENDS
BP p.l.c. has paid dividends on its Ordinary Shares in each year since
1917. In 1999, there was a dividend payment in February to holders of BP p.l.c.
Ordinary Shares and ADSs as at November 13, 1998. There will be further dividend
payments in April, June, September and December to harmonize payment dates for
former BP and Amoco shareholders. In 2000 and thereafter, dividends will be paid
quarterly in March, June, September and December. Until their shares have been
exchanged into the form of BP Amoco ADSs, Amoco Shareholders do not have the
right to receive dividends.
Following the merger, BP Amoco announces dividends on Ordinary Shares in US
dollars and at the same time states an equivalent sterling dividend. Previously
BP p.l.c. announced dividends in sterling. Foreign exchange rates may affect
dividends paid. However, when setting the dividend the directors are mindful of
dividend fluctuation in sterling terms.
The following table shows dividends announced by the Company per ADS for
each of the past five years, together with the Refund but before deduction of
withholding taxes as described in Item 7 -- Taxation. Dividends have been
translated from pounds per ADS up to and including the third quarterly dividend
for 1998, and from dollars per ADS for the fourth quarterly dividend of 1998, at
an exchange rate in London on the business day last preceding the day when the
directors announced their intention to pay the quarterly dividends for those
years.
DIVIDENDS PER AMERICAN DEPOSITARY SHARE (a)
<TABLE>
<CAPTION>
Quarterly
----------------------------------------
First Second Third Fourth Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1994........................ UK pence 18.7 18.8 18.7 22.5 78.7
US cents 28.1 28.8 30.6 35.2 122.7
Can. cents 38.9 40.1 41.3 49.4 169.7
1995........................ UK pence 22.5 30.0 30.0 31.9 114.4
US cents 36.0 48.1 47.4 48.8 180.3
Can. cents 48.8 65.2 64.0 67.0 245.0
1996........................ UK pence 31.9 37.5 37.5 39.4 146.3
US cents 47.8 57.9 61.8 64.3 231.8
Can. cents 65.3 79.6 82.5 86.9 314.3
1997........................ UK pence 39.4 41.2 41.3 43.1 165.0
US cents 63.7 67.3 69.2 70.5 270.7
Can. cents 88.1 92.8 97.1 101.1 379.1
1998........................ UK pence 43.1 45.0 45.0 45.9 179.0
US cents 71.9 73.1 75.1 66.7 286.8
Can. cents 102.8 110.7 115.5 100.0 429.0
</TABLE>
- - ------------
(a) With effect from June 6, 1997, the Company split existing ADSs on a
two-for-one basis so that an ADS is now equivalent to six Ordinary Shares.
Comparative figures for 1994 to 1996 inclusive have been restated
accordingly.
The share dividend plan whereby holders of Ordinary Shares could elect to
receive new shares (out of unissued share capital) instead of cash dividends at
a rate equivalent to the sum of the net cash dividend and related tax credit,
was withdrawn following the third quarterly 1998 dividend.
A dividend reinvestment plan was introduced with effect from the fourth
quarterly 1998 dividend, whereby holders of Ordinary Shares can elect to
reinvest the net cash dividend in shares purchased on the London Stock Exchange.
This plan is not available to any person resident in the USA or Canada, or in
any jurisdiction outside the UK where such an offer requires compliance by the
Company with any governmental or regulatory procedures or any similar
formalities.
A dividend reinvestment plan is, however, available for holders of ADSs
through Morgan Guaranty Trust Company of New York.
Future dividends of BP Amoco p.l.c. will be dependent upon future earnings,
the financial condition of the Group, the Additional Factors which may affect
the business of the Group set out in Item 1 -- Description of Business, and
other factors.
48
<PAGE> 49
ITEM 9 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GROUP RESULTS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
HIGHLIGHTS ------- ------- -------
<S> <C> <C> <C> <C>
Total replacement cost operating profit.............. ($ million) 6,437 10,583 10,544
Replacement cost profit before exceptional items..... ($ million) 3,999 6,649 6,696
Replacement cost profit for the year................. ($ million) 4,651 6,969 6,069
Historical cost profit for the year.................. ($ million) 3,260 6,030 7,241
Profit per Ordinary Share (diluted).................. (cents) 34 63 75
Dividends per Ordinary Share......................... (cents) 39.5 36.0 31.0
</TABLE>
The merger between BP and Amoco became effective on December 31, 1998,
resulting in the Company being owned 60% by former BP shareholders and 40% by
former Amoco stock holders. In accordance with UK GAAP, the merger method of
accounting has been applied in preparing the financial statements. The merger
qualifies for the pooling of interests method of accounting under US GAAP.
Under merger accounting, the results and cash flows of BP and Amoco are
combined from the beginning of the financial period in which the merger
occurred. The assets and liabilities of the two companies are combined at the
amounts at which they were previously recorded after adjusting to achieve
consistency of accounting policies. Consequently, the financial and operating
information and discussion for 1998 and prior periods are presented for BP Amoco
on a combined basis. The separate results of each company, on a UK GAAP basis,
are shown in Item 18 -- Note 44 of Notes to Financial Statements.
BP Amoco's operations are substantially US dollar-based. To reflect this,
the reporting currency of the Group has been changed to the US dollar. Financial
information for all periods presented is shown in US dollars.
The US dollar was relatively stable against European currencies in 1998. In
1997 most currencies declined against the dollar, except for sterling which
strengthened to an average of $1.64/L1 from $1.56/L1 in 1996.
In 1998, financial performance was affected by general price deflation and
erosion of margins, with a 34% fall in average oil realizations and
deterioration in both the downstream and chemicals environments. Productivity
improvements, cost savings and higher sales volumes partially offset this
significant downturn in the operating environment.
Replacement cost profit before exceptional items (which excludes inventory
holding gains and losses) for 1998 was $3,999 million compared with $6,649
million in 1997. In addition to exceptional items (as identified under UK GAAP)
these results included net special charges of $597 million ($469 million after
tax) in 1998 and $133 million ($106 million after tax) in 1997. Special items
are non-recurring charges and credits reported in the period, which are not
exceptional items. The special items in both years consisted principally of
asset write-downs in respect of fixed asset impairments. After excluding these
special items, the 1998 results were 34% lower than that of 1997. 1998 results
reflect the new requirement to capitalize certain information technology
expenditure of a type which had been expensed in previous years. The amount
capitalized in 1998 was some $160 million. For further details of the accounting
for computer software costs, see Item 18 -- Note 45 of Notes to Financial
Statements. The return on average capital employed, based on replacement cost
profit before exceptional items, was 9% compared to 14% in 1997.
The historical cost profit for 1998 was $3,260 million after inventory
holding losses of $1,391 million. This compared with a profit of $6,030 million
after inventory holding losses of $939 million for 1997. The results for 1998
included net exceptional profits of $850 million ($652 million after tax); those
of 1997 included net exceptional profits of $511 million ($320 million after
tax).
The 1997 replacement cost profit before exceptional items represented a
small decrease compared with 1996. It was achieved against mixed operating
conditions. Oil prices, down by a dollar per barrel compared with 1996, were
compensated for to some extent by higher natural gas prices, operating
improvements and higher oil production. Refining margins experienced by BP Amoco
were more favorable than those of 1996 and retail margins recovered to some
extent in the UK. Offsetting these effects were increasing competition in the US
and Australasian retail markets and the decline of most currencies
49
<PAGE> 50
against the dollar. Higher income was achieved through improved operating
performance in both refining and marketing, including the benefits of the
BP/Mobil joint venture in Europe. Chemicals experienced improved volumes and
some higher margins but was adversely affected by lower paraxylene margins, the
strength of the dollar against the Deutschmark and Asian currency weakness in
the latter part of the year. The 1996 result included net special charges of $74
million, before tax, relating to early redemption of debt.
The historical cost profit for 1996 was $7,241 million. This included
inventory holding gains of $1,172 million and net exceptional charges of $703
million ($627 million after tax and minority interests). The replacement cost
profit before exceptional items was $6,696 million.
The total dividends announced in respect of 1998 were $4,121 million,
against $3,452 million in 1997. Over half of this increase was a non-recurring
effect of the entitlement of former Amoco shareholders to the BP Amoco dividend
in respect of the fourth quarter of 1998 in addition to the Amoco dividend
announced in the fourth quarter. The Company intends to announce dividends in
the future with a payout of around 50% of our estimated average earnings through
the business cycle.
Capital expenditure and acquisitions amounted to $10,362 million, 9% down
on 1997. Expenditure in 1998 included the acquisition of Styrenix Kunststoffe, a
plastics business in Germany. In 1997 expenditure included the acquisition of
interests in A O Sidanco in Russia, Pan American Energy in Argentina and Empresa
Petrolera Chaco in Bolivia. Expenditure in 1999 is likely to be around $7
billion, reflecting sharpened focus in the capital program. Exploration and
Production expenditure is likely to be reduced to take into account the current
low oil prices and investment projects in Asia are expected to be carried out
over a longer time-frame than previously envisaged. Capital expenditure net of
divestments in 1998 was $8,195 million (1997 $9,588 million).
At the April 1998 annual general meeting, BP shareholders gave authority
for the directors to repurchase up to 5% of the company's ordinary share capital
for cancellation. Prior to the completion of the merger with Amoco the board
resolved not to exercise this authority and this was communicated to
shareholders at the extraordinary general meeting held to approve the merger.
During 1998 BP completed its program to buy shares in the market to the value of
$500 million to meet future obligations under employee share schemes.
Amoco began a two-year, $2 billion stock repurchase program in 1997 which
was terminated as a result of the merger. In 1998, 13.8 million shares of common
stock were repurchased and cancelled at a cost of $584 million.
EXCEPTIONAL ITEMS
Exceptional items comprise profits or losses on the sale of businesses and
fixed assets, merger transaction costs and fundamental restructuring charges.
In 1998 sales of businesses and fixed assets generated net profits before
tax of $1,048 million. The principal sales were exploration and production
properties in the USA and Papua New Guinea, the refinery in Lima, Ohio, the sale
and leaseback of the Amoco building in Chicago, Illinois, the retail network in
the Czech Republic, the Adibis fuel additives business and a speciality
chemicals distribution business. Also included was the disposal by the BP/Mobil
joint venture of its retail network in Belgium. Merger transaction costs of $198
million in respect of advisers' fees and expenses were incurred in 1998.
The major elements of the net profit before tax on the sale of businesses
and fixed assets in 1997 of $440 million were the sales of US exploration and
production properties and an intrastate natural gas pipeline unit in Texas. The
loss on sale of businesses by joint ventures relates principally to the costs of
the BP/Mobil joint venture terminating base oil manufacturing operations at
Llandarcy in the UK. Also in 1997, provisions of $71 million originally set up
in 1995 as part of the refinery network rationalization were written back as a
result of the decision to continue operating the Lavera, France, refinery.
In 1996 the net loss of $171 million before tax resulted principally from
the sale of the polystyrene foam products and Carborundum businesses, properties
in the UK and USA and Canadian upstream assets. The implementation costs
relating to the European downstream joint venture with Mobil charged against
income in 1996 represented BP Amoco's share of severance, restructuring and
rebranding in the joint venture which, together with asset write-downs and some
BP-specific costs, amounted to $532 million
50
<PAGE> 51
before tax. Cash outflows relating to these costs were $122 million in 1998,
$307 million in 1997 and $69 million in 1996.
BUSINESS OPERATING RESULTS
Total replacement cost operating profit, which is arrived at before
inventory holding gains and losses, interest expense, taxation and minority
interests, and before exceptional items, was $6,437 million in 1998, $10,583
million in 1997 and $10,544 million in 1996. The business results which follow
are presented on this basis.
EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Total replacement cost operating profit.............. ($ million) 3,147 7,285 7,673
Results included:
Exploration expense................................ ($ million) 921 962 997
Key statistics:
Average prices realized by BP Amoco:
North Sea....................................... ($/bbl) 12.7 19.1 20.4
Alaskan North Slope............................. ($/bbl) 12.6 19.0 19.7
US natural gas.................................. ($/mcf) 1.8 2.2 1.9
Crude oil production (a)............................. (mb/d) 2,049 1,930 1,903
Natural gas production (a)........................... (mmcf/d) 5,808 5,858 5,917
Total production (a)(b).............................. (mboe/d) 3,050 2,940 2,924
</TABLE>
- - ------------
(a) Includes BP Amoco's share of associated undertakings.
(b) Expressed in thousands of barrels of oil equivalent per day (mboe/d).
Natural gas is converted to oil equivalent at 5.8 billion cubic feet : 1
million barrels.
In 1998 our upstream business performed well in a most difficult
environment. Replacement cost operating profit, adjusted for net special
charges, declined by 50%. The special charges of $485 million principally
comprised $200 million for the write-down of the Group's investment in A O
Sidanco and $121 million for the impairment of the Opon field and $93 million
for the adjacent power plant in Colombia. Brent North Sea oil averaged $6.4 a
barrel below the 1997 level while North American natural gas prices were some 40
cents per thousand cubic feet below the 1997 average.
Increased production volumes, coupled with a sustained focus on costs,
boosted this performance. Production grew 3.7% to 3,050 thousand barrels of oil
equivalent a day (mboe/d). Production of oil, condensate and natural gas liquid
increased by 6.2% to 2,049 thousand barrels a day (mb/d), while natural gas
production fell 0.9% to 5,808 million standard cubic feet a day (mmcf/d) because
of the decline at older UK offshore fields. This decline is expected to be
offset in 1999 by a full year's production from the Eastern Trough Area Project
(ETAP).
This production growth was supported by strong performance from our 1997
start-ups, and completion of a large number of new projects in 1998. These
included ETAP, Viking Phoenix, Brown and Bruce Phase 2 in the North Sea;
Schiehallion and Loyal, west of Shetland; Hugoton natural gas plant in the USA;
the second phase of development of the Cusiana/Cupiagua project in Colombia; and
Pedernales phase 2 in Venezuela. Start-up of these projects contributed towards
the transfer of 1.38 billion barrels of oil equivalent of reserves to developed
status.
In 1998, finding and development costs averaged $4.7 a barrel of oil
equivalent, within our targeted range of $4 to $5. Lifting costs averaged $3.2 a
barrel of oil equivalent, compared with $3.0 in 1997.
Exploration and Production's total replacement cost profit for 1997 of
$7,285 million represented a decrease of $388 million compared with 1996.
Although production was increased by 1% and higher worldwide natural gas prices
contributed favourably to 1997 results, these effects were more than offset by
the impact of lower oil prices which, at $19.1 per barrel, were down on average
by some 6% compared with 1996.
51
<PAGE> 52
Crude oil production in 1997 averaged 1,930 mb/d, an increase of 27 mb/d on
1996, while natural gas production fell to 5,858 mmcf/d from 5,917 mmcf/d in
1996. The increase in oil production included a full year's production from
fields in the North Sea and the Gulf of Mexico commissioned in 1996 and new or
incremental production in 1997 in a number of areas. These increases compensated
for normal declines in production from mature fields in areas such as Alaska and
the North Sea, the effect of major maintenance shut-downs and disposals of
non-core interests. The decrease in natural gas production resulted from normal
declines in production in mature fields and disposals of interests, primarily in
the USA. These were partially compensated for by strong natural gas sales in the
UK and new production from equity-accounted entities.
Reserve replacement in 1998 was 132% of production, with 1,339 million
barrels of oil equivalent added to proved reserves. This was the fifth
consecutive year in which we successfully replaced our reserves. Within this
growth, natural gas reserve replacement of 244% of production exceeded oil
reserve replacement of 71% of production.
During 1998, discoveries occurred in many parts of the world. Our success
in Angola continued with new finds in Kissanje, Marimba, Hungo and Dikanza in
Block 15. In South America, there was a successful discovery at the Tropical-1X
well on the Quiriquire block in Venezuela, in which we have a 45% stake. In
Norway, the Barden well confirmed significant natural gas reserves in the
Southern extension of the Ormen Lange Dome. Other substantial oil and natural
gas discoveries were made off the coast of Trinidad and in Egypt, Canada and the
USA.
Capital expenditure and acquisitions decreased from $7,879 million in 1997
to $6,318 million in 1998.
In 1999, projects coming on stream should include the Ursa, Europa and
Marlin developments in the Gulf of Mexico which are on, or ahead of, schedule,
and the Pascagoula natural gas liquid processing plant for deepwater production
is expected to begin operations. We have also started construction of the Great
Yarmouth power plant in eastern England.
REFINING AND MARKETING
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1998(a) 1997(a) 1996
------- -------- -------
<S> <C> <C> <C> <C>
Total replacement cost operating profit........... ($ million) 2,564 2,292 1,708
Indicative industry global refining margin........ ($/bbl) 1.7 1.8 2.2
Refinery throughputs.............................. (mb/d) 2,698 2,855 2,804
Total marketing sales............................. (mb/d) 3,137 3,083 2,924
</TABLE>
- - ------------
(a) Includes BP Amoco's share of the BP/Mobil joint venture.
1998 was a year of strong performance for the downstream business.
Underlying performance delivered total replacement cost operating profit of
$2,564 million, an increase of 12% over 1997, with a competitive return on fixed
assets of 12%. This outcome was achieved in spite of difficult trading
conditions, characterized by reduced refining margins in the second half of the
year and the impact of economic slowdown in our growth markets. 1998 also
benefited from the capitalization of IT expenditure of $70 million which would
have been expensed in earlier periods.
Marketing volumes rose in spite of divestments across both the retail and
commercial segments, with continued improvement flowing from our US and European
operations. The retail business grew during the year, with volumes up 3%. The
focus on growing our convenience retailing activity as one of our key strategic
objectives continued. The 'Split Second' US convenience store format was rolled
out in Atlanta, Georgia; Philadelphia, Pennsylvania; Chicago, Illinois; Denver,
Colorado and south Florida, with high customer satisfaction ratings. Our
commercial marketing activities continued to deliver strong growth in income
with the drive towards customer-focused marketing solutions.
In 1998, despite lower overall margins our refining business achieved good
results. A combination of cost savings and improved operating efficiency
produced a 12% improvement in total replacement cost operating profit compared
with 1997.
In 1997, Refining and Marketing's total replacement cost operating profit
was $2,292 million, a year-on-year increase of 34%. The increase reflected
continuing operating improvements in both refining and marketing, a good trading
performance, and the benefits derived from the BP/Mobil joint venture in
52
<PAGE> 53
Europe. The impact of the operating conditions was mixed, with better BP Amoco
refining margins generally and improved retail margins in the UK, offset by an
increase in competitive pressures in the US and Australasian retail markets.
Marketing volumes in 1997 were 5% higher than in 1996, reflecting the
benefits of the European joint venture with Mobil, expansion into emerging
markets, and a concerted effort to improve retail facilities in established
markets.
In 1997 crude oil processing at the Pernis site in Rotterdam, the
Netherlands, was terminated, and the refurbished crude unit at the Europoort
site commenced operations. A review of options in respect of the Lavera refinery
in France indicated that the sale or closure anticipated as part of BP's global
refinery network rationalization, announced in 1995, was no longer the optimal
solution and the refinery continues in operation within the BP/Mobil joint
venture. In Germany, the new refining company Bayernoil, created by the merger
of the RVI refinery (BP 62.5%) and ERN (Neustadt) refinery (Mobil 50%), was
established on January 1, 1998.
Capital expenditure in 1998 was $1,937 million compared with $1,824 million
in 1997. The Group's capital expenditure on refinery assets, including
environmental and investments in line with regulatory requirements to improve
product quality, totalled $685 million in 1998 compared with $581 million in
1997. Major investment in the Grangemouth refinery in Scotland to increase
middle distillate yields was completed successfully in 1998, while the program
to position the Toledo, Ohio, refinery to run on cheaper heavy crudes progressed
as planned towards commissioning in 1999. We also successfully completed the
sale of the Lima refinery in Ohio. Capital expenditure on marketing assets was
$1,252 million compared with $1,243 million in 1997.
CHEMICALS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Total replacement cost operating profit.... ($ million) 1,100 1,530 1,654
Chemicals production (a)................... (thousand tonnes) 20,073 19,491 17,498
</TABLE>
- - ------------
(a) Includes BP Amoco's share of associated undertakings and other interests in
production.
In 1998, margins for most commodity chemicals deteriorated compared with
1997. This reflected increased industry capacity, weak demand in Europe and the
financial crisis in Asia. These factors were offset to some extent by our
continued focus on self-help initiatives, such as cost reduction, and by the
benefits of our investment in proprietary technology.
The total volume of product manufactured rose by 3% in the year,
principally reflecting our styrenics acquisition in early 1998. As a result of
all these factors total replacement cost operating profit was $1,100 million
compared with $1,530 million in 1997.
Total replacement cost operating profit for Chemicals in 1997 represented a
decrease of some 7% compared with 1996. Improved volumes and higher margins for
several products during 1997 were offset by a decline in paraxylene margins, the
strength of sterling and a weaker Deutschmark, and Asian currency weakness in
the latter part of the year.
Chemicals production in 1997 benefited from capacity expansions brought
onstream towards the end of 1996. This resulted in a year-on-year production
increase of 11%.
In 1998, divestments included the Adibis lubricants and fuel additives
business and speciality chemicals distribution businesses in Europe and
Australasia. During 1997 BP Amoco sold its advanced materials and phenolic
resins business in the UK. In 1996, we completed the sale of our polystyrene
foam products and Carborundum businesses.
Capital expenditure and acquisitions in 1998 was $1,606 million compared
with $1,145 million in 1997. During 1998 we acquired Styrenix Kunststoffe.
Projects completed in 1998 included the purified terephthalic acid unit and
paraxylene unit at Geel, a new metaxylene plant at Texas City, and the first
stage of the planned $825 million investment program in the UK. Capital
expenditure in 1997 included a number of expansions and constructions of new
facilities.
53
<PAGE> 54
OTHER BUSINESSES AND CORPORATE
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Replacement cost operating loss................... ($ million) 374 524 491
</TABLE>
Other Businesses and Corporate comprises Finance, the solar businesses, the
Group's coal interest, interest income and costs relating to corporate
activities worldwide.
The net cost of Other Businesses and Corporate of $374 million for 1998
included $50 million for integration costs in respect of the BP Amoco merger.
1998 benefited from the capitalization of IT expenditure amounting to $65
million which would have been expensed in earlier periods.
INTEREST EXPENSE
Interest expense in 1998 was $1,053 million compared with $908 million in
1997. The increase reflected higher average debt, partly offset by lower
interest rates.
Total interest expense was reduced from $1,004 million in 1996 to $908
million in 1997 as a result of debt repayments and lower interest rates. The
reported interest expense in 1996 included a net special charge of $74 million
caused by the early redemption of $1 billion of bonds.
TAXATION
The charge for corporate taxes in 1998 was $1,520 million compared with
$3,066 million in 1997, and $2,755 million in 1996. The effective tax rate on
historical cost profit was 31% in 1998, 33% in 1997 and 28% in 1996.
Excluding the effects of exceptional items, the charge for corporate taxes
was $1,322 million in 1998, $2,875 million in 1997 and $2,825 million in 1996.
The decline in tax charge from 1997 to 1998 reflected the fall in income between
those two years. The effective tax rate on replacement cost profit before
exceptional items was 25%, compared with 30% in the previous year and in 1996.
This reduction reflected the effects of tax relief on higher inventory holding
losses and timing benefits. This rate is likely to rise in the future as these
effects are expected to be less marked.
BP AMOCO GROUP'S FINANCIAL CONDITION
CASH FLOW
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Net cash inflow from operating activities................... 9,586 15,558 13,679
Net cash inflow (outflow)................................... (906) 878 377
</TABLE>
Net cash flow for 1998 was an outflow of $906 million, compared with an
inflow of $878 million in 1997. The change reflects lower operating cash flow
resulting from lower income and a smaller reduction in working capital
requirements than in 1997, partially offset by a turnaround in the funding
position of the BP/Mobil joint venture, lower net capital expenditures and lower
tax payments.
Net cash inflow from operating activities fell from $15,558 million in 1997
to $9,586 million in 1998. Most of this decrease was caused by the effect on
profits of the deterioration in the operating environment for all of our
businesses. The requirement for funding working capital decreased in 1998 by
$352 million, compared with a reduction of $1,396 million in 1997.
Dividends from joint ventures and associated undertakings increased to $966
million in 1998 from $741 million in 1997, mainly as a result of improved
profits from the BP/Mobil joint venture. The net cash outflow from servicing of
finance and from returns on investments increased to $825 million from $655
million in 1997, principally because of the payment of dividends to minority
shareholders. Tax payments fell from $2,273 million in 1997 to $1,705 million in
1998.
Payments for capital expenditures on fixed assets and purchase of shares
for employee share schemes, net of proceeds from sales of fixed assets, amounted
to $7,298 million in 1998. This represented a small increase over the net
payments of $7,432 million in 1997.
54
<PAGE> 55
Acquisitions and disposals of businesses resulted in a net cash inflow of
$778 million in 1998 compared with an outflow of $2,624 million in 1997. This
was due in part to an increase in disposal proceeds but principally to the
funding situation with joint ventures. A turnaround in the funding position of
the BP/Mobil joint venture produced net cash inflows of $708 million in 1998,
whereas in 1997 the initial funding of this and certain other joint ventures
caused an outflow of $1,967 million.
Dividend payments decreased by $29 million to $2,408 million in 1998,
reflecting an increase in distributions offset by a higher proportion of
shareholders opting for the share dividend.
In 1997 the net cash inflow of $878 million represented an increase of $501
million over 1996. The main elements in the improvement in 1997 over 1996 were
increased operating cash flows, resulting mainly from decreased working capital
requirements, and lower payments for capital expenditures. There were also lower
net interest and tax payments, and increased dividends from associated
undertakings and joint ventures.
Net cash inflow from operating activities increased in 1997 to $15,558
million from $13,679 million in 1996. The major element of this was a reduction
in working capital requirements in 1997 compared with an increase in 1996 caused
principally by the effect of a rising oil price in the latter part of 1996.
Dividend payments from joint ventures and associated undertakings increased
to $741 million in 1997 from $476 million in 1996. The major part of this
increase was the payment of dividends from the BP/ Mobil joint venture in its
first full year of operation. Net interest paid fell from $910 million in 1996
to $668 million in 1997.
Tax payments of $2,431 million in 1996 included $300 million in respect of
the final net tax payment relating to the settlement, in 1994, of a tax dispute
with the State of Alaska. After excluding this item, tax payments of $2,273
million in 1997 represented a decrease of $142 million on 1996.
Net payments for capital expenditures on fixed assets and purchase of
shares for employee share schemes, net of proceeds from sales of fixed assets,
amounted to $7,432 million in 1997 compared with $7,965 million in 1996. The
principal element in this reduction was an increase in disposal proceeds, which
rose to $1,468 million in 1997 compared with $973 million in 1996. The increase
in net cash outflow from acquisitions and disposals of businesses in 1997 to
$2,624 million from $91 million in 1996 was principally due to the initial
funding of joint ventures in 1997, as well as a reduction in disposal proceeds.
FINANCING THE GROUP'S ACTIVITIES
The Group's principal commodity, oil, is priced internationally in dollars.
Group policy has been to minimize economic exposure to currency movements by
financing operations with dollar debt wherever possible, achieving this by
currency swaps when funds have been raised in currencies other than dollars.
The Group's finance debt is almost entirely in US dollars. Net debt, that
is debt less cash and liquid resources, increased by $1,425 million during 1998,
and net debt at the year-end stood at $12.9 billion. The ratio of net debt to
net debt plus equity was 23% compared with 21% a year ago. In the absence of
unforeseen events, we expect to keep this ratio below a target ceiling of 30%.
At December 31, 1998 contracts had been placed for authorized future
capital expenditure estimated at $3,691 million, mainly in respect of
exploration and production activities. Such expenditure is expected to be
financed largely by cash flow from operating activities. At December 31, 1998,
the Group had substantial amounts of undrawn borrowing facilities available,
including $2,800 million ($2,500 million at December 31, 1997) which were
covered by formal commitments.
BP Amoco has in place a Debt Issuance Program (the Program). Under the
Program certain subsidiaries of the Group may from time to time issue debt
securities guaranteed by the Company. The debt may have a minimum maturity of
one month and no maximum maturity. Aggregate debt outstanding under the Program
will not at any time exceed $2 billion or the equivalent in other currencies. At
March 29, 1999, the amount drawn down against this Program was $1,134 million.
OUTLOOK
Crude oil supply remains in excess of weakened demand, and inventory levels
remain high. An enduring change in the oil price is likely to depend on the
supply-side response to this situation.
55
<PAGE> 56
Downstream, margins and volumes are likely to remain under pressure, due to
moderating demand and high inventory levels for oil products.
In Chemicals, the downward pressure on margins and volumes is expected to
continue for some time. This is caused by a combination of new industry capacity
coming on stream at the same time as demand is weakening.
The foregoing discussions focus on certain trends and general market and
economic conditions and outlook on production levels or rates, prices and
margins and, as such, are forward-looking statements that involve risk and
uncertainty that could cause actual results and developments to differ
materially from those expressed or implied by these discussions. By their
nature, trends and outlook on production, price or margin are difficult to
forecast with any precision, and there are a number of factors, including the
dynamic nature of economic conditions, that could cause actual results and
developments to differ materially from those expressed or implied by these
forward-looking statements. For a discussion of additional factors that may
affect the above discussion, see Item 1 -- Description of Business -- Additional
Factors Which May Affect Business.
FINANCIAL RISK MANAGEMENT
Fluctuations in exchange rates can have significant effects on BP Amoco's
operating results. The effects of most exchange rate fluctuations are subsumed
within business operating results through changing cost competitiveness, lags in
market adjustment to movements in rates, and conversion differences accounted on
specific transactions. For this reason the total effect of exchange rate
fluctuations is not identifiable separately in the Group's reported results.
The underlying economic currency of the Group's cash flows is mainly the US
dollar. Our foreign exchange management policy is to minimize economic and
material transactional exposures from currency movements against the US dollar.
Wherever possible, BP Amoco nets exposures using natural offsets to reduce
foreign exchange risk. Significant residual non-dollar exposures are managed
using a range of derivatives. In addition, most of the Group's borrowings are in
US dollars, are hedged with respect to the US dollar or are swapped into dollars
where this achieves a lower cost of financing.
We are exposed to market risks arising from our normal business activities.
Market risk is the possibility that changes in interest rates, currency exchange
rates or commodity prices will adversely affect the value of the Group's
financial assets, liabilities or expected future cash flows. These risks are
managed using a range of financial and commodity instruments including
derivatives. We also trade derivatives in conjunction with these risk management
activities.
BP Amoco is exposed to interest rate risk on short- and long-term floating
rate instruments and as a result of the refinancing of fixed rate instruments
included in the Group's finance debt. Consequently, as well as managing the
currency and the maturity of debt, BP Amoco manages interest costs through the
balance between lower-cost floating-rate debt, which has inherently higher risk,
and more expensive, but lower-risk, fixed-rate debt. The Group is exposed
predominantly to US dollar LIBOR (London Inter-Bank Offer Rate) interest rates
as borrowings are mainly denominated in, or are swapped into, US dollars.
Historically BP has used derivatives to achieve the required mix between
fixed and floating rate debt. Although Amoco was authorized to use derivative
financial instruments as an additional tool in this regard, no derivatives have
been used. During 1998, BP's upper limit for the proportion of floating rate
debt was 65% of total net debt while Amoco's upper limit was 60% of total debt
outstanding. An appropriate strategy for managing the interest rate risk of the
new Group is currently being formulated.
The Group's oil trading division uses financial and commodity derivatives
as part of the overall optimization of the value of the Group's equity oil
production and as part of the associated trading of crude oil, products and
related instruments. The Group also uses financial and commodity derivatives to
manage certain of its exposures to price fluctuations on natural gas
transactions.
In risk management and trading, only well-understood conventional
derivative instruments are used. These include futures and options traded on
regulated exchanges, and 'over-the-counter' swaps, options and forward
contracts.
Where derivatives constitute a hedge, the Group's exposure to market risk
created by the derivative is offset by the opposite exposure arising from the
asset, liability or transaction being hedged. By contrast,
56
<PAGE> 57
where derivatives are held for trading purposes, changes in market risk factors
give rise to realized and unrealized gains and losses, which are recognized in
the current period.
All material derivatives activity, whether for risk management or trading,
is carried out by specialist teams which have the appropriate skills, experience
and supervision. These teams are subject to close financial and management
control, meeting generally accepted industry practice and reflecting the
principles of the Group of Thirty Global Derivatives Study recommendations. An
independent control function monitors compliance with BP Amoco's derivative
management policies. The control framework includes prescribed trading limits
that are reviewed regularly by senior management, daily monitoring of risk
exposure, marking trading exposures to market and reviewing open positions to
assess BP Amoco's exposure in potentially adverse situations. Counterparty
credit validation, independent of the dealers, is undertaken before contractual
commitment.
Further details of BP Amoco's use of derivatives appear in Item 9A --
Quantitative and Qualitative disclosures about Market Risk, and in Item 18 --
Note 28 of Notes to Financial Statements.
INSURANCE
Although practice differed in certain respects between BP and Amoco in
1998, the combined Group will generally restrict its purchase of insurance to
situations where this is required for legal or contractual reasons. This is
because external insurance is not considered economic for BP Amoco. Losses will
therefore be borne as they arise, rather than being spread over time through
insurance premia. The position will be reviewed each year.
MILLENNIUM IT RISK
The Year 2000 issue, which stems from computer programs written using two
digits rather than four to define the applicable year, could result in
processing faults on the change of century, producing a wide range of
consequences.
We have conducted a risk-based review of our computer systems and
computer-controlled processes and have developed plans to remediate Year
2000-related faults by replacement or repair. Apart from some global and
regional systems, which are handled centrally, project implementation is
devolved to the management of operating units so as to ensure complete coverage.
The project is designed to minimize risks arising from the Year 2000 problem
which might endanger health, safety, the environment, the Group's reputation or
its cash flow.
The estimated total cost of BP Amoco's Year 2000 program is approximately
$300 million. As at December 31, 1998, some $210 million had been incurred, and
the balance is expected to be spent in 1999. This estimate excludes the costs of
existing major systems replacement projects launched independently of the Year
2000 remediation. The Year 2000 costs are charged against income in the period
in which they are incurred.
Our Year 2000 program covers all areas that are known to be impacted by the
issue including IT application systems and infrastructure, process control
systems and embedded microprocessors in plants, oil and gas fields and building
facilities. The Year 2000 process also includes the ongoing assessment of Year
2000 readiness of critical suppliers, customers, joint ventures and partners.
We have finished the global inventory and risk analysis work, and a
substantial part of the remediation and testing effort is also complete.
Outstanding remediation dependent on planned plant shutdowns and other
remediation work consisting mainly of implementation of package software
releases are scheduled for completion by mid-1999. Systems rationalization and
organizational restructuring made necessary by the BP Amoco merger are being
managed to avoid risks which might reduce the Group's ability to meet 2000 with
confidence. BP Amoco is providing information to third parties, on request, as
to the progress of its Year 2000 project.
Because of the Group's widespread use of standardized hardware and global
package software, in many instances the bulk of the work is achieved by
upgrading to the supplier's most recent software release. BP Amoco believes its
Year 2000 process is in line with best practice and is underpinned by an
internal assurance process. We have not made extensive use of external
verification.
The Year 2000 project has caused the deferral of some other computer
systems work. Other systems projects continue to be assessed on their economic
value, and are resourced from internal and external
57
<PAGE> 58
personnel. BP Amoco has not experienced significant difficulties in retaining
the necessary IT skills internally or obtaining them in the market.
The Year 2000 problem may affect the operation of automated non-IT systems
such as those used to control certain processes in oil production facilities,
pipelines, refineries and chemicals plants. In relation to the engineering
process control risk in these operations, BP Amoco has made some use of external
engineering consultancies to help develop the methodology of risk assessment and
analysis, to review progress and to ensure that the work has been carried out to
an acceptable standard. The Group has also commissioned some of its engineering
equipment suppliers to perform reviews of site systems adaptations where the
supplier's expertise provides the most cost-effective means of completing this
work. Emergency response systems are generally not dependent on IT and
IT-related processes.
To meet any unexpected Year 2000 failure in the Group or by key third
parties, contingency plans are being developed, to deliver a flexible response,
especially for critical systems in the first days of 2000. Each business entity
is accountable for identifying, categorizing, and prioritizing risks associated
with the Year 2000 transition and developing and implementing appropriate
contingency plans to mitigate those risks. BP Amoco intends to use existing
Crisis Management, Emergency Response and Business Continuity organizations,
plans and procedures in Year 2000 contingency planning.
The Group's objective is to ensure 'business as usual' in respect of its
own operations. However, the Group's detailed plans are based on assumptions
about the robustness of infrastructure suppliers such as power and
telecommunications, upon which its businesses are dependent. BP Amoco, together
with other companies, remains exposed, to an unquantifiable degree, to the risk
of major non-compliance by those suppliers and other third parties, and also to
any abnormal customer demand patterns resulting from concerns about supply
constraints around the 1999 year-end.
The failure by third parties to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain of BP Amoco's normal
business activities or operations. Due to the general uncertainty inherent in
the Year 2000 problem, BP Amoco is unable to determine at this time whether any
such interruptions and failures will have a material impact on the Group's
results of operations. They are not, however, expected to have a material effect
on the Group's liquidity or financial condition.
THE EURO
As a result of the Treaty establishing the European Community, as amended
by the Treaty on European Union, (the Treaty), European economic and monetary
union (EMU) has occurred for eleven out of the fifteen member countries of the
European Union (participating countries). The final stage of the Treaty began on
January 1, 1999.
For the participating countries, the fixed conversion rates between their
sovereign currencies (legacy currencies) prior to January 1, 1999 and the euro
have been established. The euro has been adopted as their common legal currency.
The legacy currencies are scheduled to remain legal tender as denominations of
the euro between January 1, 1999 and January 1, 2002 (the transition period).
The United Kingdom has not participated initially in EMU, but may do so at
a later time. The current policy of the UK government is that any decision to
join EMU will only be taken after a national referendum of the people and, in
any event, not before 2002.
BP Amoco had adapted its commercial and financial processes so that its
European operations were able to undertake transactions in the euro and capture
competitive advantages offered by the new currency from January 1, 1999. The
currency of accounting records and the related systems will be converted as
appropriate during the transition period, which ends on January 1, 2002. The
capability to conduct business in national currencies will be retained as long
as necessary. The costs associated with these changes are estimated at $100
million, of which some $20 million had been incurred and expensed by the end of
1998.
