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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
dated July 7, 1999
BP AMOCO P.L.C.
(Translation of registrant's name into English)
BRITANNIC HOUSE, 1 FINSBURY CIRCUS, LONDON, EC2M 7BA, ENGLAND
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F ______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ______ No X
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE
PROXY STATEMENT/PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-4
(FILE NO. 333-9568) OF BP AMOCO p.l.c., THE PROSPECTUS INCLUDED IN THE
REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-9790) OF BP AMOCO p.l.c., THE
PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO.
33-39075) OF BP AMERICA INC. AND BP AMOCO p.l.c., THE PROSPECTUS INCLUDED IN THE
REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 33-20338) OF BP AMERICA INC. AND BP
AMOCO p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3
(FILE NO. 33-29102) OF THE STANDARD OIL COMPANY AND BP AMOCO p.l.c., THE
PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO.
33-21868) OF BP AMOCO p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-8 (FILE NO. 333-9020) OF BP AMOCO p.l.c., THE PROSPECTUS
INCLUDED IN THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-9798) OF BP
AMOCO p.l.c., AND THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM
S-8 (FILE NO. 333-79399) OF BP AMOCO p.l.c., AND TO BE A PART THEREOF FROM THE
DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY
DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
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The following documents (bearing the exhibit numbers listed below) are
furnished herewith and made part of this Report pursuant to the General
Instructions for Form 6-K.
EXHIBITS
1. Revised Summarized Financial Information.
2. Revised Management's Discussion and Analysis of Financial Condition and
Results of Operations.
3. Restated Financial Statements for the year ended December 31, 1998,
including Schedule II Valuation and Qualifying Accounts, and Computation of
Ratio of Earnings to Fixed Charges.
All three exhibits were revised consequent upon adoption of FRS 12 with
retroactive restatement of prior periods.
The Financial Statements included in Exhibit 3 have also been amended to
correct reserve information. The proved reserves for associated undertakings
have been revised to exclude reserves in Abu Dhabi which, if recent production
levels were to continue, would not be fully recovered during the periods of the
concessions. The reserve information contained in the financial statements in
this Report on Form 6-K supersedes the reserve information contained in the
financial statements in the 1998 Annual Report on Form 20-F.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BP AMOCO P.L.C.
(Registrant)
<TABLE>
<S> <C>
Dated July 7, 1999 By /s/ G. E. YOUNG
-----------------------------------------
G.E. Young
Assistant Secretary
</TABLE>
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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).................................... 6,521 10,683 10,634 8,264 7,131
Replacement cost profit before
exceptional items (b).................. 3,963 6,625 6,662 4,946 3,967
Profit for the year...................... 3,224 5,676 7,420 3,703 4,374
Per Ordinary Share:
Profit for the year:
Basic............................... $ 0.34 $0.59 $0.78 $0.39 $0.46
Diluted............................. $ 0.33 $0.59 $0.77 $0.39 $0.46
Dividends (c)............................ $0.395 $0.36 $0.31 $0.27 $0.21
BALANCE SHEET DATA
Total assets............................. 84,915 86,279 88,651 81,499 79,060
BP Amoco Shareholders' interest.......... 42,612 42,610 42,234 36,889 35,195
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% 19% 23% 27%
OTHER DATA
Per Ordinary Share:
Replacement cost profit before
exceptional items................... $ 0.41 $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>
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(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.
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BP Amoco determines operating profit on a replacement cost basis, which
eliminates the effect of inventory holding gains and losses. For the oil
and natural 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.
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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) 6,521 10,683 10,634
Replacement cost profit before exceptional items..... ($ million) 3,963 6,625 6,662
Replacement cost profit for the year................. ($ million) 4,615 6,615 6,248
Historical cost profit for the year.................. ($ million) 3,224 5,676 7,420
Profit per Ordinary Share (diluted).................. (cents) 33 59 77
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 $3,963 million compared with $6,625
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 $3,224 million after inventory
holding losses of $1,391 million. This compared with a profit of $5,676 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 $128 million (losses of $10 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
1
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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 $7,420 million. This included
inventory holding gains of $1,172 million and net exceptional charges of $462
million ($414 million after tax and minority interests). The replacement cost
profit before exceptional items was $6,662 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. A charge of $265 million was made in respect of BP Amoco's
share of the second tranche of implementation costs relating to the European
downstream joint venture with Mobil. Also in 1997, costs of $118 million were
charged representing the balance of the costs associated with the
rationalization of the BP Amoco Group's international refining system announced
in 1995. These costs were offset by the release of provisions of $71 million
originally set up in 1995. This was a result of the decision to continue
operating the Lavera, France, refinery.
In 1996 the net loss on the sale of businesses and fixed assets of $171
million before tax resulted principally from the sale of the polystyrene foam
products and Carborundum businesses, properties in the
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UK and USA and Canadian upstream assets. The implementation costs relating to
the European downstream joint venture with Mobil charged against income in 1996
included $226 million for BP Amoco's share of severance, restructuring and
rebranding in the joint venture and $41 million in respect of asset write-downs
and some BP-specific costs. Cash outflows relating to these costs were $122
million in 1998, $307 million in 1997 and $69 million in 1996.
In addition, $24 million of severance costs were incurred in 1996 as a
result of the refinery network rationalization announced in 1995.
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 $6,521 million in 1998, $10,683
million in 1997 and $10,634 million in 1996. The business results which follow
are presented on this basis.
EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Total replacement cost operating profit.............. ($ million) 3,231 7,385 7,763
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>
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(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 $104 million for the impairment of the Opon field and $110 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.
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Exploration and Production's total replacement cost profit for 1997 of
$7,385 million represented a decrease of $378 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.
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>
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(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.
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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 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.
5
<PAGE> 6
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 $825 million investment program in the UK. Capital
expenditure in 1997 included a number of expansions and constructions of new
facilities.
OTHER BUSINESSES AND CORPORATE
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C> <C>
Replacement cost operating loss................... ($ 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 includes the interest expense of equity-accounted
associated undertakings and joint ventures, and the unwinding of the discount on
provisions. Interest expense in 1998 was $1,173 million compared with $1,032
million in 1997. The increase reflected higher average debt, partly offset by
lower interest rates.
Total interest expense was reduced from $1,128 million in 1996 to $1,032
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 $75 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
$3,013 million in 1997, and $2,783 million in 1996. The effective tax rate on
historical cost profit was 32% in 1998, 34% in 1997 and 27% 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 $1,779 million in 1997.
6
<PAGE> 7
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.
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
7
<PAGE> 8
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.
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
8
<PAGE> 9
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, 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 to be incurred by the end of 1999. As at March 31, 1999, some $240
million had been spent. 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.