It is difficult to predict whether the euro will affect the level or
volatility of foreign exchange rates. However, we do not expect that the
introduction of the euro will have a significant effect on the Group's results
of operations, its financial position or liquidity.
58
<PAGE> 59
ENVIRONMENTAL INVESTMENT
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Operating expenditure (a)................................... 539 477 620
Capital expenditure (b)..................................... 426 376 370
Clean-ups................................................... 129 129 146
(Credit)/charge for environmental remediation (c)........... 13 (21) 30
Charge for decommissioning.................................. 130 162 147
</TABLE>
- - ------------
(a) Expenditure for 1998 includes $44 million (1997 $10 million) incurred by the
BP/Mobil joint venture.
(b) Expenditure for 1998 includes $89 million (1997 $69 million) incurred by the
BP/Mobil joint venture.
(c) The net credit for 1997 includes the write-back of the environmental
provision at Lavera refinery totalling $54 million.
Operating and capital expenditure on the prevention, control, abatement or
elimination of air, water and solid waste pollution is often not incurred as a
separately identifiable transaction. Instead, it forms part of a larger
transaction which includes, for example, normal maintenance expenditure. The
figures for environmental operating and capital expenditure in the table are
therefore estimates, based on the definitions and guidelines of the American
Petroleum Institute.
Operating and capital environmental expenditure and amounts spent on
clean-ups were at much the same level as in 1997 and similar levels of operating
and capital expenditure are expected in the foreseeable future. In addition to
operating and capital expenditure, the table shows the charges to current
profits to create provisions for future environmental remediation. Expenditure
against such provisions is normally incurred in subsequent periods and is not
included in environmental operating expenditure reported for such periods.
Provisions for environmental remediation are made when a clean-up is
probable and the amount reasonably determinable. Generally, their timing
coincides with commitment to a formal plan of action or, if earlier, on
divestment or on closure of inactive sites.
The extent and cost of future remediation programs are inherently difficult
to estimate. They depend on the scale of any possible contamination, the timing
and extent of corrective actions, and also BP Amoco's share of the liability.
Although the cost of any future remediation could be significant, and may be
material to the result of operations in the period in which it is recognized, we
do not expect that such costs will have a material effect on BP Amoco's
financial position or liquidity. We believe our provisions are sufficient for
known requirements; and we do not believe that our costs will differ
significantly from those of other companies engaged in similar industries or
that our competitive position will be adversely affected as a result.
In addition, we make provisions over the useful lives of our oil- and
gas-producing assets and related pipelines to meet the cost of eventual
decommissioning. The charge for decommissioning made in 1998, 1997 and 1996 is
shown in the table.
Further details of decommissioning and environmental provisions appear in
Item 18 -- Note 27 of Notes to Financial Statements. See also Item 1 --
Description of Business -- Environmental Protection.
ITEM 9A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
BP Amoco is exposed to a number of different market risks arising from the
Group's normal business activities. Market risk is the possibility that changes
in interest rates, currency exchange rates or commodity prices will adversely
affect the value of the Group's financial assets, liabilities or expected future
cash flows. The Group has developed policies aimed at managing the volatility
inherent in certain of these natural business exposures and in accordance with
these policies the Group enters into various transactions using derivative
financial and commodity instruments (derivatives). Derivatives are contracts
whose value is derived from one or more underlying financial instruments,
indices or prices which are defined in the contract. We also trade derivatives
in conjunction with these risk management activities.
59
<PAGE> 60
In risk management and in trading, only well-understood conventional
derivative instruments are used. These include futures and options traded on
regulated exchanges, and 'over-the-counter' swaps, options, and forward
contracts.
Where derivatives constitute a hedge, the Group's exposure to market risk
created by the derivative is offset by the opposite exposure arising from the
asset, liability or transaction being hedged. By contrast, where derivatives are
held for trading purposes, changes in market value give rise to realized and
unrealized gains and losses, which are recognized in the current period.
All material derivatives activity, whether for risk management or trading,
is carried out by specialist teams which have appropriate skills, experience and
supervision. These teams are subject to close financial and management control,
meeting generally accepted industry practice and reflecting the principles of
the Group of Thirty Global Derivatives Study recommendations. An independent
control function monitors compliance with BP Amoco's derivative management
policies. The control framework includes prescribed trading limits that are
reviewed regularly by senior management, daily monitoring of risk exposure,
marking trading exposures to market and reviewing open positions to assess BP
Amoco's exposure in potentially adverse situations. Counterparty credit
validation, independent of the dealers, is undertaken before contractual
commitment.
Further information about BP Amoco's use of derivatives, their
characteristics, and the accounting treatment thereof is given in Item 18 --
Note 28 of Notes to Financial Statements.
RISK MANAGEMENT
FOREIGN CURRENCY EXCHANGE RATE RISK
Fluctuations in exchange rates can have significant effects on BP Amoco's
operating results. The effects of most exchange rate fluctuations are subsumed
within business operating results through changing cost-competitiveness, lags in
market adjustment to movements in rates, and conversion differences accounted on
specific transactions. For this reason, the total effect of exchange rate
fluctuations is not identifiable separately in the Group's reported results.
The underlying economic currency of the Group's cash flows is mainly the US
dollar. This is because BP Amoco's major product, oil, is priced internationally
in US dollars. BP Amoco's foreign exchange management policy is to minimize
economic exposures from currency movements against the US dollar. Wherever
possible, BP Amoco nets exposures using natural offsets to reduce foreign
exchange risk. Significant residual non-dollar exposures are managed using a
range of derivatives. The most significant of such exposures are the sterling
cash flow requirements for UK Corporation Tax, and the capital expenditure and
operational requirements of Exploration in the UK. In addition, most of the
Group's borrowings are in US dollars, are hedged with respect to the US dollar,
or are swapped into dollars where this achieves a lower cost of financing.
The following tables provide information about the Group's foreign currency
derivative financial instruments. These include foreign currency forward
exchange agreements (forwards) and cylinder option contracts (cylinders) that
are sensitive to changes in the sterling/dollar exchange rate. Where foreign
currency denominated borrowings are swapped into dollars using forwards or
currency interest rate swaps such that currency risk is completely eliminated,
neither the borrowing nor the derivative are included in the table.
At December 31, 1998 the total of foreign currency borrowings not swapped
into dollars amounted to $1,019 million (1997 $992 million). The principal
element of this is $561 million of sterling borrowings (1997 $624 million).
For forwards, the tables present the notional amounts and weighted average
contractual exchange rates by contractual maturity dates and exclude forwards
that have offsetting positions. Only significant forward positions are included
in the tables. The notional amounts of forwards are translated into US dollars
at the exchange rate included in the contract at inception. The majority of the
sterling contracts consist of forwards relating to sterling-based capital leases
and the sterling credit facility. These effectively convert the lease obligation
from sterling into dollars and hedge the exchange rate risk attached to the
capital portion of the sterling credit facility. The remaining contracts relate
to sterling requirements for
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<PAGE> 61
operational expenditures. The fair value represents an estimate of the gain or
loss which would be realized if the contracts were settled at the balance sheet
date.
For cylinders, the tables present the notional amounts of the constituent
purchased call and written put option contracts at December 31, 1998 and 1997
and the weighted average strike rates by contractual maturity dates. The
sterling cylinders relate to the Group's hedging of its expected sterling
dividend and tax payments over the next year as well as certain sterling-based
operational and capital expenditures. The non-sterling cylinders relate to
hedging of expected capital expenditures.
The fair values for the foreign exchange contracts in the table below are
based on market prices of comparable instruments (forwards) and pricing models
which take into account relevant market data (options). These derivative
contracts constitute a hedge; any change in the fair value or expected cash
flows is offset by an opposite change in the market value or expected cash flows
of the asset, liability or transaction being hedged.
<TABLE>
<CAPTION>
Notional amount by expected maturity date
------------------------------------------ Fair
1999 2000 2001 Thereafter Total value
------- ------- ------- ------------ ----- -----
($ million)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Forwards
Receive Sterling/pay US dollars
Contract amount...................... 2,494 -- -- -- 2,494 32
Weighted average contractual
exchange rate...................... 1.65
Cylinders
Receive sterling/pay US dollars
Purchased call
Contract amount...................... 1,249 -- -- -- 1,249 11
Weighted average strike rate......... 1.73
Written put
Contract amount...................... 1,249 -- -- -- 1,249 (11)
Weighted average strike rate......... 1.58
Receive deutschmarks/pay US dollars
Purchased call
Contract amount...................... 175 -- -- -- 175 6
Weighted average strike rate......... 1.72
Written put
Contract amount...................... 175 -- -- -- 175 (1)
Weighted average strike rate......... 1.77
</TABLE>
<TABLE>
<CAPTION>
Notional amount by expected maturity date
------------------------------------------ Fair
1998 1999 2000 2001 Thereafter Total value
----- ----- ----- ----- ---------- ----- -----
($ million)
<S> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997
Forwards
Receive Sterling/pay US dollars
Contract amount........................ 1,707 878 -- -- -- 2,585 5
Average contractual exchange rate...... 1.62 1.63
Cylinders
Receive Sterling/pay US dollars
Purchased call
Contract amount........................ 2,382 -- -- -- -- 2,382 25
Weighted average strike rate........... 1.70
Written put
Contract amount........................ 2,382 -- -- -- -- 2,382 (26)
Weighted average strike rate........... 1.55
</TABLE>
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<PAGE> 62
INTEREST RATE RISK
BP Amoco is exposed to interest rate risk on short- and long-term
floating-rate instruments and as a result of the refinancing of fixed-rate
instruments included in the Group's finance debt. Consequently, as well as
managing the currency and the maturity of debt, BP Amoco manages interest costs
through the balance between lower-cost floating rate debt, which has inherently
higher risk, and more expensive but lower-risk, fixed-rate debt. The Group is
exposed predominantly to US dollar LIBOR interest rates as borrowings are mainly
denominated in, or swapped into, US dollars. Historically BP has used
derivatives to achieve the required mix between fixed and floating rate debt.
Although Amoco was authorized to use derivative financial instruments as an
additional tool in this regard, no derivatives have been used. During 1998 BP's
upper limit for the proportion of floating rate debt was 65% of total net debt
while Amoco's upper limit was 60% of total debt outstanding. An appropriate
strategy for managing the interest rate risk of the new Group is currently being
formulated.
The following table shows, by major currency, the Group's borrowings at
December 31, 1998 and 1997 and the weighted average interest rates achieved at
those dates through a combination of borrowings and other interest rate
sensitive instruments entered into to manage interest rate exposure.
<TABLE>
<CAPTION>
Fixed rate debt Floating rate debt
-------------------------------------- ----------------------
Weighted Weighted Weighted
average average time average
interest for which interest
rate rate is fixed Amount rate Amount Total
-------- ------------- ----------- -------- ----------- -----------
(%) (Years) ($ million) (%) ($ million) ($ million)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
US dollars.......................... 7 10 7,392 5 3,460 10,852
Sterling............................ -- -- -- 6 613 613
South African rands................. -- -- -- 15 42 42
Other currencies.................... 7 9 189 7 175 364
----------- ----------- -----------
Total loans......................... 7,581 4,290 11,871
=========== =========== ===========
AT DECEMBER 31, 1997
US dollars.......................... 8 12 5,858 6 4,135 9,993
Sterling............................ -- -- -- 6 679 679
South African rands................. -- -- -- 19 63 63
Other currencies.................... 7 7 67 7 183 250
----------- ----------- -----------
Total loans......................... 5,925 5,060 10,985
=========== =========== ===========
</TABLE>
The Group's earnings are sensitive to changes in interest rates over the
forthcoming year as a result of the floating rate instruments included in the
Group's finance debt at December 31, 1998. These include the effect of interest
rate and currency swaps and forwards utilized to manage interest rate risk. If
the interest rates applicable to floating rate instruments were to have
increased by 1% on January 1, 1999, the Group's 1999 earnings before taxes would
decrease by approximately $55 million (1997 $60 million).
This assumes that the amount and mix of fixed and floating rate debt,
including capital leases, remains unchanged from that in place at December 31,
1998 and that the change in interest rates is effective from the beginning of
the year. Where the interest rate applicable to an instrument is reset during a
quarter it is assumed that this occurs at the beginning of the quarter and
remains unchanged for the rest of the year. In reality, the fixed/floating rate
mix will fluctuate over the year and interest rates will change continually.
Furthermore the effect on earnings shown by this analysis does not consider the
effect of an overall reduction in economic activity which could accompany such
an increase in interest rates.
OIL PRICE RISK
The Group's risk management policy with respect to oil price risk is to
manage only those exposures associated with the immediate operational program
for certain of its equity share of production and certain of its refinery and
marketing activities. To this end, BP Amoco's oil trading division uses the full
range of conventional oil price-related financial and commodity derivatives
available in the oil markets.
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<PAGE> 63
The market risk arising from this risk management activity is represented
by the values at risk shown below. However, these instruments are used for
hedging purposes and do not expose the Group to market risk because the change
in their market value is offset by an equal and opposite change in the market
value of the asset, liability or transaction being hedged. The items being
hedged are not included in the values at risk.
The value at risk model used is that discussed under Trading below, except
that value at risk in respect of oil price risk management does not take into
account physical crude oil or refined product positions held by the Group. Thus
the value at risk calculation for oil price exposure includes derivative
financial instruments such as exchange-traded futures and options, swap
agreements and over-the-counter options and derivative commodity instruments
(commodity contracts that permit settlement either by delivery of the underlying
commodity or in cash) such as forward contracts. The values at risk represent
the potential gain or loss in fair values over a 24-hour period with a 99.7%
confidence level.
The following table shows values at risk for oil price risk management
activities.
<TABLE>
<CAPTION>
1998 1997
----------------------------------------- ---------------------
High Low Average December 31 Average December 31
------- ------- ------- ----------- ------- -----------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Oil price contracts.......... 9 4 5 4 7 4
</TABLE>
NATURAL GAS PRICE RISK
BP Amoco's general policy with respect to natural gas price risk is to
manage only a portion of its exposure to price fluctuations. Natural gas swaps,
options and futures are used to convert specific sales and purchases contracts
from fixed prices to market prices. Swaps are also used to hedge exposure to
price differentials between locations. We also use derivatives to fix prices
which are favourable with respect to our forecasts of future prices.
The table below provides information about the Group's material swaps
contracts that are sensitive to changes in natural gas prices. Contract amount
represents the notional amount of the contract. Fair value represents an
estimate of the gain or loss which would be realized if the contracts were
settled at the balance sheet date. Weighted average price represents the
year-end forward price for futures, the fixed price and the year-end forward
price related to the settlement month for swaps; and the weighted average strike
price for options.
At December 31, 1998, in addition to the contracts shown in the table there
were various swaps, options and futures contracts with aggregate notional
amounts of $103 million and terms of between one and two years. At December 31,
1997, there were swaps, options and futures contracts with aggregate notional
amounts of $99 million and terms of between one and three years. Fair values of
these contracts were not material in either year.
<TABLE>
<CAPTION>
Weighted
Fair value average price
Contract ----------------- ---------------
Quantity amount Asset Liability Receive Pay
--------------- ----------- ----- --------- ------- -----
(Btus ($ million) ($ million) ($ per
trillion)(a) mmbtu)(b)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Maturing in 1999
Swaps
Receive variable/pay fixed.......... 154 300 4 (31) 1.77 1.95
Receive fixed/pay variable.......... 137 268 28 (2) 1.96 1.77
Receive and pay variable............ 463 863 15 (9) 1.88 1.86
AT DECEMBER 31, 1997
Maturing in 1998
Swaps
Receive variable/pay fixed.......... 95 166 4 (14) 1.64 1.75
Receive fixed/pay variable.......... 52 88 12 (1) 1.69 1.48
Receive and pay variable............ 198 410 4 (5) 2.07 2.07
</TABLE>
- - ------------
(a) British thermal units (btus)
(b) Million british thermal units (mmbtu)
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<PAGE> 64
TRADING
In conjunction with the risk management activities discussed above, BP
Amoco also trades interest rate and foreign currency exchange rate derivatives.
The Group controls the scale of the trading exposures by using a value at risk
model with a maximum value at risk limit authorized by the board.
In addition to the risk management activities related to equity crude
disposal, refinery supply and marketing, BP Amoco's oil trading division
undertakes trading in the full range of conventional derivative financial and
commodity instruments and physical cargoes available in the oil markets. This
activity is monitored and measured separately from the risk management activity
and is subject to maximum value at risk limits authorized by the board.
The Group measures its market risk exposure, i.e. potential gain or loss in
fair values, on its trading activity using a value at risk technique. This
technique is based on a variance/covariance model and makes a statistical
assessment of the market risk arising from possible future changes in market
values over a 24-hour period. The calculation of the range of potential changes
in fair value takes into account a snapshot of the end-of-day exposures, and the
history of one day price movements over the previous twelve months, together
with the correlation of these price movements. The potential movement in fair
values is expressed to three standard deviations which is equivalent to a 99.7%
confidence level. This means that, in broad terms, one would expect to see an
increase or a decrease in fair values greater than the value at risk on only one
occasion per year if the portfolio were left unchanged.
The Group calculates value at risk on all instruments that are held for
trading purposes and that therefore give an exposure to market risk. The value
at risk model takes account of derivative financial instruments such as interest
rate forward and futures contracts, swap agreements, options and swaptions;
foreign exchange forward and futures contracts, swap agreements and options; and
oil price futures, swap agreements and options. Financial assets and liabilities
and physical crude oil and refined products that are treated as trading
positions are also included in these calculations. The value at risk calculation
for oil price exposure also includes derivative commodity instruments (commodity
contracts that permit settlement either by delivery of the underlying commodity
or in cash), such as forward contracts.
The following table shows values at risk for trading activities.
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ---------------------
High Low Average December 31 Average December 31
---- ---- ------- ----------- ------- -----------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts......... 6 -- 2 -- 3 2
Foreign exchange contracts...... 6 -- 4 -- 3 2
Oil price contracts............. 13 4 8 12 6 4
</TABLE>
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<PAGE> 65
ITEM 10 -- DIRECTORS AND OFFICERS OF REGISTRANT
There are currently 21 directors on the board.
<TABLE>
<CAPTION>
Initially elected
Name or appointed
- - ---- -----------------
<S> <C> <C>
P D Sutherland....................... Non-executive co-chairman (a) Chairman since May 1997
Director since July 1995
H L Fuller........................... Executive co-chairman (a) December 1998
Sir Ian Prosser...................... Non-executive deputy chairman (a)(b)(c) Deputy chairman since
February 1999
Director since May 1997
Sir John Browne...................... Executive director (Group chief September 1991
executive)
Dr J G S Buchanan.................... Executive director October 1996
R F Chase............................ Executive director (Deputy group chief March 1992
executive)
Dr C S Gibson-Smith.................. Executive director September 1997
R L Olver............................ Executive director January 1998
B K Sanderson........................ Executive director April 1992
R S Block............................ Non-executive director (a)(b)(d) December 1998
J H Bryan............................ Non-executive director (a)(c) December 1998
E B Davis, Jr........................ Non-executive director (a)(b)(c) December 1998
R J Ferris........................... Non-executive director (a)(b) December 1998
C F Knight........................... Non-executive director (a)(b) October 1987
F A Maljers.......................... Non-executive director (a)(d) December 1998
Dr W E Massey........................ Non-executive director (a)(d) December 1998
H M P Miles.......................... Non-executive director (a)(c)(d) June 1994
Sir Robin Nicholson.................. Non-executive director (a) October 1987
M H Wilson........................... Non-executive director (a)(c) December 1998
R P Wilson........................... Non-executive director (a)(c)(d) July 1998
Lord Wright of Richmond.............. Non-executive director (a)(b)(d) October 1991
J C Hanratty......................... Secretary October 1994
</TABLE>
- - ------------
(a) Member of the Chairman's Committee.
(b) Member of the Remuneration Committee.
(c) Member of the Audit Committee.
(d) Member of the Ethics and Environment Assurance Committee.
Mr R P Wilson was appointed a non-executive director of BP on July 30,
1998. Sir James Glover, Dr K N Horn and Sir Patrick Sheehy resigned as
non-executive directors with effect from December 31, 1998.
Mr D R Beall, Mr A C Martinez, Dr M R Seger and Mr T M Solso resigned as
non-executive directors of Amoco with effect from December 31, 1998.
Mr H L Fuller and Mr W G Lowrie were appointed executive directors and Mrs
R S Block, Mr J H Bryan, Mr E B Davis, Jr, Mr R J Ferris, Mr F A Maljers, Dr W E
Massey and Mr M H Wilson were appointed non-executive directors of BP Amoco with
effect from December 31, 1998. Mr H L Fuller was appointed executive co-chairman
of the board on the same date. Mr W G Lowrie resigned as a director of BP Amoco
on February 12, 1999.
BP Amoco's articles of association require directors who have held office
for three years or more since they were appointed or re-elected to retire from
office at the company's annual general meeting, together with directors
appointed by the board since the last annual general meeting. Retiring directors
may offer themselves for re-election. The directors retiring and offering
themselves for re-election at this year's meeting are Mr B K Sanderson, Mr P D
Sutherland and Mr R P Wilson.
The biographies of the directors and the secretary are set out below.
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<PAGE> 66
P D Sutherland, SC -- Peter Sutherland (52) rejoined BP's board in 1995
having previously been a non-executive director from 1990 to 1993. He was
appointed chairman of BP in May 1997. He is chairman of Goldman Sachs
International and is a non-executive director of Investor AB, ABB Asea Brown
Boveri and Telefonaktiebolaget LM Ericsson. He is on the advisory board of the
Council of Foreign Relations and is chairman of the Overseas Development
Council. He is also a trustee of the Royal Academy of Arts.
H L Fuller -- Larry Fuller (60) was appointed a director of Amoco in 1981
and was elected chairman and chief executive officer in February 1991. He is a
non-executive director of Chase Manhattan Corporation, Chase Manhattan Bank,
Motorola, Security Capital Group and Abbott Laboratories. He also serves on the
boards of Catalyst, the American Petroleum Institute and the Rehabilitation
Institute of Chicago, and is a trustee of The Orchestral Association.
Sir Ian Prosser -- Sir Ian (55) joined BP's board in 1997 and was appointed
deputy chairman in February 1999. He is chairman and chief executive of Bass, a
non-executive director of Lloyds TSB and vice president of the council of the
Brewers and Licensed Retailers Association.
Sir John Browne, F. Eng, -- Sir John (51) was appointed an executive
director of BP in 1991 and group chief executive in 1995. He is a non-executive
director of SmithKline Beecham and the Intel Corporation, a trustee of the
British Museum and a member of the supervisory board of DaimlerChrysler. He is
also vice president and a member of the board of the Prince of Wales Business
Leaders Forum.
Dr J G S Buchanan -- John Buchanan (55) was appointed an executive director
of BP in 1996. He is a non-executive director of Boots and a member of the UK
Accounting Standards Board.
R F Chase -- Rodney Chase (55) was appointed an executive director of BP in
1992. He is a non-executive director of Diageo and the BOC Group.
Dr C S Gibson-Smith -- Chris Gibson-Smith (53) was appointed an executive
director of BP in 1997. He is a non-executive director of Lloyds TSB.
R L Olver -- Dick Olver (52) was appointed an executive director of BP in
January 1998. He is a non-executive director of Reuters Holdings.
B K Sanderson -- Bryan Sanderson (58) was appointed an executive director
of BP in 1992. He is chairman of Sunderland PLC, a non-executive director of
British Steel, president of CEFIC (the European Chemical Industry Council) and
vice president of the court of governors of the London School of Economics.
R S Block -- Ruth Block (68) joined Amoco's board in 1986. She retired as
executive vice president and chief insurance officer of The Equitable in 1987.
She is a non-executive director of Ecolab and 39 Alliance Capital Mutual Funds.
J H Bryan -- John Bryan (62) joined Amoco's board in 1982. He is chairman
and chief executive officer of Sara Lee Corporation and a non-executive director
of Bank One Corporation, The First National Bank of Chicago and General Motors
Corporation.
E B Davis, Jr -- Erroll B Davis, Jr (54) joined Amoco's board in 1991. He
is president and chief executive officer of Alliant Energy. He is a
non-executive director of PPG Industries and a member of the American Society of
Corporate Executives, Association of Edison Illuminating Companies, the
Wisconsin Association of Manufacturers and Commerce, the Iowa Business Council
and the Edison Electric Institute.
R J Ferris -- Richard Ferris (62) joined Amoco's board in 1981. He retired
as co-chairman of Doubletree Corporation in 1997. He is a non-executive director
of The Proctor & Gamble Company and Candlewood Hotel Corporation.
C F Knight -- Charles Knight (63) joined BP's board in 1987. He is chairman
and chief executive officer of Emerson Electric and is a non-executive director
of Anheuser-Busch, Morgan Stanley Dean Witter, SBC Communications and IBM.
F A Maljers -- Floris Maljers (65) joined Amoco's board in 1994. He is a
member of the supervisory boards of SHV Holding, Vendex and KLM Royal Dutch
Airlines. He is chairman of the supervisory board of the Amsterdam
Concertgebouw.
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<PAGE> 67
Dr W E Massey -- Walter Massey (60) rejoined Amoco's board in 1993 having
previously been a director from 1983 to 1991. He is president of Morehouse
College and is a non-executive director of Motorola, Bank of America, McDonald's
Corporation and the Mellon Foundation.
H M P Miles, OBE -- Michael Miles (62) joined BP's board in 1994. He is
chairman of Johnson Matthey and a director of John Swire & Sons, ING Baring
Holdings and BICC.
Sir Robin Nicholson, F Eng, FRS -- Sir Robin (64) joined BP's board in
1987. He retired as chairman of Pilkington Optronics in November 1998. He is a
non-executive director of Rolls-Royce and a member of the UK government's
Council for Science and Technology.
M H Wilson -- Michael Wilson (61) joined Amoco's board in 1993. He is vice
chairman and a director of RBC Dominion Securities. He is a non-executive
director of Manufacturers Life Insurance Company and Rio Algom.
R P Wilson -- Robert Wilson (55) joined BP's board in July 1998. He is
chairman of Rio Tinto, a non-executive director of Diageo and a trustee of the
Camborne School of Mines.
The Lord Wright of Richmond, GCMG -- Lord Wright (67) joined BP's board in
1991, having been Permanent Under-Secretary and Head of the UK Diplomatic
Service. He is a non-executive director of De La Rue and an advisory director of
Unilever. He is chairman of the Royal Institute of International Affairs.
J C Hanratty -- Judith Hanratty (55) joined BP in London in 1986 and was
appointed company secretary in October 1994. She is a nominated member of the
Council of Lloyds (the London Insurance Market), a member of the Monopolies and
Mergers Commission (the Competition Commission from April 1, 1999) and the
Takeover Panel. She is also a governor of the College of Law and a Fellow of
Lucy Cavendish College, Cambridge.
ITEM 11 -- COMPENSATION OF DIRECTORS AND OFFICERS
This summary sets out the remuneration policy of BP Amoco presented at the
meetings of BP and Amoco shareholders called to approve the merger. It also
contains details of awards made in 1998 under the incentive remuneration plans
of BP and Amoco, and includes the remuneration data required by the London Stock
Exchange. The summary contains the following sections:
-- Reward philosophy
-- Reward process -- the Remuneration Committee
-- Reward process -- reward plans and performance targets
-- Report on 1998 -- remuneration data for executive directors and senior
management
-- Long-term incentive awards
-- Other remuneration features
-- Remuneration of non-executive directors
REWARD PHILOSOPHY
The performance of BP Amoco will be dependent on the quality and commitment
of its workforce. The board believes that directors and senior executives of the
right calibre will be attracted and incentivized to maximize shareholder returns
if the BP Amoco Group adopts remuneration policies which are comparable to the
highest standards of international industry.
The aim is to provide a competitive reward for delivering on-target
performance while superior awards can be earned for delivering outstanding
results. The remuneration package balances long-term and short-term goals
through three elements: base salary, annual bonuses and long-term incentive
plans. As the seniority of the executive increases, so the proportion of the
base salary declines and the proportion of the two performance-linked 'at risk'
elements increases.
A key element of remuneration policy is the Long Term Performance Plan
(LTPP). The board attaches importance to the alignment of rewards and incentives
to business goals and believes there are considerable benefits in linking the
remuneration of employees to shareholder returns. Share ownership by employees
is considered an important mechanism for enabling them to identify their
interests with
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<PAGE> 68
those of other shareholders. The design of the LTPP ensures that BP Amoco's top
leaders hold significant shareholdings in the company over an extended period,
which further reinforces the alignment of interests between executives and
shareholders.
The LTPP was approved by BP shareholders at their Extraordinary General
Meeting on November 25, 1998. Shareholders also approved the introduction of a
new discretionary share option plan, the BP Amoco Share Option Plan (the 'Option
Plan'). The Option Plan will provide a vehicle for options to be granted to
former Amoco Group employees which, under the terms of the merger agreement,
must for at least two years be no less favorable than their previous
arrangements. The Option Plan will also be used to grant options to other
employees. Options granted under the Option Plan to employees outside North
America will be granted on a similar basis to options currently granted under
the previous scheme, the BP Executive Share Option Scheme. Employees other than
North Americans who participate in the LTPP will not be awarded options. In this
way, BP Amoco will utilize the LTPP as the primary vehicle for rewarding
long-term success in its executive population.
REWARD PROCESS -- THE REMUNERATION COMMITTEE
The Remuneration Committee's role is to determine the terms of engagement
and remuneration of the group chief executive and the executive directors. The
Remuneration Committee (the Committee) also establishes the principles for the
remuneration of other senior executives, which in turn provide the framework for
remunerating all employees. The Committee works with the executive directors to
set challenging and demanding performance targets for the Company at the
beginning of the year and to make awards at year-end which reflect the year's
performance.
The Committee members have no personal financial interest, other than as
shareholders, in the matters to be decided. They have no conflicts arising from
cross-directorships or day-to-day involvement in running BP Amoco. For
membership of the Committee see Item 10 -- Directors and Officers of Registrant.
The Committee actively solicits professional advice both from within the
company and from independent external consultants.
REWARD PROCESS -- REWARD PLANS AND PERFORMANCE TARGETS
DESCRIPTION OF THE PLAN
Base salary
-- This is a fixed sum, payable monthly in pensionable cash, recognizing
ongoing market worth.
-- Salaries are reviewed annually in line with national markets, and
targeted at the median of the appropriate national survey groups for
fully effective job performance.
-- Higher salaries are paid only where justified by sustained higher level
of individual contribution.
-- Surveys are conducted on a regular basis looking at remuneration levels
in companies with comparable size, complexity and global spread of
operations. (In the USA, surveys of Fortune 100 organizations and the
other hydrocarbon companies are used, and in the UK surveys of FTSE 100
companies are used).
Annual performance bonus
-- This is a variable sum, potentially awarded annually in non-pensionable
cash. The bonuses to H L Fuller and W G Lowrie are pensionable, in line
with the Amoco Corporate Retirement Plan.
-- It recognizes performance against demanding annual targets set out in
annual performance contracts.
-- Target bonus level for executive directors is 70% of base salary in
1999. 70% target bonus applies to all executive directors except H L
Fuller (80% target/120% maximum). If contract levels of performance are
achieved so that the target bonus is earned, executive annual
remuneration levels can reach a position in the top quartile of the
relevant employment market.
-- A maximum bonus level is also identified for when targets are
substantially exceeded. (For directors, this is 105% of salary in 1999).
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<PAGE> 69
Long-term incentive
-- The Long Term Performance Plan (LTPP) consists of rolling, three-year
performance periods, at the beginning of which participants receive a
grant of performance units.
-- Any potential LTPP award is a variable, taxable sum, in shares, given
after the performance period. Any awards from the Plan are taxable in
full and sufficient shares will be released immediately and sold to meet
the relevant tax liability. Depending on the technical constraints in
each country in which the Plan is operated, the committee may award
shares to participants or fund the purchase of shares by participants.
-- Share awards have a minimum of a further three years retention in trust.
Extensive share ownership/retention guidelines exist -- at director
level, no shares will be released from future plans until the director
has a personal holding in BP Amoco shares, within the Plans, equivalent
to five times salary.
-- Share options will also be awarded to all North American executives only
to bridge the gap between the value of the global LTPP and higher US
market practise in long-term incentives.
PLAN PERFORMANCE MEASURES AND TARGETS FOR VARIABLE REWARD ELEMENTS
Annual performance bonus
-- Bonus targets are a mix of financial and non-financial measures
(including health, safety, environment, people and organization issues).
-- Performance contracts reflect the operating plan of the company and are
subject to board approval.
-- Each year's performance provides the platform for the next year's
targets, providing a continuous drive to higher levels of achievement.
Long-term incentive
-- LTPP looks at performance against demanding three-year shareholder
return, profitability and growth targets.
-- For all three measures BP Amoco's performance is assessed in relation to
the oil majors: Arco, Chevron, Exxon, Mobil, Shell, Texaco and Total.
Participants benefit only when they deliver results above the median for
this group.
-- The maximum award can be made only when performance has been ahead of
the competitor group on all three performance measures. For second and
lower rankings progressively lower awards are made. No award is made to
directors if BP Amoco's performance is below the median of the selected
competitors.
-- Share options (for North American executives only): The value of option
gains depends entirely on appreciation of the company's stock price.
These are not otherwise subject to performance conditions, in line with
the practise followed previously by Amoco.
REPORT ON 1998 -- REMUNERATION DATA FOR EXECUTIVE DIRECTORS AND SENIOR
MANAGEMENT
BASE SALARY AWARDS
The base salary structure for UK executives in BP was increased by 4% on
April 1, 1998 but directors elected to defer receiving an increase until October
1998 due to the weak external environment.
At Amoco, the equivalent increase for senior executives during 1998 was
also 4%.
BONUS AWARDS
Bonuses paid (see table below) refer to separate bonus plans which were in
place throughout 1998 in BP and Amoco respectively.
69
<PAGE> 70
At the end of 1998, the BP Remuneration Committee established a rating of
75%, based on the achievement of targets set out in the performance contracts
and in recognition of the effort required to achieve the merger. This rating
represents the percentage of target bonus paid to each director.
In December 1998 the Amoco board's Compensation and Organization Committee
reviewed Amoco's performance results against the pre-set goals for the year in
the areas of finance, operations, people and safety, as well as the strategic
initiatives of the corporation relative to the merger. They determined a bonus
outcome of 65% of target was appropriate and this is applicable to senior
executives in the corporate plan, including Mr Fuller and Mr Lowrie.
ANNUAL REMUNERATION
<TABLE>
<CAPTION>
Annual Benefits
performance and other 1998 1997
Base salary bonus emoluments Total Total
----------- ----------- ---------- ------- -------
($ thousand)
<S> <C> <C> <C> <C> <C>
Sir John Browne......................... 895 492 127 1,514 1,538
Dr J G S Buchanan....................... 533 296 70 899 927
R F Chase............................... 581 331 50 962 986
H L Fuller (a).......................... 1,073 572 29 1,674 n/a
Dr C S Gibson-Smith..................... 506 279 53 838 522
W G Lowrie (a).......................... 708 328 13 1,049 n/a
R L Olver (b)........................... 506 279 163 948 n/a
B K Sanderson........................... 581 331 75 987 999
K R Seal................................ -- -- -- -- 879
Dr R W H Stomberg....................... -- -- -- -- 1,209
----------- ----------- ---------- ------- -------
Totals.................................. 5,383 2,908 580 8,871 7,060
=========== =========== ========== ======= =======
</TABLE>
- - ------------
The table above represents annual remuneration earned by, and paid to,
executive directors in the 1998 financial year, with the exception of
bonuses (which were earned in 1998 but paid in 1999). A conversion rate of
L1 = $1.66 has been used for 1998, L1 = $1.64 for 1997.
(a) H L Fuller and W G Lowrie were appointed to the board on December 31,
1998, the effective date of the merger. However, the figures shown
represent earnings for the whole 1998 calendar year.
(b) R L Olver was appointed to the board on January 1, 1998. His benefits and
other emoluments include expatriation costs which were incurred before his
board appointment.
LONG-TERM INCENTIVE AWARDS
BP LONG TERM PERFORMANCE PLAN
Awards made in 1998 under the BP Long Term Performance Plan relate to the
1995-97 Plan (estimates of grant values were indicated in BP's 1997 Annual
Report on Form 20-F).
Awards made in 1999 under the BP Long Term Performance Plan relate to the
1996-98 Plan.
BP came first in the 1996-98 Plan, and the Remuneration Committee made a
maximum award. (The primary performance measure, BP's shareholder return against
the market (SHRAM) was, at 22%, 18% ahead of the second-performing company in
the peer group).
The BP Remuneration Committee decided to set minimum award levels for the
1997 and 1998 plans. This decision was based on pre-merger announcement
comparisons of total shareholder returns, and provides an indication for
participants that the final outcome will be no less than the SHRAM performance
measure position which BP held, in relation to its peer group comparators,
before the merger.
The total number of shares that may be awarded to all participants under
the 1996-98 Plan is 3,399,000, with a value of $48 million based on a share
price of $13.99 (mid-market price on February 16, 1999).
Serving recipients in the LTPP are obliged to have the balance of their
1996-98 awards (after payment of taxes) retained in trust for at least a further
three years. This restriction also applies to future Plans, together with
additional share ownership requirements.
70
<PAGE> 71
Potential awards to executive directors, including an indicative range of
potential awards under the 1997 and 1998 Plans, are set out in the table below.
LONG-TERM PERFORMANCE PLANS
<TABLE>
<CAPTION>
1995-97 1996-98 1997-99 1998-2000
------------ ------------------------ ----------------- -----------------
Performance period of Plan 1998 1999 1999 2000 2001
------------ --------- ------------ ----------------- -----------------
Range of potential awards(d)
Year of award Value of Potential Award -------------------------------------
award(a) award(b) value(c) Minimum Maximum Minimum Maximum
------------ --------- ------------ ------- ------- ------- -------
($ thousand) (shares) ($ thousand) (shares) (shares)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE
DIRECTORS
Sir John Browne........... 1,331 81,300 1,137 48,780 81,300 40,140 133,800
Dr J G S Buchanan......... 776 64,400 901 48,780 81,300 23,850 79,500
R F Chase................. 1,331 81,300 1,137 48,780 81,300 25,770 85,900
Dr C S Gibson-Smith....... 498 55,800 781 42,000 70,000 22,740 75,800
R L Olver................. 498 47,500 665 42,000 70,000 22,740 75,800
B K Sanderson............. -- 81,300 1,137 48,780 81,300 25,770 85,900
FORMER EXECUTIVE DIRECTORS
S J Ahearne............... -- 27,100 379 -- -- -- --
K R Seal.................. 1,331 54,200 758 16,260 27,100 -- --
Dr R W H Stomberg......... 776 54,200 758 16,260 27,100 -- --
</TABLE>
- - ------------
(a) Based on average market price on date of award (L8.00/$13.28) at L1 =
$1.66.
(b) Based on assessed performance and the other terms of the Plan.
(c) Based on mid-market price of BP Amoco shares on February 16, 1999 ($13.99).
(d) Minimum awards were determined for these Plans prior to the completion of
the merger. Actual awards will be determined at the end of each performance
period.
AMOCO SHARE OPTION AWARDS
In common with US market practice, long-term incentives in Amoco in 1998
were in the form of grants of executive share options. Those options were
granted at a level in line with the oil and general industry markets in the USA
and they had no performance conditions.
OTHER REMUNERATION FEATURES
SHARE SCHEMES AND OTHER BENEFITS
In 1998, five UK directors were allocated shares under the BP Participating
Share Scheme which is available to most UK employees. Under the Participating
Scheme, the company matches employees' own contribution of shares, all of which
are held for a defined period (see Item 18 -- Note 33 of Notes to Financial
Statements). Five directors continued to participate in the Savings-Related
Share Option Scheme, under which employees enter a savings plan to purchase
shares after three or five years. This plan is also open to most UK employees.
Mr Fuller and Mr Lowrie were eligible to participate in Amoco Corporate
Benefit plans generally provided to Amoco employees, including an employee
savings plan, containing a company matching contribution of up to 7% of annual
earnings, and certain health and welfare plans, including medical and dental
coverage, non-contributory group life insurance of one times annual earning,
additional employee paid group life insurance, and short- and long-term sickness
and disability coverage. In 1998, the company contributed $141,177 and $87,946
respectively to the Savings Plan as a company matching contribution.
71
<PAGE> 72
DIRECTORS' EXECUTIVE SHARE OPTIONS (a)
<TABLE>
<CAPTION>
Number of options
-------------------------------------------------
At At Dates
January 1, December 31, Average from which Expiry
1998 Granted Exercised 1998 option price(b) exercisable dates
---------- --------- --------- ------------ ---------------- --------------- ---------------
(L)
<S> <C> <C> <C> <C> <C> <C> <C>
Sir John Browne......... 79,400 -- 79,400(c) -- n/a n/a n/a
Dr J G S Buchanan....... 59,600 -- -- 59,600 2.87 3/9/92-3/27/93 3/8/99-3/26/00
H L Fuller.............. 6,542,560 1,191,000(d) 349,360(e) 7,384,200 5.14 3/27/92-3/24/00 3/27/00-3/24/08
W G Lowrie.............. 3,120,420 635,200(d) 222,320(f) 3,533,300 5.28 3/27/92-3/24/00 3/27/00-3/24/08
</TABLE>
- - ---------------
(a) To allow meaningful comparison, all options in the above table are denoted
in BP Amoco ordinary stock. (Mr Fuller's and Mr Lowrie's options were
originally denoted in Amoco common stock, at the time of grant, but were
converted to BP Amoco ADS shares at the time of merger. They are shown here
for convenience as the equivalent number of BP Amoco ordinary shares at a
sterling price, using an exchange rate of L1 = $1.66).
(b) These are the weighted average prices applicable to all shares under option
at the end of the year. Full details of directors' shareholdings and options
are available for inspection in the company's register of directors'
interests.
(c) Exercise price L3.38 and market price at date of exercise L9.50.
(d) Grant price L6.61.
(e) Exercise price L3.08, and market price at date of exercise L6.25.
(f) Exercise price L2.87 for 95,280 shares and L3.08 for 127,040 shares, and
market price at dates of exercise L6.25 and L8.89 respectively.
The market price of BP Amoco ordinary shares at December 31, 1998 was L8.98
($14.91). The highest and lowest market price of BP ordinary shares during
1998 were L9.68 and L7.37 respectively.
DIRECTORS' SAVE AS YOU EARN (SAYE) SHARE OPTIONS
<TABLE>
<CAPTION>
Number of options
-------------------------------------------------
At At Dates
January 1, December 31, Average from which Expiry
1998 Granted Exercised 1998 option price(a) exercisable dates
---------- --------- --------- ------------ ---------------- --------------- ---------------
(L)
<S> <C> <C> <C> <C> <C> <C> <C>
Sir John Browne......... 2,984 -- -- 2,984 5.78 9/1/02 2/28/03
Dr J G S Buchanan....... 6,201 928(b) 3,640(c) 3,489 4.94 9/1/99-9/1/03 2/28/00-2/28/04
R F Chase............... 4,662 -- -- 4,662 3.70 9/1/00 2/28/01
R L Olver............... 7,809 -- 4,381(d) 3,428 5.03 9/1/01-9/1/02 2/28/02-2/28/03
B K Sanderson........... 4,267 -- -- 4,267 4.04 9/1/99-9/1/02 2/28/00-2/28/03
</TABLE>
- - ---------------
(a) These are the weighted average prices applicable to all shares under option
at the end of the year. Full details of directors' shareholdings and
options are available for inspection in the company's register of
directors' interests.
(b) Grant price L7.43.
(c) Exercise price L2.06, and market price at date of exercise L8.28.
(d) Exercise price L2.06 for 3,640 shares and L2.48 for 741 shares, and market
price at dates of exercise L7.95 and L9.11 respectively.
(e) For further details on SAYE Schemes see Item 18 -- Note 33 of Notes to
Financial Statements.
All executive directors are also deemed to have an interest in such shares
of the company held from time to time by BP QUEST Company Limited to
facilitate the operation of the company's SAYE option scheme.
PENSIONS
Pension and other benefits relate to competitor practice in the home
country of each senior executive.
72
<PAGE> 73
In the UK, eligible staff can join the BP Pension Scheme, which offers
Inland Revenue-approved retirement benefits, based on final salary.
Scheme members' core benefits, which are non-contributory, comprise a
pension accrual rate of 1/60th of final basic salary for each year of service
(inclusive of a proportion of the basic State pension) up to a limit of
two-thirds of final basic salary; a lump-sum death-in-service benefit of three
times salary; and a dependant's benefit of two-thirds of actual or prospective
pension.
Normal retirement age is 60, but members who have more than 30 years'
service at age 55 can retire early without an actuarial pension reduction.
Postretirement pensions are reviewed annually, and increases equivalent to
Retail Price Index (up to 5%) are guaranteed.
Directors in the BP Pension Scheme accrue pension at the enhanced rate of
2/60ths of their final basic salary for each year of service as executive
directors (up to the same two-thirds limit).
None of the UK resident directors is affected by the 'pensionable earnings
cap'.
The BP Pension Scheme is the principal section of the BP Pension Fund, the
latter being established under a trust deed. Contributions to the Fund are made
on the advice of the actuary appointed by the Trustee directors. No
contributions were made to the Fund by the Company in 1998 in respect of
pensions accruing under the BP Pension Scheme.
Mr Fuller and Mr Lowrie participate in Amoco's Corporate Retirement Plan.
Under this Plan, the amount of annuity they are eligible to receive on a
single-life basis is determined under an annuity benefit formula.
The annuity benefit formula (including a percentage of US Social Security
benefits) is calculated at 1 2/3 x years of participation x average annual
earnings. (Average annual earnings for Plan purposes are determined by the three
highest consecutive years' salaries plus the three highest consecutive years'
bonuses -- in the 10 years preceding retirement). The maximum annuity is 60% of
this average.
While normal benefit is calculated as a single life annuity payable at age
65, eligible employees can opt to receive this benefit in a number of
actuarially equivalent forms (e.g. lump sum or joint and survivor annuity).
Normal pensionable age in the US Plan is 65. Between 60 and 65 there is no
actuarial reduction but the reduction is 5% per year between 50 and 59.
In line with US tax regulations, benefits are provided as appropriate
through a qualified and a restoration/non-qualified plan.
PENSION ENTITLEMENT -- UK EXECUTIVE DIRECTORS
<TABLE>
<CAPTION>
Additional Additional
pension earned pension earned
Accrued during the during
Years of service entitlement at year ended the year ended
at December 31, December 31, December 31, December 31,
1998 1998(a) 1998(a) 1997(a)
---------------- -------------- -------------- --------------
($ thousand) ($ thousand) ($ thousand)
<S> <C> <C> <C> <C>
Sir John Browne................... 32 626 45 118
Dr J G S Buchanan................. 29 327 32 20
R F Chase......................... 34 420 32 18
Dr C S Gibson-Smith............... 28 295 27 5(b)
R L Olver......................... 25 300 27 n/a(b)
B K Sanderson..................... 34 420 32 16
</TABLE>
- - ------------
(a) A conversion rate of L1 = $1.66 has been used for 1998, L1 = $1.64 for
1997.
(b) Only includes pension earned from date of board appointment.
73
<PAGE> 74
PENSION ENTITLEMENT -- US EXECUTIVE DIRECTORS
<TABLE>
<CAPTION>
Additional
pension earned
Accrued during the
Years of service entitlement at year ended
at December 31, December 31, December 31,
1998 1998(a) 1998(a)
---------------- -------------- --------------
($ thousand) ($ thousand)
<S> <C> <C> <C>
H L Fuller....................................... 37 1,146 128
W G Lowrie....................................... 32 475 111
</TABLE>
- - ------------
(a) Expressed as a single life annuity with benefit commencement at December
31, 1998.
SERVICE CONTRACTS
All UK executive directors appointed since 1996 hold a contract of service
which includes a one-year period of notice. Sir John Browne and Mr Chase were
appointed before 1996 and have contracts which include a two-year notice period.
Mr Sanderson's contract is due to expire within two years when he reaches the
age of 60. Under each contract, the company reserves the right to make a payment
in lieu of notice.
Dr Stomberg was a director of BP prior to his retirement at the end of
1997. He now serves as a special adviser to the group chief executive on
European matters at a fixed annual salary of DM1.1 million until the end of
1999.
Mr Fuller's and Mr Lowrie's secondments to BP Amoco began on December 31,
1998. Mr Lowrie's underlying US employment agreement with BP Amoco Corporation
was fixed for a three-year period which reflected his contract with Amoco. Mr
Fuller's contract runs until the end of March 2000, when he is due to retire.
Pursuant to Mr Fuller's and Mr Lowrie's service contracts, BP Amoco must pay
each executive a severance payment which is substantially equal to three years
of base salary if BP Amoco terminates his employment, other than for cause,
disability or death, or if the executive terminates his employment with BP Amoco
for 'good reason' as such term is defined in the service contract. Mr Lowrie
resigned from the board on February 12, 1999 and will be retiring from BP Amoco
Corporation in the first half of the year. He will be entitled to receive the
severance payment upon his retirement.
REMUNERATION OF NON-EXECUTIVE DIRECTORS
The Articles of Association provide that the remuneration paid to
non-executive directors shall be determined by the board within the limits set
by the shareholders. Non-executive directors do not have service contracts with
the company.
During 1998 the chairman of BP received a fee of $265,600. The
non-executive directors of BP received a basic fee of $41,500 per annum and
extra remuneration for duties on board committees. Details of individual fees
are set out below.
The non-executive directors of Amoco received fees of $64,000 per annum
during 1998. In addition, each Amoco non-executive director was granted 600
shares of Amoco common stock, subject to forfeiture and transfer restrictions
relating to continued service on the board. At the date of the awards the shares
were worth $25,762, giving a total remuneration as at the date of the award of
$89,762 per director. Those Amoco directors who left the board in December 1998
following the merger were also paid the amounts shown in the footnotes to the
table in recognition of their years of service and contributions to the Amoco
board.
The remuneration of non-executive directors of BP Amoco was revised
following the merger. This has been set at $66,400 per annum, plus an allowance
of $4,890 for occasions on which a director is required to travel across the
Atlantic for a board meeting or committee meeting. During 1999 the board will
meet eight times, five times in the UK and three times in the USA. Committee
meetings are held in conjunction with board meetings whenever feasible.
74
<PAGE> 75
REMUNERATION OF NON-EXECUTIVE DIRECTORS
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1998 December 31, 1997
----------------- -----------------
($ thousand)
<S> <C> <C>
CURRENT DIRECTORS
R S Block......................................... 90 80
J H Bryan......................................... 90 80
E B Davis, Jr..................................... 90 80
R J Ferris........................................ 90 80
C F Knight........................................ 52(a) 51(b)
F A Maljers....................................... 90 80
Dr W E Massey..................................... 90 80
H M P Miles....................................... 61(a)(c) 61(b)(d)
Sir Robin Nicholson............................... 46(a)(e) 73(b)
Sir Ian Prosser................................... 55(a) 34(b)
P D Sutherland.................................... 266(a) 216(b)
M H Wilson........................................ 90 80
R P Wilson........................................ 18(a) --
The Lord Wright of Richmond....................... 61(a) 61(b)
DIRECTORS LEAVING THE BOARD IN 1998
D R Beall......................................... 393(f) 80
Sir James Glover.................................. 61(a) 69(b)
Dr K N Horn....................................... 51(a) 51(b)
A C Martinez...................................... 244(g) 80
M R Seger......................................... 393(f) 80
Sir Patrick Sheehy................................ 51(a) 54(b)
T M Solso......................................... 214(h) 80
DIRECTORS WHO RETIRED BEFORE 1998
The Lord Simon of Highbury........................ -- 535(b)
----------------- -----------------
Total............................................. 2,596 2,085
================= =================
</TABLE>
- - ------------
(a) Sterling payments converted at the average 1998 exchange rate of L1 =
$1.66.
(b) Sterling payments converted at the average 1997 exchange rate of L1 = $1.64.
(c) Paid in part to his employer.
(d) Paid to his employer.
(e) Also received $22,687 for serving on the Technical Advisory Council.
(f) Includes standard non-executive director remuneration of $89,762 and a
special payment of $304,000 in recognition of service to the Amoco board.
(g) Includes standard non-executive director remuneration of $89,762 and a
special payment of $154,000 in recognition of service to the Amoco board.
(h) Includes standard non-executive director remuneration of $89,762 and a
special payment of $124,000 in recognition of service to the Amoco board.
Total emoluments include salary and benefits earned and paid during the
relevant financial year, plus bonuses, which are paid in the following year,
plus for 1998 the value of the awards made under the 1996-98 Plan in respect of
the three years covered by that Plan. The total remuneration paid during 1998 to
all directors and the secretary as a group was $11,892,000. As the merger
between BP and Amoco occurred on December 31, 1998 this represents the total
remuneration of the BP directors and secretary only.
75
<PAGE> 76
ITEM 12 -- OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES (A)
Pursuant to the various BP Amoco Group share option schemes, the following
options for Ordinary Shares of the Company were outstanding at March 29, 1999:
<TABLE>
<CAPTION>
Expiry Exercise
Options dates of price
outstanding options per share
- - ----------- ------------ ---------------
(shares)
<S> <C> <C>
162,397,886 1999 to 2009 $3.70 to $15.83
</TABLE>
No options under the BP executive share option scheme were granted to
executive directors during the year. For options granted to Mr Fuller and Mr
Lowrie, see Item 11 -- Compensation of Directors and Officers.
As at March 29, 1999, the following directors, together with the secretary
of BP Amoco p.l.c., held options under the BP Amoco Group share option schemes
for Ordinary Shares as set out below:
<TABLE>
<S> <C>
Sir John Browne....................... 2,984
J G S Buchanan........................ 3,489
R F Chase............................. 4,662
H L Fuller............................ 7,384,200
R L Olver............................. 3,428
B K Sanderson......................... 4,267
J C Hanratty.......................... 4,662
---------
Total................................. 7,407,692
=========
</TABLE>
- - ------------
(a) See also Item 18 -- Note 33 of Notes to Financial Statements.
ITEM 13 -- INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In the ordinary course of its business the Group has transactions with
various organizations with which certain of its directors are associated but,
except as described in this report, no such material transactions have been
entered into in the period commencing January 1, 1998 to March 29, 1999.
76
<PAGE> 77
PART III
ITEM 15 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16 -- CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
BP Amoco p.l.c.'s Articles of Association were amended by special
resolution on November 25, 1998. The Deposit Agreement, among BP Amoco p.l.c.,
Morgan Guaranty Trust Company of New York and the holders of ADRs from time to
time, was amended effective December 31, 1998.
The 'Description of BP Amoco Ordinary Shares' and 'Description of BP Amoco
American Depositary Shares' contained in BP Amoco's Report on Form 6-K filed on
March 25, 1999, are incorporated herein by reference.
77
<PAGE> 78
PART IV
ITEM 18 -- FINANCIAL STATEMENTS
See pages F-3 through F-97 and page S-1, incorporated herein by reference.
ITEM 19 -- FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
The following financial statements, together with the reports of the
Independent Auditors thereon, are filed as part of this annual report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Auditors and Consents of Independent
Auditors.................................................. F-1
Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-3
Consolidated Balance Sheet at December 31, 1998 and 1997.... F-4
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-5
Statement of Total Recognized Gains and Losses for the Years
Ended December 31, 1998, 1997 and 1996.................... F-5
Statement of Changes in BP Amoco Shareholders' Interest for
the Years Ended December 31, 1998, 1997 and 1996.......... F-6
Notes to Financial Statements............................... F-8
Supplementary Oil and Gas Information (Unaudited)........... F-87
Schedule for the Years Ended December 31, 1998, 1997 and
1996
Schedule II Valuation and Qualifying Accounts............. S-1
</TABLE>
All other Schedules have been omitted since they are not required under the
applicable instructions or the substance of the required information is shown in
the financial statements.
(B) EXHIBITS
The following documents are filed as part of this annual report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)............................................... E-1
</TABLE>
Amended Memorandum and Articles of Association of BP Amoco p.l.c. (incorporated
herein by reference to Report on Form 6-K dated January 4, 1999).
Amended and Restated Deposit Agreement effective as of December 31, 1998, among
BP Amoco p.l.c., Morgan Guaranty Trust Company of New York, as Depositary and
all holders from time to time of American Depositary Receipts issued
thereunder (incorporated herein by reference to the Registration Statement on
Form F-6 (file no. 333-9566)).
The total amount of long-term debt securities of the Registrant and its
subsidiaries authorized under any one instrument does not exceed 10% of the
total assets of BP Amoco p.l.c. and its subsidiaries on a consolidated basis.
The Company agrees to furnish copies of any or all such instruments to the
Securities and Exchange Commission upon request.
78
<PAGE> 79
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BP AMOCO p.l.c.
(Registrant)
/s/ JUDITH C. HANRATTY
----------------------------------------------------------------------
Judith C. Hanratty
(Secretary)
Dated: April 1, 1999
79
<PAGE> 80
BP AMOCO P.L.C. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
To: THE BOARD OF DIRECTORS
BP Amoco p.l.c.
We have audited the accompanying consolidated balance sheets of BP Amoco
p.l.c. as of December 31, 1998 and 1997, and the related consolidated statements
of income, changes in BP Amoco shareholders' interest, total recognized gains
and losses, and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the financial statement schedule
listed in the Index at Item 19(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
The consolidated financial statements give retroactive effect to the merger
of The British Petroleum Company p.l.c. and Amoco Corporation, which has been
accounted for as a merger as described in Note 44 to the consolidated financial
statements. We did not audit the financial statements of Amoco Corporation,
which statements reflect total assets constituting 39% for 1997 of the related
consolidated financial statement total, and which reflect net income
constituting approximately 33% and 45% of the related consolidated financial
statement totals for the years ended December 31, 1997 and 1996, respectively.
Those statements, which were prepared in accordance with accounting principles
generally accepted in the United States, were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
amounts included for Amoco Corporation for 1997 and 1996 (before the conversion
to accounting principles generally accepted in the United Kingdom), is based
solely on the report of the other auditors.
We conducted our audits in accordance with United Kingdom auditing
standards which do not differ in any significant respect from United States
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation (including the conversion of the financial
statements of Amoco Corporation to accounting principles generally accepted in
the United Kingdom). We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of BP Amoco p.l.c. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its consolidated cash flows for each of the three years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United Kingdom which differ in certain respects from those followed in
the United States (see Note 45 of Notes to Financial Statements). Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
<TABLE>
<S> <C>
/s/ ERNST & YOUNG
------------------------------
London, England Ernst & Young
February 17, 1999
</TABLE>
- - --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February
17, 1999, with respect to the consolidated financial statements of BP Amoco
p.l.c. included in this Annual Report (Form 20-F) for the year ended December
31, 1998 in the following Registration Statements:
Registration Statement on Form F-3 (File No. 333-9790) of BP Amoco p.l.c.
Registration Statements on Form F-3 (File Nos. 33-39075 and 33-20338) of BP
America Inc. and BP Amoco p.l.c.;
Registration Statement on Form F-3 (File No. 33-29102) of The Standard Oil
Company and BP Amoco p.l.c.; and
Registration Statements on Form S-8 (File Nos. 33-21868, 333-9020 and
333-9798) of BP Amoco p.l.c.
<TABLE>
<S> <C>
/s/ ERNST & YOUNG
------------------------------
London, England Ernst & Young
April 1, 1999
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To: THE BOARD OF DIRECTORS AND
Shareholders of Amoco Corporation
In our opinion, the consolidated statement of financial position and the
related consolidated statements of income, shareholders' equity, and cash flows
(not presented separately herein) present fairly, in all material respects, the
financial position of Amoco Corporation and its subsidiaries at December 31,
1997, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Amoco Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- - ------------------------------------------
Chicago, Illinois
February 24, 1998
- - --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-21868, 333-9020 and 333-9798) of BP Amoco p.l.c.
and in the Prospectuses constituting part of the Registration Statements on Form
F-3 (No. 33-39075 and 33-20338) of BP America and BP Amoco p.l.c. and (No.
33-29102) of The Standard Oil Company and BP Amoco p.l.c. and (No. 333-9790) of
BP Amoco p.l.c. of our report dated February 24, 1998, appearing in Item 19 of
this Annual Report on Form 20-F.
/s/ PRICEWATERHOUSECOOPERS LLP
- - ------------------------------------------
PRICEWATERHOUSECOOPERS LLP
CHICAGO, ILLINOIS
APRIL 1, 1999
F-2
<PAGE> 82
BP AMOCO P.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
Note 1998 1997 1996
---- ------- ------- -------
($ million, except per share
amounts)
<S> <C> <C> <C> <C>
TURNOVER.............................................. 83,732 108,564 102,064
Less: Joint ventures.................................. 15,428 16,804 --
------- ------- -------
GROUP TURNOVER........................................ 2 68,304 91,760 102,064
Replacement cost of sales............................. 56,354 73,928 81,922
Production taxes...................................... 3 604 1,307 1,611
------- ------- -------
GROSS PROFIT.......................................... 11,346 16,525 18,531
Distribution and administration expenses.............. 4 6,044 6,742 8,367
Exploration expense................................... 921 962 997
------- ------- -------
4,381 8,821 9,167
Other income.......................................... 5 709 662 714
------- ------- -------
GROUP REPLACEMENT COST OPERATING PROFIT............... 5,090 9,483 9,881
Share of profits of joint ventures.................... 825 544 --
Share of profits of associated undertakings........... 522 556 663
------- ------- -------
TOTAL REPLACEMENT COST OPERATING PROFIT............... 6,437 10,583 10,544
Profit (loss) on sale of businesses................... 6 395 127 127
Profit (loss) on sale of fixed assets................. 6 653 313 (298)
Merger expenses....................................... 6 (198) -- --
Refinery network rationalization...................... 6 -- 71 --
European refining and marketing joint venture
implementation...................................... 6 -- -- (532)
------- ------- -------
REPLACEMENT COST PROFIT BEFORE INTEREST AND TAX....... 7,287 11,094 9,841
Inventory holding gains (losses)...................... (1,391) (939) 1,172
------- ------- -------
HISTORICAL COST PROFIT BEFORE INTEREST AND TAX........ 5,896 10,155 11,013
Interest expense...................................... 7 1,053 908 1,004
------- ------- -------
PROFIT BEFORE TAXATION................................ 4,843 9,247 10,009
Taxation.............................................. 9 1,520 3,066 2,755
------- ------- -------
PROFIT AFTER TAXATION................................. 3,323 6,181 7,254
Minority shareholders' interest....................... 63 151 13
------- ------- -------
PROFIT FOR THE YEAR*.................................. 3,260 6,030 7,241
Dividend requirements on preference shares*........... 1 1 1
------- ------- -------
PROFIT FOR THE YEAR APPLICABLE TO ORDINARY SHARES*.... 3,259 6,029 7,240
======= ======= =======
PROFIT PER ORDINARY SHARE -- CENTS
Basic................................................. 11 34 63 76
Diluted............................................... 11 34 63 75
======= ======= =======
DIVIDENDS PER ORDINARY SHARE -- CENTS................. 10 39.5 36 31
======= ======= =======
Average number outstanding of 50 cents ordinary shares
(in millions)....................................... 9,596 9,592 9,559
======= ======= =======
</TABLE>
- - ------------
* A summary of the adjustments to profit for the year of the Group which would
be required if generally accepted accounting principles in the United States
had been applied instead of those generally accepted in the United Kingdom is
given in Note 45.
The Notes to Financial Statements are an integral part of this Statement.
F-3
<PAGE> 83
BP AMOCO P.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------
Note 1998 1997
---- --------------- ---------------
($ million)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets................................ 19 3,037 2,582
Tangible assets.................................. 20 54,465 52,263
Investments
Joint ventures
Gross assets................................ 9,053 9,147
Gross liabilities........................... 4,048 3,523
------ ------
Net investment................................ 21 5,005 5,624
Associated undertakings....................... 21 4,162 4,354
Other......................................... 21 605 398
------ ------
9,772 10,376
------ ------
TOTAL FIXED ASSETS................................. 67,274 65,221
CURRENT ASSETS
Inventories...................................... 22 3,642 4,923
Trade receivables................................ 23 5,778 7,725
Other receivables falling due
Within one year............................... 23 3,626 3,658
After more than one year...................... 23 3,305 2,998
Investments...................................... 24 470 1,067
Cash at bank and in hand......................... 405 355
------ ------
17,226 20,726
------ ------
CURRENT LIABILITIES -- FALLING DUE WITHIN ONE YEAR
Finance debt..................................... 25 2,837 2,856
Trade payables................................... 26 5,091 5,854
Other accounts payable and accrued liabilities... 26 10,238 11,817
------ ------
18,166 20,527
------ ------
NET CURRENT (LIABILITIES) ASSETS................... (940) 199
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES.............. 66,334 65,420
Noncurrent liabilities
Finance debt..................................... 25 10,918 10,021
Accounts payable and accrued liabilities......... 26 2,109 2,562
Provisions for liabilities and charges
Deferred taxation................................ 9 1,632 1,183
Other............................................ 27 8,817 8,806
------ ------
23,476 22,572
------ ------
NET ASSETS......................................... 42,858 42,848
Minority shareholders' interest.................... 1,072 1,100
------ ------
BP AMOCO SHAREHOLDERS' INTEREST*................... 41,786 41,748
====== ======
REPRESENTED BY:
Capital shares
Preference....................................... 21 21
Ordinary......................................... 4,842 4,309
Paid in surplus.................................... 29 3,386 3,777
Merger reserve..................................... 29 697 650
Retained earnings.................................. 30 32,840 32,991
------ ------
41,786 41,748
====== ======
</TABLE>
- - ------------
* A summary of the adjustments to BP Amoco shareholders' interest which would be
required if generally accepted accounting principles in the United States had
been applied instead of those generally accepted in the United Kingdom is
given in Note 45.
The Notes to Financial Statements are an integral part of this Balance Sheet.
F-4
<PAGE> 84
BP AMOCO P.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
Years ended December 31,
--------------------------
Note 1998 1997 1996
---- ------ ------ ------
($ million)
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 31 9,586 15,558 13,679
------ ------ ------
DIVIDENDS FROM JOINT VENTURES............................... 544 190 --
DIVIDENDS FROM ASSOCIATED UNDERTAKINGS...................... 422 551 476
------ ------ ------
SERVICING OF FINANCE AND RETURNS ON INVESTMENTS
Interest received........................................... 223 243 199
Interest paid............................................... (961) (911) (1,109)
Dividends received.......................................... 43 13 30
Dividends paid to minority shareholders..................... (130) -- --
------ ------ ------
NET CASH OUTFLOW FROM SERVICING OF FINANCE AND RETURNS ON
INVESTMENTS............................................... (825) (655) (880)
------ ------ ------
TAXATION
UK corporation tax.......................................... (391) (500) (450)
Overseas tax................................................ (1,314) (1,773) (1,981)
------ ------ ------
TAX PAID.................................................... (1,705) (2,273) (2,431)
------ ------ ------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments for fixed assets................................... (8,431) (8,600) (8,924)
Purchase of shares for employee share schemes............... (254) (300) (14)
Proceeds from the sale of fixed assets...................... 18 1,387 1,468 973
------ ------ ------
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (7,298) (7,432) (7,965)
------ ------ ------
ACQUISITIONS AND DISPOSALS
Investments in associated undertakings...................... (396) (1,021) (383)
Acquisitions................................................ 17 (314) -- (535)
Net investment in joint ventures............................ 708 (1,967) --
Proceeds from the sale of businesses........................ 18 780 364 827
------ ------ ------
NET CASH INFLOW (OUTFLOW) FOR ACQUISITIONS AND DISPOSALS.... 778 (2,624) (91)
------ ------ ------
EQUITY DIVIDENDS PAID....................................... (2,408) (2,437) (2,411)
------ ------ ------
NET CASH INFLOW (OUTFLOW)................................... (906) 878 377
====== ====== ======
FINANCING................................................... 31 (377) 1,012 828
MANAGEMENT OF LIQUID RESOURCES.............................. 31 (596) (167) (147)
INCREASE (DECREASE) IN CASH................................. 31 67 33 (304)
------ ------ ------
(906) 878 377
====== ====== ======
</TABLE>
- - --------------------------------------------------------------------------------
STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
------ ------ ------
($ million)
<S> <C> <C> <C> <C>
PROFIT FOR THE YEAR......................................... 3,260 6,030 7,241
Currency translation differences............................ 55 (1,587) 367
------ ------ ------
TOTAL RECOGNIZED GAINS AND LOSSES FOR THE YEAR.............. 3,315 4,443 7,608
====== ====== ======
</TABLE>
- - ------------
For a cash flow statement and a statement of comprehensive income prepared on
the basis of US GAAP see Note 45 -- US generally accepted accounting principles.
- - --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these Statements.
F-5
<PAGE> 85
BP AMOCO P.L.C. AND SUBSIDIARIES
STATEMENT OF CHANGES IN BP AMOCO SHAREHOLDERS' INTEREST
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
During 1998 the parent company's authorized share capital of L2,000 million
was redenominated and increased to 12 billion ordinary shares of 50 cents each
amounting to $6 billion plus preference shares of L12,750,000 ($21 million). On
December 31, 1998, the parent company issued 3,797,071,800 ordinary shares to
Amoco shareholders on completion of the BP/Amoco merger and also during the year
110,285,094 ordinary shares were issued under the share dividend plan by
capitalization of the share premium account and 13,069,529 ordinary shares were
issued under employee share schemes. The authorized ordinary share capital of
The British Petroleum Co. p.l.c. at December 31, 1997 and 1996 was 7,949,000,000
ordinary shares of 25 pence each.
The share capital at December 31, was as follows:
<TABLE>
<CAPTION>
Shares
---------------------------
Authorized Issued Amount
-------------- ---------- ----------
($
million)
<S> <C> <C> <C>
NON-EQUITY -- PREFERENCE SHARES
8% (now 5.6% + tax credit) cumulative first
preference shares of L1 each at December 31, 1998,
1997 and 1996..................................... 7,250,000 7,232,838 12
============== ========== ==========
9% (now 6.3% + tax credit) cumulative second
preference shares of L1 each at December 31, 1998,
1997 and 1996..................................... 5,500,000 5,473,414 9
============== ========== ==========
EQUITY -- ORDINARY SHARES OF 50 CENTS EACH
Authorized
December 31, 1998................................. 12,000,000,000
==============
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
Issued --------- --------- --------- --------- --------- ---------
(thousands) ($ (thousands) ($ (thousands) ($
million) million) million)
<S> <C> <C> <C> <C> <C> <C>
January 1.......................... 9,597,793 4,309 9,598,573 4,361 9,516,786 4,144
Employee share schemes -- Amoco.... 16,763 8 15,209 8 10,556 5
Employee share schemes -- BP....... 13,070 5 25,198 10 20,007 8
Share dividend plan -- BP.......... 110,285 46 87,179 36 54,849 22
Share repurchases -- Amoco......... (54,901) (27) (128,366) (64) (3,625) (2)
Redenomination of BP shares into US
dollars......................... -- 484 -- -- -- --
Exchange adjustment................ -- 17 -- (42) -- 184
--------- --------- --------- --------- --------- ---------
December 31........................ 9,683,010 4,842 9,597,793 4,309 9,598,573 4,361
========= ========= ========= ========= ========= =========
PAID IN SURPLUS
January 1.......................... 3,777 3,733 3,348
Premium on shares issued:
Employee share schemes -- BP.... 117 144 120
Share dividend plan -- BP (a)... (46) (36) (22)
Exchange adjustment................ 22 (64) 287
Redenomination of BP shares into US
dollars......................... (484) -- --
--------- --------- ---------
December 31........................ 3,386 3,777 3,733
========= ========= =========
</TABLE>
The Notes to Financial Statements are an integral part of this Statement.
F-6
<PAGE> 86
BP AMOCO P.L.C. AND SUBSIDIARIES
STATEMENT OF CHANGES IN BP AMOCO SHAREHOLDERS' INTEREST (CONCLUDED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
MERGER RESERVE
January 1................................................. 650 673 620
Employee share schemes -- Amoco........................... 97 92 53
Share repurchases -- Amoco................................ (50) (115) --
------- ------- -------
December 31............................................... 697 650 673
======= ======= =======
RETAINED EARNINGS
January 1................................................. 32,991 32,231 27,718
Profit for the year....................................... 3,260 6,030 7,241
Exchange adjustment....................................... 16 (1,481) (104)
Share repurchase -- Amoco................................. (507) (1,244) (36)
Dividends (c)
Preference (non-equity)................................ (1) (1) (1)
Ordinary (equity)...................................... (4,120) (3,451) (3,006)
Qualifying Employee Share Ownership Trust (d)............. (42) -- --
Share dividend plan....................................... 1,243 907 417
------- ------- -------
December 31............................................... 32,840 32,991 32,231
======= ======= =======
</TABLE>
- - ------------
(a) During 1998, 110,285,094 Ordinary Shares (1997, 87,179,495 and 1996,
54,848,723) were issued under the share dividend plan at par value, by
capitalization of paid in surplus.
(b) On a show-of-hands vote on an ordinary resolution at a general meeting,
shareholders present in person or by proxy have one vote each. Special
resolutions are voted on by poll. On a poll, shareholders present in person
or by proxy have two votes for every L5 in nominal amount of the first and
second preference shares held and one vote for every ordinary share held.
(c) See Note 10 -- Dividends.
(d) See Note 33 -- Employee share schemes.
(e) See Note 30 -- Retained earnings.
The Notes to Financial Statements are an integral part of this Statement.
F-7
<PAGE> 87
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES
ACCOUNTING STANDARDS
The accounts are prepared in accordance with applicable UK accounting
standards. The Group has adopted the following Financial Reporting Standards
(FRSs) during 1998: FRS9 'Associates and Joint Ventures'; FRS10 'Goodwill and
Intangible Assets'; FRS11 'Impairment of Fixed Assets and Goodwill' and FRS14
'Earnings per Share'.
The financial information for 1997 and 1996 has been restated to comply
with the requirements of FRS9. See Note 43 for further information. The
restatement has had no effect on the profit for the year and net assets.
BASIS OF PREPARATION
The Group's main activities are the exploration and production of crude oil
and natural gas; the refining, marketing, supply and transportation of petroleum
products; and the manufacturing and marketing of petrochemicals.
The preparation of financial statements in conformity with UK generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses; and the disclosure of contingent assets and liabilities. Actual
results could differ from the estimates and assumptions used.
MERGER ACCOUNTING
The financial statements have been prepared using the merger method of
accounting in relation to the merger of BP and Amoco. Under merger accounting,
the results and cash flows of BP and Amoco are combined from the beginning of
the financial period in which the merger occurred and their assets and
liabilities combined at the amounts at which they were previously recorded after
adjusting to achieve consistency of accounting policies. Income statement,
balance sheet and cash flow comparatives are restated on the combined basis. See
Note 44 for further information.
GROUP CONSOLIDATION
The Group financial statements comprise a consolidation of the accounts of
the parent company and its subsidiary undertakings (subsidiaries). The results
of subsidiaries acquired or sold are consolidated for the periods from or to the
date on which control passes.
An associated undertaking (associate) is an entity in which the Group has a
long term equity interest and over which it exercises significant influence. The
consolidated financial statements include the Group proportion of the operating
profit or loss, exceptional items, inventory holding gains or losses, interest
expense, taxation and net assets of associates (the equity method).
A joint venture is an entity in which the Group has a long-term interest
and shares control with one or more co-venturers. The consolidated financial
statements include the Group proportion of turnover, operating profit or loss,
exceptional items, inventory holding gains or losses, interest expense,
taxation, gross assets and gross liabilities of the joint venture (the gross
equity method).
Certain of the Group's activities are conducted through joint arrangements
and are included in the consolidated financial statements in proportion to the
Group's interest in the income, expenses, assets and liabilities of these joint
arrangements.
On the acquisition of a subsidiary, or of an interest in a joint venture or
associated undertaking, fair values reflecting conditions at the date of
acquisition are attributed to the identifiable net assets acquired. When the
cost of acquisition exceeds the fair values attributable to the Group's share of
such net assets
F-8
<PAGE> 88
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
GROUP CONSOLIDATION (CONCLUDED)
the difference is treated as purchased goodwill. This is capitalized and
amortized over its estimated useful economic life, limited to a maximum period
of 20 years.
ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention. Historical
cost accounts show the profits available to shareholders and are the most
appropriate basis for presentation of the Group's balance sheet. Profit or loss
determined under the historical cost convention includes inventory holding gains
or losses and, as a consequence, does not necessarily reflect underlying trading
results.
REPLACEMENT COST
The results of individual businesses and geographical areas are presented
on a replacement cost basis. Replacement cost operating results exclude
inventory holding gains or losses and reflect the average cost of supplies
incurred during the year, and thus provide insight into underlying trading
results. Inventory holding gains or losses represent the difference between the
replacement cost of sales and the historical cost of sales calculated using the
first-in first-out method.
INVENTORY VALUATION
Inventories are valued at cost to the Group using the first-in first-out
method or at net realizable value, whichever is the lower. Stores are stated at
or below cost calculated mainly using the average method.