BP Amoco business units have identified third parties to their business
operations, and reviewed such parties' Year 2000 status. This is generally
accomplished in face-to-face meetings where the company shares status reports
and hard evidence of Year 2000 progress with the third party in order to give
each other mutual confidence. This is typically not done in a single meeting,
but is repeated at intervals as appropriate to each third party. Where
satisfactory assurance is not possible, alternative plans are put in place to
handle potential failure of the third party. The value of such assurances as
have been received is variable, depending on the credibility of the answer which
in turn depends on the thoroughness with
9
<PAGE> 10
which Year 2000 remediation has been carried out and the assurer's own exposure
to third party Year 2000 risk.
Typically, new contracts include Year 2000 clauses, and where appropriate
and feasible, existing contracts have had a Year 2000 clause inserted that has
been agreed with local legal departments. Certain customary limitations on legal
remedies do, however, remain, particularly on consequential loss.
We have finished the global inventory and risk analysis work, and a
substantial part of the remediation and testing effort is also complete. A small
amount of remediation dependent on planned plant shutdowns and other remediation
work consisting mainly of implementation of package software releases is
scheduled for completion by September 30, 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 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. We have 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, we are developing contingency plans 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. We intend 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 our
own operations. However, our 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, we are unable to determine at this time whether any such
interruptions and failures will have a material impact on the Group's results of
operations. We do not, however, expect them 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
10
<PAGE> 11
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 $20 million had been incurred and expensed by the end of
1998.
It is difficult to predict whether the euro will affect the level or
volatility of foreign exchange rates. However, we do not expect that the
introduction of the euro will have a significant effect on the Group's results
of operations, its financial position or liquidity.
ENVIRONMENTAL INVESTMENT
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Operating expenditure (a)................................... 539 477 620
Capital expenditure (b)..................................... 426 376 370
Clean-ups................................................... 129 129 146
</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.
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 Group charges to current profits
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 to meet the cost of eventual
decommissioning of our oil- and gas-producing assets and related pipelines.
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.
11
<PAGE> 1
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, 1997 and 1996, 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 and 38% for 1996
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, 1997 and 1996, 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 46 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>
London, England /s/ ERNST & YOUNG
February 17, 1999 ------------------------------------
Ernst & Young
</TABLE>
Except for Note 45
July 7, 1999
- --------------------------------------------------------------------------------
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, 333-9798
and 333-79399) of BP Amoco p.l.c.
<TABLE>
<S> <C>
London, England /s/ ERNST & YOUNG
July 7, 1999 ------------------------------------
Ernst & Young
</TABLE>
F-1
<PAGE> 2
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 1996, and the results of their operations and their cash flows for the
years then ended, 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, 333-9798 and 333-79399) 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
July 7, 1999
F-2
<PAGE> 3
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............................. 56,270 73,828 81,832
Production taxes...................................... 3 604 1,307 1,611
------- ------- -------
GROSS PROFIT.......................................... 11,430 16,625 18,621
Distribution and administration expenses.............. 4 6,044 6,742 8,367
Exploration expense................................... 921 962 997
------- ------- -------
4,465 8,921 9,257
Other income.......................................... 5 709 662 714
------- ------- -------
GROUP REPLACEMENT COST OPERATING PROFIT............... 5,174 9,583 9,971
Share of profits of joint ventures.................... 825 544 --
Share of profits of associated undertakings........... 522 556 663
------- ------- -------
TOTAL REPLACEMENT COST OPERATING PROFIT............... 6,521 10,683 10,634
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 -- (47) (24)
European refining and marketing joint venture
implementation...................................... 6 -- (265) (267)
------- ------- -------
REPLACEMENT COST PROFIT BEFORE INTEREST AND TAX....... 7,371 10,811 10,172
Inventory holding gains (losses)...................... (1,391) (939) 1,172
------- ------- -------
HISTORICAL COST PROFIT BEFORE INTEREST AND TAX........ 5,980 9,872 11,344
Interest expense...................................... 7 1,173 1,032 1,128
------- ------- -------
PROFIT BEFORE TAXATION................................ 4,807 8,840 10,216
Taxation.............................................. 9 1,520 3,013 2,783
------- ------- -------
PROFIT AFTER TAXATION................................. 3,287 5,827 7,433
Minority shareholders' interest....................... 63 151 13
------- ------- -------
PROFIT FOR THE YEAR*.................................. 3,224 5,676 7,420
Dividend requirements on preference shares*........... 1 1 1
------- ------- -------
PROFIT FOR THE YEAR APPLICABLE TO ORDINARY SHARES*.... 3,223 5,675 7,419
======= ======= =======
PROFIT PER ORDINARY SHARE -- CENTS
Basic................................................. 11 34 59 78
Diluted............................................... 11 33 59 77
======= ======= =======
DIVIDENDS PER ORDINARY SHARE -- CENTS................. 10 39.5 36.0 30.4
======= ======= =======
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 46.
The Notes to Financial Statements are an integral part of this Statement.
F-3
<PAGE> 4
BP AMOCO P.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
Note 1998 1997 1996
---- --------------- --------------- ---------------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets...................... 19 3,037 2,582 2,594
Tangible assets........................ 20 54,880 52,595 55,179
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 3,990
Other............................... 21 605 398 174
------ ------ ------
9,772 10,376 4,164
------ ------ ------
TOTAL FIXED ASSETS....................... 67,689 65,553 61,937
CURRENT ASSETS
Inventories............................ 22 3,642 4,923 7,652
Trade receivables...................... 23 5,778 7,725 11,352
Other receivables falling due
Within one year..................... 23 3,626 3,658 3,330
After more than one year............ 23 3,305 2,998 2,800
Investments............................ 24 470 1,067 1,233
Cash at bank and in hand............... 405 355 347
------ ------ ------
17,226 20,726 26,714
------ ------ ------
CURRENT LIABILITIES -- FALLING DUE WITHIN
ONE YEAR
Finance debt........................... 25 2,837 2,856 2,760
Trade payables......................... 26 5,091 5,854 8,786
Other accounts payable and accrued
liabilities......................... 26 10,238 11,817 11,959
------ ------ ------
18,166 20,527 23,505
------ ------ ------
NET CURRENT (LIABILITIES) ASSETS......... (940) 199 3,209
------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES.... 66,749 65,752 65,146
Noncurrent liabilities
Finance debt........................... 25 10,918 10,021 10,088
Accounts payable and accrued
liabilities......................... 26 2,047 2,501 2,789
Provisions for liabilities and charges
Deferred taxation...................... 9 1,632 1,183 1,203
Other.................................. 27 8,468 8,337 8,519
------ ------ ------
23,065 22,042 22,599
------ ------ ------
NET ASSETS............................... 43,684 43,710 42,547
Minority shareholders' interest.......... 1,072 1,100 313
------ ------ ------
BP AMOCO SHAREHOLDERS' INTEREST*......... 42,612 42,610 42,234
====== ====== ======
REPRESENTED BY:
Capital shares
Preference............................. 21 21 21
Ordinary............................... 4,842 4,309 4,361
Paid in surplus.......................... 29 3,386 3,777 3,733
Merger reserve........................... 29 697 650 673
Retained earnings........................ 30 33,666 33,853 33,446
------ ------ ------
42,612 42,610 42,234
====== ====== ======
</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 46.