FOREIGN CURRENCIES
On consolidation, assets and liabilities of subsidiary undertakings are
translated into US dollars at closing rates of exchange. Income and cash flow
statements are translated at average rates of exchange.
Exchange differences resulting from the retranslation of net investments in
subsidiary and associated undertakings at closing rates, together with
differences between income statements translated at average rates and at closing
rates, are dealt with in retained earnings. Exchange gains and losses arising on
long-term foreign currency borrowings used to finance the Group's foreign
currency investments are also dealt with in retained earnings. All other
exchange gains or losses on settlement or translation at closing rates of
exchange of monetary assets and liabilities are included in the determination of
profit for the year.
DERIVATIVE FINANCIAL INSTRUMENTS
The Group is a party to derivative financial instruments (derivatives)
primarily to manage exposures to fluctuations in foreign currency exchange rates
and interest rates, and to manage some of its margin exposure from changes in
oil and natural gas prices.
All derivatives which are held for trading purposes and all oil price
derivatives held for risk management purposes are marked to market and all gains
and losses recognized in the income statement.
Interest rate swap agreements, swaptions and futures contracts are used to
manage interest rate exposures. Amounts payable or receivable in respect of
these derivatives are recognized as adjustments to interest expense over the
period of the contracts.
As part of exchange rate risk management, foreign currency swap agreements
and forward contracts are used to convert non-US dollar borrowings into US
dollars. Gains and losses on these derivatives are deferred and recognized on
maturity of the underlying debt, together with the matching loss or gain on the
debt. Foreign currency forward contracts and options are used to hedge
significant non-US dollar firm
F-9
<PAGE> 89
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS (CONCLUDED)
commitments or anticipated transactions. Gains and losses on these contracts and
option premia paid are also deferred and recognized in the income statement or
as adjustments to carrying amounts, as appropriate, when the hedged transaction
occurs.
EXPLORATION EXPENDITURE
Exploration expenditure is accounted for in accordance with the successful
efforts method. Exploration and appraisal drilling expenditure is initially
capitalized as an intangible fixed asset. When proved reserves of oil and
natural gas are determined and development is sanctioned, the relevant
expenditure is transferred to tangible production assets. All exploration
expenditure determined as unsuccessful is charged against income. Exploration
license acquisition costs are amortized over the estimated period of
exploration. Geological and geophysical exploration costs are charged against
income as incurred.
DEPRECIATION
Oil and gas production assets are depreciated using a unit-of-production
method based upon estimated proved reserves. Other tangible and intangible
assets are depreciated on the straight line method over their estimated useful
lives. The average estimated useful lives of refineries are 20 years, chemicals
manufacturing plants are 20 years and service stations 15 years. Other
intangibles are amortized over a maximum period of 20 years.
The Group undertakes a review for impairment of a fixed asset or goodwill
if events or changes in circumstances indicate that the carrying amount of the
fixed asset or goodwill may not be recoverable. To the extent that the carrying
amount exceeds the recoverable amount, that is the higher of net realizable
value and value in use, the fixed asset or goodwill is written down to its
recoverable amount. The value in use is determined from estimated discounted
future net cash flows.
DECOMMISSIONING
Provision is made for the decommissioning of production facilities in
accordance with local conditions and requirements on the basis of costs
estimated as at the balance sheet date. The provision is allocated over
accounting periods using a unit-of-production method based on estimated proved
reserves.
PETROLEUM REVENUE TAX
The charge for petroleum revenue tax is calculated using a
unit-of-production method.
CHANGES IN UNIT-OF-PRODUCTION FACTORS
Changes in factors which affect unit-of-production calculations are dealt
with prospectively, not by immediate adjustment of prior years' amounts.
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and that do not contribute to current or
future earnings are expensed.
Liabilities for environmental costs are recognized when environmental
assessments or clean-ups are probable and the associated costs can be reasonably
estimated. Generally, the timing of these provisions
F-10
<PAGE> 90
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES (CONCLUDED)
ENVIRONMENTAL LIABILITIES (CONCLUDED)
coincides with the commitment to a formal plan of action or, if earlier, on
divestment or on closure of inactive sites.
LEASES
Assets held under leases which result in Group companies receiving
substantially all risks and rewards of ownership (capital leases) are
capitalized as tangible fixed assets at the estimated present value of
underlying lease payments. The corresponding capital lease obligation is
included with borrowings. Rentals under operating leases are charged against
income as incurred.
RESEARCH
Expenditure on research is written off in the year in which it is incurred.
INTEREST
Interest is capitalized gross during the period of construction where it
relates either to the financing of major projects with long periods of
development or to dedicated financing of other projects. All other interest is
charged against income.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The cost of providing pensions and other postretirement benefits is charged
to income on a systematic basis, with pension surpluses and deficits amortized
over the average expected remaining service lives of current employees. The
difference between the amounts charged to income and the contributions made to
pension plans is included within other provisions or debtors as appropriate. The
amounts accrued for other postretirement benefits and unfunded pension
liabilities are included within other provisions.
DEFERRED TAXATION
Deferred taxation is calculated, using the liability method, in respect of
timing differences arising primarily from the difference between the accounting
and tax treatments of both depreciation and petroleum revenue tax. Provision is
made or recovery anticipated where timing differences are expected to reverse in
the foreseeable future.
NOTE 2 -- TURNOVER
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and operating revenue................................. 76,448 100,913 128,325
Customs duties and sales taxes.............................. 8,144 9,153 26,261
------- ------- -------
68,304 91,760 102,064
======= ======= =======
</TABLE>
F-11
<PAGE> 91
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 3 -- PRODUCTION TAXES
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
UK petroleum revenue tax.................................... 45 306 480
Overseas production taxes................................... 559 1,001 1,131
------- ------- -------
604 1,307 1,611
======= ======= =======
</TABLE>
NOTE 4 -- DISTRIBUTION AND ADMINISTRATION EXPENSES
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Distribution................................................ 4,714 5,178 6,927
Administration.............................................. 1,330 1,564 1,440
------- ------- -------
6,044 6,742 8,367
======= ======= =======
</TABLE>
NOTE 5 -- OTHER INCOME
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Income from other fixed asset investments................... 74 101 173
Other interest and miscellaneous income..................... 635 561 541
------- ------- -------
709 662 714
======= ======= =======
Income from investments publicly traded included above...... -- 2 3
------- ------- -------
</TABLE>
F-12
<PAGE> 92
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 6 -- EXCEPTIONAL ITEMS
Exceptional items comprise profit (loss) on sale of businesses and fixed
assets, merger expenses, refinery network rationalization costs and European
refining and marketing joint venture implementation costs as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Profit (loss) on sale of businesses
- - -- Group.................................................... 310 250 127
- - -- Joint ventures........................................... 85 (123) --
Profit (loss) on sale of fixed assets -- Group.............. 653 313 (298)
------- ------- -------
1,048 440 (171)
Merger expenses -- Group.................................... (198) -- --
Refinery network rationalization -- Group................... -- 71 --
European refining and marketing joint venture
implementation -- Group................................... -- -- (532)
------- ------- -------
Exceptional items........................................... 850 511 (703)
Taxation credit (charge):
Sale of businesses.......................................... (36) (7) (92)
Sale of fixed assets........................................ (185) (208) 52
Merger expenses............................................. 23 -- --
Refinery network rationalization............................ -- 24 --
European refining and marketing joint venture
implementation............................................ -- -- 110
------- ------- -------
Exceptional items, net of tax............................... 652 320 (633)
Minority shareholders interest (MSI)........................ -- -- 6
------- ------- -------
652 320 (627)
======= ======= =======
</TABLE>
SALES OF BUSINESSES AND FIXED ASSETS
The principal sales of businesses and fixed assets during 1998 were
exploration and production properties in the USA and Papua New Guinea, the
refinery in Lima, Ohio, the sale and leaseback of the Amoco building in Chicago,
Illinois the retail network in the Czech Republic, the Adibis fuel additives
business and a speciality chemicals distribution business. The profit on sale of
businesses by joint ventures relates mainly to the disposal by the BP/Mobil
joint venture of its retail network in Belgium.
The major element of the profit in 1997 comprised the sale of US
exploration and production properties and an intrastate natural gas pipeline
unit in Texas. The loss on sale of businesses by joint ventures related
principally to the costs of the BP/Mobil joint venture terminating base oil
manufacturing operations at Llandarcy in the UK.
The 1996 loss comprises the sale of the polystyrene foam products and
Carborundum businesses, the BP America office building in Cleveland, Ohio,
certain Canadian exploration and production properties, the Group's interest in
the undeveloped Ross field in the North Sea and the floating production storage
vessel Seillean.
Additional information on the sale of businesses and fixed assets is given
in Note 18 -- Disposals.
F-13
<PAGE> 93
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 6 -- EXCEPTIONAL ITEMS (CONCLUDED)
MERGER EXPENSES
BP Amoco incurred fees and expenses of $198 million in connection with the
merger. These costs relate principally to investment banking fees as well as
legal, accounting and regulatory filing fees.
REFINERY NETWORK RATIONALIZATION
The credit for refinery network rationalization in 1997 relates to the
release of provisions for environmental and severance costs charged in 1995 in
respect of the anticipated sale or closure of the Lavera refinery in France.
This release reflects the decision to continue operating the refinery.
EUROPEAN REFINING AND MARKETING JOINT VENTURE IMPLEMENTATION
The one-off costs associated with the setting up of the European refining
and marketing joint venture with Mobil were recognized in 1996. These costs
include $491 million which represents the Group's share of charges for
severance, restructuring, rebranding and other implementation charges and $41
million of own costs for asset write-downs and professional fees.
NOTE 7 -- INTEREST EXPENSE
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Bank loans and overdrafts................................... 158 188 170
Other loans................................................. 762 651 765
Capital leases.............................................. 90 102 82
------- ------- -------
1,010 941 1,017
Capitalized................................................. 119 116 81
------- ------- -------
Group....................................................... 891 825 936
Joint ventures.............................................. 54 -- --
Associated undertakings..................................... 108 83 68
------- ------- -------
Total charged against profit................................ 1,053 908 1,004
======= ======= =======
</TABLE>
Interest expense for 1996 included net charges of $75 million relating to
early redemption of debt.
F-14
<PAGE> 94
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 8 -- DEPRECIATION AND AMOUNTS PROVIDED
Included in the income statement under the following headings:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Depreciation:
Replacement cost of sales................................. 4,620 4,570 4,623
Distribution.............................................. 335 390 640
Administration............................................ 100 88 101
Exceptional items......................................... -- 8 5
------- ------- -------
5,055 5,056 5,369
======= ======= =======
Depreciation of capitalized leased assets included above.... 71 76 90
------- ------- -------
Amounts provided against fixed asset investments:
Replacement cost of sales................................. 200 -- --
======= ======= =======
</TABLE>
The charge for depreciation, within replacement cost of sales, in 1998
includes $214 million for the impairment of the Opon field in Colombia and $61
million for the write-down of various other oil and natural gas properties. The
impairment of the Opon field reflected lower than anticipated natural gas
production and related reserve estimates. The charge also reflected impairment
of the adjacent power plant because of the unavailability of an economic fuel
supply.
As a result of increased economic uncertainty in Russia, the Group has
written down the carrying value of its investment in A O Sidanco by $200
million.
In assessing the value in use of impaired assets, a real discount rate of
7% has been used.
F-15
<PAGE> 95
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 9 -- TAXATION
CHARGE FOR TAXATION
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
United Kingdom corporation tax:
Current at 31% (1997 at 31.5% and 1996 at 33%)............ 1,325 1,329 1,353
Overseas tax relief....................................... (566) (777) (624)
------- ------- -------
759 552 729
Deferred at 31% (1997 at 31.5% and 1996 at 33%)........... (188) 217 32
------- ------- -------
571 769 761
Advance corporation tax................................... (76) (116) (188)
------- ------- -------
495 653 573
------- ------- -------
Overseas:
Current................................................... 896 2,300 1,971
Deferred.................................................. (4) 7 80
Joint ventures............................................ (15) -- --
Associated undertakings................................... 148 106 131
------- ------- -------
1,025 2,413 2,182
------- ------- -------
Taxation charge for the year................................ 1,520 3,066 2,755
======= ======= =======
</TABLE>
Included in the charge for the year is a charge of $198 million (1997 $191
million charge and 1996 $70 million credit) relating to exceptional items.
PROVISIONS FOR DEFERRED TAXATION
<TABLE>
<CAPTION>
Gross potential
Provisions liability
------------------ ------------------
Years ended December 31,
----------------------------------------
1998 1997 1998 1997
------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C>
Analysis of movements during the year:
At January 1.................................... 1,183 1,203 5,486 5,473
Exchange adjustments............................ 37 (52) 20 (165)
Charge (credit) for the year.................... (192) 224 199 370
Deletions/transfers............................. 604 (192) 604 (192)
------- ------- ------- -------
At December 31.................................. 1,632 1,183 6,309 5,486
======= ======= ======= =======
of which -- United Kingdom...................... 927 499 1,626 1,232
-- Overseas........................... 705 684 4,683 4,254
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 96
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 9 -- TAXATION (CONTINUED)
<TABLE>
<CAPTION>
Provisions Gross potential Liability
------------------ --------------------------
December 31,
------------------------------------------------
1998 1997 1998 1997
------- ------- ----------- -----------
($ million)
<S> <C> <C> <C> <C>
Analysis of provision:
Depreciation.................................... 2,413 2,492 9,917 9,906
Petroleum revenue tax........................... (420) (484) (420) (484)
Other timing differences........................ (328) (176) (3,155) (3,211)
Advance corporation tax......................... (33) (649) (33) (725)
------- ------- ------- -------
1,632 1,183 6,309 5,486
======= ======= ======= =======
</TABLE>
If provision for deferred taxation had been made on the basis of the gross
potential liability, the taxation charge for the year would have been increased
(decreased) as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
United Kingdom.............................................. (39) 84 181
Overseas.................................................... 430 62 201
------- ------- -------
391 146 382
======= ======= =======
</TABLE>
Deferred taxation is not generally provided in respect of liabilities which
may arise on the distribution of accumulated reserves of overseas subsidiaries,
joint ventures and associates.
RECONCILIATION OF THE UK STATUTORY TAX RATE TO THE EFFECTIVE TAX RATE OF THE
GROUP ON REPLACEMENT COST PROFIT BEFORE EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(%)
<S> <C> <C> <C>
United Kingdom statutory tax rate........................... 31 31 33
Increase (decrease) resulting from:
Current year timing differences not provided (including
prior year loss utilization)........................... (6) (4) (6)
Tax credits............................................... (2) (2) (2)
Overseas taxes at higher rates............................ 4 4 3
Inventory holding gains taxed (losses relieved)........... (3) (1) 1
Advance corporation tax................................... (1) (1) (2)
Other..................................................... 2 3 3
------- ------- -------
Effective tax rate on replacement cost profit before
exceptional items...................................... 25 30 30
======= ======= =======
</TABLE>
Further information presented in compliance with the requirements of FASB
Statement of Financial Accounting Standards No. 109 -- 'Accounting For Income
Taxes' is set out below.
F-17
<PAGE> 97
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 9 -- TAXATION (CONCLUDED)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Analysis of profit before taxation:
United Kingdom.............................................. 2,278 3,360 3,222
Overseas.................................................... 2,565 5,887 6,787
------- ------- -------
4,843 9,247 10,009
======= ======= =======
Taxation.................................................... 1,520 3,066 2,755
======= ======= =======
Effective tax rate.......................................... 31% 33% 28%
======= ======= =======
</TABLE>
The following relates the United Kingdom statutory tax rate to the
effective tax rate of the Group based on profit before taxation:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(%)
<S> <C> <C> <C>
United Kingdom statutory tax rate........................... 31 31 33
Increase (decrease) resulting from:
Current year timing differences not provided.............. (13) (4) (2)
(Use of losses brought forward) losses unrelieved......... 5 (2) (2)
Overseas taxes at higher rates............................ 7 6 3
Tax credits............................................... (2) (2) (2)
Advance corporation tax................................... (2) (1) (2)
Amortization of purchase price allocation................. 1 1 1
Inventory (gains not taxed) losses unrelieved............. 5 2 (4)
Other differences......................................... (1) 2 3
------- ------- -------
Effective tax rate.......................................... 31 33 28
======= ======= =======
</TABLE>
F-18
<PAGE> 98
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 10 -- DIVIDENDS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
----- ----- ----- ----- ----- ----- ----- ----- -----
(pence per share) (cents per share) ($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BP
Preference dividends
(non-equity)................... 1 1 1
Dividends per ordinary share:
First quarterly................ 5.75 5.25 4.25 9.5 8.6 6.6 551 490 373
Second quarterly............... 6.00 5.50 5.00 10.0 9.0 7.8 579 517 438
Third quarterly................ 6.00 5.50 5.00 10.0 9.0 7.8 584 519 443
Fourth quarterly............... -- 5.75 5.25 -- 9.4 8.2 -- 543 465
----- ----- ----- ----- ----- ----- ----- ----- -----
17.75 22.00 19.50 29.5 36.0 30.4 1,715 2,070 1,720
----- ----- ----- ----- ----- ----- ----- ----- -----
AMOCO
Dividends per common stock:
First quarterly................ 37.5 35.0 32.5 362 345 312
Second quarterly............... 37.5 35.0 32.5 360 349 323
Third quarterly................ 37.5 35.0 32.5 358 344 323
Fourth quarterly............... 37.5 35.0 32.5 358 344 329
----- ----- ----- ----- ----- -----
150.0 140.0 130.0 1,438 1,382 1,287
----- ----- ----- ----- ----- -----
BP AMOCO
Dividend per ordinary share:
Fourth quarterly............... 6.119 -- -- 10.0 -- -- 968 -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL GROUP...................... 4,121 3,452 3,007
===== ===== =====
</TABLE>
On an ordinary share equivalent basis, the Amoco quarterly dividends for
1998 were 9.4 cents (1997 8.8 cents and 1996 8.2 cents)
NOTE 11 -- PROFIT PER ORDINARY SHARE
The calculation of basic earnings per ordinary share is based on the profit
attributable to ordinary shareholders i.e. profit for the year less preference
dividends, related to the weighted average number of ordinary shares in issue
during the year. The weighted average number of shares includes the weighted
average number of Amoco common stock multiplied by the conversion ratio of
3.97:1. The profit attributable to ordinary shareholders is $3,259 million (1997
$6,029 million and 1996 $7,240 million). The average number of shares
outstanding excludes the shares held by the Employee Share Ownership Plans.
For BP Amoco, the calculation of diluted earnings per share is based on
profit attributable to ordinary shareholders as for basic earnings per share.
However, the number of shares outstanding is adjusted to show the potential
dilution if employee share options are converted into ordinary shares. The
number of ordinary shares outstanding for basic and diluted earnings per share
may be reconciled as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(millions)
<S> <C> <C> <C>
Weighted average number of ordinary shares.................. 9,596 9,592 9,559
Ordinary shares issuable under employee share schemes....... 42 49 43
------- ------- -------
9,638 9,641 9,602
======= ======= =======
</TABLE>
F-19
<PAGE> 99
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 11 -- PROFIT PER ORDINARY SHARE (CONCLUDED)
In addition to basic earnings per share based on the historical cost profit
for the year, a further measure, based on replacement cost profit before
exceptional items, is provided as it is considered that this measure gives an
indication of underlying performance.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(cents per share)
<S> <C> <C> <C>
Profit for the year......................................... 34 63 76
Inventory holding (gains) losses............................ 15 10 (12)
------- ------- -------
Replacement cost profit for the year........................ 49 73 64
Exceptional items, net of tax............................... (7) (4) 6
------- ------- -------
Replacement cost profit before exceptional items............ 42 69 70
======= ======= =======
</TABLE>
NOTE 12 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Historical cost Profit per
Group profit before ordinary
turnover interest and tax Profit share
-------- ---------------- ------- ----------
($ million) (cents)
<S> <C> <C> <C> <C>
Year ended December 31, 1998
First quarter................................ 17,863 1,356 650 7
Second quarter............................... 17,262 1,824 1,001 10
Third quarter................................ 17,346 2,258 1,588 17
Fourth quarter............................... 15,833 458 21 --
------- ---------------- ------- ----------
Total........................................ 68,304 5,896 3,260 34
======= ================ ======= ==========
Year ended December 31, 1997
First quarter................................ 24,875 2,435 1,396 15
Second quarter............................... 22,374 2,497 1,438 15
Third quarter................................ 22,054 2,746 1,743 18
Fourth quarter............................... 22,457 2,477 1,453 15
------- ---------------- ------- ----------
Total........................................ 91,760 10,155 6,030 63
======= ================ ======= ==========
</TABLE>
NOTE 13 -- RENTAL EXPENSE UNDER OPERATING LEASES
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Minimum rentals:
Tanker charters........................................... 396 447 441
Plant and machinery....................................... 429 335 386
Land and buildings........................................ 315 268 364
------- ------- -------
1,140 1,050 1,191
Less: Rentals from sub-leases............................... (105) (99) (131)
------- ------- -------
1,035 951 1,060
======= ======= =======
</TABLE>
F-20
<PAGE> 100
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 14 -- RESEARCH AND DEVELOPMENT
Expenditure on research and development amounted to $412 million (1997 $382
million and 1996 $369 million).
NOTE 15 -- AUDITORS' REMUNERATION
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
UK Total UK Total UK Total
----- ----- ----- ----- ----- -----
($ million)
<S> <C> <C> <C> <C> <C> <C>
Audit fees -- Ernst & Young:
Group audit........................................ 5.8 12.1 3.9 8.9 4.1 8.4
Local statutory audit and quarterly review......... 0.8 5.1 0.7 4.2 0.6 4.2
----- ----- ----- ----- ----- -----
6.6 17.2 4.6 13.1 4.7 12.6
===== ===== ===== ===== ===== =====
Audit fees -- PricewaterhouseCoopers LLP:
Group audit........................................ 0.1 2.7 0.1 2.8 0.1 2.6
Local statutory audit and quarterly review......... 0.2 0.9 0.2 1.1 0.1 1.3
----- ----- ----- ----- ----- -----
0.3 3.6 0.3 3.9 0.2 3.9
===== ===== ===== ===== ===== =====
Total Group.......................................... 6.9 20.8 4.9 17.0 4.9 16.5
===== ===== ===== ===== ===== =====
Fees for other services -- Ernst & Young:
Sales of businesses and merger transaction fees.... 3.5 3.5 1.5 1.5 1.6 2.3
Consultancy, tax and other advisory services....... 5.2 21.7 3.4 16.3 4.0 18.1
----- ----- ----- ----- ----- -----
8.7 25.2 4.9 17.8 5.6 20.4
===== ===== ===== ===== ===== =====
</TABLE>
Fees to major firms of accountants other than Ernst & Young for non-audit
services amounted to $181 million (1997 $175 million and 1996 $102 million).
NOTE 16 -- CURRENCY EXCHANGE GAINS AND LOSSES
Accounted net foreign currency exchange losses included in the
determination of profit for the year amounted to $23 million (1997 $126 million
loss and 1996 $11 million profit).
NOTE 17 -- ACQUISITIONS
During 1998 the Group acquired Styrenix Kunststoffe, a plastics business
based in Germany and a number of minor refining and marketing businesses. In
1997 BP Amoco and Shell Oil completed the formation of Altura Energy, a
partnership combining their oil and gas interests in west Texas and southeast
New Mexico, USA, Altura Energy is consolidated within these accounts. In 1996 BP
Amoco acquired the alpha-olefins and related businesses of Albemarle Corporation
for $535 million.
F-21
<PAGE> 101
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 17 -- ACQUISITIONS (CONCLUDED)
The cost of acquisitions in the Group cash flow statement comprises:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Goodwill.................................................... 38 -- --
Other intangible assets..................................... 1 -- --
Tangible assets............................................. 194 810 395
Fixed assets -- investments................................. 71 -- --
Working capital............................................. 27 25 140
MSI......................................................... -- (835) --
------- ------- -------
331 -- 535
Finance debt................................................ (17) -- --
------- ------- -------
Cash consideration.......................................... 314 -- 535
Cash acquired............................................... -- -- --
------- ------- -------
Net cash outflow............................................ 314 -- 535
======= ======= =======
</TABLE>
Investment in associated undertakings in 1997 included the acquisition of a
10% interest in A O Sidanco, a Russian integrated oil company, for $484 million.
The investment in joint ventures in 1997 as well as the operational funding of
the BP/Mobil joint venture included the acquisition of a 60% interest in Pan
American Energy in Argentina and a 50% interest in Empresa Petrolera Chaco in
Bolivia, two oil and natural gas producing companies, for $865 million.
NOTE 18 -- DISPOSALS
The principal divestments during 1998 were exploration and production
properties in the USA and Papua New Guinea, the refinery in Lima, Ohio, the sale
and leaseback of the Amoco building in Chicago, Illinois, the retail network in
the Czech Republic, the Adibis fuel additives business and a speciality
chemicals distribution business.
In 1997 the major disposals were the sale of US exploration and production
properties and an intrastate natural gas pipeline in Texas. Other divestments
included oil marketing assets in Thailand and advanced materials and phenolic
resin businesses in the UK.
The principal disposals in 1996 were the sale of the polystyrene foam
products and Carborundum businesses, the BP America office building in
Cleveland, Ohio, certain Canadian exploration and production properties, the
Group's interest in the undeveloped Ross field and the floating production and
storage vessel Seillean.
Total proceeds received for disposals represent the following amounts shown
in the cash flow statement:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Proceeds from the sale of businesses........................ 780 364 827
Proceeds from the sale of fixed assets...................... 1,387 1,468 973
------- ------- -------
2,167 1,832 1,800
======= ======= =======
</TABLE>
F-22
<PAGE> 102
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 18 -- DISPOSALS (CONCLUDED)
The disposals comprise the following:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Intangible assets........................................... 151 21 67
Tangible assets............................................. 945 1,184 1,508
Fixed assets -- investments................................. 157 40 62
Working capital............................................. 88 203 355
Other....................................................... (125) (110) (135)
------- ------- -------
1,216 1,338 1,857
Profit (loss) on sale of businesses......................... 310 250 127
Profit (loss) on sale of fixed assets....................... 653 313 (298)
------- ------- -------
Total consideration......................................... 2,179 1,901 1,686
Deferred consideration...................................... (9) (69) 137
Cash transferred on sale.................................... (3) -- (23)
------- ------- -------
Net cash inflow............................................. 2,167 1,832 1,800
======= ======= =======
</TABLE>
NOTE 19 -- INTANGIBLE ASSETS
<TABLE>
<CAPTION>
Exploration Other
expenditure Goodwill intangibles Total
----------- ----------- ----------- -----------
($ million)
<S> <C> <C> <C> <C>
Cost
At January 1, 1998......................... 3,239 106 365 3,710
Exchange adjustments....................... (7) 3 4 --
Acquisitions............................... -- 38 1 39
Additions.................................. 1,058 1 11 1,070
Transfers.................................. (79) (6) (27) (112)
Deletions.................................. (610) (3) (16) (629)
----------- ----------- ----------- -----------
At December 31, 1998....................... 3,601 139 338 4,078
=========== =========== =========== ===========
Depreciation
At January 1, 1998......................... 801 67 260 1,128
Exchange adjustments....................... 9 3 2 14
Charge for the year........................ 373 14 10 397
Transfers.................................. -- (4) (16) (20)
Deletions.................................. (468) (1) (9) (478)
----------- ----------- ----------- -----------
At December 31, 1998....................... 715 79 247 1,041
=========== =========== =========== ===========
Net book amount
At December 31, 1998....................... 2,886 60 91 3,037
At December 31, 1997....................... 2,438 39 105 2,582
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 103
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 20 -- TANGIBLE ASSETS
Property, plant and equipment:
<TABLE>
<CAPTION>
Other of which
Exploration Refining businesses Assets
and and and under
Production Marketing Chemicals corporate Total construction
----------- --------- --------- ---------- ------- ------------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Cost
At January 1, 1998................. 78,862 18,306 12,645 2,070 111,883 6,183
Exchange adjustments............... 309 (181) 169 6 303 (9)
Acquisitions....................... -- 17 177 -- 194 --
Additions.......................... 5,163 1,165 1,175 198 7,701 4,339
Transfers.......................... 455 (164) 195 99 585 (5,541)
Deletions.......................... (1,804) (991) (183) (469) (3,447) (827)
---------- -------- -------- ---------- ------- ----------
At December 31, 1998............... 82,985 18,152 14,178 1,904 117,219 4,145
========== ======== ======== ========== ======= ==========
Depreciation
At January 1, 1998................. 43,841 8,889 5,896 994 59,620
Exchange adjustments............... 334 (46) 73 2 363
Charge for the year................ 3,652 789 478 112 5,031
Transfers.......................... 127 (41) 108 48 242
Deletions.......................... (1,306) (847) (120) (229) (2,502)
---------- -------- -------- ---------- -------
At December 31, 1998............... 46,648 8,744 6,435 927 62,754
========== ======== ======== ========== =======
Net book amount
At December 31, 1998............... 36,337 9,408 7,743 977 54,465 4,145
At December 31, 1997............... 35,021 9,417 6,749 1,076 52,263 6,183
========== ======== ======== ========== ======= ==========
</TABLE>
Assets held under capital leases, capitalized interest and land at net book
amount included above:
<TABLE>
<CAPTION>
Leased assets Capitalized interest
------------------------------ ------------------------------
Cost Depreciation Net Cost Depreciation Net
------ ------------ ------ ------ ------------ ------
($ million)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1998...................... 1,887 918 969 2,843 1,661 1,182
At December 31, 1997...................... 1,949 893 1,056 2,814 1,684 1,130
====== ========== ====== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
Leasehold land
---------------------------
Over 50 years
Freehold land unexpired Other
------------- ------------- -----------
($ million)
<S> <C> <C> <C>
At December 31, 1998................................... 963 42 29
At December 31, 1997................................... 964 41 30
=========== =========== ===========
</TABLE>
F-24
<PAGE> 104
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 21 -- FIXED ASSETS -- INVESTMENTS
<TABLE>
<CAPTION>
Associated undertakings
--------------------------
Share of
retained Joint Own Other
Shares Loans profit ventures Loans shares(a) investments(b) Total
------ ------ -------- -------- ------ --------- -------------- ------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost
At January 1, 1998........ 2,661 799 917 5,624 39 319 42 10,401
Exchange adjustments...... 48 1 45 148 (3) 2 4 245
Additions and net
movements in joint
ventures................ 244 82 (165) (752) 19 254 6 (312)
Acquisitions.............. 71 -- -- -- -- -- -- 71
Transfers................. (234) (9) (7) (15) 25 -- -- (240)
Deletions................. (31) (38) (7) -- -- (86) (1) (163)
------ ------ ------- ------ ------ ------ ----------- ------
At December 31, 1998...... 2,759 835 783 5,005 80 489 51 10,002
====== ====== ======= ====== ====== ====== =========== ======
Amounts provided
At January 1, 1998........ 23 -- -- -- -- -- 2 25
Exchange adjustments...... 1 -- -- -- -- -- (1) --
Provided in the year...... 200 -- -- -- -- -- -- 200
Transfers................. (3) -- -- -- 14 -- -- 11
Deletions................. (6) -- -- -- -- -- -- (6)
------ ------ ------- ------ ------ ------ ----------- ------
At December 31, 1998...... 215 -- -- -- 14 -- 1 230
====== ====== ======= ====== ====== ====== =========== ======
Net book amount
At December 31, 1998...... 2,544 835 783 5,005 66 489 50 9,772
At December 31, 1997...... 2,638 799 917 5,624 39 319 40 10,376
====== ====== ======= ====== ====== ====== =========== ======
</TABLE>
- - ------------
(a) Own shares are held in Employee Share Ownership Plans (ESOPs) to meet the
future requirements of the Employee Share Schemes (see Note 33) and prior
to award under the Long Term Performance Plan (see Note 34). At December
31, 1998 the ESOPs held 31,384,000 (18,790,000 at December 31, 1997) shares
for the Employee Share Schemes and 3,133,000 (3,274,000 at December 31,
1997) shares for the Long Term Performance Plan. The market value of these
shares at December 31, 1998 was $517 million ($292 million at December 31,
1997).
(b) Other investments are unlisted.
F-25
<PAGE> 105
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 22 -- INVENTORIES
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Petroleum................................................... 1,896 3,140
Chemicals................................................... 917 1,043
Other....................................................... 174 86
------- -------
2,987 4,269
Stores...................................................... 655 654
------- -------
3,642 4,923
======= =======
Replacement cost............................................ 3,747 4,985
======= =======
</TABLE>
NOTE 23 -- RECEIVABLES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
Within After Within After
1 year 1 year 1 year 1 year
------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C>
Trade receivables................................. 5,778 -- 7,725 --
======= ======= ======= =======
Other receivables:
Joint ventures.................................. 644 -- 905 --
Associated undertakings......................... 153 7 154 3
Prepayments and accrued income.................. 786 509 773 164
Taxation recoverable............................ 248 165 50 242
Pension prepayment.............................. -- 2,213 -- 1,880
Other........................................... 1,795 411 1,776 709
------- ------- ------- -------
3,626 3,305 3,658 2,998
======= ======= ======= =======
</TABLE>
Provisions for doubtful debts deducted from Trade receivables amounted to
$126 million ($130 million at December 31, 1997).
- - ------------
See Note 45 -- US generally accepted accounting principles.
NOTE 24 -- CURRENT ASSETS -- INVESTMENTS
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Publicly traded -- United Kingdom........................... 48 50
-- Foreign................................. 33 31
------- -------
81 81
Not publicly traded......................................... 389 986
------- -------
470 1,067
======= =======
Stock exchange value of publicly traded investments......... 83 81
======= =======
</TABLE>
F-26
<PAGE> 106
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
Within After Within After
1 year 1 year 1 year 1 year
------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C>
Bank loans and overdrafts......................... 302(a) 1,778 426(a) 1,574
Other loans....................................... 2,434(a) 7,357 2,338(a) 6,647
------- ------- ------- -------
Total borrowings.................................. 2,736 9,135 2,764 8,221
Obligations under capital leases.................. 101 1,783 92 1,800
------- ------- ------- -------
2,837 10,918 2,856 10,021
======= ======= ======= =======
</TABLE>
- - ------------
(a) Amounts due within one year include current maturities of long-term debt.
Where the liability for any borrowing is swapped into another currency the
borrowing is accounted in the swap currency and not in the original currency of
denomination. Total borrowings include $86 million ($113 million at December 31,
1997) for the carrying value of currency swaps.
ANALYSIS OF BORROWINGS BY YEAR OF REPAYMENT
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------ ------------------------------
Bank loans Bank loans
and Other and Other
overdrafts loans Total overdrafts loans Total
---------- ------- ------- ---------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Due after 10 years.................. 11 2,540 2,551 19 2,706 2,725
Due within 6-10 years................. 266 1,953 2,219 354 1,306 1,660
5 years.................. 201 365 566 332 1,084 1,416
4 years.................. 785 1,081 1,866 347 453 800
3 years.................. 288 652 940 301 430 731
2 years.................. 227 766 993 221 668 889
---------- ------- ------- ---------- ------- -------
1,778 7,357 9,135 1,574 6,647 8,221
1 year................... 302 2,434 2,736 426 2,338 2,764
---------- ------- ------- ---------- ------- -------
2,080 9,791 11,871 2,000 8,985 10,985
========== ======= ======= ========== ======= =======
</TABLE>
Amounts included above repayable by instalments part of which falls due
after five years from December 31, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
After five years............................................ 174 114
Within five years........................................... 406 465
------- -------
580 579
======= =======
</TABLE>
Interest rates on borrowings repayable wholly or partly more than five
years from December 31, 1998 range from 3% to 10% with a weighted average of 6%.
The weighted average interest rate on finance debt is 7%.
F-27
<PAGE> 107
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT (CONTINUED)
At December 31, 1998 the Group had substantial amounts of undrawn borrowing
facilities available, including $2,800 million ($2,500 million at December 31,
1997) which were covered by formal commitments. These committed facilities are
mainly with a number of international banks and expire in 2001. Commitment fees
are paid on the unused portions of the lines of credit and borrowings would be
at pre-agreed rates. Certain of these facilities support the Group's commercial
paper program.
ANALYSIS OF BORROWINGS BY CURRENCY
<TABLE>
<CAPTION>
December 31,
December 31, 1998 1997
----------------------------------------------------------------------------- ------------
Fixed rate debt Floating rate debt
-------------------------------------- ----------------------
Weighted Weighted Weighted
average average time average
interest for which interest
rate rate is fixed Amount rate Amount Total Total
-------- ------------- ----------- -------- ----------- ----------- ------------
(%) (Years) ($ million) % ($ million) ($ million) ($ million)
<S> <C> <C> <C> <C> <C> <C> <C>
US dollars............... 7 10 7,392 5 3,460 10,852 9,993
Sterling................. -- -- -- 6 613 613 679
South African rands...... -- -- -- 15 42 42 63
Other currencies......... 7 9 189 7 175 364 250
----------- ----------- ----------- -----------
Total loans.............. 7,581 4,290 11,871 10,985
=========== =========== =========== ===========
</TABLE>
The Group aims for a balance between floating and fixed interest rates and,
in 1998, BP's upper limit for the proportion of floating rate debt was 65% of
total net debt while Amoco's upper limit was 60% of total debt outstanding.
Aside from debt issued in the US municipal bond markets, interest rates on
floating rate debt denominated in US dollars are linked principally to LIBOR,
while rates on debt in other currencies are based on local market equivalents.
The Group monitors interest rate risk using a process of sensitivity analysis.
Assuming no changes to the borrowings and hedges described above, it is
estimated that a change of 1% in the general level of interest rates on January
1, 1999 would change 1999 profit before tax by approximately $55 million.
FAIR VALUES AND CARRYING AMOUNTS OF BORROWINGS
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997
---------------------- ----------------------
Carrying Carrying
Fair value amount Fair value amount
---------- -------- ---------- --------
($ million)
<S> <C> <C> <C> <C>
Short-term borrowings............................. 1,659 1,659 1,817 1,817
Long-term borrowings.............................. 10,555 10,126 9,319 9,055
---------- -------- ---------- --------
Total borrowings.................................. 12,214 11,785 11,136 10,872
========== ======== ========== ========
</TABLE>
The fair value and carrying amounts of borrowings shown above exclude the
effects of currency swaps (which are included for presentation in the balance
sheet). Long-term borrowings include debt which matures in the year from
December 31, 1998, whereas in the balance sheet long-term debt of current
maturity is reported under amounts falling due within one year. The carrying
amount of the Group's short-term borrowings, which mainly comprise commercial
paper, bank loans and overdrafts, approximate their fair value. The fair value
of the Group's long-term borrowings are estimated using quoted prices or,
F-28
<PAGE> 108
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT (CONTINUED)
where these are not available, discounted cash flow analyses, based on the
Group's current incremental borrowing rates for similar types and maturities of
borrowing.
OBLIGATIONS UNDER CAPITAL LEASES
The future minimum lease payments together with the present value of the
net minimum lease payments were as follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
($ million)
<S> <C>
1999........................................................ 119
2000........................................................ 185
2001........................................................ 193
2002........................................................ 184
2003........................................................ 174
Thereafter.................................................. 3,882
------------
4,737
Less: amount representing lease interest.................... 2,853
------------
Present value of net minimum capital lease payments......... 1,884
============
of which -- due within one year............................. 101
-- due after one year............................. 1,783
------------
</TABLE>
The following information is presented in compliance with the requirements
of US GAAP.
Bank loans and overdrafts and other loans -- long term
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at --------------------------
December 31, 1998 1998 1997
----------------- ------- -------
(%) ($ million)
<S> <C> <C> <C>
Sterling.................................... 6 486 504
US dollars.................................. 7 8,457 7,469
South African rands......................... 15 34 53
Other currencies............................ 7 158 195
------- -------
9,135 8,221
======= =======
</TABLE>
Bank loans and overdrafts and other loans -- short term
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Current maturities of long-term debt....................... 1,077 920
Commercial paper........................................... 1,333 1,583
Bank loans and overdrafts.................................. 300 228
Other...................................................... 26 33
------- -------
2,736 2,764
======= =======
</TABLE>
F-29
<PAGE> 109
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT (CONCLUDED)
<TABLE>
<CAPTION>
Weighted average
interest rate
at December 31,
------------------
1998 1997
------- -------
(%)
<S> <C> <C>
Commercial paper............................................ 5 6
Bank loans, overdrafts and other borrowings................. 7 7
</TABLE>
NOTE 26 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
Within After Within After
1 year 1 year 1 year 1 year
------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C>
Trade payables.................................... 5,091 -- 5,854 --
======= ======= ======= =======
Other accounts payable and accrued liabilities:
Joint ventures.................................. 205 -- 241 --
Associated undertakings......................... 154 4 272 2
Production taxes................................ 241 1,300 408 1,564
Taxation on profits............................. 2,395 39 3,034 --
Social security................................. 14 -- 26 --
Accruals and deferred income.................... 2,642 454 2,928 417
Dividends....................................... 1,552 -- 1,074 --
Other........................................... 3,035 312 3,834 579
------- ------- ------- -------
10,238 2,109 11,817 2,562
======= ======= ======= =======
</TABLE>
NOTE 27 -- OTHER PROVISIONS
<TABLE>
<CAPTION>
Unfunded Other
pension postretirement
Decommissioning Environmental plans benefits Other Total
--------------- ------------- -------- -------------- ----- -----
($ million)
<S> <C> <C> <C> <C> <C> <C>
At January 1, 1998.............. 3,201 1,452 1,526 2,348 279 8,806
Exchange adjustments............ 10 2 99 -- -- 111
Charged to income............... 130 13 195 101 68 507
Utilized/deleted................ (31) (310) (53) (138) (75) (607)
--------------- ------------- -------- -------------- ----- -----
At December 31, 1998............ 3,310 1,157 1,767 2,311 272 8,817
=============== ============= ======== ============== ===== =====
</TABLE>
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business the Group is a party to derivative
financial instruments (derivatives) with off-balance sheet risk, primarily to
manage its exposure to fluctuations in foreign currency exchange rates and
interest rates, including management of the balance between floating rate and
fixed rate debt. The Group also manages its exposure to some movements in oil
and natural gas prices. The underlying economic currency of the Group's cash
flows is mainly US dollars. Accordingly, most of our borrowings are in US
dollars, are hedged with respect to the US dollar or swapped into dollars where
this achieves a lower cost of financing. Significant non-dollar cash flow
exposures are hedged. Gains and losses arising on these hedges are deferred and
recognized in the income statement or as adjustments to carrying amounts, as
appropriate, only when the hedged item occurs. In addition, we trade derivatives
in
F-30
<PAGE> 110
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
conjunction with these risk management activities. The results of trading are
recognized in the current period.
These derivatives involve, to varying degrees, credit and market risk. With
regard to credit risk, the Group may be exposed to loss in the event of
non-performance by a counterparty. The Group controls credit risk by entering
into derivative contracts only with highly credit-rated counterparties and
through credit approvals, limits and monitoring procedures and does not usually
require collateral or other security.
The Group has not experienced material non-performance by any counterparty.
Market risk is the possibility that a change in interest rates, currency
exchange rates or oil and natural gas prices will cause the value of a financial
instrument to decrease or its obligations to become more costly to settle. When
derivatives are used for the purpose of risk management they do not expose the
Group to market risk because the exposure to market risk created by the
derivative is offset by the opposite exposure arising from the asset, liability
or transaction being hedged. When derivatives are held for trading purposes, the
exposure of the Group to market risk is represented by potential changes in
their fair (market) values.
The measurement of market risk in trading activities is discussed further
below.
The table shows the 'fair value' of the asset or liability created by
derivatives. This represents the market value at the balance sheet date. Credit
exposure at December 31 is represented by the column 'fair value asset'.
The table also shows the 'net carrying amount' of the asset or liability
created by derivatives. This amount represents the net book value, i.e. market
value when acquired or later marked to market.
<TABLE>
<CAPTION>
Gross Net carrying
contract Fair value Fair value amount asset
amount asset (liability) (liability)
-------- ---------- ----------- ------------
($ million)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Risk management
Interest rate contracts..................... 5,866 69 (328) (45)
Foreign exchange contracts.................. 8,908 181 (160) (75)
Oil price contracts......................... 491 12 (5) 7
Natural gas price contracts................. 1,511 51 (44) --
Trading
Interest rate contracts..................... 189 -- -- --
Foreign exchange contracts.................. 9,441 30 (39) (9)
Oil price contracts......................... 4,038 134 (123) 11
AT DECEMBER 31, 1997
Risk management
Interest rate contracts..................... 4,779 54 (240) (53)
Foreign exchange contracts.................. 11,410 153 (187) 126
Oil price contracts......................... 628 20 (25) (5)
Natural gas price contracts................. 763 20 (20) --
Trading
Interest rate contracts..................... 747 1 (7) (6)
Foreign exchange contracts.................. 4,094 42 (40) 2
Oil price contracts......................... 4,707 160 (114) 46
</TABLE>
F-31
<PAGE> 111
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Interest rate contracts include forward and futures contracts, swap
agreements and options. Foreign exchange contracts include forward and futures
contracts, swap agreements and options. Oil and natural gas price contracts are
those which require settlement in cash and include futures contracts, swap
agreements and options.
The following table shows the average net fair value of derivatives and
other financial instruments held for trading purposes during the year.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997
----------------- -----------------
Average net Average net
fair value fair value
asset (liability) asset (liability)
----------------- -----------------
($ million)
<S> <C> <C>
Interest rate contracts..................................... (8) (3)
Foreign exchange contracts.................................. 21 1
Oil price contracts......................................... 54 24
----------------- -----------------
67 22
================= =================
</TABLE>
The Group measures its market risk exposure, i.e. potential gain or loss in
fair values, on its trading activity using a value at risk technique. This
technique is based on a variance/covariance model and makes a statistical
assessment of the market risk arising from possible future changes in market
values over a 24-hour period. The calculation of the range of potential changes
in fair value takes into account a snapshot of the end-of-day exposures, and the
history of one-day price movements over the previous twelve months, together
with the correlation of these price movements. The potential movement in fair
values is expressed to three standard deviations which is equivalent to a 99.7%
confidence level. This means that, in broad terms, one would expect to see an
increase or a decrease in fair values greater than the value at risk on only one
occasion per year if the portfolio were left unchanged.
The Group calculates value at risk on all instruments that are held for
trading purposes and that therefore give an exposure to market risk. The value
at risk model takes account of derivative financial instruments such as interest
rate forward and futures contracts, swap agreements, options and swaptions,
foreign exchange forward and futures contracts, swap agreements and options and
oil price futures, swap agreements and options. Financial assets and liabilities
and physical crude oil and refined products that are treated as trading
positions are also included in these calculations. The value at risk calculation
for oil price exposure also includes derivative commodity instruments (commodity
contracts that permit settlement either by delivery of the underlying commodity
or in cash), such as forward contracts.
The following table shows values at risk for trading activities.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1998 1997
----------------------------------------- -------------------
High Low Average Year end Average Year end
------- ------- ------- -------- ------- --------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts...... 6 -- 2 -- 3 2
Foreign exchange contracts... 6 -- 4 -- 3 2
Oil price contracts.......... 13 4 8 12 6 4
</TABLE>
In the light of evolving disclosure requirements in both the UK and the
USA, the presentation of trading results shown below includes certain activities
of the Group's oil trading division which involve the
F-32
<PAGE> 112
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
use of derivative financial instruments in conjunction with physical and paper
trading of oil. It is considered that a more comprehensive representation of the
Group's oil trading activities is given by the classification of the gains or
losses on such derivatives along with the physical and paper trades to which
they relate.
The following table shows the trading income arising from derivatives and
other financial instruments. For oil price contract trading, this also includes
income or losses arising on trading of derivative commodity instruments and
physical oil trades, representing the net result of the oil-trading portfolio.
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------
1998 1997
-------- --------
Net gain
(loss) Net gain
-------- --------
($ million)
<S> <C> <C>
Interest rate contracts..................................... (26) 2
Foreign exchange contracts.................................. 38 23
Oil price contracts......................................... 215 144
-------- --------
227 169
======== ========
</TABLE>
FURTHER INFORMATION ON ACCOUNTING POLICIES
The following information is presented in amplification of the accounting
policies presented in Note 1 -- Accounting policies.
The Group accounts for derivatives using the following methods:
(a) The fair value method, whereby derivatives are carried on the balance
sheet at fair value ('marked to market') with changes in that value recognized
in earnings of the period, is used for all derivatives which are held for
trading purposes. Interest rate contracts traded by the Group include futures,
swaps, options and swaptions. Foreign exchange contracts traded include forwards
and options. Oil price contracts traded include swaps, options and futures.
The fair value method is also used for all oil price derivatives held for
risk management purposes, such as swaps, options and futures.
(b) The accrual method, whereby amounts payable or receivable in respect of
derivatives are recognized in earnings over the period of the contracts, is used
for derivatives held to manage interest rate risk. These are principally swap
agreements used to manage the balance between fixed and floating interest rates
on long-term finance debt. Other derivatives held for this purpose may include
swaptions and futures contracts. Changes in the derivative's fair value are not
recognized.
(c) The deferral method, whereby gains and losses from the derivatives are
deferred and recognized in earnings or as adjustments to carrying amounts, as
appropriate, when the underlying debt matures or the hedged transaction occurs,
is used for derivatives used to convert non-US dollar borrowings into US
dollars, and for derivatives and related option premia which are used to hedge
significant non-US dollar firm commitments or anticipated transactions.
Derivatives used to convert non-US dollar borrowings into US dollars include
foreign currency swap agreements and forward contracts. Derivatives used to
hedge significant non-US dollar transactions include foreign currency forward
contracts and options.
The deferral method is also used for derivatives used to manage some of the
Group's exposure to natural gas price fluctuations.
F-33
<PAGE> 113
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
DETERMINATION OF ACCOUNTING METHOD
All oil price derivatives, whether held for trading purposes or for risk
management, are accounted for using the fair value method.
The primary criterion applied to determine the accounting method to be used
for interest rate, natural gas price and foreign currency exchange rate
derivatives is the purpose for which the contract is entered into. The purpose
of the contract is identified at inception. To qualify as a derivative for
interest rate, natural gas price, or for foreign currency exchange rate risk
management, the contract must be in accordance with established guidelines which
ensure that it is effective in achieving its objective. The corresponding
accounting method, as described above, is applied to the contract. All contracts
not identified at inception as being for the purpose of risk management are
designated as trading derivatives and accounted for using the fair value method.
TERMINATION
Where derivatives used to manage interest rate risk or to convert non-US
dollar debt or to hedge other anticipated cash flows are terminated before the
underlying debt matures or the hedged transaction occurs, the resulting gain or
loss is recognized on a basis which matches the timing and accounting treatment
of the underlying debt or hedged transaction.
When an anticipated transaction or finance debt hedged by a derivative is
no longer likely to occur or is terminated before maturity, as appropriate, any
deferred gain or loss that has arisen on the derivative is recognized in the
income statement together with any gain or loss on the terminated item.
REPORTING IN THE INCOME STATEMENT
Gains and losses on oil price contracts held for trading and for risk
management purposes are reported in cost of sales in the income statement in the
period in which the change in value occurs. Gains and losses on interest rate or
foreign currency derivatives used for trading are reported in other income and
cost of sales, respectively. Gains and losses in respect of derivatives used to
manage interest rate exposures are recognized as adjustments to interest
expense.
Where derivatives are used to convert non-US dollar borrowing into US
dollars, the gains and losses are deferred and recognized on maturity of the
underlying debt, together with the matching loss or gain on the debt. The two
amounts offset each other in the income statement.
Gains and losses on derivatives identified as hedges of significant non-US
dollar firm commitments or anticipated transactions are not recognized until the
hedged transaction occurs. The treatment of the gain or loss arising on the
designated derivative reflects the nature and accounting treatment of the hedged
item. The gain or loss is recorded in cost of sales in the income statement or
as an adjustment to carrying values in the balance sheet, as appropriate.
Gains and losses arising from natural gas price derivatives are recognized
in earnings when the hedged transaction occurs. The gains or losses are reported
as components of the related transactions.
REPORTING IN THE BALANCE SHEET
The carrying amounts of foreign exchange contracts that hedge finance debt
are included within finance debt in the balance sheet. The carrying amounts of
other derivatives, including option premiums paid or received, are included in
the balance sheet under receivables or payables within current assets and
current liabilities respectively, as appropriate.
F-34
<PAGE> 114
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
CASH FLOW EFFECTS
Interest rate swaps give rise, at specified intervals, to cash settlement
of interest differentials. Under currency swaps the counterparties initially
exchange a principal amount in two currencies, agreeing to re-exchange the
currencies at a future date at the same exchange rate. The Group's currency
swaps have terms of between one and five years.
Interest rate futures require an initial margin payment and daily
settlement of margin calls. Interest rate forwards require settlement of the
interest rate differential on a specified future date. Currency forwards require
purchase or sale of an agreed amount of foreign currency at a specified exchange
rate at a specified future date, generally over periods of up to one year for
the Group. Currency options involve the initial payment or receipt of a premium
and will give rise to delivery of an agreed amount of currency at a specified
future date if the option is exercised.
For oil and natural gas price futures and options traded on regulated
exchanges, BP Amoco meets initial margin requirements by bank guarantees and
daily margin calls in cash. For swaps and over-the-counter options, BP Amoco
settles with the counterparty on conclusion of the pricing period.
In the statement of cash flows the effect of interest rate derivatives is
reflected in interest paid. The effect of foreign currency derivatives used for
hedging non-US dollar debt is included under financing. The cash flow effects of
foreign currency derivatives used to hedge non-US dollar firm commitments and
anticipated transactions are included in net cash inflow from operating
activities for items relating to earnings or in capital expenditure or
acquisitions, as appropriate, for items of a capital nature. The cash flow
effects of all oil and natural gas price derivatives and all traded derivatives
are included in net cash inflow from operating activities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information is presented in compliance with the requirements
of FASB Statement of Financial Accounting Standards No. 107 -- 'Disclosures
about Fair Value of Financial Instruments'.
The carrying amounts and fair values of finance debt are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997
------------------- -------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------- -------- -------
($ million)
<S> <C> <C> <C> <C>
Finance debt
Long-term....................................... 10,126 10,555 9,055 9,319
Short-term...................................... 1,659 1,659 1,817 1,817
</TABLE>
The carrying amounts and fair values of finance debt shown above exclude
the effects of currency swaps (which are included for presentation in the
balance sheet). Current maturities of long-term finance debt are included under
long-term finance debt above.
The following methods and assumptions were used by the Group in estimating
its fair value disclosures for its financial instruments:
Cash at bank and in hand: The carrying amount reported in the balance sheet
for cash at bank and in hand approximates its fair value.
Finance debt: The carrying amount of the Group's short-term borrowings,
which mainly comprise commercial paper, bank loans and overdrafts, approximate
their fair value. The fair value of the Group's
F-35
<PAGE> 115
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
long-term debt borrowings is estimated using quoted prices or, where these are
not available, discounted cash flow analyses, based on the Group's current
incremental borrowing rates for similar types and maturities of borrowing.
Derivative financial instruments: The fair values of the Group's interest
rate contracts (futures contracts and swap agreements) are based on quoted
prices (futures) and pricing models which take into account relevant market data
(swaps and swaptions). Fair values for the Group's foreign exchange contracts
(forward contracts, swap agreements and options) are based on market prices of
comparable instruments. The fair values of the Group's oil and natural gas price
contracts (futures contracts, swap agreements and options) are based on market
prices.
The following information is presented in compliance with the requirements
of FASB Statement of Financial Accounting Standards No. 119 -- 'Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments'.
The carrying amounts of foreign exchange contracts that hedge finance debt
are included within finance debt in the balance sheet. The carrying amounts of
other derivatives are included in the balance sheet under receivables or
payables as appropriate.
In addition to the above financial instruments, the Group has issued third
party guarantees and indemnities amounting to $436 million ($392 million at
December 31, 1997). The credit risk and maximum cash requirement of these
guarantees and indemnities is the full contractual amount, however no material
loss is expected to arise.
INTEREST RATE RISK MANAGEMENT
The Group enters into interest rate contracts to manage its cost of
borrowing as indicated in the following table:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Gross Fair Fair Gross Fair Fair
contract value value contract value value
amount asset liability amount asset liability
-------- ------- --------- -------- ------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Swaps........................ 5,866 69 (328) 4,779 54 (240)
======= ======= ======= ======= ======= =======
</TABLE>
Interest rate swaps allow BP Amoco to modify the interest characteristics
of its long-term borrowings from a fixed to a floating rate basis or vice versa.
Under interest rate swaps, the Group agrees with other parties to exchange, at
specified intervals, the interest differentials calculated by reference to an
agreed notional principal amount. There is no exchange of the underlying
principal amount.
F-36
<PAGE> 116
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The following table indicates the types of swaps used and their weighted
average interest rates. Average variable rates are based on the actual rates in
place at December 31; these may change significantly, affecting future cash
flows. Swap contracts mainly have maturities between one and ten years.
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million, except
percentages)
<S> <C> <C>
Receive -- fixed swaps -- notional amount................... 2,125 2,076
Average receive fixed rate.................................. 6.6% 7.1%
Average pay floating rate................................... 5.4% 5.8%
Pay -- fixed swaps -- notional amount....................... 3,741 2,703
Average pay fixed rate...................................... 7.3% 8.0%
Average receive floating rate............................... 5.3% 5.9%
</TABLE>
Interest rate futures contracts may be used by the Group, on occasion, in
preference to interest rate swaps to achieve a more cost effective method of
managing the mix between fixed and floating rate debt. These contracts are
commitments to either purchase or sell designated financial instruments at a
future date for a specified price, and may be settled in cash or through
delivery. The Group holds highly liquid contracts, such as Eurodollar futures,
with terms ranging up to a year. Initial margin requirements and daily calls are
met either by the deposit of securities or in cash. Futures contracts have
little credit risk as regulated exchanges are the counterparties.
Interest rate forward contracts, which include forward rate agreements and
options on forward rate agreements, may also be used by the Group to manage
interest rate risk on debt. These contracts are agreements which allow the
interest rate cost on a principal amount to be fixed for a specified period
commencing on a future date.
Swaptions may also be employed to manage interest rate risk on debt. A
swaption is an agreement that conveys the right, but not the obligation, to swap
a series of fixed rate interest payments for floating rate interest payments, or
vice versa, at a given future point in time. Typically the swaptions entered
into by the Group are cash settled at expiry.
FOREIGN EXCHANGE RISK MANAGEMENT
The Group enters into various types of foreign exchange contracts in
managing its foreign exchange risk as indicated in the following table:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Gross Fair Fair Gross Fair Fair
contract value value contract value value
amount asset liability amount asset liability
-------- ------- --------- -------- ------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Currency swaps............... 1,797 99 (107) 1,690 84 (119)
Forwards..................... 4,046 63 (38) 4,816 43 (41)
Options...................... 3,065 19 (15) 4,904 26 (27)
------- ------- ------- ------- ------- -------
8,908 181 (160) 11,410 153 (187)
======= ======= ======= ======= ======= =======
</TABLE>
The Group's foreign exchange management policy is to minimize economic
exposures from currency movements against the US dollar. This is achieved by
raising finance in US dollars, hedging with respect to the US dollar or swapping
into US dollars where this achieves a lower cost of financing, and hedging
F-37
<PAGE> 117
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
significant non-dollar cash flows. Examples of significant non-dollar cash flows
are sterling tax payments and capital expenditure and operational requirements
of Exploration in the UK.
Under currency swaps the counterparties initially exchange a principal
amount in two currencies, agreeing to re-exchange the currencies at a future
date and at the same exchange rate. In addition, interest payments in the
respective currencies are exchanged at specified intervals over the term of the
agreement. The Group's currency swaps have terms between one and seven years.
The majority of the Group's currency swaps relate to major currencies such as
Sterling, Deutschmarks, Swiss Francs and Japanese Yen.
Currency forward contracts are commitments to purchase or sell an agreed
amount of foreign currency at a specified exchange rate at a specified future
date. The Group's forward contracts are generally settled over periods of up to
one year.
Currency options, which are normally directly negotiated, allow but do not
require, the holder to buy from or sell to the writer an agreed amount of
currency at a specified exchange rate within a stated period, and involve the
initial payment or receipt of a premium. The Group's option contracts have an
average term of less than one year.
Included in currency options are currency cylinder option contracts. A
cylinder is the purchase of an option to buy foreign currency and the
simultaneous selling of an option to sell the same amount of foreign currency to
BP Amoco at a different exchange rate. The effect is to limit the risk of both
gain and loss. This is achieved at little or no cost as the symmetry of the
options means that the premium paid for one option is balanced by the premium
received from the sale of the other.
OIL AND NATURAL GAS PRICE RISK MANAGEMENT
The Group enters into various types of oil and natural gas price contracts
to manage its exposure to some movements in hydrocarbon prices as indicated in
the following table. Contracts which are capable of being settled by delivery of
oil, oil products or natural gas are excluded.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------------- ----------------------------------
Gross Fair Fair Gross Fair Fair
contract value value contract value value
amount asset (liability) amount asset (liability)
-------- ------- ----------- -------- ------- -----------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Oil
Swaps...................... 421 12 (5) 544 20 (25)
Options.................... -- -- -- 1 -- --
Futures.................... 70 -- -- 83 -- --
------- ------- ------- ------- ------- -------
491 12 (5) 628 20 (25)
======= ======= ======= ======= ======= =======
Natural gas
Swaps...................... 1,478 48 (43) 719 20 (20)
Options.................... 33 3 (1) 38 -- --
Futures.................... -- -- -- 6 -- --
------- ------- ------- ------- ------- -------
1,511 51 (44) 763 20 (20)
======= ======= ======= ======= ======= =======
</TABLE>
The Group uses swaps, options and futures to hedge future purchases and
sales of crude oil and refined oil products. The term of the oil price
derivatives is usually less than one year. Natural gas swaps, options and
futures are used to convert specific sales and purchase contracts from fixed
prices to market
F-38
<PAGE> 118
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
prices. Swaps are also used to hedge exposure for price differentials between
locations. The term of most natural gas price derivatives is less than one year,
with some having terms of two years.
Under swaps, BP Amoco agrees with other parties to pay or receive the
difference between a fixed and variable price at a range of specified dates
determined by reference to an agreed notional volume.
The option and futures contracts are traded on regulated exchanges.
Exchange-traded options allow, but do not require, the holder to either buy from
or sell to the writer an agreed amount of futures contracts at a specified price
at a specified future date. Futures are fixed price commitments to purchase or
sell a contract, whose value is derived from the price of oil at a specified
future date. Initial margin requirements and daily cash settlements for both
these types of contracts are met either by bank guarantees or in cash. There is
little credit risk under these contracts as regulated exchanges are the
counterparties.
TRADING ACTIVITIES
The Group maintains active trading positions in a variety of derivatives.
This activity is undertaken in conjunction with risk management. Derivatives
held for trading purposes are marked to market and any gain or loss recognized
in the income statement. For traded derivatives, many positions have been
neutralized, with trading initiatives being concluded by taking opposite
positions to fix a gain or loss, thereby achieving a zero net market risk.
The following table discloses the contract or notional amount and fair
value of the derivatives held for trading purposes at December 31, 1998 and 1997
and the average fair value for the year.
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
Net Average Net Average
Gross fair value fair value Gross fair value fair value
contract asset asset contract asset asset
amount (liability) (liability) amount (liability) (liability)
-------- ----------- ----------- -------- ----------- -----------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Swaps...................... -- -- -- 50 -- --
Futures.................... 185 -- (1) 42 -- --
Options.................... 4 -- -- 375 -- --
Swaptions.................. -- -- (7) 280 (6) (3)
------- ------- ------- ------- ------- -------
189 -- (8) 747 (6) (3)
======= ======= ======= ======= ======= =======
Foreign exchange contracts
Forwards................... 3,012 (9) 23 2,438 1 (2)
Options.................... 6,429 -- (2) 1,656 1 3
------- ------- ------- ------- ------- -------
9,441 (9) 21 4,094 2 1
======= ======= ======= ======= ======= =======
Oil price contracts
Swaps...................... 3,460 11 54 4,011 46 24
Futures.................... 413 -- -- 608 -- --
Options.................... 165 -- -- 88 -- --
------- ------- ------- ------- ------- -------
4,038 11 54 4,707 46 24
======= ======= ======= ======= ======= =======
</TABLE>
F-39
<PAGE> 119
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONCLUDED)
CONCENTRATIONS OF CREDIT RISK
The primary activities of the Group are oil and gas exploration and
production, oil refining and marketing and the manufacture and marketing of
chemicals. The Group's principal customers, suppliers and financial institutions
with which it conducts business are located throughout the world. The credit
ratings of interest rate and currency swap counterparties are all of a quality
equal to or better than BP Amoco's when agreed. The credit quality is actively
managed over the life of the swap.
NOTE 29 -- CAPITAL AND RESERVES
<TABLE>
<CAPTION>
Paid
Share in Merger Retained
capital surplus reserve earnings Total
------- ------- ------- -------- -------
($ million)
<S> <C> <C> <C> <C> <C>
At January 1, 1998.......................... 4,330 3,777 650 32,991 41,748
Employee share schemes -- Amoco............. 8 -- 97 -- 105
Employee share schemes -- BP................ 5 117 -- (42) 80
Share dividend plan -- BP................... 46 (46) -- 1,243 1,243
Share repurchases -- Amoco.................. (27) -- (50) (507) (584)
Redenomination of BP shares into US
dollars................................... 484 (484) -- -- --
Profit for the year......................... -- -- -- 3,260 3,260
Dividends................................... -- -- -- (4,121) (4,121)
Exchange adjustment......................... 17 22 -- 16 55
------- ------- ------- ------- -------
At December 31, 1998........................ 4,863 3,386 697 32,840 41,786
======= ======= ======= ======= =======
</TABLE>
The movements in the Group's share capital during the year are set out
above. All movements are quantified in terms of the number of BP Amoco shares
issued or repurchased.
EMPLOYEE SHARE SCHEMES. During the year 13,069,529 ordinary shares were
issued under the BP employee share schemes and 16,763,559 under Amoco employee
share option and other employee benefit schemes. Certain of these shares were
issued via a QUEST. See Note 33 for further details.
SHARE DIVIDEND PLAN. 110,285,094 ordinary shares were issued under the
share dividend plan by capitalization of the paid in surplus.
SHARE REPURCHASE. Prior to the announcement of the merger Amoco repurchased
54,900,795 shares for a total consideration of $584 million.
REDENOMINATION OF BP SHARES INTO US DOLLARS. The increase in the nominal
value of the ordinary shares for existing BP shareholders from 25 pence to 50
cents was effected by transferring $484 million from the paid in surplus.
NOTE 30 -- RETAINED EARNINGS
Retained earnings of $32,840 million ($32,991 million at December 31, 1997)
include the following amounts, the distribution of which is limited by statutory
or other restrictions:
F-40
<PAGE> 120
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 30 -- RETAINED EARNINGS (CONCLUDED)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Parent company.............................................. 16 16
Subsidiary undertakings..................................... 4,196 4,425
Associated undertakings..................................... 1,162 1,144
------- -------
5,374 5,585
======= =======
</TABLE>
Cumulative net exchange losses of $453 million are included in retained
earnings ($508 million losses at December 31, 1997).
There were no unrealized currency translation differences for the year on
long-term borrowings used to finance equity investments in foreign currencies
(1997 unrealized losses of $2 million and 1996 unrealized losses of $2 million).
NOTE 31 -- ANALYSIS OF CONSOLIDATED STATEMENT OF CASH FLOWS
(I) RECONCILIATION OF HISTORICAL COST PROFIT BEFORE INTEREST AND TAX TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Historical cost profit before interest and tax.............. 5,896 10,155 11,013
Depreciation and amounts provided........................... 5,255 5,056 5,369
Exploration expenditure written off......................... 373 365 574
Share of (profits) losses of joint ventures and associated
undertakings.............................................. (1,102) (777) (663)
Interest and other income................................... (272) (255) (247)
(Profit) loss on sale of businesses and fixed assets........ (963) (563) 171
Charge for provisions....................................... 507 582 601
Utilization of provisions................................... (460) (401) (460)
Decrease (increase) in inventories.......................... 584 1,740 (1,261)
Decrease (increase) in receivables.......................... 1,768 2,033 (3,551)
(Decrease) increase in payables............................. (2,000) (2,377) 2,133
------- ------- -------
Net cash inflow from operating activities................... 9,586 15,558 13,679
======= ======= =======
</TABLE>
(II) EXCEPTIONAL ITEMS
The cash outflow relating to the merger expenses charged in 1998 was $32
million. The cash outflow in respect of the European refining and marketing
joint venture implementation costs charged in 1996 was $122 million (1997 $307
million and 1996 $69 million). These amounts were included in the net cash
inflow from operating activities.
F-41
<PAGE> 121
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 31 -- ANALYSIS OF CONSOLIDATED STATEMENT OF CASH FLOWS (CONCLUDED)
(III) FINANCING
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Long-term borrowing......................................... (2,196) (1,179) (398)
Repayments of long-term borrowing........................... 1,217 884 2,421
Short-term borrowing........................................ (513) (1,285) (1,503)
Repayments of short-term borrowing.......................... 692 1,342 381
------- ------- -------
(800) (238) 901
Issue of share capital...................................... (161) (172) (112)
Repurchase of share capital................................. 584 1,422 39
------- ------- -------
Net cash (inflow) outflow................................... (377) 1,012 828
======= ======= =======
</TABLE>
(IV) MANAGEMENT OF LIQUID RESOURCES
Liquid resources comprise current asset investments which are principally
commercial paper issued by other companies. The net cash inflow from the
management of liquid resources was $596 million (1997 $167 million and 1996 $147
million).
(V) COMMERCIAL PAPER
Net movements in commercial paper are included within short-term borrowings
or repayment of short-term borrowings as appropriate.
(VI) MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
Current Current
Finance asset Net Finance asset Net
debt Cash investments debt debt Cash investments debt
------- ------- ----------- ------- ------- ------- ----------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At January 1.............. (12,877) 355 1,067 (11,455) (12,848) 347 1,233 (11,268)
Net cash flow............. (800) 67 (596) (1,329) (238) 33 (167) (372)
Other movements........... (53) -- -- (53) 133 -- 5 138
Exchange adjustments...... (25) (17) (1) (43) 76 (25) (4) 47
------- ------- ----------- ------- ------- ------- ----------- -------
At December 31............ (13,755) 405 470 (12,880) (12,877) 355 1,067 (11,455)
======= ======= =========== ======= ======= ======= =========== =======
</TABLE>
F-42
<PAGE> 122
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 32 -- OPERATING LEASE COMMITMENTS
Annual commitments under operating leases were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997
-------------------- --------------------
Land and Land and
buildings Other buildings Other
--------- ------- --------- -------
($ million)
<S> <C> <C> <C> <C>
Expiring within: 1 year......................... 50 149 23 140
2 to 5 years.................. 92 432 106 405
Thereafter.................... 174 99 165 74
-------- ------- -------- -------
316 680 294 619
======== ======= ======== =======
</TABLE>
The future minimum lease payments (after deducting related rental income
from operating sub-leases of $466 million) were as follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
($ million)
<S> <C>
1999........................................................ 909
2000........................................................ 661
2001........................................................ 578
2002........................................................ 492
2003........................................................ 316
Thereafter.................................................. 1,868
------------
4,824
============
</TABLE>
NOTE 33 -- EMPLOYEE SHARE SCHEMES
During 1998 BP and Amoco operated share schemes for their employees.
However, the arrangements of the two companies differed reflecting market
practice in the UK and the USA. Consequently the arrangements of each company
are described separately. A review will be undertaken during 1999 in order to
formulate an integrated employee share ownership strategy for BP Amoco. At the
extraordinary general meeting in November 1998 shareholders approved a new
discretionary share option plan (the BP Amoco Share Option Plan).
BP offered its employees and those of most of its principal operating
companies the opportunity to acquire a shareholding in the Company. Scheme
design varied by country, reflecting local legislation, culture and employment
practice. There were two categories of scheme: those which were generally
available to most staff (e.g. the Participating and Savings Related Share Option
Schemes in the UK) and those for defined categories of staff (e.g. the Executive
Share Option Scheme (ESOS) for middle managers).
Under participating schemes, the Company matched employees' own
contributions of shares, all of which were then held for defined periods. With
savings-related schemes, employees saved regularly toward the purchase of shares
at a price fixed when their savings contract commenced. The ESOS offered middle
managers the opportunity to exercise share options between the third and tenth
anniversaries of the date of grant, at the market price set at the time of
grant. Grants made since 1995 under the ESOS will not be exercisable until a
performance condition has been satisfied. Before any options can be exercised,
the Remuneration Committee will require the total return to shareholders (share
price increase with all dividends reinvested) on an investment in BP Amoco
shares to exceed the mean total return to
F-43
<PAGE> 123
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 33 -- EMPLOYEE SHARE SCHEMES (CONTINUED)
shareholders of a representative group of UK companies by a margin set from time
to time by the committee. The performance period for each grant will normally be
three years.
An Employee Share Ownership Plan (ESOP) has been established to acquire BP
Amoco shares to satisfy future requirements of certain employee share schemes.
Funding is provided to the ESOP by the Company. The assets and liabilities of
the ESOP are recognized as assets and liabilities of the Company within these
accounts. The ESOP has waived its rights to dividends.
During 1998 the ESOP acquired a further 16,853,000 shares and released
4,259,000 shares for the participating share schemes. The cost of shares
released for these schemes has been charged in these accounts. At December 31,
1998 the ESOP held 31,384,000 shares (December 31, 1997, 18,790,000).
In January 1998 BP established a Qualifying Employee Share Ownership Trust
(QUEST) for the purpose of share option schemes for employees and executive
directors of the Company and its subsidiaries. During the year, contributions of
$42 million were made by the Company to the QUEST which, together with
option-holder contributions, were used by the QUEST to subscribe for new
ordinary shares at market price. The cost of this contribution has been
transferred by the Company directly to retained profits and the excess of the
subscription price over nominal value has increased the paid in surplus. At
December 31, 1998, all the 4,825,188 ordinary shares issued to the QUEST had
been transferred to option holders exercising options under the BP Group Savings
Related Share Option Scheme.
In Amoco stock options were used to a greater extent than in BP as an
element of employee remuneration. Under the Amoco Stock Option Plan options were
granted to key managerial and other eligible employees. The exercise price was
the market price of Amoco stock on the date of grant. Options granted under the
plans generally become exercisable one or two years after the date of grant and
lapse on the tenth anniversary of the date of grant. There were no performance
conditions. Following the merger outstanding Amoco stock options were converted
into BP Amoco share options on the basis of the ratio of 3.97:1.
In addition Amoco also had a Restricted Stock Grant Plan. This plan
provided for the awarding of Amoco stock to selected employees and non-executive
directors. Shares issued under the plan may not be sold or otherwise transferred
for a minimum period as established at the time of grant.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(Options thousands)
<S> <C> <C> <C>
Employee share options granted during the year:
BP Savings related and similar schemes.................... 4,867 7,389 5,242
BP ESOS................................................... 1,288 2,269 1,905
Amoco Stock Option Plan................................... 30,348 26,991 22,168
------- ------- -------
36,503 36,649 29,315
======= ======= =======
</TABLE>
F-44
<PAGE> 124
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 33 -- EMPLOYEE SHARE SCHEMES (CONTINUED)
The exercise prices for BP options granted during the year were $12.41
(4,773,000 options) and $11.68 (94,000 options) for savings-related and similar
schemes and $14.04 (1,243,000 options) and $15.75 (45,000 options) for the ESOS.
Amoco stock options were granted at an average price of $43.55 ($44.90) which
equates to a BP Amoco share price of $10.97 ($11.31).
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
(Shares thousands)
<S> <C> <C> <C>
Shares issued in respect of options exercised during the
year:
BP Savings related and similar schemes.................... 6,291 13,974 5,545
BP ESOS................................................... 5,130 4,402 6,222
Amoco Stock Option Plan................................... 15,317 14,197 9,671
------- ------- -------
26,738 32,573 21,438
======= ======= =======
</TABLE>
In addition, 1,649,000 shares (1997, 6,822,000 shares and 1996, 8,240,000
shares) were issued under participating share schemes.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding:
Options...................................... 173,448,911 168,033,050 168,445,794
Exercise period.............................. 1999-2008 1998-2007 1997-2006
Price........................................ $3.70-$15.75 $3.70-$11.95 $2.35-$8.28
</TABLE>
The following information is presented in compliance with the requirements
of FASB Statement of Financial Accounting Standards No. 123 -- 'Accounting for
Stock-based Compensation' (SFAS 123).