The Notes to Financial Statements are an integral part of this Balance Sheet.
F-4
<PAGE> 5
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......................................... 3,224 5,676 7,420
Currency translation differences............................ 55 (1,587) 367
------ ------ ------
TOTAL RECOGNIZED GAINS AND LOSSES RELATING TO THE YEAR...... 3,279 4,089 7,787
Prior year adjustment -- change in accounting policy........ 862 -- --
------ ------ ------
Total recognized gains and losses........................... 4,141 4,089 7,787
====== ====== ======
</TABLE>
- ------------
For a cash flow statement and a statement of comprehensive income prepared on
the basis of US GAAP see Note 46 -- US generally accepted accounting principles.
- --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these Statements.
F-5
<PAGE> 6
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> 7
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................................................. 33,853 33,446 28,756
Profit for the year....................................... 3,224 5,676 7,420
Exchange adjustment....................................... 16 (1,481) (104)
Share repurchase -- Amoco................................. (507) (1,243) (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............................................... 33,666 33,853 33,446
======= ======= =======
</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> 8
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 financial information for 1998 has been restated to comply with the
requirements of Financial Reporting Standard No. 12 "Provisions, Contingent
Liabilities and Contingent Assets" (FRS12). See Note 45 for further information.
Comparative figures have been restated in accordance with the revised
presentation.
In addition the financial information for 1997 and 1996 has been restated
to comply with the requirements of Financial Reporting Standard No. 9
"Associates and Joint Ventures" (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 of BP and Amoco 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.
F-8
<PAGE> 9
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
GROUP CONSOLIDATION (CONCLUDED)
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 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.
F-9
<PAGE> 10
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS (CONCLUDED)
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 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 for decommissioning is recognized in full at the commencement of
oil and natural gas production. The amount recognized is the present value of
the estimated future expenditure determined in accordance with local conditions
and requirements. A corresponding tangible fixed asset is also created of an
amount equivalent to the provision. This is subsequently depreciated as part of
the capital costs of the production and transportation facilities. Any changes
in the present value of the estimated expenditure is reflected as an adjustment
to the provision and the fixed asset.
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.
F-10
<PAGE> 11
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 -- ACCOUNTING POLICIES (CONCLUDED)
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 coincides with the
commitment to a formal plan of action or, if earlier, on divestment or on
closure of inactive sites. The amount recognized is the best estimate of the
expenditure required. Where the liability will not be settled for a number of
years, the amount recognized is the present value of the estimated future
expenditure.
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.
DISCOUNTING
The unwinding of the discount on provisions is included with interest
expense.
F-11
<PAGE> 12
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
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> 13
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................... -- (47) (24)
European refining and marketing joint venture
implementation -- Group................................... -- (265) (267)
------- ------- -------
Exceptional items........................................... 850 128 (462)
Taxation credit (charge):
Sale of businesses.......................................... (36) (7) (92)
Sale of fixed assets........................................ (185) (208) 52
Merger expenses............................................. 23 -- --
Refinery network rationalization............................ -- 24 25
European refining and marketing joint venture
implementation............................................ -- 53 57
------- ------- -------
Exceptional items, net of tax............................... 652 (10) (420)
Minority shareholders interest (MSI)........................ -- -- 6
------- ------- -------
652 (10) (414)
======= ======= =======
</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> 14
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 net charge for refinery network rationalization in 1997 of $47 million
(1996 $24 million) represents the balance of the costs associated with the
rationalization of the BP Amoco Group's international refining system announced
in 1995.
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 $265 million in 1997 and $267
million in 1996. These costs include $265 million (1996 $226 million) which
represents the BP Amoco Group's share of charges for severance, restructuring,
rebranding and other implementation charges and in 1996, $41 million of own
costs of asset write-downs and professional fees.
NOTE 7 -- INTEREST EXPENSE
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Bank loans and overdrafts................................... 158 188 170
Other loans................................................. 762 651 765
Capital leases.............................................. 90 102 82
Accretion of discount on provisions......................... 120 124 124
------- ------- -------
1,130 1,065 1,141
Capitalized................................................. 119 116 81
------- ------- -------
Group....................................................... 1,011 949 1,060
Joint ventures.............................................. 54 -- --
Associated undertakings..................................... 108 83 68
------- ------- -------
Total charged against profit................................ 1,173 1,032 1,128
======= ======= =======
</TABLE>
Interest expense for 1996 included net charges of $75 million relating to
early redemption of debt.
F-14
<PAGE> 15
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 8 -- DEPRECIATION AND AMOUNTS PROVIDED
Included in the income statement under the following headings:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Depreciation:
Replacement cost of sales................................. 4,666 4,631 4,680
Distribution.............................................. 335 390 640
Administration............................................ 100 88 101
Exceptional items......................................... -- 8 5
------- ------- -------
5,101 5,117 5,426
======= ======= =======
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 $104 million for the impairment of the Opon field and $110 million for
the adjacent power plant 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. The Opon field and
adjacent power plant were written down to their respective scrap values.
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 $200
million.
In assessing the value in use of impaired assets, a real discount rate of
7% has been used.
F-15
<PAGE> 16
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 9 -- TAXATION
CHARGE FOR TAXATION
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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 2,247 1,999
Deferred.................................................. (4) 7 80
Joint ventures............................................ (15) -- --
Associated undertakings................................... 148 106 131
------- ------- -------
1,025 2,360 2,210
------- ------- -------
Taxation charge for the year................................ 1,520 3,013 2,783
======= ======= =======
</TABLE>
Included in the charge for the year is a charge of $198 million (1997 $138
million charge and 1996 $42 million credit) relating to exceptional items.