Share option transactions under employee share schemes are summarized as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
average average average
Number of exercise Number of exercise Number of exercise
shares price shares price shares price
----------- -------- ----------- -------- ----------- --------
($) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1...... 168,033,050 7.71 168,445,794 6.50 165,136,286 5.91
Reinstated.................... 16,743 5.64 960 7.44 31,641 5.24
Granted....................... 36,502,780 11.27 36,649,327 10.95 29,315,293 8.79
Exercised..................... (26,737,746) 6.01 (32,572,683) 5.17 (21,437,745) 5.26
Stock appreciation rights
exercised................... (349,360) 5.11 (317,600) 4.80 (960,740) 4.48
Cancelled..................... (4,016,556) 9.45 (4,172,748) 7.36 (3,638,941) 6.09
----------- ----------- -----------
Outstanding at December 31.... 173,448,911 8.68 168,033,050 7.71 168,445,794 6.50
=========== =========== ===========
Exercisable at December 31.... 101,066,358 94,105,298 90,832,077
=========== =========== ===========
Available for grant at
December 31................. 588,809,092 246,944,428 243,084,577
=========== =========== ===========
</TABLE>
F-45
<PAGE> 125
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 33 -- EMPLOYEE SHARE SCHEMES (CONCLUDED)
Options outstanding at December 31, 1998 will be exercisable between 1999
and 2008.
Available for grant figures for 1997 and 1996 are as previously reported
for BP p.l.c.
For the share options outstanding and exercisable at December 31, 1998 the
exercise price ranges and average remaining lives were:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------- ----------------------
Weighted Weighted Weighted
average average average
Number of remaining exercise Number of exercise
Shares life price shares price
----------- --------- -------- ----------- --------
(years) ($) ($)
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$3.70 -- $6.94............................ 55,855,118 3.18 6.16 46,484,963 6.30
$7.01 -- $9.59............................ 55,725,944 5.57 8.34 42,661,506 8.26
$10.04 -- $15.75.......................... 61,867,849 8.45 11.30 11,919,885 11.35
----------- --------- -------- ----------- --------
173,448,911 5.83 8.69 101,066,354 7.72
=========== ========= ======== =========== ========
</TABLE>
As allowed by SFAS 123 the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees'. In accordance with this accounting statement the Company does not
recognize compensation expense on the grant of the options. Had compensation
expense been determined based upon the fair value of the stock options at grant
date consistent with the method of SFAS 123, the Company's net income and profit
per Ordinary Share for 1998 would have been reduced by $47 million (1997 $43
million and 1996 $30 million) and 1 cent (1997 1 cent and 1996 1 cent),
respectively.
The weighted average fair value of BP share options granted in 1998 was
$2.29 (1997 $2.97 and 1996 $2.37). The fair value of each option grant was
estimated on the date of grant using a Black-Scholes option pricing model with
the following assumptions for 1998, 1997 and 1996, respectively; risk-free
interest rates of 6.0, 7.0 and 8.0%; dividend yield of 3%; expected lives of
three to five years and volatility of 18%.
The weighted average fair value of Amoco stock options granted in 1998 was
$7.40 (1997 $8.41 and 1996 $6.78). On the basis of BP Amoco shares these equate
to values of $1.86 (1997 $2.12 and 1996 $1.71). The fair value of each option
grant was estimated on the date of grant using a Black-Scholes option pricing
model with the following assumptions for 1998, 1997 and 1996, respectively;
risk-free interest rates of 5.7, 6.7 and 6.1%, dividend yield of 4%, expected
lives of six years and volatility of 17%, 17% and 19%.
The effects of applying SFAS 123 for the proforma disclosures are not
representative of the effects expected on reported net income and profit per
Ordinary Share in future years, since the disclosures do not reflect
compensation expense for options granted prior to 1995.
NOTE 34 -- LONG TERM PERFORMANCE PLAN
During 1998 BP senior executives and executive directors participated in
the Long Term Performance Plan (the Plan). This is an incentive scheme under
which the Remuneration Committee may award shares to participants or fund the
purchase of shares for participants if long-term targets are met. The Plan had
replaced the granting of executive share options to those participants. For
1999, the Plan will be extended to cover senior executives and executive
directors of the BP Amoco Group. Participants based in North America will
continue to receive share options in line with local market practice.
The cost of potential future awards is accrued over the three-year
performance periods of the Plans. The amount charged in 1998 was $45 million
(1997 $28 million 1996 $31 million).
F-46
<PAGE> 126
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 34 -- LONG TERM PERFORMANCE PLAN (CONCLUDED)
The value of awards under the 1995-7 Plan made in 1998 was $36 million
(1994-6 Plan $28 million).
Employee Share Ownership Plans (ESOPs) have been established to acquire BP
Amoco shares to satisfy any awards made to participants under the Plan and then
to hold them for the participants during the retention period of the Plan. In
order to hedge the cost of potential future awards the ESOPs may, from time to
time over the performance period of the Plans, purchase BP Amoco shares in the
open market. Funding is provided to the ESOPs by the Company. The assets and
liabilities of the ESOPs are recognized as assets and liabilities of the Company
within these accounts. The ESOPs have waived their rights to dividends.
At December 31, 1998 the ESOPs held 3,133,000 (1997 3,274,000) shares for
potential future awards.
NOTE 35 -- DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ thousand)
<S> <C> <C> <C>
Total for all directors
Emoluments (a).............................................. 6,870 8,264 7,235
Gains made on the exercise of share options................. 888 146 2,276
Amount awarded under long-term incentive schemes............ 4,434 6,844 13,188
======= ======= =======
Highest paid director
Emoluments.................................................. 1,514 1,538 1,173
Gains made on the exercise of share options................. 806 105 --
Amounts awarded under long-term incentive schemes........... 1,331 1,346 2,677
Accrued pension at December 31.............................. 626 554 406
======= ======= =======
</TABLE>
- - ---------------
(a) Fees of $45,730 (1997 $60,680 and 1996 $51,480) in respect of Mr H M P
Miles' services as a non-executive director were paid to his employer.
As the merger between BP and Amoco occurred on December 31, 1998, the
information shown for 1998, 1997 and 1996 is the remuneration of BP directors
only.
EMOLUMENTS
These amounts comprise fees paid to the chairman and non-executive
directors, and, for executive directors, salary and benefits earned during the
relevant financial year, plus bonuses awarded for the year.
PENSION CONTRIBUTIONS
Six executive directors participate in a non-contributory pension scheme
established for UK staff by a separate trust fund to which contributions are
made by BP Amoco based on actuarial advice. There were no contributions to this
pension scheme in 1998 or 1997.
NOTE 36 -- LOANS TO OFFICERS
Miss J C Hanratty has a low interest loan of $43,000 made to her prior to
her appointment as Company Secretary on October 1, 1994.
F-47
<PAGE> 127
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 37 -- EMPLOYEE COSTS AND NUMBERS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
EMPLOYEE COSTS
Wages and salaries.......................................... 4,995 5,114 4,560
Social security costs....................................... 412 388 410
Pension costs............................................... 139 141 266
------- ------- -------
5,546 5,643 5,236
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
NUMBER OF EMPLOYEES
Exploration and Production.................................. 18,800 19,150 18,300
Refining and Marketing (a).................................. 52,100 53,800 49,150
Chemicals................................................... 23,050 24,000 24,100
Other businesses and corporate.............................. 2,700 3,850 3,350
------- ------- -------
96,650 100,800 94,900
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
AVERAGE NUMBER OF EMPLOYEES
1998
Exploration and Production....................... 4,050 900 7,900 6,200 19,050
Refining and Marketing (b)....................... 10,300 9,700 23,600 9,150 52,750
Chemicals........................................ 4,650 5,150 11,600 2,450 23,850
Other businesses and corporate................... 950 300 1,550 450 3,250
------- ------- ------- ------- -------
19,950 16,050 44,650 18,250 98,900
======= ======= ======= ======= =======
1997
Exploration and Production....................... 3,750 900 8,450 5,700 18,800
Refining and Marketing (b)....................... 9,550 10,000 23,650 9,000 52,200
Chemicals........................................ 5,000 4,650 11,850 2,550 24,050
Other businesses and corporate................... 900 200 1,950 600 3,650
------- ------- ------- ------- -------
19,200 15,750 45,900 17,850 98,700
======= ======= ======= ======= =======
1996
Exploration and Production....................... 3,450 950 8,950 5,100 18,450
Refining and Marketing........................... 7,550 9,650 22,850 8,200 48,250
Chemicals........................................ 5,200 4,600 13,300 2,400 25,500
Other businesses and corporate................... 750 150 1,850 950 3,700
------- ------- ------- ------- -------
16,950 15,350 46,950 16,650 95,900
======= ======= ======= ======= =======
</TABLE>
- - ---------------
(a) Includes 17,300 (1997, 18,050) employees assigned to the BP/Mobil joint
venture
(b) Includes 8,550 (1997, 7,850) employees assigned to the BP/Mobil joint
venture in the UK and 9,350 (1997, 9,600) employees in the Rest of Europe.
F-48
<PAGE> 128
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 38 -- PENSIONS
Most Group companies have pension plans, the forms and benefits of which
vary with conditions and practices in the countries concerned. The main plans
provide benefits that are computed based on an employee's years of service and
final pensionable salary. In most cases Group companies make contributions to
separately administered trusts, based on advice from independent actuaries using
actuarial methods, the objective of which is to provide adequate funds to meet
pension obligations as they fall due. In certain countries the plans are
unfunded and the accrued liabilities for pension benefits is included within
other provisions.
The net charge to income for pensions in 1998 was $139 million (1997 $141
million and 1996 $266 million). This was assessed in accordance with independent
actuarial advice using the projected unit credit method for the Group's major
pension plans.
The principal assumptions used in calculating the credit/charge were in the
following ranges:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
UK and other European plans:
Rate of return on assets.................................... 7% 8.1% 8.3%
Discount rate............................................... 7% 8.1% 8.3%
Future salary increases..................................... 5.1% 5.9% 6.2%
Future pension increases.................................... 3.2% 4.0% 4.3%
US plans:
Rate of return on assets.................................... 10% 10% 10%
Discount rate............................................... 6.9% 7% 7%
Future salary increases..................................... 4.7% 4.7% 4.7%
Future pension increases.................................... nil nil nil
</TABLE>
At January 1, 1998 the date of the latest actuarial valuations or reviews,
the market value of assets in the Group's major externally funded pension plans
in the UK and the USA was $20,689 million ($17,988 million at January 1, 1997).
The actuarial value of the assets of these plans represented 123% (1997 119%) of
the benefits that had accrued to members of those plans, after allowing for
expected future increases in salaries.
At December 31, 1998 the obligation for accrued benefits in respect of the
principal unfunded plans in Europe was $1,714 million ($1,543 million at
December 31, 1997). Of this amount, $1,345 million ($1,220 million at December
31, 1997) has been provided in these accounts.
F-49
<PAGE> 129
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 38 -- PENSIONS (CONTINUED)
Further information in respect of the Group's principal defined benefit
pension plans required under FASB Statement of Financial Accounting Standards
No. 132 -- 'Employers' Disclosures about Pensions and Other Postretirement
Benefits' is set out below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Principal plans:
Service cost -- benefits earned during year............... 375 335 317
Interest cost on projected benefit obligation............. 1,089 1,136 1,103
Expected return on plan assets............................ (1,339) (1,364) (1,256)
Amortization of transition asset.......................... (84) (82) (77)
Recognized net actuarial gain............................. (87) (65) (13)
Recognized prior service cost............................. 14 30 28
Curtailment and settlement................................ 12 9 4
------- ------- -------
(20) (1) 106
Other defined benefit plans................................. 51 39 55
Defined contribution schemes................................ 108 103 105
------- ------- -------
Total pension expense....................................... 139 141 266
======= ======= =======
</TABLE>
F-50
<PAGE> 130
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 38 -- PENSIONS (CONTINUED)
<TABLE>
<CAPTION>
UK and other
European plans US plans
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C>
Benefit obligation at January 1................... 11,567 11,183 4,388 4,334
Service cost...................................... 221 195 154 140
Interest cost..................................... 787 840 302 296
Plan amendments................................... -- -- -- (100)
Settlement loss................................... -- -- 12 9
Actuarial loss.................................... 518 383 60 166
Plan participants' contributions.................. 20 13 -- --
Settlement payments............................... -- -- (26) (16)
Benefit payments.................................. (619) (666) (466) (441)
Exchange adjustment............................... 176 (381) -- --
------- ------- ------- -------
Benefit obligation at December 31................. 12,670 11,567 4,424 4,388
------- ------- ------- -------
Fair value of plan assets at January 1............ 15,915 13,762 4,774 4,226
Actual return on plan assets...................... 2,456 2,903 833 914
Plan participants' contributions.................. 20 13 -- --
Employer contributions............................ 8 9 115 92
Settlement payments............................... -- -- (26) (16)
Benefit payments.................................. (515) (558) (466) (442)
Exchange adjustment............................... 107 (214) -- --
------- ------- ------- -------
Fair value of plan assets at December 31.......... 17,991 15,915 5,230 4,774
------- ------- ------- -------
Funded status..................................... 5,321 4,349 806 386
Unrecognized transition asset..................... (318) (394) (32) (47)
Unrecognized net actuarial (gain) loss............ (4,914) (4,010) (207) 138
Unrecognized prior service cost................... 111 125 (53) (62)
------- ------- ------- -------
Net amount recognized............................. 200 70 514 415
======= ======= ======= =======
Prepaid benefit cost.............................. 1,545 1,290 656 528
Accrued benefit liability......................... (1,644) (1,479) (190) (161)
Intangible asset.................................. 126 138 -- --
Accumulated other comprehensive income............ 173 121 48 48
------- ------- ------- -------
200 70 514 415
======= ======= ======= =======
</TABLE>
Major assumptions used to determine projected benefit obligations for the
principal pension plans were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
UK and other European plans:
Compensation increase....................................... 4.3% 5.1% 5.9%
Discount rate............................................... 6.1% 7% 8.1%
US plans:
Compensation increase....................................... 4.7% 4.7% 4.7%
Discount rate............................................... 6.5% 6.9% 7%
</TABLE>
F-51
<PAGE> 131
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 38 -- PENSIONS (CONCLUDED)
Plan assets are held in equity securities, fixed income securities and real
estate.
NOTE 39 -- OTHER POSTRETIREMENT BENEFITS
Certain Group companies, principally in the United States, provide
postretirement healthcare and life insurance benefits to their retired employees
and dependants. The entitlement to these benefits is usually based on the
employee remaining in service until retirement age and completion of a minimum
period of service. The plans are partly funded and the accrued net liability for
postretirement benefits is included within other provisions.
The charge to income for postretirement benefits in 1998 of $101 million
(1997 $110 million and 1996 $130 million) was assessed in accordance with
independent actuarial advice using the projected unit credit method.
At December 31, 1998 the independent actuaries have reassessed the
obligation for postretirement benefits at $1,814 million ($1,709 million at
December 31, 1997). The provision for postretirement benefits at December 31,
1998 was $2,311 million ($2,348 million at December 31, 1997).
The discount rate used to assess the obligation at December 31, 1998 was
6.5% (6.9% at December 31, 1997). The assumed future healthcare cost trend rate
for 1999 are 5% to 7.6% for beneficiaries aged under 65 and 5% to 6.5% for
beneficiaries aged over 65, which reduce to 5% for both age groups in the year
2002 and for subsequent years.
Further information presented in compliance with the requirements of FASB
Statement of Financial Accounting Standards No. 132 -- 'Employers' Disclosures
about Pensions and Other Postretirement Benefits' is set out below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Service cost -- benefits earned during year................. 39 40 45
Interest cost on projected benefit obligation............... 114 116 126
Expected return on plan assets.............................. (1) -- --
Recognized net actuarial gain............................... (28) (24) (19)
Amortization of prior service cost recognized............... (23) (22) (22)
------- ------- -------
Postretirement benefit expense.............................. 101 110 130
======= ======= =======
</TABLE>
F-52
<PAGE> 132
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 39 -- OTHER POSTRETIREMENT BENEFITS (CONCLUDED)
<TABLE>
<CAPTION>
1998 1997
------- -------
($ million)
<S> <C> <C>
Benefit obligation at January 1............................. 1,709 1,704
Service cost................................................ 39 40
Interest cost............................................... 114 116
Actuarial (gain) loss....................................... 52 (51)
Benefit payments............................................ (100) (100)
------- -------
Benefit obligation at December 31........................... 1,814 1,709
------- -------
Fair value of plan assets at January 1...................... -- --
Actual return on plan assets................................ 9 --
Employer contributions...................................... 40 --
------- -------
Fair value of plan assets at December 31.................... 49 --
------- -------
Funded status............................................... (1,765) (1,709)
Unrecognized net actuarial gain............................. (382) (452)
Unrecognized prior service cost............................. (164) (187)
------- -------
Provision for postretirement benefits....................... (2,311) (2,348)
======= =======
</TABLE>
The assumed healthcare cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed healthcare cost
trend rate would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
point increase point decrease
-------------- --------------
($ million)
<S> <C> <C>
Effect on total of service and interest cost in 1998........ 20 (16)
Effect on postretirement obligation at December 31, 1998.... 180 (149)
</TABLE>
NOTE 40 -- CONTINGENT LIABILITIES
There were contingent liabilities at December 31, 1998 in respect of
guarantees and indemnities entered into as part of, and claims arising from, the
ordinary course of the Group's business, upon which no material losses are
likely to arise.
Approximately 200 lawsuits were filed in State and Federal Courts in Alaska
seeking compensatory and punitive damages arising out of the Exxon Valdez oil
spill in Prince William Sound in March 1989. Most of those suits named Exxon,
Alyeska Pipeline Service Company (Alyeska), which operates the oil terminal at
Valdez, and the seven oil companies which own Alyeska. Alyeska initially
responded to the spill until the response was taken over by Exxon. BP Amoco owns
a 50% interest in Alyeska through a subsidiary of BP America Inc. Alyeska and
its owners have settled all of the claims against them under these lawsuits.
Exxon has indicated that it may file a claim for contribution against Alyeska
for a portion of the costs and damages which it has incurred. If any claims are
asserted by Exxon which affect Alyeska and its owners, BP Amoco would defend the
claims vigorously.
The Internal Revenue Service (IRS) has challenged the application of
certain foreign income taxes as credits against BP Amoco Corporation's US taxes
that otherwise would have been payable for the years 1980 to 1992. On June 18,
1992, the IRS issued a statutory Notice of Deficiency for additional taxes in
the amount of $466 million, plus interest, relating to 1980 to 1982. BP Amoco
filed a petition in the US Tax Court contesting the IRS statutory Notice of
Deficiency. Trial on the matter was held in April 1995, and a decision was
rendered by the US Tax Court in March 1996, in BP Amoco's favor. The IRS has
appealed the
F-53
<PAGE> 133
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 40 -- CONTINGENT LIABILITIES (CONCLUDED)
Tax Court's decision to the US Court of Appeals for the Seventh Circuit and on
March 11, 1998 the Seventh Circuit affirmed the Tax Court's prior decision. A
comparable adjustment of foreign tax credits for each year has been proposed for
the years 1983 to 1992 based upon subsequent IRS audits. BP Amoco Corporation
believes that the foreign income taxes have been reflected properly in its US
federal tax returns. Consequently, this dispute is not expected to have a
material adverse effect on liquidity, results of operations, or the financial
position of the Group.
The Group is subject to numerous national and local environmental laws and
regulations concerning its products, operations and other activities. These laws
and regulations may require the Group to take future action to remediate the
effects on the environment of prior disposal or release of chemical or petroleum
substances by the Group or other parties. Such contingencies may exist for
various sites including refineries, chemical plants, oil fields, service
stations, terminals and waste disposal sites. In addition, the Group may have
obligations relating to prior asset sales or closed facilities. The ultimate
requirement for remediation and its cost is inherently difficult to estimate.
However, the estimated cost of known environmental obligations has been provided
in these accounts in accordance with the Group's accounting policies. While the
amounts of future costs could be significant and could be material to the
Group's results of operations in the period in which they are recognized, BP
Amoco does not expect these costs to have a material effect on the Group's
financial position or liquidity.
NOTE 41 -- JOINT VENTURES AND ASSOCIATED UNDERTAKINGS
Summarized financial information for the Group's share of its joint
ventures is shown below. The principal joint venture is the pan-European
refining and marketing joint venture with Mobil, which is jointly controlled.
The other significant joint ventures of the BP Amoco Group at December 31, 1998
are shown in Note 47.
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------ ------
($ million)
<S> <C> <C>
Turnover.................................................... 15,428 16,804
------ ------
Profit for the period before tax............................ 546 221
------ ------
Profit for the period after tax............................. 561 221
------ ------
Fixed assets................................................ 5,681 5,349
Current assets.............................................. 3,372 3,798
------ ------
9,053 9,147
Liabilities due within one year............................. 3,586 2,993
Liabilities due after one year.............................. 462 530
------ ------
5,005 5,624
====== ======
</TABLE>
Within the BP/Mobil joint venture BP Amoco operates and has a 70% interest
in the fuels refining and marketing operation and has a 49% interest in the
lubricants business. Funding is provided to the joint venture by both BP Amoco
and Mobil in proportion to their respective interests as required. Surplus cash
in the joint venture is returned to BP Amoco and Mobil on a regular, usually
daily, basis.
BP Amoco has made available to the joint venture on a long-term basis the
tangible fixed assets formerly used by its European refining and marketing
operations. Staff working for the fuels business are BP Amoco employees, while
those working for the lubricants business are Mobil employees. Staff costs for
BP Amoco employees were $902 million (1997 $889 million).
F-54
<PAGE> 134
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 41 -- JOINT VENTURES AND ASSOCIATED UNDERTAKINGS (CONCLUDED)
During the year the BP Amoco Group sold crude oil and products totalling
$2,264 million (1997 $3,126 million) to the BP/Mobil joint venture and purchased
crude oil and products totalling $1,335 million (1997 $1,963 million). At
December 31, 1998 the outstanding balances receivable and payable were $351
million (December 31, 1997 $526 million) and $144 million (December 31, 1997
$241 million) respectively. In addition there were net receipts of $675 million
(December 31, 1997 advances of $367 million) outstanding at December 31, 1998.
The more significant associated undertakings of the BP Amoco Group at
December 31, 1998 are shown in Note 47.
During the year the BP Amoco Group purchased crude oil from two associated
undertakings, Abu Dhabi Marine Areas and Abu Dhabi Petroleum to the value of
$715 million (1997 $1,014 million and 1996 $1,055 million). At December 31, 1998
$45 million (December 31, 1997 $93 million) was payable in respect of these
purchases.
During the year the BP Amoco Group sold chemical feedstocks totalling $395
million (1997 $549 million and 1996 $487 million) to Erdolchemie, an associated
undertaking, and bought petrochemicals, mainly polyethylene, to the value of $76
million (1997 $64 million and 1996 $396 million). At December 31, 1998 the
outstanding balance receivable from Erdolchemie was $1 million (December 31,
1997 $5 million).
F-55
<PAGE> 135
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a)
CAPITALIZED COSTS AT DECEMBER 31
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
1998
Gross capitalized costs:
Proved properties.................... 22,116 2,802 34,953 15,013 74,884
Unproved properties.................. 400 76 890 1,915 3,281
------- ------- ------- ------- -------
22,516 2,878 35,843 16,928 78,165
Accumulated depreciation (b)........... 11,982 1,778 20,238 8,141 42,139
------- ------- ------- ------- -------
Net capitalized costs.................. 10,534 1,100 15,605 8,787 36,026
======= ======= ======= ======= =======
1997
Gross capitalized costs:
Proved properties.................... 20,206 2,785 33,736 14,072 70,799
Unproved properties.................. 323 55 914 1,776 3,068
------- ------- ------- ------- -------
20,529 2,840 34,650 15,848 73,867
Accumulated depreciation (b)........... 10,318 1,655 19,799 7,849 39,621
------- ------- ------- ------- -------
Net capitalized costs.................. 10,211 1,185 14,851 7,999 34,246
======= ======= ======= ======= =======
1996
Gross capitalized costs:
Proved properties.................... 18,988 2,899 31,973 13,475 67,335
Unproved properties.................. 343 50 871 1,809 3,073
------- ------- ------- ------- -------
19,331 2,949 32,844 15,284 70,408
Accumulated depreciation (b)........... 9,259 1,691 18,416 8,119 37,485
------- ------- ------- ------- -------
Net capitalized costs.................. 10,072 1,258 14,428 7,165 32,923
======= ======= ======= ======= =======
</TABLE>
F-56
<PAGE> 136
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a) (CONTINUED)
COSTS INCURRED FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
1998
Acquisition of properties:
Proved............................... -- -- 3 54 57
Unproved............................. -- 1 58 62 121
------- ------- ------- ------- -------
-- 1 61 116 178
Exploration and appraisal costs (c).... 177 106 476 764 1,523
Development costs...................... 1,432 100 1,670 1,569 4,771
------- ------- ------- ------- -------
Total costs............................ 1,609 207 2,207 2,449 6,472
======= ======= ======= ======= =======
1997
Acquisition of properties:
Proved............................... -- 95 7 7 109
Unproved............................. 15 3 121 26 165
------- ------- ------- ------- -------
15 98 128 33 274
Exploration and appraisal costs (c).... 192 133 524 942 1,791
Development costs...................... 1,463 161 1,744 1,714 5,082
------- ------- ------- ------- -------
Total costs............................ 1,670 392 2,396 2,689 7,147
======= ======= ======= ======= =======
1996
Acquisition of properties:
Proved............................... -- 22 113 33 168
Unproved............................. -- -- 106 114 220
------- ------- ------- ------- -------
-- 22 219 147 388
Exploration and appraisal costs (c).... 167 103 543 837 1,650
Development costs...................... 1,622 228 1,502 1,262 4,614
------- ------- ------- ------- -------
Total costs............................ 1,789 353 2,264 2,246 6,652
======= ======= ======= ======= =======
</TABLE>
F-57
<PAGE> 137
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a) (CONTINUED)
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
1998
Turnover (d):
Third parties........................ 1,063 73 2,782 2,133 6,051
Sales between businesses............. 2,481 520 2,027 905 5,933
------- ------- ------- ------- -------
3,544 593 4,809 3,038 11,984
------- ------- ------- ------- -------
Exploration expense.................... 134 89 240 458 921
Production costs....................... 878 146 1,548 888 3,460
Production taxes....................... 15 6 233 320 574
Other costs (income) (e)............... (50) (18) 780 384 1,096
Depreciation and amounts provided...... 1,155 163 1,160 1,070 3,548
Decommissioning........................ 94 5 6 20 125
------- ------- ------- ------- -------
2,226 391 3,967 3,140 9,724
------- ------- ------- ------- -------
Profit (loss) before taxation (f)...... 1,318 202 842 (102) 2,260
Allocable taxes........................ 378 79 111 115 683
------- ------- ------- ------- -------
Results of operations.................. 940 123 731 (217) 1,577
======= ======= ======= ======= =======
1997
Turnover (d):
Third parties........................ 2,680 559 5,639 1,553 10,431
Sales between businesses............. 1,817 341 1,132 2,884 6,174
------- ------- ------- ------- -------
4,497 900 6,771 4,437 16,605
------- ------- ------- ------- -------
Exploration expense.................... 156 79 273 454 962
Production costs....................... 743 176 1,378 944 3,241
Production taxes....................... 283 19 446 536 1,284
Other costs (income) (e)............... 50 (11) 720 690 1,449
Depreciation........................... 1,197 178 1,154 705 3,234
Decommissioning........................ 78 12 35 24 149
------- ------- ------- ------- -------
2,507 453 4,006 3,353 10,319
------- ------- ------- ------- -------
Profit before taxation (f)............. 1,990 447 2,765 1,084 6,286
Allocable taxes........................ 655 206 896 501 2,258
------- ------- ------- ------- -------
Results of operations.................. 1,335 241 1,869 583 4,028
======= ======= ======= ======= =======
</TABLE>
F-58
<PAGE> 138
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a) (CONTINUED)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
1996
Turnover (d):
Third parties........................ 2,708 371 5,999 1,869 10,947
Sales between businesses............. 2,304 342 1,134 2,884 6,664
------- ------- ------- ------- -------
5,012 713 7,133 4,753 17,611
------- ------- ------- ------- -------
Exploration expense.................... 161 90 284 462 997
Production costs....................... 811 142 1,253 789 2,995
Production taxes....................... 450 15 503 605 1,573
Other costs (income) (e)............... 161 (25) 973 701 1,810
Depreciation........................... 1,337 169 1,150 684 3,340
Decommissioning........................ 83 4 23 26 136
------- ------- ------- ------- -------
3,003 395 4,186 3,267 10,851
------- ------- ------- ------- -------
Profit before taxation (f)............. 2,009 318 2,947 1,486 6,760
Allocable taxes........................ 700 199 1,086 690 2,675
------- ------- ------- ------- -------
Results of operations.................. 1,309 119 1,861 796 4,085
======= ======= ======= ======= =======
</TABLE>
- - ---------------
The Group's share of associated undertakings results of operations in 1998
was a profit of $40 million (profit $13 million and 1996 $1 million loss)
after adding a tax credit of $19 million (1997 and 1996 nil).
The Group's share of associated undertakings net capitalized costs at
December 31, 1998 was $2,212 million (December 31, 1997 $2,662 million and
December 31, 1996 nil).
The Group's share of associated undertakings costs incurred in 1998 was
$282 million (1997 $1,349 million and 1996 nil).
(a) Information given in this note relates to the Group's oil and natural gas
activities. Midstream activities of natural gas gathering and distribution
and the operation of the main pipelines and tankers are excluded. The main
midstream activities are the Alaskan transportation facilities, the Forties
Pipeline system, the Central Area Transmission system and Ruhrgas gas
distribution operations. Profits on sale of businesses and fixed assets
relating to the oil and natural gas exploration and production activities
which have been accounted as exceptional items are also excluded.
(b) Accumulated depreciation consists of depreciation, depletion and
amortization related to oil and natural gas producing activities.
(c) Exploration and appraisal drilling expenditure and licence acquisition
costs are initially capitalized within intangible fixed assets in
accordance with the Group's accounting policy.
(d) Turnover represents sales of production excluding royalty oil where royalty
is payable in kind.
(e) Includes cost of royalty oil not taken in kind and property taxes.
F-59
<PAGE> 139
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a) (CONCLUDED)
(f) The exploration and production total replacement cost operating profit
comprises:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
------ ------ ------
($ million)
<S> <C> <C> <C>
Exploration and production activities
Group..................................................... 2,260 6,286 6,760
Associated undertakings................................... 21 13 (1)
Midstream activities........................................ 866 986 914
----- ----- -----
Total replacement cost operating profit..................... 3,147 7,285 7,673
===== ===== =====
</TABLE>
NOTE 43 -- NEW ACCOUNTING STANDARD
With effect from January 1, 1998 the BP Amoco Group has adopted FRS9. This
has four effects:
(a) The BP/Mobil joint venture and Crescendo Resources are accounted for using
the gross equity method rather than by proportional consolidation. This
change has reduced the amounts reported against most income statement,
balance sheet and cash flow statement captions. Profit for the year and net
assets are unaffected by this change in treatment.
(b) Altura Energy is consolidated rather than being accounted for by
proportional consolidation. This change has increased the amounts reported
against most income statement, balance sheet and cash flow statement
captions and creates a minority shareholder interest in the income
statement and balance sheet. Profit for the period and BP Amoco
shareholders' interest are unaffected by this change in treatment.
(c) Pan American Energy and Empresa Petrolera Chaco are treated as joint
ventures rather than associates and are accounted for by the gross equity
method rather than the equity method. Profit for the period and net assets
are unaffected by this change in treatment.
(d) Income from associated undertakings and joint ventures is shown before
charging interest expense. Interest expense for associated undertakings and
joint ventures is now included in the total interest expense reported.
Interest expense for associated undertakings which would have been charged
against replacement cost operating profit in 1996, 1997 and the
corresponding amounts for 1998 are shown below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Exploration and Production.............................. 58 6 11
Refining and Marketing.................................. 22 7 6
Chemicals............................................... 66 55 44
Other businesses and corporate.......................... 16 15 7
------- ------- -------
162 83 68
======= ======= =======
</TABLE>
Information for 1997 and 1996 has been restated to conform with the 1998
presentation. A summarized income statement, balance sheet and cash flow
statement for 1997 for BP Amoco on a FRS9 basis and as would have been prepared
previously are shown below.
F-60
<PAGE> 140
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 43 -- NEW ACCOUNTING STANDARD (CONTINUED)
As the BP/Mobil joint venture, Crescendo Resources, Altura Energy, Pan
American Energy and Empresa Petrolera Chaco were set up or acquired in 1997,
financial information for 1996 is unaffected by the adoption of FRS9 except for
the reclassification of interest expense in note (d) above.
INCOME STATEMENT
<TABLE>
<CAPTION>
Year ended
December 31, 1997
--------------------
Restated Pre FRS9
-------- --------
($ million)
<S> <C> <C>
TURNOVER.................................................... 108,564 103,418
Less: Joint ventures........................................ 16,804 --
------- -------
GROUP TURNOVER.............................................. 91,760 103,418
------- -------
TOTAL REPLACEMENT COST OPERATING PROFIT..................... 10,583 10,357
Profit (loss) on sale of businesses......................... 127 127
Profit (loss) on sale of fixed assets....................... 313 313
Refinery network rationalization............................ 71 71
------- -------
REPLACEMENT COST PROFIT BEFORE INTEREST AND TAX............. 11,094 10,868
Inventory holding gains (losses)............................ (939) (939)
------- -------
HISTORICAL COST PROFIT BEFORE INTEREST AND TAX.............. 10,155 9,929
Interest expense............................................ 908 825
------- -------
PROFIT BEFORE TAXATION...................................... 9,247 9,104
Taxation.................................................... 3,066 3,066
------- -------
PROFIT AFTER TAXATION....................................... 6,181 6,038
Minority shareholders' interest............................. 151 8
------- -------
PROFIT FOR THE YEAR......................................... 6,030 6,030
======= =======
</TABLE>
F-61
<PAGE> 141
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 43 -- NEW ACCOUNTING STANDARD (CONTINUED)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1997
--------------------
Restated Pre FRS9
-------- --------
($ million)
<S> <C> <C>
FIXED ASSETS
Intangible assets......................................... 2,582 2,723
Tangible assets........................................... 52,263 54,637
Investments............................................... 10,376 5,899
------- -------
TOTAL FIXED ASSETS.......................................... 65,221 63,259
------- -------
CURRENT ASSETS
Inventories............................................... 4,923 6,399
Trade receivables and other receivables................... 14,381 16,075
Investments............................................... 1,067 1,067
Cash at bank and in hand.................................. 355 354
------- -------
20,726 23,895
CURRENT LIABILITIES -- AMOUNTS FALLING DUE WITHIN ONE YEAR
Finance debt.............................................. 2,856 2,856
Trade payables, other accounts payable and accrued
liabilities............................................ 17,671 19,863
------- -------
NET CURRENT ASSETS.......................................... 199 1,176
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 65,420 64,435
NONCURRENT LIABILITIES
Finance debt.............................................. 10,021 10,021
Accounts payable and accrued liabilities.................. 2,562 2,569
PROVISIONS FOR LIABILITIES AND CHARGES...................... 9,989 9,873
------- -------
NET ASSETS.................................................. 42,848 41,972
Minority shareholders' interest............................. 1,100 224
------- -------
BP AMOCO SHAREHOLDERS' INTEREST............................. 41,748 41,748
======= =======
REPRESENTED BY CAPITAL AND RESERVES:
Capital shares.............................................. 4,330 4,330
Reserves.................................................... 37,418 37,418
------- -------
41,748 41,748
======= =======
</TABLE>
F-62
<PAGE> 142
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 43 -- NEW ACCOUNTING STANDARD (CONCLUDED)
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
Year ended
December 31, 1997
--------------------
Restated Pre FRS9
-------- --------
($ million)
<S> <C> <C>
Net cash inflow from operating activities................... 15,558 15,734
Dividends from joint ventures and associated undertakings... 741 --
Net cash outflow from servicing of finance and returns on
investments............................................... (655) (650)
Tax paid.................................................... (2,273) (2,273)
Net cash outflow for capital expenditure.................... (7,432) (7,902)
Net cash outflow for acquisitions and disposals............. (2,624) (1,595)
Equity dividends paid....................................... (2,437) (2,437)
------- -------
NET CASH INFLOW............................................. 878 877
======= =======
Financing................................................... 1,012 1,012
Management of liquid resources.............................. (167) (167)
Increase in cash............................................ 33 32
------- -------
878 877
======= =======
</TABLE>
NOTE 44 -- MERGER ACCOUNTING
The financial statements have been prepared using the merger method of
accounting in relation to the merger of BP and Amoco. Under merger accounting,
the results and cash flows of BP and Amoco are combined from the beginning of
the financial period in which the merger occurred and their assets and
liabilities combined at the amounts at which they were previously recorded after
adjusting to achieve consistency of accounting policies. Income statement,
balance sheet and cash flow comparatives are restated on the combined basis.
The merger became effective on December 31, 1998. As both BP and Amoco had
financial year ends of December 31, income statements for each company for the
year ended December 31, 1998 are presented below together with their respective
balance sheets at December 31, 1998.
On December 31, 1998 the Company issued 3,797,071,800 ordinary shares with
a nominal value of $1,898,535,900 and a fair value of $56,943,166,956 to Amoco
shareholders under the terms of the merger agreement between BP and Amoco.
Following the merger, former BP shareholders held 5,885,938,223 shares. Assuming
conversion of all outstanding BP share options and Amoco stock options into
shares on that date and excluding shares held by the respective companies, the
ownership interests of former BP and Amoco shareholders in the combined company
were 59.98% and 40.02% respectively.
The following information is set out below:
(a) The nature and the amount of the accounting adjustments made to align
Amoco's accounting policies with those of BP.
(b) Income statements and statements of total recognized gains and losses of BP
and Amoco for the current and prior year.
(c) Balance sheets of BP and Amoco at December 31, 1998.
Reclassifications have been made to the Amoco historical financial
information presented under US generally accepted accounting principles (US
GAAP) to conform to BP's presentation under UK generally accepted accounting
practice (UK GAAP).
F-63
<PAGE> 143
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
UK GAAP ADJUSTMENTS TO AMOCO HISTORICAL FINANCIAL STATEMENTS
Amoco prepared its financial statements in accordance with US GAAP. The
income statements and balance sheets of Amoco have been restated to conform with
BP accounting policies under UK GAAP by giving effect to the following
adjustments:
(a) CONSOLIDATION BASES
Under US GAAP, certain oil and natural gas joint ventures are
proportionately consolidated, whereas under UK GAAP the joint ventures
would either be equity accounted or consolidated depending on the ownership
interest. Amoco's joint ventures were set up in early 1997.