PROVISIONS FOR DEFERRED TAXATION
<TABLE>
<CAPTION>
Gross potential
Provisions liability
------------------ ------------------
Years ended December 31,
----------------------------------------
1998 1997 1998 1997
------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C>
Analysis of movements during the year:
At January 1.................................... 1,183 1,203 5,817 5,824
Exchange adjustments............................ 37 (52) 20 (165)
Charge (credit) for the year.................... (192) 224 177 350
Deletions/transfers............................. 604 (192) 604 (192)
------- ------- ------- -------
At December 31.................................. 1,632 1,183 6,618 5,817
======= ======= ======= =======
of which -- United Kingdom...................... 927 499 1,577 1,185
-- Overseas........................... 705 684 5,041 4,632
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 17
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 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Analysis of provision:
Depreciation............... 2,413 2,492 2,591 9,905 9,903 9,837
Petroleum revenue tax...... (420) (484) (602) (420) (484) (602)
Other timing differences... (328) (176) (309) (2,834) (2,877) (2,755)
Advance corporation tax.... (33) (649) (477) (33) (725) (656)
------- ------- ------- ------- ------- -------
1,632 1,183 1,203 6,618 5,817 5,824
======= ======= ======= ======= ======= =======
</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.............................................. (40) 83 180
Overseas.................................................... 409 43 191
------- ------- -------
369 126 371
======= ======= =======
</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> 18
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.............................................. 2,269 3,305 3,273
Overseas.................................................... 2,538 5,535 6,943
------- ------- -------
4,807 8,840 10,216
======= ======= =======
Taxation.................................................... 1,520 3,013 2,783
======= ======= =======
Effective tax rate.......................................... 32% 34% 27%
======= ======= =======
</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.............. (12) (3) (3)
(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.......................................... 32 34 27
======= ======= =======
</TABLE>
F-18
<PAGE> 19
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 $3,223 million (1997
$5,675 million and 1996 $7,419 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> 20
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 59 78
Inventory holding (gains) losses............................ 14 10 (12)
------- ------- -------
Replacement cost profit for the year........................ 48 69 66
Exceptional items, net of tax............................... (7) -- 4
------- ------- -------
Replacement cost profit before exceptional items............ 41 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 1,376 640 7
Second quarter............................... 17,262 1,845 992 10
Third quarter................................ 17,346 2,279 1,579 17
Fourth quarter............................... 15,833 480 13 --
------- ---------------- ------- ----------
Total........................................ 68,304 5,980 3,224 34
======= ================ ======= ==========
Year ended December 31, 1997
First quarter................................ 24,875 2,427 1,361 14
Second quarter............................... 22,374 2,455 1,377 14
Third quarter................................ 22,054 2,722 1,696 18
Fourth quarter............................... 22,457 2,268 1,242 13
------- ---------------- ------- ----------
Total........................................ 91,760 9,872 5,676 59
======= ================ ======= ==========
</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> 21
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 $535 million.
F-21
<PAGE> 22
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 17 -- ACQUISITIONS (CONCLUDED)
The cost of acquisitions in the Group cash flow statement comprises:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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> 23
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
=========== =========== =========== ===========
Cost
At January 1, 1997......................... 3,220 187 563 3,970
Exchange adjustments....................... (18) 6 (10) (22)
Additions.................................. 932 2 8 942
Transfers.................................. (457) -- 18 (439)
Assets used by the BP/Mobil joint
venture.................................. -- (71) (123) (194)
Deletions.................................. (438) (18) (91) (547)
----------- ----------- ----------- -----------
At December 31, 1997....................... 3,239 106 365 3,710
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 24
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 19 -- INTANGIBLE ASSETS (CONCLUDED)
<TABLE>
<CAPTION>
Exploration Other
expenditure Goodwill intangibles Total
----------- ----------- ----------- -----------
($ million)
<S> <C> <C> <C> <C>
Depreciation
At January 1, 1997......................... 978 96 302 1,376
Exchange adjustments....................... (21) (6) 1 (26)
Charge for the year........................ 365 7 13 385
Transfers.................................. -- -- 11 11
Assets used by the BP/Mobil joint
venture.................................. -- (28) (64) (92)
Deletions.................................. (521) (2) (3) (526)
----------- ----------- ----------- -----------
At December 31, 1997....................... 801 67 260 1,128
=========== =========== =========== ===========
Net book amount
At December 31, 1998....................... 2,886 60 91 3,037
At December 31, 1997....................... 2,438 39 105 2,582
At December 31, 1996....................... 2,242 91 261 2,594
=========== =========== =========== ===========
</TABLE>
NOTE 20 -- TANGIBLE ASSETS
Property, plant and equipment:
<TABLE>
<CAPTION>
Other
Exploration Refining businesses of which
and and and Assets under
Production Marketing Chemicals corporate Total construction
----------- --------- --------- ---------- ------- ------------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Cost
At January 1, 1998................. 80,555 18,306 12,645 2,070 113,576 6,183
Exchange adjustments............... 309 (181) 169 6 303 (9)
Acquisitions....................... -- 17 177 -- 194 --
Additions.......................... 5,293 1,165 1,175 198 7,831 4,339
Transfers.......................... 455 (164) 195 99 585 (5,541)
Deletions.......................... (1,804) (991) (183) (469) (3,447) (827)
----------- --------- --------- ---------- ------- ------------
At December 31, 1998............... 84,808 18,152 14,178 1,904 119,042 4,145
=========== ========= ========= ========== ======= ============
Depreciation
At January 1, 1998................. 45,202 8,889 5,896 994 60,981
Exchange adjustments............... 335 (46) 73 2 364
Charge for the year................ 3,698 789 478 112 5,077
Transfers.......................... 127 (41) 108 48 242
Deletions.......................... (1,306) (847) (120) (229) (2,502)
----------- --------- --------- ---------- -------
At December 31, 1998............... 48,056 8,744 6,435 927 64,162
=========== ========= ========= ========== =======
</TABLE>
F-24
<PAGE> 25
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 20 -- TANGIBLE ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Other
Exploration Refining businesses of which
and and and Assets under
Production Marketing Chemicals corporate Total construction
----------- --------- --------- ---------- ------- ------------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Cost
At January 1, 1997................. 74,867 26,360 12,278 2,010 115,515 6,209
Prior year adjustment -- change in
accounting policy................ 1,636 -- -- -- 1,636 --
----------- --------- --------- ---------- ------- ------------
Restated........................... 76,503 26,360 12,278 2,010 117,151 6,209
Exchange adjustments............... (698) (815) (272) 23 (1,762) (62)
Acquisitions....................... 810 -- -- -- 810 --
Additions.......................... 5,095 1,088 1,028 175 7,386 4,832
Transfers.......................... (252) (57) (112) -- (421) (4,715)
Assets used by the BP/Mobil joint
venture.......................... -- (7,660) -- -- (7,660) (48)
Deletions.......................... (903) (610) (277) (138) (1,928) (33)
----------- --------- --------- ---------- ------- ------------
At December 31, 1997............... 80,555 18,306 12,645 2,070 113,576 6,183
=========== ========= ========= ========== ======= ============
Depreciation
At January 1, 1997................. 40,902 13,240 5,619 911 60,672
Prior year adjustment -- change in
accounting policy................ 1,300 -- -- -- 1,300
----------- --------- --------- ---------- -------
Restated........................... 42,202 13,240 5,619 911 61,972
Exchange adjustments............... (379) (335) (165) 12 (867)
Charge for the year................ 3,584 837 558 118 5,097
Transfers.......................... -- (11) -- -- (11)
Assets used by the BP/Mobil joint
venture.......................... -- (4,466) -- -- (4,466)
Deletions.......................... (205) (376) (116) (47) (744)
----------- --------- --------- ---------- -------
At December 31, 1997............... 45,202 8,889 5,896 994 60,981
=========== ========= ========= ========== =======
Net book amount
At December 31, 1998............... 36,752 9,408 7,743 977 54,880 4,145
At December 31, 1997............... 35,353 9,417 6,749 1,076 52,595 6,183
At December 31, 1996............... 34,301 13,119 6,660 1,099 55,179 6,209
=========== ========= ========= ========== ======= ============
</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
At December 31, 1996...................... 2,080 920 1,160 2,792 1,668 1,124
====== ========== ====== ====== ========== ======
</TABLE>
F-25
<PAGE> 26
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 20 -- TANGIBLE ASSETS (CONCLUDED)
<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
At December 31, 1996................................... 1,539 53 54
=========== =========== ===========
</TABLE>
F-26
<PAGE> 27
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
====== ====== ======= ====== ====== ====== =========== ======
Cost
At January 1, 1997......... 1,953 766 1,303 -- 54 15 107 4,198
Exchange adjustments....... (184) (6) (227) (317) -- 4 (11) (741)
Additions and net movements
in joint ventures........ 365 31 (156) 1,760 18 300 8 2,326
Acquisitions............... 507 -- -- -- -- -- -- 507
Transfers.................. 27 32 -- 850 -- -- (49) 860
Assets used by the BP/Mobil
joint venture............ (7) -- -- 3,331 (23) -- (10) 3,291
Deletions.................. -- (24) (3) -- (10) -- (3) (40)
------ ------ ------- ------ ------ ------ ----------- ------
At December 31, 1997....... 2,661 799 917 5,624 39 319 42 10,401
====== ====== ======= ====== ====== ====== =========== ======
Amounts provided
At January 1, 1997......... 32 -- -- -- -- -- 2 34
Exchange adjustments....... (4) -- -- -- -- -- -- (4)
Provided in the year....... -- -- -- -- -- -- -- --
Assets used by the BP/Mobil
joint venture............ (5) -- -- -- -- -- -- (5)
------ ------ ------- ------ ------ ------ ----------- ------
At December 31, 1997....... 23 -- -- -- -- -- 2 25
====== ====== ======= ====== ====== ====== =========== ======
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
At December 31, 1996....... 1,921 766 1,303 -- 54 15 105 4,164
====== ====== ======= ====== ====== ====== =========== ======
</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 and nil
at December 31, 1996) shares for the Employee Share Schemes and 3,133,000
(3,274,000
F-27
<PAGE> 28
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 21 -- FIXED ASSETS -- INVESTMENTS (CONCLUDED)
at December 31, 1997 and 1,296,000 shares at December 31, 1996) 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 and
$15 million at December 31, 1996).
(b) Other investments are unlisted.
NOTE 22 -- INVENTORIES
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Petroleum................................................... 1,896 3,140 5,595
Chemicals................................................... 917 1,043 1,114
Other....................................................... 174 86 220
------- ------- -------
2,987 4,269 6,929
Stores...................................................... 655 654 723
------- ------- -------
3,642 4,923 7,652
======= ======= =======
Replacement cost............................................ 3,747 4,985 7,713
======= ======= =======
</TABLE>
NOTE 23 -- RECEIVABLES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ------------------ ------------------
Within After Within After Within After
1 year 1 year 1 year 1 year 1 year 1 year
------- ------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Trade receivables............ 5,778 -- 7,725 -- 11,352 --
======= ======= ======= ======= ======= =======
Other receivables:
Joint ventures............. 644 -- 905 -- -- --
Associated undertakings.... 153 7 154 3 141 3
Prepayments and accrued
income.................. 786 509 773 164 960 175
Taxation recoverable....... 248 165 50 242 56 323
Pension prepayment......... -- 2,213 -- 1,880 -- 1,616
Other...................... 1,795 411 1,776 709 2,173 683
------- ------- ------- ------- ------- -------
3,626 3,305 3,658 2,998 3,330 2,800
======= ======= ======= ======= ======= =======
</TABLE>
Provisions for doubtful debts deducted from Trade receivables amounted to
$126 million ($130 million at December 31, 1997 and $159 million at December 31,
1996).
- ------------
See Note 46 -- US generally accepted accounting principles.
F-28
<PAGE> 29
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 24 -- CURRENT ASSETS -- INVESTMENTS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Publicly traded -- United Kingdom........................... 48 50 54
-- Foreign................................. 33 31 20
------- ------- -------
81 81 74
Not publicly traded......................................... 389 986 1,159
------- ------- -------
470 1,067 1,233
======= ======= =======
Stock exchange value of publicly traded investments......... 83 81 78
======= ======= =======
</TABLE>
NOTE 25 -- FINANCE DEBT
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ------------------ ------------------
Within After Within After Within After
1 year 1 year 1 year 1 year 1 year 1 year
------- ------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Bank loans and overdrafts.... 302(a) 1,778 426(a) 1,574 653(a) 1,464
Other loans.................. 2,434(a) 7,357 2,338(a) 6,647 2,024(a) 6,885
------- ------- ------- ------- ------- -------
Total borrowings............. 2,736 9,135 2,764 8,221 2,677 8,349
Obligations under capital
leases..................... 101 1,783 92 1,800 83 1,739
------- ------- ------- ------- ------- -------
2,837 10,918 2,856 10,021 2,760 10,088
======= ======= ======= ======= ======= =======
</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 increase ($113 million
increase at December 31, 1997 and $30 million decrease at December 31, 1996) for
the carrying value of currency swaps.
ANALYSIS OF BORROWINGS BY YEAR OF REPAYMENT
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
--------------------------- --------------------------- ---------------------------
Bank loans Bank loans Bank loans
and Other and Other and Other
overdrafts loans Total overdrafts loans Total overdrafts loans Total
---------- ----- ------ ---------- ----- ------ ---------- ----- ------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due after 10 years....... 11 2,540 2,551 19 2,706 2,725 10 2,797 2,807
Due within 6-10 years...... 266 1,953 2,219 354 1,306 1,660 719 1,845 2,564
5 years........ 201 365 566 332 1,084 1,416 251 424 675
4 years........ 785 1,081 1,866 347 453 800 170 400 570
3 years........ 288 652 940 301 430 731 133 765 898
2 years........ 227 766 993 221 668 889 181 654 835
---------- ----- ------ ---------- ----- ------ ---------- ----- ------
1,778 7,357 9,135 1,574 6,647 8,221 1,464 6,885 8,349
1 year......... 302 2,434 2,736 426 2,338 2,764 653 2,024 2,677
---------- ----- ------ ---------- ----- ------ ---------- ----- ------
2,080 9,791 11,871 2,000 8,985 10,985 2,117 8,909 11,026
========== ===== ====== ========== ===== ====== ========== ===== ======
</TABLE>
F-29
<PAGE> 30
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT (CONTINUED)
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 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
After five years............................................ 174 114 201
Within five years........................................... 406 465 413
------- ------- -------
580 579 614
======= ======= =======
</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%.