This adjustment does not alter profit for the year or net assets, but does
change the amounts reported against a number of income statement and
balance sheet captions; including creating a minority shareholders'
interest of $59 million (1997 $143 million and 1996 nil) in the income
statement and of $826 million (1997 $876 million) in the balance sheet for
1998.
(b) INVENTORY ACCOUNTING
Amoco carried inventories at the lower of current market values or cost.
Cost is determined under the last-in, first-out (LIFO) method for the
majority of inventories of crude oil, petroleum products and chemical
products. The costs of remaining inventories are determined on the
first-in, first-out (FIFO) or average cost methods. BP carried inventories
at the lower of cost or net realizable value. Cost to BP is determined
using the FIFO method. Cost of sales determined on a FIFO basis is adjusted
to a replacement cost basis, i.e. to reflect the average cost of supplies
incurred during the year, by excluding inventory holding gains and losses.
As a result of this adjustment replacement cost of sales for 1998 is
reduced by $7 million (1997 increased by $130 million and 1996 increased by
$195 million); there are inventory holding losses of $415 million (1997
$419 million loss and 1996 $545 million gain); profit for the year is
reduced by $408 million (1997 reduced by $549 million and 1996 increased by
$350). The carrying value of inventory is increased by $549 million in 1998
(1997 $955 million).
(c) DEFERRED TAXATION
Under the UK GAAP restricted liability method, deferred taxation is only
provided for where timing differences are expected to reverse in the
forseeable future. For US GAAP under the liability method, deferred
taxation is provided for temporary differences between the financial
reporting basis and the tax basis of assets and liabilities at enacted tax
rates expected to be in effect when such amounts are realized or settled.
This adjustment increases the charge for taxation in 1998 by $76 million
(1997 $110 million increase and 1996 $3 million decrease) and reduces the
profit for the year by the same amount.
The provision for deferred taxation in the balance sheet is reduced by
$1,761 million in 1998 (1997 $1,534 million).
(d) FOREIGN CURRENCY TRANSLATION
BP considered that the functional currency of its non-UK operations is the
local currency except for certain exploration and production operations
where the US dollar is the functional currency. Amoco considered the
functional currency of substantially all of its operations to be the US
dollar. Where
F-64
<PAGE> 144
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
there is a difference between the two companies in terms of functional
currency, the functional currency of Amoco's operations has been changed to
the local currency.
The retranslation of Amoco's assets and liabilities resulting from this
gives rise to currency translation differences.
The net effects of this adjustment are to increase profit for the year by
$11 million (1997 reduce by $82 million and 1996 increase by $73 million)
and to reduce net assets by $633 million in 1998 (1997 $583 million).
(e) EXCEPTIONAL ITEMS
Under UK GAAP, certain exceptional items should be shown separately on the
face of the income statement after operating profit. Under US GAAP these
items would be classified as operating income or expenses.
For 1998 there were profits on the sale of businesses of $8 million (1997
$117 million and 1996 $144 million) and on the sale of fixed assets of $312
million (1997 $495 million profit and 1996 $42 million loss) and merger
expenses of $119 million.
(f) EQUITY ACCOUNTING
UK GAAP requires the operating profit or loss, exceptional items and
interest expense and taxation of associated undertakings and joint ventures
to be shown separately from those of the Group. For US GAAP, the after-tax
profits or losses (i.e. operating results after exceptional items, interest
expense and taxation) should be included in the income statement as a
single line item.
UK GAAP requires the investor's share of the gross assets and gross
liabilities of the joint venture to be shown on the face of the balance
sheet, whereas under US GAAP the net investment should be included as a
single line item.
This adjustment has no overall effect on profit for the year or net assets.
(g) SALE AND LEASEBACK
The sale and leaseback of the Amoco building in Chicago, Illinois in 1998
is treated as a sale for UK GAAP whereas for US GAAP it is treated as a
financing transaction. The effect of this adjustment is to increase
exceptional items and profit for the year by $211 million. Net assets are
increased by $211 million.
F-65
<PAGE> 145
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
US/UK
Amoco GAAP Amoco Total
US GAAP adjustment UK GAAP BP BP Amoco
-------- ---------- -------- ------- --------
($ million)
<S> <C> <C> <C> <C> <C>
TURNOVER.................................... 26,695 (36) 26,659 57,073 83,732
Less: Joint ventures........................ -- 348 348 15,080 15,428
-------- --------- -------- ------- --------
GROUP TURNOVER.............................. 26,695 (384) 26,311 41,993 68,304
Replacement cost of sales................... 21,750 (87) 21,663 34,691 56,354
Production taxes............................ 149 18 167 437 604
-------- --------- -------- ------- --------
GROSS PROFIT................................ 4,796 (315) 4,481 6,865 11,346
Distribution and administration expenses.... 2,543 (77) 2,466 3,578 6,044
Exploration expense......................... 658 -- 658 263 921
-------- --------- -------- ------- --------
1,595 (238) 1,357 3,024 4,381
Other income................................ (30) 335 305 404 709
-------- --------- -------- ------- --------
GROUP REPLACEMENT COST OPERATING PROFIT..... 1,565 97 1,662 3,428 5,090
Share of profits of joint ventures.......... -- 65 65 760 825
Share of profits associated undertakings.... -- 69 69 453 522
-------- --------- -------- ------- --------
REPLACEMENT COST OPERATING PROFIT........... 1,565 231 1,796 4,641 6,437
Profit (loss) on sale of businesses and
fixed assets.............................. -- 320 320 728 1,048
Merger expenses............................. -- (119) (119) (79) (198)
-------- --------- -------- ------- --------
REPLACEMENT COST PROFIT BEFORE INTEREST AND
TAX....................................... 1,565 432 1,997 5,290 7,287
Inventory holding gains (losses)............ -- (415) (415) (976) (1,391)
-------- --------- -------- ------- --------
HISTORICAL COST PROFIT BEFORE INTEREST AND
TAX....................................... 1,565 17 1,582 4,314 5,896
Interest expense............................ 380 93 473 580 1,053
-------- --------- -------- ------- --------
PROFIT BEFORE TAXATION...................... 1,185 (76) 1,109 3,734 4,843
Taxation.................................... 227 91 318 1,202 1,520
-------- --------- -------- ------- --------
PROFIT AFTER TAXATION....................... 958 (167) 791 2,532 3,323
Minority shareholders' interest............. -- 59 59 4 63
-------- --------- -------- ------- --------
PROFIT FOR THE YEAR......................... 958 (226) 732 2,528 3,260
Distribution to shareholders................ 1,438 -- 1,438 2,683 4,121
======== ========= ======== ======= ========
REPLACEMENT COST RESULTS
HISTORICAL COST PROFIT FOR THE YEAR......... 732 2,528 3,260
Inventory holding (gains) losses............ 415 976 1,391
-------- ------- --------
REPLACEMENT COST PROFIT FOR THE YEAR........ 1,147 3,504 4,651
Exceptional items, net of tax............... (125) (527) (652)
-------- ------- --------
REPLACEMENT COST PROFIT BEFORE EXCEPTIONAL
ITEMS..................................... 1,022 2,977 3,999
======== ======= ========
</TABLE>
F-66
<PAGE> 146
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
US/UK
Amoco GAAP Amoco Total
US GAAP adjustment UK GAAP BP BP Amoco
-------- ---------- -------- ------- --------
($ million)
<S> <C> <C> <C> <C> <C>
TURNOVER.................................... 32,103 98 32,201 76,363 108,564
Less: Joint ventures........................ 71 41 112 16,692 16,804
-------- --------- -------- ------- --------
GROUP TURNOVER.............................. 32,032 57 32,089 59,671 91,760
Replacement cost of sales................... 25,304 41 25,345 48,583 73,928
Production taxes............................ 286 9 295 1,012 1,307
-------- --------- -------- ------- --------
GROSS PROFIT................................ 6,442 7 6,449 10,076 16,525
Distribution and administration expenses.... 2,633 120 2,753 3,989 6,742
Exploration expense......................... 635 1 636 326 962
-------- --------- -------- ------- --------
3,174 (114) 3,060 5,761 8,821
Other income................................ 902 (574) 328 334 662
-------- --------- -------- ------- --------
GROUP REPLACEMENT COST OPERATING PROFIT..... 4,076 (688) 3,388 6,095 9,483
Share of profits of joint ventures.......... 5 19 24 520 544
Share of profits associated undertakings.... 19 17 36 520 556
-------- --------- -------- ------- --------
REPLACEMENT COST OPERATING PROFIT........... 4,100 (652) 3,448 7,135 10,583
Profit (loss) on sale of businesses and
fixed assets.............................. -- 612 612 (172) 440
Refinery network rationalization............ -- -- -- 71 71
-------- --------- -------- ------- --------
REPLACEMENT COST PROFIT BEFORE INTEREST AND
TAX....................................... 4,100 (40) 4,060 7,034 11,094
Inventory holding gains (losses)............ -- (419) (419) (520) (939)
-------- --------- -------- ------- --------
HISTORICAL COST PROFIT BEFORE INTEREST AND
TAX....................................... 4,100 (459) 3,641 6,514 10,155
Interest expense............................ 339 34 373 535 908
-------- --------- -------- ------- --------
PROFIT BEFORE TAXATION...................... 3,761 (493) 3,268 5,979 9,247
Taxation.................................... 1,046 105 1,151 1,915 3,066
-------- --------- -------- ------- --------
PROFIT AFTER TAXATION....................... 2,715 (598) 2,117 4,064 6,181
Minority shareholders' interest............. (5) 143 138 13 151
-------- --------- -------- ------- --------
PROFIT FOR THE YEAR......................... 2,720 (741) 1,979 4,051 6,030
Distribution to shareholders................ 1,382 -- 1,382 2,070 3,452
======== ========= ======== ======= ========
REPLACEMENT COST RESULTS
HISTORICAL COST PROFIT FOR THE YEAR......... 1,979 4,051 6,030
Inventory holding (gains) losses............ 419 520 939
-------- ------- --------
REPLACEMENT COST PROFIT FOR THE YEAR........ 2,398 4,571 6,969
Exceptional items, net of tax............... (377) 57 (320)
-------- ------- --------
REPLACEMENT COST PROFIT BEFORE EXCEPTIONAL
ITEMS..................................... 2,021 4,628 6,649
======== ======= ========
</TABLE>
F-67
<PAGE> 147
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
US/UK
Amoco GAAP Amoco Total
US GAAP adjustment UK GAAP BP BP Amoco
-------- ---------- -------- ------- --------
($ million)
<S> <C> <C> <C> <C> <C>
TURNOVER.................................... 32,284 -- 32,284 69,780 102,064
Less: Joint ventures........................ -- -- -- -- --
-------- --------- -------- ------- --------
GROUP TURNOVER.............................. 32,284 -- 32,284 69,780 102,064
Replacement cost of sales................... 25,062 193 25,255 56,667 81,922
Production taxes............................ 327 -- 327 1,284 1,611
-------- --------- -------- ------- --------
GROSS PROFIT................................ 6,895 (193) 6,702 11,829 18,531
Distribution and administration expenses.... 2,646 (56) 2,590 5,777 8,367
Exploration expense......................... 680 -- 680 317 997
-------- --------- -------- ------- --------
3,569 (137) 3,432 5,735 9,167
Other income................................ 432 (82) 350 364 714
-------- --------- -------- ------- --------
GROUP REPLACEMENT COST OPERATING PROFIT..... 4,001 (219) 3,782 6,099 9,881
Share of profits of joint ventures.......... -- -- -- -- --
Share of profits associated undertakings.... 144 34 178 485 663
-------- --------- -------- ------- --------
REPLACEMENT COST OPERATING PROFIT........... 4,145 (185) 3,960 6,584 10,544
Profit (loss) on sale of businesses and
fixed assets.............................. -- 102 102 (273) (171)
European refining and marketing joint
venture implementation.................... -- -- -- (532) (532)
-------- --------- -------- ------- --------
REPLACEMENT COST PROFIT BEFORE INTEREST AND
TAX....................................... 4,145 (83) 4,062 5,779 9,841
Inventory holding gains (losses)............ -- 545 545 627 1,172
-------- --------- -------- ------- --------
HISTORICAL COST PROFIT BEFORE INTEREST AND
TAX....................................... 4,145 462 4,607 6,406 11,013
Interest expense............................ 295 24 319 685 1,004
-------- --------- -------- ------- --------
PROFIT BEFORE TAXATION...................... 3,850 438 4,288 5,721 10,009
Taxation.................................... 1,016 12 1,028 1,727 2,755
-------- --------- -------- ------- --------
PROFIT AFTER TAXATION....................... 2,834 426 3,260 3,994 7,254
Minority shareholders' interest............. -- -- -- 13 13
-------- --------- -------- ------- --------
PROFIT FOR THE YEAR......................... 2,834 426 3,260 3,981 7,241
Distribution to shareholders................ 1,287 -- 1,287 1,720 3,007
======== ========= ======== ======= ========
REPLACEMENT COST RESULTS
HISTORICAL COST PROFIT FOR THE YEAR......... 3,260 3,981 7,241
Inventory holding (gains) losses............ (545) (627) (1,172)
-------- ------- --------
REPLACEMENT COST PROFIT FOR THE YEAR........ 2,715 3,354 6,069
Exceptional items, net of tax............... (106) 733 627
-------- ------- --------
REPLACEMENT COST PROFIT BEFORE EXCEPTIONAL
ITEMS..................................... 2,609 4,087 6,696
======== ======= ========
</TABLE>
F-68
<PAGE> 148
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
BALANCE SHEET AS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Amoco US/UK GAAP Amoco Total
US GAAP adjustment UK GAAP BP BP Amoco
------- ---------- ------- ------ --------
($ million)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets........................... 756 (21) 735 2,302 3,037
Tangible assets............................. 23,378 (33) 23,345 31,120 54,465
Investments
Joint ventures -- Gross assets........... 2,009 7,044 9,053
-- Gross liabilities...... 719 3,329 4,048
------ ------ ------
-- Net investment......... 1,290 3,715 5,005
Associated undertakings.................. 939 3,223 4,162
Other.................................... -- 605 605
------ ------ ------
2,234 (5) 2,229 7,543 9,772
------- ------ ------ ------ ------
TOTAL FIXED ASSETS............................ 26,368 (59) 26,309 40,965 67,274
------- ------ ------ ------ ------
CURRENT ASSETS
Inventories................................. 1,175 542 1,717 1,925 3,642
Trade and other receivables -- falling due:
Within one year.......................... 3,160 37 3,197 6,207 9,404
After more than one year................. 612 72 684 2,621 3,305
Investments................................. 387 -- 387 83 470
Cash at bank and in hand.................... 65 -- 65 340 405
------- ------ ------ ------ ------
5,399 651 6,050 11,176 17,226
CURRENT LIABILITIES -- AMOUNTS FALLING DUE
WITHIN ONE YEAR
Finance debt................................ 836 -- 836 2,001 2,837
Trade payables, other accounts payable and
accrued liabilities...................... 3,972 265 4,237 11,092 15,329
------- ------ ------ ------ ------
NET CURRENT ASSETS (LIABILITIES).............. 591 386 977 (1,917) (940)
------- ------ ------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES......... 26,959 327 27,286 39,048 66,334
NONCURRENT LIABILITIES
Finance debt................................ 5,838 (412) 5,426 5,492 10,918
Accounts payable and accrued liabilities.... 265 -- 265 1,844 2,109
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation........................... 2,350 (1,759) 591 1,041 1,632
Other....................................... 2,873 (29) 2,844 5,973 8,817
------- ------ ------ ------ ------
NET ASSETS.................................... 15,633 2,527 18,160 24,698 42,858
Minority shareholders' interest............... 163 826 989 83 1,072
------- ------ ------ ------ ------
BP AMOCO SHAREHOLDERS' INTEREST............... 15,470 1,701 17,171 24,615 41,786
======= ====== ====== ====== ======
</TABLE>
F-69
<PAGE> 149
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
BALANCE SHEET AS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Amoco US/UK GAAP Amoco Total
US GAAP adjustment UK GAAP BP BP Amoco
------- ---------- ------- ------ --------
($ million)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets........................... 812 (15) 797 1,785 2,582
Tangible assets............................. 22,813 (7) 22,806 29,457 52,263
Investments
Joint ventures -- Gross assets........... 2,308 6,839 9,147
-- Gross liabilities...... 774 2,749 3,523
------ ------ ------
-- Net investment......... 1,534 4,090 5,624
Associated undertakings.................. 787 3,567 4,354
Other.................................... -- 398 398
------ ------ ------
2,099 222 2,321 8,055 10,376
------- ------ ------ ------ ------
TOTAL FIXED ASSETS............................ 25,724 200 25,924 39,297 65,221
------- ------ ------ ------ ------
CURRENT ASSETS
Inventories................................. 1,174 940 2,114 2,809 4,923
Trade and other receivables -- falling due:
Within one year.......................... 3,723 31 3,754 7,629 11,383
After more than one year................. 515 46 561 2,437 2,998
Investments................................. 979 -- 979 88 1,067
Cash at bank and in hand.................... 166 1 167 188 355
------- ------ ------ ------ ------
5,383 78 5,461 10,342 15,803
CURRENT LIABILITIES -- AMOUNTS FALLING DUE
WITHIN ONE YEAR
Finance debt................................ 969 -- 969 1,887 2,856
Trade payables, other accounts payable and
accrued liabilities...................... 4,918 (45) 4,873 12,798 17,671
------- ------ ------ ------ ------
NET CURRENT ASSETS (LIABILITIES).............. 670 1,063 1,733 (1,534) 199
------- ------ ------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES......... 26,394 1,263 27,657 37,763 65,420
NONCURRENT LIABILITIES
Finance debt................................ 4,691 -- 4,691 5,330 10,021
Accounts payable and accrued liabilities.... 308 -- 308 2,254 2,562
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation........................... 2,085 (1,549) 536 647 1,183
Other....................................... 2,860 (67) 2,793 6,013 8,806
------- ------ ------ ------ ------
NET ASSETS.................................... 16,450 2,879 19,329 23,519 42,848
Minority shareholders' interest............... 131 876 1,007 93 1,100
------- ------ ------ ------ ------
BP AMOCO SHAREHOLDERS' INTEREST............... 16,319 2,003 18,322 23,426 41,748
======= ====== ====== ====== ======
</TABLE>
F-70
<PAGE> 150
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONCLUDED)
STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
Amoco Total
UK GAAP BP BP Amoco
------- ------ --------
($ million)
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998
PROFIT FOR THE YEAR......................................... 732 2,528 3,260
Currency translation differences............................ 30 25 55
----- ------ ------
TOTAL RECOGNIZED GAINS AND LOSSES........................... 762 2,553 3,315
===== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1997
PROFIT FOR THE YEAR......................................... 1,979 4,051 6,030
Currency translation differences............................ (348) (1,239) (1,587)
----- ------ ------
TOTAL RECOGNIZED GAINS AND LOSSES........................... 1,631 2,812 4,443
===== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1996
PROFIT FOR THE YEAR......................................... 3,260 3,981 7,241
Currency translation differences............................ (19) 386 367
----- ------ ------
TOTAL RECOGNIZED GAINS AND LOSSES........................... 3,241 4,367 7,608
===== ====== ======
</TABLE>
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the BP Amoco Group are prepared in
accordance with UK GAAP which differs in certain respects from US GAAP. The
principal differences between US GAAP and UK GAAP for BP Amoco Group reporting
relate to the following:
(A) GROUP CONSOLIDATION
Investments in entities over which the Group does not exercise control
(associates and joint ventures) are accounted for by the equity method.
UK GAAP requires the consolidated financial statements to show separately
the Group proportion of operating profit or loss, exceptional items,
inventory holding gains or losses, interest expense and taxation of
associated undertakings and joint ventures. In addition the turnover of
joint ventures should be disclosed. For US GAAP the after tax profits or
losses (i.e. operating results after exceptional items, inventory holding
gains or losses, interest expense and taxation) is included in the income
statement as a single line item.
UK GAAP requires the Group's share of the gross assets and gross
liabilities of joint ventures to be shown on the face of the balance sheet
whereas under US GAAP the net investment is included as a single line item.
Where the Group conducts activities through a joint arrangement that is not
carrying on a trade or business in its own right the Group accounts for its
own assets, liabilities and cash flows of the activity measured according
to the terms of the arrangement. For the Group this method of accounting
applies to certain oil and natural gas activities and undivided interests
in pipelines. US GAAP requires these activities to be accounted for by
proportional consolidation, which is equivalent to UK GAAP.
F-71
<PAGE> 151
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(A) GROUP CONSOLIDATION (CONCLUDED)
The following summarizes the reclassifications for associates and joint
ventures necessary to accord with US GAAP.
<TABLE>
<CAPTION>
Year ended December 31, 1998
--------------------------------------------
As US GAAP
Reported Reclassification Presentation
-------- ---------------- ------------
($ million)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
Other income....................................... 709 808 1,517
Share of profits of JVs and associated
undertakings..................................... 1,347 (1,347) --
Exceptional items before taxation.................. 850 (85) 765
Inventory holding gains (losses)................... (1,391) 330 (1,061)
Interest expense................................... 1,053 (162) 891
Taxation........................................... 1,520 (132) 1,388
Profit for the year................................ 3,260 -- 3,260
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------
As US GAAP
Reported Reclassification Presentation
-------- ---------------- ------------
($ million)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
Other income....................................... 662 586 1,248
Share of profits of JVs and associated
undertakings..................................... 1,100 (1,100) --
Exceptional items before taxation.................. 511 123 634
Inventory holding gains (losses)................... (939) 200 (739)
Interest expense................................... 908 (83) 825
Taxation........................................... 3,066 (108) 2,958
Profit for the year................................ 6,030 -- 6,030
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1996
--------------------------------------------
As US GAAP
Reported Reclassification Presentation
-------- ---------------- ------------
($ million)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
Other income....................................... 714 454 1,168
Share of profits of JVs and associated
undertakings..................................... 663 (663) --
Exceptional items before taxation.................. (703) -- (703)
Inventory holding gains (losses)................... 1,172 -- 1,172
Interest expense................................... 1,004 (68) 936
Taxation........................................... 2,755 (141) 2,614
Profit for the year................................ 7,241 -- 7,241
</TABLE>
(B) INCOME STATEMENT
The income statement prepared under UK GAAP shows sub-totals for
replacement cost profit before interest and tax, historical cost profit
before interest and tax and profit after taxation. These line items are not
recognized under US GAAP.
F-72
<PAGE> 152
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(C) EXCEPTIONAL ITEMS
Under UK GAAP certain exceptional items are shown separately on the face of
the income statement after operating profit. These items are profits or
losses on the sale of businesses and fixed assets and fundamental
restructuring charges. Under US GAAP these items are classified as
operating income or expenses.
(D) IMPAIRMENT
Both UK and US GAAP require that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. US GAAP requires, in performing
the review for recoverability, the entity to estimate the future cash flows
expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. Otherwise, no impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use is based on the fair
value of the assets.
For UK GAAP to the extent that the carrying amount exceeds the recoverable
amount, that is the higher of net realizable value and value in use (fair
value) the fixed asset is written down to its recoverable amount.
No UK/US GAAP adjustment was required for impairment.
(E) DEFERRED TAXATION
Under the UK GAAP restricted liability method, deferred taxation is only
provided where timing differences are expected to reverse in the
foreseeable future. Under US GAAP for FASB Statement of Financial
Accounting Standards No. 109 -- 'Accounting for Income Taxes' (SFAS 109)
deferred taxation is provided for temporary differences between the
financial reporting basis and the tax basis of the Group's assets and
liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled.
For the purchase business combinations occurring prior to the year in which
the statement is first applied, SFAS 109 requires that, where practicable,
remaining balances of assets and liabilities acquired in such combinations
be adjusted from a net-of-tax amount to a pretax amount.
At December 31, 1998, the adjustment to the carrying amount of fixed assets
was $1,325 million ($1,448 million at December 31, 1997) and the related
deferred tax liability $1,236 million ($1,492 million at December 31,
1997). The charge for depreciation in 1998 in respect of these assets was
$123 million (1997 $162 million and 1996 $176 million) and the credit for
taxation $256 million (1997 $166 million and 1996 $127 million).
F-73
<PAGE> 153
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(E) DEFERRED TAXATION -- (CONCLUDED)
The UK/US GAAP adjustment for deferred taxation may be summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
($ million)
<S> <C> <C>
Increase in provision from restricted liability to gross
potential liability....................................... 4,677 4,303
Tax liability resulting from business combination........... 1,236 1,492
Net tax asset on sale and leaseback of Chicago office
building, severance costs, European joint venture
implementation costs, and other adjustments............... (137) (74)
----- -----
5,776 5,721
===== =====
</TABLE>
The major components of deferred tax liabilities and assets on a US GAAP
basis were as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Depreciation................................................ (11,087) (11,399)
Other taxable temporary differences......................... (1,249) (1,165)
------- -------
Total deferred tax liabilities.............................. (12,336) (12,564)
------- -------
Petroleum revenue tax....................................... 420 484
Decommissioning and other provisions........................ 2,279 2,286
Advance corporation tax..................................... 33 725
Tax credit and loss carry forward........................... 1,870 2,271
Other deductible temporary differences...................... 1,080 901
------- -------
Gross deferred tax assets................................... 5,682 6,667
Valuation allowance......................................... (754) (1,007)
------- -------
Net deferred tax assets..................................... 4,928 5,660
------- -------
Net deferred tax liability*................................. 7,408 6,904
======= =======
</TABLE>
- - ------------
* Primarily noncurrent.
(F) SEVERANCE COSTS
Under the provisions of US GAAP (FASB Emerging Issues Task Force Abstract
No. 94-3), the cost of certain employee termination benefits is recognized
(i) when specific conditions exist, in the period management approves of
the plan of termination or (ii) in such later accounting period when the
specified conditions have been satisfied. Under US GAAP severance costs of
$142 million were not recognized in 1995. Of these costs $39 million was
recognized in 1998, $39 million in 1997 and $20 million in 1996.
(G) JOINT VENTURE IMPLEMENTATION COSTS
Under the provisions of US GAAP (FASB Emerging Issues Task Force Abstract
No. 94-3), certain restructuring costs are not recognized until incurred.
Certain costs associated with the implementation of the European joint
venture accrued in 1996 would not have been recognized under US GAAP.
F-74
<PAGE> 154
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
These costs relate to rebranding, relocation and systems development costs
and amount to $265 million. Of these costs $8 million was recognized in
1998 and $257 million in 1997.
(H) ORDINARY SHARES HELD FOR FUTURE AWARDS TO EMPLOYEES
Under UK GAAP, Company shares held by an ESOP to meet future requirements
of employee share schemes are recorded in the balance sheet as Fixed assets
-- investments. Under US GAAP, such shares are recorded in the balance
sheet as a reduction of shareholders' interest.
(I) SALE AND LEASEBACK
The sale and leaseback of the Amoco building in Chicago, Illinois is
treated as a sale for UK GAAP whereas for US GAAP it is treated as a
financing transaction.
(J) DIVIDENDS
Under UK GAAP, dividends are recorded in the year in respect of which they
are announced or declared by the board of directors to the shareholders.
Under US GAAP, dividends are recorded in the period in which dividends are
declared.
The following is a summary of the adjustments to profit for the year and to
BP Amoco shareholders' interest which would be required if US GAAP had been
applied instead of UK GAAP:
PROFIT FOR THE YEAR
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million except
per share amounts)
<S> <C> <C> <C>
Profit as reported in the consolidated statement of
income.................................................... 3,260 6,030 7,241
Adjustments:
Depreciation charge....................................... (123) (162) (176)
Deferred taxation......................................... (72) 94 (518)
Severance costs........................................... (39) (39) (20)
European joint venture implementation costs............... (8) (257) 265
Sale and leaseback of Chicago office building............. (211) -- --
Other..................................................... 19 20 3
------- ------- -------
Profit for the year as adjusted to accord with US GAAP...... 2,826 5,686 6,795
Dividend requirements on preference shares.................. 1 1 1
------- ------- -------
Profit for the year applicable to Ordinary Shares as
adjusted to accord with US GAAP........................... 2,825 5,685 6,794
======= ======= =======
Profit for the year as adjusted:
Per Ordinary Share
Basic..................................................... $0.29 $0.59 $0.71
Diluted................................................... $0.29 $0.59 $0.71
======= ======= =======
Per American Depositary Share
Basic..................................................... $1.74 $3.54 $4.26
Diluted................................................... $1.74 $3.54 $4.26
======= ======= =======
</TABLE>
F-75
<PAGE> 155
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
BP AMOCO SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
BP Amoco shareholders' interest as reported in the
consolidated balance sheet................................ 41,786 41,748
Adjustments:
Fixed assets.............................................. 1,527 1,448
Deferred taxation......................................... (5,776) (5,721)
Severance costs........................................... 32 71
European joint venture implementation costs............... -- 8
Ordinary shares held for future awards to employees....... (489) (319)
Sale and leaseback of Chicago office building............. (413) --
Fourth quarterly dividend................................. 968 543
Pension liability adjustment.............................. (143) (110)
Other..................................................... (158) (164)
------- -------
BP Amoco shareholders' interest as adjusted to accord with
US GAAP................................................... 37,334 37,504
======= =======
</TABLE>
CONSOLIDATED BALANCE SHEET
Under US GAAP Trade and Other receivables due after one year of $3,305
million at December 31, 1998 ($2,998 million at December 31, 1997), included
within current assets, would have been classified as noncurrent assets. The
provision for deferred taxation is primarily in respect of noncurrent items.
Severance costs and European joint venture implementation costs are included
within accrued liabilities within Current liabilities -- falling due within one
year.
CONSOLIDATED STATEMENT OF CASH FLOWS
The Group's financial statements include a consolidated statement of cash
flows in accordance with the revised UK Financial Reporting Standard No. 1
(FRS1). The statement prepared under FRS1 presents substantially the same
information as that required under FASB Statement of Financial Accounting
Standards No. 95 'Statement of Cash Flows' (SFAS 95).
Under FRS1 cash flows are presented for (i) operating activities; (ii)
dividends from joint ventures; (iii) dividends from associated undertakings;
(iv) servicing of finance and returns on investments; (v) taxation; (vi) capital
expenditure and financial investment; (vii) acquisitions and disposals; (viii)
dividends; (ix) management of liquid resources; and (x) financing. SFAS 95 only
requires presentation of cash flows from operating, investing and financing
activities.
Cash flows under FRS1 in respect of dividends from joint ventures and
associated undertakings, taxation and servicing of finance and returns on
investments are included within operating activities under SFAS 95. Interest
paid includes payments in respect of capitalized interest, which under SFAS 95
are included in capital expenditure under investing activities. Cash flows under
FRS1 in respect of capital expenditure and acquisitions and disposals are
included in investing activities under SFAS 95. Dividends paid are included
within financing activities. All short-term investments are regarded as liquid
resources for FRS1. Under SFAS 95 short-term investments with original
maturities of three months or less are classified as cash equivalents and
aggregated with cash in the cash flow statement. Cash flows in respect of
short-term investments with original maturities exceeding three months are
included in operating activities.
F-76
<PAGE> 156
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The statement of consolidated cash flows presented in accordance with SFAS
95 is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Profit after taxation....................................... 3,323 6,181 7,254
Adjustments to reconcile profit after tax to net cash
provided by operating activities:
Depreciation and amounts provided......................... 5,255 5,056 5,369
Exploration expenditure written off....................... 373 365 574
Share of profit (losses) of joint ventures and associated
undertakings less dividends received................... (136) (36) (187)
Profit (loss) on sale of businesses and fixed assets...... (963) (563) 171
Working capital decrease (increase)(a).................... 380 2,040 (2,348)
Other..................................................... 261 416 274
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 8,493 13,459 11,107
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures........................................ (9,026) (8,995) (9,193)
Acquisitions................................................ (314) -- (535)
Investment in associated undertakings....................... (396) (1,021) (383)
Net investment in joint ventures............................ 708 (1,967) --
Proceeds from disposal of assets............................ 2,167 1,832 1,800
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES....................... (6,861) (10,151) (8,311)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from shares (repurchased) issued................... (423) (1,250) 73
Proceeds from long-term financing........................... 2,196 1,179 398
Repayments of long-term financing........................... (1,217) (884) (2,421)
Net increase (decrease) in short-term debt.................. (179) (57) 1,122
Dividends paid -- Shareholders.............................. (2,408) (2,437) (2,411)
-- Minority shareholders.................... (130) -- --
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES....................... (2,161) (3,449) (3,239)
------- ------- -------
Currency translation differences relating to cash and cash
equivalents............................................... (15) (28) 2
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (544) (169) (441)
Cash and cash equivalents at beginning of year.............. 1,338 1,507 1,948
------- ------- -------
Cash and cash equivalents at end of year.................... 794 1,338 1,507
======= ======= =======
</TABLE>
- - ---------------
<TABLE>
<S> <C> <C> <C>
(a) Working capital:
Inventories decrease (increase)........................ 584 1,740 (1,261)
Receivables decrease (increase)........................ 1,777 2,119 (3,736)
Current liabilities (excluding finance debt) (decrease)
increase............................................. (1,981) (1,819) 2,649
------- ------- -------
380 2,040 (2,348)
======= ======= =======
</TABLE>
F-77
<PAGE> 157
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
IMPACT OF NEW ACCOUNTING STANDARDS
REPORTING COMPREHENSIVE INCOME: Effective January 1, 1998, the Group
adopted FASB Statement of Financial Accounting Standards No 130, 'Reporting
Comprehensive Income' (SFAS 130). This Statement establishes standards for the
reporting and display of comprehensive income and its components. The adoption
of SFAS 130 had no impact on the Group's results of operations or financial
position as adjusted to accord with US GAAP.
For the Group, SFAS 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, and
pension liability adjustments to be included in other comprehensive income.
Prior year financial information has been reclassified to conform to the
requirements of SFAS 130.
The components of comprehensive income, net of related tax are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------
1998 1997 1996
----- ------ -----
($ million)
<S> <C> <C> <C>
Profit for the period as adjusted to accord with US GAAP.... 2,826 5,686 6,795
Currency translation differences............................ 55 (1,587) 367
Pension liability adjustment................................ (33) 7 56
----- ------ -----
Comprehensive income........................................ 2,848 4,106 7,218
===== ====== =====
</TABLE>
Accumulated other comprehensive income at December 31, 1998 comprised
currency translation losses of $453 million (December 31, 1997 losses $508
million) and pension liability adjustments of $143 million (December 31, 1997
$110 million).
SEGMENTAL REPORTING: Effective January 1, 1998, the Group adopted FASB
Statement of Financial Accounting Standards No. 131, 'Disclosures about Segments
of an Enterprise and Related Information' (SFAS 131). This Statement establishes
standards regarding the way information about operating segments is reported in
annual financial statements and requires the inclusion of selected information
about operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Under SFAS 131, the composition and number of the Group's
operating segments did not change. The adoption of SFAS 131 had no impact on the
Group's results of operations or financial position as adjusted to accord with
US GAAP.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS: In 1998, the Group adopted FASB
Statement of Financial Accounting Standards No. 132, 'Employers' Disclosures
about Pensions and Other Postretirement Benefits' (SFAS 132). This Statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. SFAS
132 requires, except where information is not readily available, restatement of
prior year financial information. The adoption of SFAS 132 had no impact on the
Group's results of operations or financial position as adjusted to accord with
US GAAP.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, 'Accounting for Derivative Instruments and Hedging Activities' (SFAS
133). This new standard is effective for accounting periods beginning after June
15, 1999. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
F-78
<PAGE> 158
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 45 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONCLUDED)
and, if it is, the type of hedge transaction. The Company has not yet completed
its evaluation of the impact of adopting SFAS 133 on the Group's results of
operations and financial position as adjusted to accord with US GAAP.
COMPUTER SOFTWARE COSTS: Effective January 1, 1998, the Group adopted the
American Institute of Certified Public Accountants Statement of Position No.
98-1, 'Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use' (SOP 98-1). This Statement establishes standards regarding the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use. SOP 98-1 is to be applied prospectively.
There was no impact on the Group's results of operations and financial position
as adjusted to accord with US GAAP as its UK GAAP accounting policy is
consistent with SOP 98-1.
START-UP COSTS: In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-5, 'Reporting on the Costs of
Start-up Activities' (SOP 98-5). This Statement requires costs associated with
start-up activities and organization costs be expensed as incurred. Under
current practice, the Group generally expenses such costs as incurred. SOP 98-5
is effective for accounting periods beginning after December 15, 1998 with early
adoption permitted. The Company has not yet determined the impact of adopting
SOP 98-5 on the Group's future results of operations and financial position as
adjusted to accord with US GAAP.
NOTE 46 -- BUSINESS AND GEOGRAPHICAL ANALYSIS
BP Amoco has three reportable operating segments -- Exploration and
Production, Refining and Marketing and Chemicals. Exploration and Production's
activities include oil and natural gas exploration and field development and
production (upstream activities), together with pipeline transportation, natural
gas processing and natural gas marketing (midstream activities). The activities
of Refining and Marketing include oil supply and trading as well as refining and
marketing (downstream activities). Chemicals activities include petrochemicals
manufacturing and marketing.
The Group is managed on a unified basis. Reportable segments are
differentiated by the activities that each undertakes and the products they
manufacture and market.
The accounting policies of operating segments are the same as those
described in Note 1, Accounting Policies. Performance is evaluated based on
replacement cost operating profit or loss, which excludes exceptional items,
inventory holding gains and losses, interest income and expense, taxation and
minority shareholders' interests.
Sales between segments are made at prices that approximate market prices
taking into account the volumes involved.