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 and $2,500 million at December 31, 1996) which were covered by formal
commitments. These committed facilities are mainly with a number of
international banks and expire in 2001. Commitment fees are paid on the unused
portions of the lines of credit and borrowings would be at pre-agreed rates.
Certain of these facilities support the Group's commercial paper program.
ANALYSIS OF BORROWINGS BY CURRENCY
<TABLE>
<CAPTION>
December 31, December 31,
December 31, 1998 1997 1996
----------------------------------------------------------------------------- ------------ ------------
Fixed rate debt Floating rate debt
-------------------------------------- ----------------------
Weighted Weighted Weighted
average average time average
interest for which interest
rate rate is fixed Amount rate Amount Total Total Total
-------- ------------- ----------- -------- ----------- ----------- ------------ ------------
(%) (Years) ($ million) % ($ million) ($ million) ($ million) ($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US dollars........... 7 10 7,392 5 3,460 10,852 9,993 9,478
Sterling............. -- -- -- 6 613 613 679 884
South African rands.. -- -- -- 15 42 42 63 86
Other currencies..... 7 9 189 7 175 364 250 578
----------- ----------- ----------- ----------- -----------
Total loans.......... 7,581 4,290 11,871 10,985 11,026
=========== =========== =========== =========== ===========
</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 $55 million.
F-30
<PAGE> 31
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT (CONTINUED)
FAIR VALUES AND CARRYING AMOUNTS OF BORROWINGS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
Carrying Carrying Carrying
Fair value amount Fair value amount Fair value amount
---------- -------- ---------- -------- ---------- --------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Short-term borrowings......... 1,659 1,659 1,817 1,817 2,026 2,026
Long-term borrowings.......... 10,555 10,126 9,319 9,055 9,259 9,030
---------- -------- ---------- -------- ---------- --------
Total borrowings.............. 12,214 11,785 11,136 10,872 11,285 11,056
========== ======== ========== ======== ========== ========
</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, 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>
F-31
<PAGE> 32
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 25 -- FINANCE DEBT (CONCLUDED)
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 1996
----------------- ------- ------- -------
(%) ($ million)
<S> <C> <C> <C> <C>
Sterling.................... 6 486 504 612
US dollars.................. 7 8,457 7,469 7,445
South African rands......... 15 34 53 56
Other currencies............ 7 158 195 237
------- ------- -------
9,135 8,221 8,350
======= ======= =======
</TABLE>
Bank loans and overdrafts and other loans -- short term
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Current maturities of long-term debt....... 1,077 920 620
Commercial paper........................... 1,333 1,583 1,476
Bank loans and overdrafts.................. 300 228 524
Other...................................... 26 33 57
------- ------- -------
2,736 2,764 2,677
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Weighted average interest rate
at December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(%)
<S> <C> <C> <C>
Commercial paper............................................ 5 6 6
Bank loans, overdrafts and other borrowings................. 7 7 7
</TABLE>
F-32
<PAGE> 33
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 26 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
Within After Within After Within After
1 year 1 year 1 year 1 year 1 year 1 year
------- ------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Trade payables..................... 5,091 -- 5,854 -- 8,786 --
======= ======= ======= ======= ======= =======
Other accounts payable and accrued
liabilities:
Joint ventures................... 205 -- 241 -- -- --
Associated undertakings.......... 154 4 272 2 222 2
Production taxes................. 241 1,238 408 1,503 645 1,750
Taxation on profits.............. 2,395 39 3,034 -- 2,536 --
Social security.................. 14 -- 26 -- 54 --
Accruals and deferred income..... 2,642 454 2,928 417 2,746 461
Dividends........................ 1,552 -- 1,074 -- 982 --
Other............................ 3,035 312 3,834 579 4,774 576
------- ------- ------- ------- ------- -------
10,238 2,047 11,817 2,501 11,959 2,789
======= ======= ======= ======= ======= =======
</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, 1997.............. 3,153 1,620 1,602 2,377 259 9,011
Prior year adjustment -- change
in accounting policy.......... (296) (350) -- -- 154 (492)
--------------- ------------- -------- -------------- ----- -----
Restated........................ 2,857 1,270 1,602 2,377 413 8,519
Exchange adjustments............ (28) (17) (199) (1) -- (245)
New provisions.................. 57 -- -- -- -- 57
Charged to income............... -- (21) 268 114 60 421
Accretion of discount........... 85 34 -- -- 5 124
Utilized/deleted................ (85) (127) (145) (142) (40) (539)
--------------- ------------- -------- -------------- ----- -----
At December 31, 1997............ 2,886 1,139 1,526 2,348 438 8,337
--------------- ------------- -------- -------------- ----- -----
At January 1, 1998.............. 2,886 1,139 1,526 2,348 438 8,337
Exchange adjustments............ 10 2 99 -- -- 111
New provisions.................. 130 -- -- -- -- 130
Charged to income............... -- 13 195 101 68 377
Accretion of discount........... 86 30 -- -- 4 120
Utilized/deleted................ (31) (310) (53) (138) (75) (607)
--------------- ------------- -------- -------------- ----- -----
At December 31, 1998............ 3,081 874 1,767 2,311 435 8,468
=============== ============= ======== ============== ===== =====
</TABLE>
At December 31, 1998 the provision for the costs of decommissioning the BP
Amoco Group's oil and natural gas production facilities and pipelines at the end
of their economic lives was $3,081 million. These costs are expected to be
incurred over the next 30 years. The provision has been estimated using existing
technology, at current prices and discounted using a real discount rate of 3 per
cent.
F-33
<PAGE> 34
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 27 -- OTHER PROVISIONS (CONCLUDED)
The provision for environmental liabilities at December 31, 1998 was $874
million. This represents primarily the estimated environmental restoration and
remediation costs for closed sites or facilities that have been sold. These
costs are expected to be incurred over the next 10 years. The provision has been
estimated using existing technology, at current prices, and discounted using a
real discount rate of 3 per cent.
The BP Amoco Group also holds provisions for potential future awards under
the long term performance plan, expected rental shortfalls on subletting surplus
properties and sundry other liabilities. If these liabilities are not expected
to be settled within the next 3 years, the provisions are discounted using a
real discount rate of 3 per cent.
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 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.