F-79
<PAGE> 159
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 46 -- BUSINESS AND GEOGRAPHICAL ANALYSIS (CONTINUED)
BY BUSINESS
<TABLE>
<CAPTION>
Other
Exploration Refining business
and and and
Production Marketing Chemicals corporate(a) Eliminations Total
----------- --------- --------- ------------ ------------ -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
1998
Group turnover -- third parties.... 12,216 46,625 9,312 151 -- 68,304
-- sales between
businesses
(b)........... 5,060 1,812 379 48 (7,299) --
----------- --------- --------- --------- ------------ -------
17,276 48,437 9,691 199 (7,299) 68,304
----------- --------- --------- --------- ------------
Share of joint venture sales....... 15,428
-------
83,732
-------
Equity accounted income (c)........ 244 852 150 101 1,347
----------- --------- --------- --------- -------
Total replacement cost operating
profit (loss) (d)................ 3,147 2,564 1,100 (374) 6,437
Exceptional items (e).............. 396 394 43 17 850
Inventory holding gains (losses)... (17) (1,228) (146) -- (1,391)
----------- --------- --------- --------- -------
Historical cost profit (loss)
before interest and tax.......... 3,526 1,730 997 (357) 5,896
----------- --------- --------- --------- -------
Total assets (f)................... 47,393 21,029 12,562 3,516 84,500
Operating capital employed (g)..... 38,586 13,091 10,488 (1,899) 60,266
Depreciation and amounts provided
(h).............................. 4,226 790 497 115 5,628
Capital expenditure and
acquisitions (i)................. 6,318 1,937 1,606 501 10,362
1997
Group turnover -- third parties.... 15,475 65,283 10,853 149 -- 91,760
-- sales between
businesses
(b)........... 7,696 2,421 592 -- (10,709) --
----------- --------- --------- --------- ------------ -------
23,171 67,704 11,445 149 (10,709) 91,760
----------- --------- --------- --------- ------------
Share of joint venture sales....... 16,804
-------
108,564
-------
Equity accounted income (c)........ 292 604 125 79 1,100
----------- --------- --------- --------- -------
Total replacement cost operating
profit (loss) (d)................ 7,285 2,292 1,530 (524) 10,583
Exceptional items (e).............. 587 (39) (15) (22) 511
Inventory holding gains (losses)... 12 (849) (102) -- (939)
----------- --------- --------- --------- -------
Historical cost profit (loss)
before interest and tax.......... 7,884 1,404 1,413 (546) 10,155
----------- --------- --------- --------- -------
Total assets (f)................... 45,692 24,055 12,141 4,059 85,947
Operating capital employed (g)..... 36,184 14,578 9,979 (1,091) 59,650
Depreciation (h)................... 3,896 842 559 124 5,421
Capital expenditure and
acquisitions (i)................. 7,879 1,824 1,145 572 11,420
</TABLE>
F-80
<PAGE> 160
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 46 -- BUSINESS AND GEOGRAPHICAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
Other
Exploration Refining business
and and and
Production Marketing Chemicals corporate(a) Eliminations Total
----------- --------- --------- ------------ ------------ -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
1996
Group turnover -- third parties.... 15,169 76,026 10,666 203 -- 102,064
-- sales between
businesses
(b)........... 8,235 2,715 313 -- (11,263) --
----------- --------- --------- --------- ------------ -------
23,404 78,741 10,979 203 (11,263) 102,064
----------- --------- --------- --------- ------------ -------
Equity accounted income (c)........ 228 116 235 84 663
----------- --------- --------- --------- -------
Total replacement cost operating
profit (loss) (d)................ 7,673 1,708 1,654 (491) 10,544
Exceptional items (e).............. (100) (554) 169 (218) (703)
Inventory holding gains (losses)... 8 1,076 88 -- 1,172
----------- --------- --------- --------- -------
Historical cost profit (loss)
before interest and tax.......... 7,581 2,230 1,911 (709) 11,013
----------- --------- --------- --------- -------
Total assets (f)................... 44,114 27,646 12,128 4,427 88,315
Operating capital employed (g)..... 34,076 14,496 9,825 (856) 57,541
Depreciation (h)................... 4,230 1,146 447 120 5,943
Capital expenditure and
acquisitions..................... 6,433 1,731 1,964 160 10,288
</TABLE>
BY GEOGRAPHICAL AREA
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom(j) Europe USA World Eliminations Total
---------- ------- ------- ------- ------------ -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
1998
Group turnover -- third parties (k)... 19,662 5,123 31,945 11,574 -- 68,304
-- sales between
areas.................. 2,848 700 1,215 2,458 (7,221) --
------- ------- ------- ------- ------------ -------
22,510 5,823 33,160 14,032 (7,221) 68,304
------- ------- ------- ------- ------------
Share of joint venture sales.......... 3,467 14,186 43 305 (2,573) 15,428
-------
83,732
-------
Equity accounted income (c)........... 135 904 125 183 -- 1,347
------- ------- ------- ------- -------
Total replacement cost operating
profit (d).......................... 1,891 1,249 2,602 695 6,437
Exceptional items (e)................. (39) 106 511 272 850
Inventory holding gains (losses)...... (136) (283) (720) (252) (1,391)
------- ------- ------- ------- -------
Historical cost profit before interest
and tax............................. 1,716 1,072 2,393 715 5,896
------- ------- ------- ------- -------
Total assets (f)...................... 22,236 8,493 35,987 17,784 84,500
Operating capital employed (g)........ 14,361 5,034 25,758 15,113 60,266
Capital expenditure and acquisitions
(i)................................. 2,463 1,248 3,720 2,931 10,362
</TABLE>
F-81
<PAGE> 161
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 46 -- BUSINESS AND GEOGRAPHICAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom(j) Europe USA World Eliminations Total
---------- ------- ------- ------- ------------ -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
1997
Group turnover -- third parties (k)... 27,473 7,943 40,322 16,022 -- 91,760
-- sales between
areas.................. 3,787 553 1,438 3,377 (9,155) --
------- ------- ------- ------- ------------ -------
31,260 8,496 41,760 19,399 (9,155) 91,760
------- ------- ------- ------- ------------
Share of joint venture sales.......... 4,584 15,414 41 71 (3,306) 16,804
-------
108,564
Equity accounted income (c)........... 26 758 84 232 1,100
------- ------- ------- ------- -------
Total replacement cost operating
profit (d).......................... 2,727 1,320 4,325 2,211 10,583
Exceptional items (e)................. (85) 80 506 10 511
Inventory holding gains (losses)...... (85) (103) (647) (104) (939)
------- ------- ------- ------- -------
Historical cost profit before interest
and tax............................. 2,557 1,297 4,184 2,117 10,155
------- ------- ------- ------- -------
Total assets (f)...................... 22,108 9,195 36,689 17,955 85,947
Operating capital employed (g)........ 13,035 4,800 25,556 16,259 59,650
Capital expenditure and acquisitions
(i)................................. 2,413 1,243 3,315 4,449 11,420
1996
Group turnover -- third parties (k)... 29,222 16,839 41,171 14,832 -- 102,064
-- sales between
areas.................. 7,009 2,337 1,595 3,387 (14,328) --
------- ------- ------- ------- ------------ -------
36,231 19,176 42,766 18,219 (14,328) 102,064
------- ------- ------- ------- ------------ -------
Equity accounted income (loss) (c).... (12) 278 59 338 663
------- ------- ------- ------- -------
Total replacement cost operating
profit (d).......................... 2,694 990 4,242 2,618 10,544
Exceptional items (e)................. (303) (399) 153 (154) (703)
Inventory holding gains (losses)...... 60 219 717 176 1,172
------- ------- ------- ------- -------
Historical cost profit before interest
and tax............................. 2,451 810 5,112 2,640 11,013
------- ------- ------- ------- -------
Total assets (f)...................... 23,177 10,666 36,546 17,926 88,315
Operating capital employed (g)........ 12,202 5,055 24,885 15,399 57,541
Capital expenditure and
acquisitions........................ 2,280 1,121 4,005 2,882 10,288
</TABLE>
- - ------------
(a) Other businesses and corporate comprises Finance, the solar businesses, the
Group's coal interest, interest income, and costs relating to corporate
activities worldwide.
(b) Sales and transfers between businesses are made at market prices taking into
account the volumes involved.
(c) Equity accounted income (loss) represents the Group's share of income
(loss) before interest expense and taxes of joint ventures and associated
undertakings.
(d) Total replacement cost operating profit (loss) is before inventory holding
gains and losses and interest expense, which is attributable to the
corporate function.
(e) Exceptional items comprise profit (loss) on sale of businesses and sale of
fixed assets of $1,048 million in 1998 (1997 $440 million profit and 1996
$171 million loss), European refining and marketing joint
F-82
<PAGE> 162
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 46 -- BUSINESS AND GEOGRAPHICAL ANALYSIS (CONCLUDED)
venture implementation costs of $532 million in 1996 and a credit for
refinery network rationalization costs in 1998 of nil (1997 $71 million and
1996 nil) and merger costs in 1998 of $198 million.
(f) Total assets comprise fixed and current assets and include investments in
joint ventures and associated undertakings analyzed between activities as
follows:
<TABLE>
<CAPTION>
Other
Exploration Refining businesses
and and and
Production Marketing Chemicals corporate(a) Total
----------- --------- --------- ------------ -------
($ million)
<S> <C> <C> <C> <C> <C>
1998........................... 3,416 4,345 1,281 125 9,167
----------- --------- --------- ------------ -------
1997........................... 3,782 4,796 1,270 130 9,978
----------- --------- --------- ------------ -------
1996........................... 1,677 702 1,362 250 3,991
----------- --------- --------- ------------ -------
</TABLE>
(g) Operating capital employed comprises net assets before deducting finance
debt and liabilities for current and deferred taxation.
(h) Depreciation consists of charges for depreciation, depletion and
amortization of property, plant and equipment, exploration expense and
amounts provided against fixed asset investments.
(i) Capital expenditure and acquisitions includes $620 million in 1998 (1997
$646 million) for the BP/Mobil joint venture.
(j) United Kingdom area includes the UK-based international activities of
Refining and Marketing.
(k) Turnover to third parties is stated by origin which is not materially
different from turnover by destination.
NOTE 47 -- SUMMARIZED FINANCIAL INFORMATION ON ASSOCIATED UNDERTAKINGS AND JOINT
VENTURES
A summarized statement of income and assets and liabilities based on latest
information available, with respect to the Group's equity accounted associated
undertakings and joint ventures, is set out below:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997(a) 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and other operating revenue........................... 42,801 45,330 19,366
Gross profit................................................ 7,484 7,641 3,906
Profit for the year......................................... 675 1,754 1,583
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997(a)
------- -------
($ million)
<S> <C> <C>
Fixed and other assets...................................... 25,534 21,243
Current assets.............................................. 11,626 12,671
------- -------
37,160 33,914
Current liabilities......................................... (12,703) (11,098)
Noncurrent liabilities...................................... (7,604) (7,111)
------- -------
Net assets.................................................. 16,853 15,705
======= =======
</TABLE>
- - ------------
F-83
<PAGE> 163
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 47 -- SUMMARIZED FINANCIAL INFORMATION ON ASSOCIATED UNDERTAKINGS AND JOINT
VENTURES (CONCLUDED)
(a) Excludes Sidanco and Rusia.
The more important associated undertakings and joint ventures of the Group
at December 31, 1998 and the percentage of equity capital owned or joint venture
interest are:
<TABLE>
<CAPTION>
% Country of operation Principal activities
----- -------------------- --------------------------
<S> <C> <C> <C>
ASSOCIATED UNDERTAKINGS
Abu Dhabi Marine Areas................. 33 Abu Dhabi Crude oil production
Abu Dhabi Petroleum.................... 24 Abu Dhabi Crude oil production
Erdolchemie............................ 50 Germany Chemicals
Ruhrgas................................ 25 Germany Gas distribution
Sidanco (b)............................ 10 Russia Integrated oil operations
Rusia.................................. 20 Russia Exploration and production
JOINT VENTURES
BP/Mobil............................... 70/49(c) Europe Refining and marketing
Empresa Petrolera Chaco................ 30 Bolivia Exploration and production
Pan American Energy.................... 60 Argentina Exploration and production
Crescendo Resources.................... 36 USA Exploration and production
</TABLE>
- - ------------
(b) 20% voting interest.
(c) Fuels/lubricants
NOTE 48 -- SUMMARIZED FINANCIAL INFORMATION ON CERTAIN US SUBSIDIARIES
BP AMERICA INC. (a)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and other operating revenue........................... 12,502 16,789 17,527
Gross profit (b)............................................ 1,813 3,196 3,699
Profit for the year (c)(e).................................. 562 963 1,197
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C> <C>
Fixed and other assets...................................... 13,958 13,424
Current assets.............................................. 3,002 3,642
------- -------
Total assets................................................ 16,960 17,066
======= =======
Current liabilities......................................... 5,172 5,048
Noncurrent liabilities...................................... 6,761 7,457
Shareholders' interest...................................... 5,027 4,561
------- -------
Total liabilities and shareholders' interest................ 16,960 17,066
======= =======
</TABLE>
F-84
<PAGE> 164
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 48 -- SUMMARIZED FINANCIAL INFORMATION ON CERTAIN US SUBSIDIARIES
(CONTINUED)
THE STANDARD OIL COMPANY (a)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and other operating revenue........................... 12,111 16,312 17,077
Gross profit (b)............................................ 1,611 2,889 3,405
Profit for the year (c)(d)(e)(f)............................ 690 1,043 1,613
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C> <C>
Fixed and other assets...................................... 12,562 11,852
Current assets.............................................. 4,547 5,032
------- -------
Total assets................................................ 17,109 16,884
======= =======
Current liabilities......................................... 2,772 2,687
Noncurrent liabilities...................................... 6,559 6,863
Shareholders' interest...................................... 7,778 7,334
------- -------
Total liabilities and shareholders' interest................ 17,109 16,884
======= =======
</TABLE>
BP PIPELINES (ALASKA) INC. (a)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and other operating revenue........................... 547 638 755
Gross profit (b)............................................ 239 240 268
Profit for the year (c)(d)(f)............................... 149 130 340
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Fixed and other assets...................................... 1,453 1,458
Current assets.............................................. 803 614
------- -------
Total assets................................................ 2,256 2,072
======= =======
Current liabilities......................................... 152 97
Noncurrent liabilities...................................... 1,366 1,360
Shareholders' interest...................................... 738 615
------- -------
Total liabilities and shareholders' interest................ 2,256 2,072
======= =======
</TABLE>
F-85
<PAGE> 165
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 48 -- SUMMARIZED FINANCIAL INFORMATION ON CERTAIN US SUBSIDIARIES
(CONCLUDED)
BP EXPLORATION (ALASKA) INC. (a)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and other operating revenue........................... 5,666 9,228 10,079
Gross (loss) profit (b)..................................... (68) 1,143 1,370
(Loss) profit for the year (d)(f)........................... (53) 963 824
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
($ million)
<S> <C> <C>
Fixed and other assets...................................... 9,364 9,917
Current assets.............................................. 2,273 2,507
------- -------
Total assets................................................ 11,637 12,424
======= =======
Current liabilities......................................... 628 1,084
Noncurrent liabilities...................................... 2,041 2,070
Shareholders' interest...................................... 8,968 9,270
------- -------
Total liabilities and shareholders' interest................ 11,637 12,424
======= =======
</TABLE>
- - ------------
(a) BP America Inc. is a wholly-owned subsidiary of BP Amoco p.l.c.; The
Standard Oil Company is a wholly-owned subsidiary of BP America Inc.; and BP
Pipelines (Alaska) Inc. and BP Exploration (Alaska) Inc. are wholly-owned
subsidiaries of The Standard Oil Company.
(b) Gross profit (loss) equals sales and other operating revenue less associated
costs, which exclude distribution and administration expenses and
exploration expense.
(c) During 1996, certain deferred tax liabilities provided in the financial
statements of The Standard Oil Company and BP Pipelines (Alaska) Inc. were
transferred to BP America Inc. As a result of this transfer, profit for
1996 for The Standard Oil Company and BP Pipelines (Alaska) Inc. includes a
tax benefit of $157 million and $208 million, respectively.
(d) During 1997, as part of a restructuring of ownership interests among certain
wholly owned subsidiaries of BP America Inc., the obligation for certain
employee benefits provided in the financial statements of BP Exploration
(Alaska) Inc. was transferred to The Standard Oil Company. As a result of
this transfer, profit for 1997 for BP Exploration (Alaska) Inc. includes a
credit of $223 million.
(e) In August 1998, The Standard Oil Company completed the sale of its Lima,
Ohio, refinery and related terminal facilities. The after-tax gain
resulting from this sale amounts to $255 million, which includes the
write-back of certain provisions no longer required.
(f) During 1998, certain tax liabilities provided in the financial statements of
BP America Inc. were transferred to The Standard Oil Company, BP Pipelines
(Alaska) Inc. and BP Exploration (Alaska) Inc. As a result of this transfer
profit (loss) for 1998 for The Standard Oil Company, BP Pipelines (Alaska)
Inc. and BP Exploration (Alaska) Inc. includes a tax charge of $80 million,
$22 million and $28 million, respectively.
F-86
<PAGE> 166
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
The following tables show estimates of the Group's net proved reserves of
crude oil and natural gas at December 31, 1998, 1997 and 1996.
ESTIMATED NET PROVED RESERVES OF CRUDE OIL (a)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(millions of barrels)
<S> <C> <C> <C> <C> <C>
1998
SUBSIDIARY UNDERTAKINGS
At January 1
Developed................................... 779 241 3,039 916 4,975
Undeveloped................................. 744 46 1,210 637 2,637
------- ------- ------- ------- -------
1,523 287 4,249 1,553 7,612
======= ======= ======= ======= =======
Changes in year attributable to:
Revisions of previous estimates............. 106 17 (90) (76) (43)
Purchases of reserves-in-place.............. 3 -- 10 1 14
Extensions, discoveries and other
additions................................ 38 4 57 222 321
Improved recovery........................... 80 1 69 32 182
Production.................................. (189) (38) (283) (141) (651)
Sales of reserves-in-place.................. (33) -- (51) (47) (131)
------- ------- ------- ------- -------
5 (16) (288) (9) (308)
======= ======= ======= ======= =======
At December 31
Developed................................... 1,258 220 2,982 858 5,318
Undeveloped................................. 270 51 979 686 1,986
------- ------- ------- ------- -------
1,528 271 3,961(b)(c) 1,544 7,304
======= ======= ======= ======= =======
ASSOCIATED UNDERTAKINGS
BP Amoco share
At January 1........................................................................... 1,995
Purchases of reserves-in-place....................................................... 90
Production........................................................................... (72)
-------
At December 31......................................................................... 2,013(d)
=======
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS.............................. 9,317
=======
</TABLE>
F-87
<PAGE> 167
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ESTIMATED NET PROVED RESERVES OF CRUDE OIL (a) (CONTINUED)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(millions of barrels)
<S> <C> <C> <C> <C> <C>
1997
SUBSIDIARY UNDERTAKINGS
At January 1
Developed.............................. 655 198 2,933 911 4,697
Undeveloped............................ 924 49 924 731 2,628
------- ------- ------- ------- -------
1,579 247 3,857 1,642 7,325
======= ======= ======= ======= =======
Changes in year attributable to:
Revisions of previous estimates........ 33 13 139 50 235
Purchases of reserves-in-place......... 9 67 364 48 488
Extensions, discoveries and other
additions........................... 88 28 338 144 598
Improved recovery...................... 35 1 66 34 136
Production............................. (160) (42) (302) (140) (644)
Sales of reserves-in-place............. (61) (27) (213) (225) (526)
------- ------- ------- ------- -------
(56) 40 392 (89) 287
======= ======= ======= ======= =======
At December 31
Developed.............................. 779 241 3,039 916 4,975
Undeveloped............................ 744 46 1,210 637 2,637
------- ------- ------- ------- -------
1,523 287 4,249(b)(c) 1,553 7,612
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C>
ASSOCIATED UNDERTAKINGS
BP Amoco share
At January 1................................................ 1,869
Net revisions and other changes........................... (23)
Purchases of reserves-in-place............................ 194
Production................................................ (45)
At December 31.............................................. 1,995(d)(e)
=====
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS... 9,607
=====
</TABLE>
F-88
<PAGE> 168
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ESTIMATED NET PROVED RESERVES OF CRUDE OIL (a) (CONCLUDED)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(millions of barrels)
<S> <C> <C> <C> <C> <C>
1996
SUBSIDIARY UNDERTAKINGS
At January 1
Developed............................ 574 189 2,998 857 4,618
Undeveloped.......................... 971 55 841 502 2,369
------- ------- ------- ------- -------
1,545 244 3,839 1,359 6,987
======= ======= ======= ======= =======
Changes in year attributable to:
Revisions of previous estimates...... (58) 13 27 23 5
Purchases of reserves-in-place....... 3 16 16 -- 35
Extensions, discoveries and other
additions......................... 176 1 224 412 813
Improved recovery.................... 105 3 62 39 209
Production........................... (167) (30) (298) (142) (637)
Sales of reserves-in-place........... (25) -- (13) (49) (87)
------- ------- ------- ------- -------
34 3 18 283 338
======= ======= ======= ======= =======
At December 31
Developed............................ 655 198 2,933 911 4,697
Undeveloped.......................... 924 49 924 731 2,628
------- ------- ------- ------- -------
1,579 247 3,857(b) 1,642 7,325
======= ======= ======= ======= =======
ASSOCIATED UNDERTAKINGS
BP Amoco share
At January 1....................................................................... 1,912
Net revisions and other changes.................................................. (1)
Production....................................................................... (42)
-------
At December 31..................................................................... 1,869(d)
=======
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS.......................... 9,194
=======
</TABLE>
- - ------------
(a) Crude oil includes natural gas liquids and condensate. Net proved reserves
of crude oil exclude production royalties due to others.
(b) Proved reserves in the Prudhoe Bay field in Alaska include an estimated nil
barrels (65 million barrels at December 31, 1997 and 111 million barrels at
December 31, 1996) upon which a net profits royalty will be payable over the
life of the field under the terms of the BP Prudhoe Bay Royalty Trust.
(c) Minority interest in Altura Energy included 280 million barrels of crude oil
(334 million oil barrels at December 31, 1997).
ASSOCIATED UNDERTAKINGS
(d) Includes 1,791, 1,825 and 1,869 million barrels for 1998, 1997 and 1996
respectively of proportionate interests held through associated undertakings
in onshore and offshore concessions in Abu Dhabi expiring in 2014 and 2018,
respectively. If recent production levels were to continue, these reserves
would not be fully recovered during the period of the concessions.
(e) Excludes reserves in Sidanco and Rusia.
F-89
<PAGE> 169
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ESTIMATED NET PROVED RESERVES OF NATURAL GAS (a)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(billions of cubic feet)
<S> <C> <C> <C> <C> <C>
1998
At January 1
Developed.................................... 3,161 372 10,284 5,612 19,429
Undeveloped.................................. 1,868 50 1,819 7,208 10,945
------- ------- ------- ------- -------
5,029 422 12,103 12,820 30,374
======= ======= ======= ======= =======
Changes in year attributable to:
Revisions of previous estimates.............. (16) -- 161 (148) (3)
Purchases of reserves-in-place............... -- -- 104 37 141
Extensions, discoveries and other
additions................................. 129 11 176 4,439 4,755
Improved recovery............................ 25 -- 277 47 349
Production................................... (460) (71) (897)(b) (665) (2,093)
Sales of reserves-in-place................... (64) -- (629) (1,829) (2,522)
------- ------- ------- ------- -------
(386) (60) (808) 1,881 627
======= ======= ======= ======= =======
At December 31
Developed.................................... 3,536 324 9,637 6,054 19,551
Undeveloped.................................. 1,107 38 1,658 8,647 11,450
------- ------- ------- ------- -------
4,643 362 11,295(c) 14,701 31,001
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C>
ASSOCIATED UNDERTAKINGS
BP Amoco share
At January 1................................................ 1,748
Net revisions and other changes........................... 47
Purchases of reserves-in-place............................ 52
Production................................................ (81)
-------
At December 31.............................................. 1,766
=======
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS... 32,767
=======
</TABLE>
F-90
<PAGE> 170
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ESTIMATED NET PROVED RESERVES OF NATURAL GAS (a) (CONTINUED)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(billions of cubic feet)
<S> <C> <C> <C> <C> <C>
1997
At January 1
Developed............................ 3,085 402 11,722 5,508 20,717
Undeveloped.......................... 2,204 76 1,617 5,735 9,632
------- ------- ------- ------- -------
5,289 478 13,339 11,243 30,349
======= ======= ======= ======= =======
Changes in year attributable to:
Revisions of previous estimates...... 94 -- (227) 992 859
Purchases of reserves-in-place....... 196 13 283 1,007 1,499
Extensions, discoveries and other
additions......................... 122 289 1,035 1,221 2,667
Improved recovery.................... 10 1 99 200 310
Production........................... (519) (70) (950)(b) (629) (2,168)
Sales of reserves-in-place........... (163) (289) (1,476) (1,214) (3,142)
------- ------- ------- ------- -------
(260) (56) (1,236) 1,577 25
======= ======= ======= ======= =======
At December 31
Developed............................ 3,161 372 10,284 5,612 19,429
Undeveloped.......................... 1,868 50 1,819 7,208 10,945
------- ------- ------- ------- -------
5,029 422 12,103(c) 12,820 30,374
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C>
ASSOCIATED UNDERTAKINGS
BP Amoco share
At January 1................................................ --
Net revisions and other changes........................... 54
Purchases of reserves-in-place............................ 1,723
Production................................................ (29)
-------
At December 31.............................................. 1,748(d)
=======
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS... 32,122
=======
</TABLE>
F-91
<PAGE> 171
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ESTIMATED NET PROVED RESERVES OF NATURAL GAS (a) (CONCLUDED)
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(billions of cubic feet)
<S> <C> <C> <C> <C> <C>
1996
At January 1
Developed............................ 3,179 418 12,893 5,543 22,033
Undeveloped.......................... 2,595 92 1,411 3,403 7,501
------- ------- ------- ------- -------
5,774 510 14,304 8,946 29,534
======= ======= ======= ======= =======
Changes in year attributable to:
Revisions of previous estimates...... (79) 18 (791) 22 (830)
Purchases of reserves-in-place....... -- 6 300 21 327
Extensions, discoveries and other
additions......................... 61 3 490 3,160 3,714
Improved recovery.................... 23 4 253 12 292
Production........................... (490) (63) (1,030)(b) (639) (2,222)
Sales of reserves-in-place........... -- -- (187) (279) (466)
------- ------- ------- ------- -------
(485) (32) (965) 2,297 815
======= ======= ======= ======= =======
At December 31
Developed............................ 3,085 402 11,722 5,508 20,717
Undeveloped.......................... 2,204 76 1,617 5,735 9,632
------- ------- ------- ------- -------
5,289 478 13,339 11,243 30,349
======= ======= ======= ======= =======
</TABLE>
- - ---------------
(a) Net proved reserves of natural gas exclude production royalties due to
others.
(b) Includes 79 billion cubic feet of natural gas consumed in Alaskan operations
(1997 81 billion cubic feet and 1996 83 billion cubic feet).
(c) Minority interest in Altura Energy included 117 billion cubic feet of
natural gas (161 billion cubic feet at December 31, 1997).
(d) Excludes reserves in Sidanco and Rusia.
F-92
<PAGE> 172
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES
The following tables set out the standardized measures of discounted future
net cash flows, and changes therein, relating to crude oil and natural gas
production from the Group's estimated proved reserves. This information is
prepared in compliance with the requirements of FASB Statement of Financial
Accounting Standards No. 69 -- 'Disclosures about Oil and Gas Producing
Activities'.
Future net cash flows have been prepared on the basis of certain
assumptions which may or may not be realized. These include the timing of future
production, the estimation of crude oil and natural gas reserves and the
application of year end crude oil and natural gas prices and exchange rates.
Furthermore, both reserve estimates and production forecasts are subject to
revision as further technical information becomes available and economic
conditions change. BP Amoco cautions against relying on the information
presented because of the highly arbitrary nature of assumptions on which it is
based and its lack of comparability with the historical cost information
presented in the financial statements.
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Future cash inflows (a)................ 27,100 3,700 44,800 36,500 112,100
Future production and development costs
(b).................................. 18,700 2,200 27,500 14,300 62,700
Future taxation (c).................... 2,000 800 3,100 9,900 15,800
------- ------- ------- ------- -------
Future net cash flows.................. 6,400 700 14,200 12,300 33,600
10% annual discount (d)................ 1,300 100 7,000 6,600 15,000
------- ------- ------- ------- -------
Standardized measure of discounted
future net cash flows................ 5,100 600 7,200 5,700 18,600
======= ======= ======= ======= =======
AT DECEMBER 31, 1997
Future cash inflows (a)................ 38,400 6,000 86,200 48,600 179,200
Future production and development costs
(b).................................. 20,300 2,300 35,600 18,400 76,600
Future taxation (c).................... 4,700 2,300 15,500 12,600 35,100
------- ------- ------- ------- -------
Future net cash flows.................. 13,400 1,400 35,100 17,600 67,500
10% annual discount (d)................ 4,300 400 19,100 8,700 32,500
------- ------- ------- ------- -------
Standardized measure of discounted
future net cash flows................ 9,100 1,000 16,000 8,900 35,000
======= ======= ======= ======= =======
AT DECEMBER 31, 1996
Future cash inflows (a)................ 51,400 9,600 124,000 56,000 241,000
Future production and development costs
(b).................................. 24,000 2,700 33,800 17,000 77,500
Future taxation (c).................... 8,800 3,600 30,000 15,000 57,400
------- ------- ------- ------- -------
Future net cash flows.................. 18,600 3,300 60,200 24,000 106,100
10% annual discount (d)................ 6,200 1,300 32,500 11,400 51,400
------- ------- ------- ------- -------
Standardized measure of discounted
future net cash flows................ 12,400 2,000 27,700 12,600 54,700
======= ======= ======= ======= =======
</TABLE>
F-93
<PAGE> 173
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES (CONCLUDED)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows during the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Sales and transfers of oil and natural gas produced, net of
production costs.......................................... (6,500) (10,400) (11,400)
Development costs incurred during the year.................. 4,700 5,100 4,600
Extensions, discoveries and improved recovery, less related
costs..................................................... 3,200 4,000 9,200
Net changes in prices and production costs (e).............. (30,900) (34,300) 25,800
Revisions of previous reserve estimates..................... -- 1,000 400
Net change in taxation...................................... 10,800 14,000 (10,400)
Future development costs.................................... (1,000) (3,000) (2,300)
Net change in purchase and sales of reserves-in-place....... (200) (1,000) (200)
Addition of 10% annual discount............................. 3,500 5,400 3,200
Other....................................................... -- (500) 1,900
------- ------- -------
Total change in the standardized measure during the year.... (16,400) (19,700) 20,800
======= ======= =======
</TABLE>
- - ------------
(a) Future cash inflows are computed by applying year-end oil and natural gas
prices and exchange rates to future annual production levels estimated by
the Group's petroleum engineers.
(b) Production costs (which include petroleum revenue tax in the UK) and
development costs relating to future production of proved reserves are based
on year-end cost levels and assume continuation of existing economic
conditions. Future decommissioning costs are included.
(c) Taxation is computed using appropriate year-end income tax rates.
(d) Future net cash flows from oil and natural gas production are discounted at
10% regardless of the Group assessment of the risk associated with its
producing activities.
(e) Net changes in prices and production costs includes the effect of exchange
movements.
ASSOCIATED UNDERTAKINGS
In addition, at December 31, 1998 the Group's share of the standardized
measure of discounted future net cash flows of associated undertakings amounted
to nil ($830 million at December 31, 1997 and $560 million at December 31,
1996).
F-94
<PAGE> 174
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
OPERATIONAL AND STATISTICAL INFORMATION
The following tables present operational and statistical information
related to production, drilling, productive wells and acreage.
PRODUCED FROM OWN RESERVES
The following table shows crude oil and natural gas production from the
Group's own reserves for the years indicated:
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total (d)
------- ------- ------- ------- ---------
(thousand barrels per day)
<S> <C> <C> <C> <C> <C>
PRODUCTION FOR THE YEAR (a)
Crude oil (b)
1998................................... 518 105 841 585 2,049
1997................................... 437 115 869 509 1,930
1996................................... 458 80 859 506 1,903
</TABLE>
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total (e)
------- ------- ------- ------- ---------
(million cubic feet per day)
<S> <C> <C> <C> <C> <C>
Natural gas (c)
1998................................... 1,258 200 2,401 1,949 5,808
1997................................... 1,423 195 2,513 1,727 5,858
1996................................... 1,335 173 2,650 1,759 5,917
</TABLE>
- - ------------
(a) All volumes are net of royalty.
(b) Crude oil includes natural gas liquid and condensate.
(c) Natural gas production excludes gas consumed in operations.
(d) Includes amounts produced for the Group by associated undertakings of
208,000 b/d in 1998 (1997, 172,000 b/d and 1996, 164,000 b/d).
(e) Includes amounts produced for the Group by associated undertakings of 221
mmcf/d in 1998 (1997, 113 mmcf/d 1996, nil).
F-95
<PAGE> 175
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONTINUED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
PRODUCTIVE OIL AND NATURAL GAS WELLS AND ACREAGE
The following tables show the number of gross and net productive oil and
natural gas wells and total gross and net developed and undeveloped oil and
natural gas acreage in which the Group and its associated undertakings had
interests as of December 31, 1998. A 'gross' well or acre is one in which a
whole or fractional working interest is owned, while the number of 'net' wells
or acres is the sum of the whole or fractional working interests in gross wells
or acres. Productive wells are producing wells and wells capable of production.
Developed acreage is the acreage within the boundary of a field, on which
development wells have been drilled, which could produce the reserves; while
undeveloped acres are those on which wells have not been drilled or completed to
a point that would permit the production of commercial quantities, whether or
not such acres contain proved reserves.
NUMBER OF PRODUCTIVE OIL AND NATURAL GAS WELLS
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Oil wells (a) -- gross............... 520 91 23,726 15,910 40,247
-- net................ 224.9 32.9 9,542.3 5,067.6 14,867.7
Gas wells (b) -- gross................ 409 41 14,458 2,262 17,170
-- net................. 184.8 14.2 7,690.8 1,417.2 9,307.0
</TABLE>
- - ------------
(a) Includes approximately 1,174 gross (319.3 net) multiple completion wells
(more than one formation producing into the same well bore).
(b) Includes 1,419 gross (702.3 net) multiple completion wells.
(c) If one of the multiple completions in a well is an oil completion, the well
is classified as an oil well.
OIL AND NATURAL GAS ACREAGE
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
(thousands of acres)
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Developed
-- gross............................. 1,133 71 11,682 9,298 22,184
-- net............................... 433 24 3,865 3,302 7,624
Undeveloped (a)
-- gross............................. 5,767 3,335 10,440 171,834 191,376
-- net............................... 2,554 993 5,216 75,147 83,910
</TABLE>
- - ------------
(a) Undeveloped acreage includes leases and concessions.
F-96
<PAGE> 176
BP AMOCO P.L.C. AND SUBSIDIARIES
SUPPLEMENTARY OIL AND GAS INFORMATION -- (CONCLUDED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NET OIL AND NATURAL GAS WELLS COMPLETED OR ABANDONED
The following table shows the number of net productive and dry exploratory
and development oil and natural gas wells completed or abandoned in the years
indicated by the Group and its associated undertakings. Productive wells include
wells in which hydrocarbons were encountered and the drilling or completion of
which, in the case of exploratory wells, has been suspended pending further
drilling or evaluation. A dry well is one found to be incapable of producing
hydrocarbons in sufficient quantities to justify completion.
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1998
Exploratory
-- productive........................ 2.3 3.6 18.9 32.1 56.9
-- dry............................... 2.1 2.1 12.1 22.4 38.7
Development
-- productive........................ 32.2 1.4 424.4 261.5 719.5
-- dry............................... 1.1 -- 16.7 30.6 48.4
1997
Exploratory
-- productive........................ 2.8 2.5 27.2 42.4 74.9
-- dry............................... 5.4 11.5 15.0 13.4 45.3
Development
-- productive........................ 32.5 4.7 258.8 282.1 578.1
-- dry............................... 1.2 -- 14.7 23.2 39.1
1996
Exploratory
-- productive........................ 6.0 8.7 59.2 69.0 142.9
-- dry............................... 5.9 4.9 82.6 28.2 121.6
Development
-- productive........................ 40.6 4.8 338.1 314.1 697.6
-- dry............................... 3.1 0.3 33.0 28.2 64.6
</TABLE>
DRILLING AND PRODUCTION ACTIVITIES IN PROGRESS
The following table shows the number of exploratory and development oil and
natural gas wells in the process of being drilled by the Group and its
associated undertakings as of December 31, 1998. Suspended development wells and
long-term suspended exploratory wells are also included in the table.
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1998
Exploratory
-- gross............................. 5 8 42 99 154
-- net............................... 1.7 2.6 24.4 30.9 59.6
Development
-- gross............................. 33 1 216 93 343
-- net............................... 15.2 0.3 89.8 41.2 146.5
</TABLE>
F-97
<PAGE> 177
SCHEDULE II
BP AMOCO P.L.C. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
--------------------------
Charged to Charged to
Balance at costs and other Transfers/ Balance at
January 1, expenses accounts (a) Deductions December 31,
---------- ---------- ------------ ---------- ------------
($ million)
<S> <C> <C> <C> <C> <C>
1998
Fixed assets -- Investments
(b)........................... 25 200 -- 5 230
========== ========== ========== ========== ============
Doubtful debts (b).............. 130 35 (22) (17) 126
========== ========== ========== ========== ============
Decommissioning provisions...... 3,201 130 10 (31) 3,310
========== ========== ========== ========== ============
1997
Fixed assets -- Investments
(b)........................... 34 -- (1) (8) 25
========== ========== ========== ========== ============
Doubtful debts (b).............. 159 45 (6) (68) 130
========== ========== ========== ========== ============
Decommissioning provisions...... 3,153 162 (29) (85) 3,201
========== ========== ========== ========== ============
1996
Fixed assets -- Investments
(b)........................... 34 -- 2 (2) 34
========== ========== ========== ========== ============
Doubtful debts (b).............. 155 37 (2) (31) 159
========== ========== ========== ========== ============
Decommissioning provisions...... 3,094 (77) 296 (160) 3,153
========== ========== ========== ========== ============
</TABLE>
- - ------------
(a) Principally currency translations.
(b) Deducted in the balance sheet from the assets to which they apply.
S-1
<PAGE> 1
EXHIBIT 1
BP AMOCO P.L.C. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
($ million
except
ratios)
<S> <C>
Profit before taxation...................................... 4,843
BP Amoco's share of income in excess of dividends from joint
ventures and associated undertakings...................... (136)
Capitalized interest........................................ (119)
------------
Profit as adjusted.......................................... 4,588
============
Fixed charges
Interest net of interest expense of joint ventures and
associated undertakings................................ 891
Rental expense representative of interest................. 369
Capitalized interest...................................... 119
------------
1,379
============
Total adjusted earnings available for payment of fixed
charges................................................... 5,967
============
Ratio of earnings to fixed charges.......................... 4.33
============
Total adjusted earnings available for payment of fixed
charges, after taking account of adjustments to profit
before taxation to accord with US GAAP.................... 5,605
============
Ratio of earnings to fixed charges with adjustments to
accord with US GAAP....................................... 4.06
============
</TABLE>
E-1