F-34
<PAGE> 35
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
<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
AT DECEMBER 31, 1996
Risk management
Interest rate contracts..................... 5,660 57 (218) (63)
Foreign exchange contracts.................. 10,872 649 (99) 215
Oil price contracts......................... 5,484 19 (75) (47)
Natural gas price contracts................. 754 30 (21) --
Trading
Interest rate contracts..................... 220 -- -- --
Foreign exchange contracts.................. 4,820 41 (32) 8
Oil price contracts......................... 2,860 118 (115) 3
</TABLE>
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.
F-35
<PAGE> 36
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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 1996
----------------- ----------------- -----------------
Average net Average net Average net
fair value fair value fair value
asset (liability) asset (liability) asset (liability)
----------------- ----------------- -----------------
($ million)
<S> <C> <C> <C>
Interest rate contracts........................... (8) (3) --
Foreign exchange contracts........................ 21 1 3
Oil price contracts............................... 54 24 34
----------------- ----------------- -----------------
67 22 37
================= ================= =================
</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 1996
----------------------------------- ----------------- -----------------
High Low Average Year end Average Year end Average Year end
------- ------- ------- -------- ------- -------- ------- --------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate
contracts............. 6 -- 2 -- 3 2 2 --
Foreign exchange
contracts............. 6 -- 4 -- 3 2 3 --
Oil price contracts..... 13 4 8 12 6 4 6 3
</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 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.
F-36
<PAGE> 37
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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 1996
-------- -------- --------
Net gain
(loss) Net gain Net gain
-------- -------- --------
($ million)
<S> <C> <C> <C>
Interest rate contracts..................................... (26) 2 2
Foreign exchange contracts.................................. 38 23 14
Oil price contracts......................................... 215 144 125
-------- -------- --------
227 169 141
======== ======== ========
</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.
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.
F-37
<PAGE> 38
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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.
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
F-38
<PAGE> 39
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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 1996
------------------ ------------------ ------------------
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
-------- ------- -------- ------- -------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Finance debt
Long-term.............................. 10,126 10,555 9,055 9,319 9,030 9,259
Short-term............................. 1,659 1,659 1,817 1,817 2,026 2,026
</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 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.
F-39
<PAGE> 40
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 28 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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 and $88 million at December 31, 1996). The credit risk and
maximum cash requirement of these guarantees and indemnities is the full
contractual amount, however no material loss is expected to arise.
INTEREST RATE RISK MANAGEMENT
The Group enters into interest rate contracts to manage its cost of
borrowing as indicated in the following table:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------------------ ------------------------------ ------------------------------
Gross Fair Fair Gross Fair Fair Gross Fair Fair
contract value value contract value value contract value value
amount asset liability amount asset liability amount asset liability
-------- ------- --------- -------- ------- --------- -------- ------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Swaps................ 5,866 69 (328) 4,779 54 (240) 4,983 57 (215)
Futures.............. -- -- -- -- -- -- 3 -- (3)
Forwards............. -- -- -- -- -- -- 674 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
5,866 69 (328) 4,779 54 (240) 5,660 57 (218)
======= ======= ======= ======= ======= ======= ======= ======= =======
</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-40
<PAGE> 41
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 1996
------- ------- -------
($ million, except
percentages)
<S> <C> <C> <C>
Receive -- fixed swaps -- notional amount................... 2,125 2,076 2,346
Average receive fixed rate.................................. 6.6% 7.1% 7.1%
Average pay floating rate................................... 5.4% 5.8% 5.1%
Pay -- fixed swaps -- notional amount....................... 3,741 2,703 2,636
Average pay fixed rate...................................... 7.3% 8.0% 8.0%
Average receive floating rate............................... 5.3% 5.9% 5.7%
</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 December 31, 1996
------------------------------ ------------------------------ ------------------------------
Gross Fair Fair Gross Fair Fair Gross Fair Fair
contract value value contract value value contract value value
amount asset liability amount asset liability amount asset liability
-------- ------- --------- -------- ------- --------- -------- ------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Currency swaps....... 1,797 99 (107) 1,690 84 (119) 1,820 204 (64)
Forwards............. 4,046 63 (38) 4,816 43 (41) 5,145 252 (25)
Options.............. 3,065 19 (15) 4,904 26 (27) 3,907 193 (10)
------- ------- ------- ------- ------- ------- ------- ------- -------
8,908 181 (160) 11,410 153 (187) 10,872 649 (99)
======= ======= ======= ======= ======= ======= ======= ======= =======
</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-41
<PAGE> 42
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 December 31, 1996
-------------------------------- -------------------------------- --------------------------------
Gross Fair Fair Gross Fair Fair Gross Fair Fair
contract value value contract value value contract value value
amount asset (liability) amount asset (liability) amount asset (liability)
-------- ------- ----------- -------- ------- ----------- -------- ------- -----------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil
Swaps.............. 421 12 (5) 544 20 (25) 3,796 19 (66)
Options............ -- -- -- 1 -- -- 581 -- (9)
Futures............ 70 -- -- 83 -- -- 1,107 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
491 12 (5) 628 20 (25) 5,484 19 (75)
======= ======= ======= ======= ======= ======= ======= ======= =======
Natural gas
Swaps.............. 1,478 48 (43) 719 20 (20) 716 30 (21)
Options............ 33 3 (1) 38 -- -- 38 -- --
Futures............ -- -- -- 6 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
1,511 51 (44) 763 20 (20) 754 30 (21)
======= ======= ======= ======= ======= ======= ======= ======= =======
</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-42
<PAGE> 43
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 1996
------------------------------------ ------------------------------------ ----------------------
Net Average Net Average Net
Gross fair value fair value Gross fair value fair value Gross fair value
contract asset asset contract asset asset contract asset
amount (liability) (liability) amount (liability) (liability) amount (liability)
-------- ----------- ----------- -------- ----------- ----------- -------- -----------
($ million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate
contracts
Swaps.............. -- -- -- 50 -- -- -- --
Futures............ 185 -- (1) 42 -- -- 220 --
Options............ 4 -- -- 375 -- -- -- --
Swaptions.......... -- -- (7) 280 (6) (3) -- --
------- ------- ------- ------- ------- ------- ------- -------
189 -- (8) 747 (6) (3) 220 --
======= ======= ======= ======= ======= ======= ======= =======
Foreign exchange
contracts
Forwards........... 3,012 (9) 23 2,438 1 (2) 2,821 15
Options............ 6,429 -- (2) 1,656 1 3 1,999 (7)
------- ------- ------- ------- ------- ------- ------- -------
9,441 (9) 21 4,094 2 1 4,820 8
======= ======= ======= ======= ======= ======= ======= =======
Oil price contracts
Swaps.............. 3,460 11 54 4,011 46 24 2,770 3
Futures............ 413 -- -- 608 -- -- 83 --
Options............ 165 -- -- 88 -- -- 7 --
------- ------- ------- ------- ------- ------- ------- -------
4,038 11 54 4,707 46 24 2,860 3
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
1996
-----------
Average
fair value
asset
(liability)
-----------
<S> <C>
Interest rate
contracts
Swaps.............. --
Futures............ --
Options............ --
Swaptions.......... --
-------
--
=======
Foreign exchange
contracts
Forwards........... 2
Options............ 2
-------
4
=======
Oil price contracts
Swaps.............. 34
Futures............ --
Options............ --
-------
34
=======
</TABLE>
F-43
<PAGE> 44
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 33,853 42,610
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......................... -- -- -- 3,224 3,224
Dividends................................... -- -- -- (4,121) (4,121)
Exchange adjustment......................... 17 22 -- 16 55
------- ------- ------- ------- -------
At December 31, 1998........................ 4,863 3,386 697 33,666 42,612
======= ======= ======= ======= =======
At 1 January 1997........................... 4,382 3,733 673 32,230 41,018
Prior year adjustment -- change in
accounting policy......................... -- -- -- 1,216 1,216
------- ------- ------- ------- -------
Restated.................................... 4,382 3,733 673 33,446 42,234
Employee share schemes -- Amoco............. 8 -- 92 -- 100
Employee share schemes -- BP................ 10 144 -- -- 154
Share dividend plan -- BP................... 36 (36) -- 907 907
Share repurchases -- Amoco.................. (64) -- (115) (1,243) (1,422)
Profit for the year......................... -- -- -- 5,676 5,676
Dividends................................... -- -- -- (3,452) (3,452)
Exchange adjustment......................... (42) (64) -- (1,481) (1,587)
------- ------- ------- ------- -------
At 31 December 1997......................... 4,330 3,777 650 33,853 42,610
======= ======= ======= ======= =======
</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 13,070,000 (1997 25,198,000)
ordinary shares were issued under the BP employee share schemes and 16,763,000
(1997 15,209,000) 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. 110,285,000 (1997 87,179,000) ordinary shares were
issued under the share dividend plan by capitalization of the paid in surplus.
F-44
<PAGE> 45
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 29 -- CAPITAL AND RESERVES (CONCLUDED)
SHARE REPURCHASE. Prior to the announcement of the merger Amoco repurchased
54,901,000 shares (1997 128,366,000) for a total consideration of $584 million
(1997 $1,422 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 $33,666 million ($33,853 million at December 31, 1997
and $33,446 at December 31, 1996) include the following amounts, the
distribution of which is limited by statutory or other restrictions:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Parent company.............................................. 16 16 17
Subsidiary undertakings..................................... 5,195 5,469 7,158
Associated undertakings..................................... 1,162 1,144 1,284
------- ------- -------
6,373 6,629 8,459
======= ======= =======
</TABLE>
Cumulative net exchange losses of $453 million are included in retained
earnings ($508 million losses at December 31, 1997 and $1,079 million gains at
December 31, 1996).
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.............. 5,980 9,872 11,344
Depreciation and amounts provided........................... 5,301 5,117 5,426
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....................................... 377 421 453
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) (1,994) 1,893
------- ------- -------
Net cash inflow from operating activities................... 9,586 15,558 13,679
======= ======= =======
</TABLE>
F-45
<PAGE> 46
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 31 -- ANALYSIS OF CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(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 $69 million). These amounts were included in the net cash
inflow from operating activities.
(III) FINANCING
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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 $147
million).
(V) COMMERCIAL PAPER
Net movements in commercial paper are included within short-term borrowings
or repayment of short-term borrowings as appropriate.
F-46
<PAGE> 47
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 31 -- ANALYSIS OF CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(VI) MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
Current
Finance asset Net
debt Cash investments debt
------- ------- ----------- -------
($ million)
<S> <C> <C> <C> <C>
At January 1, 1998............................. (12,877) 355 1,067 (11,455)
Net cash flow.................................. (800) 67 (596) (1,329)
Other movements................................ (53) -- -- (53)
Exchange adjustments........................... (25) (17) (1) (43)
------- ------- ----------- -------
At December 31, 1998........................... (13,755) 405 470 (12,880)
======= ======= =========== =======
At January 1, 1997............................. (12,848) 347 1,233 (11,268)
Net cash flow.................................. (238) 33 (167) (372)
Other movements................................ 133 -- 5 138
Exchange adjustments........................... 76 (25) (4) 47
------- ------- ----------- -------
At December 31, 1997........................... (12,877) 355 1,067 (11,455)
======= ======= =========== =======
At January 1, 1996............................. (13,602) 641 1,370 (11,591)
Net cash flow.................................. 901 (304) (147) 450
Other movements................................ (122) -- -- (122)
Exchange adjustments........................... (25) 10 10 (5)
------- ------- ----------- -------
At December 31, 1996........................... (12,848) 347 1,233 (11,268)
======= ======= =========== =======
</TABLE>
NOTE 32 -- OPERATING LEASE COMMITMENTS
Annual commitments under operating leases were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
Land and Land and Land and
buildings Other buildings Other buildings Other
--------- ------- --------- ------- --------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Expiring within: 1 year................. 50 149 23 140 32 122
2 to 5 years.......... 92 432 106 405 99 308
Thereafter............ 174 99 165 74 175 185
-------- ------- -------- ------- -------- -------
316 680 294 619 306 615
======== ======= ======== ======= ======== =======
</TABLE>
F-47
<PAGE> 48
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 32 -- OPERATING LEASE COMMITMENTS (CONCLUDED)
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 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 and December
31, 1996, nil).
F-48
<PAGE> 49
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 33 -- EMPLOYEE SHARE SCHEMES (CONTINUED)
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>
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 (1997 $44.90 and
1996 $36.61) which equates to a BP Amoco share price of $10.97 (1997 $11.31 and
1996 $9.22).
<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>
F-49
<PAGE> 50
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 33 -- EMPLOYEE SHARE SCHEMES (CONTINUED)
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>
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.
F-50
<PAGE> 51
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 33 -- EMPLOYEE SHARE SCHEMES (CONCLUDED)
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).
The value of awards under the 1995-7 Plan made in 1998 was $36 million
(1994-6 Plan $28 million and 1991-5 Plan $57 million).
F-51
<PAGE> 52
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 34 -- LONG TERM PERFORMANCE PLAN (CONCLUDED)
Employee Share Ownership Plans (ESOPs) have been established to acquire BP
Amoco shares to satisfy any awards made to participants under the Plan and then
to hold them for the participants during the retention period of the Plan. In
order to hedge the cost of potential future awards the ESOPs may, from time to
time over the performance period of the Plans, purchase BP Amoco shares in the
open market. Funding is provided to the ESOPs by the Company. The assets and
liabilities of the ESOPs are recognized as assets and liabilities of the Company
within these accounts. The ESOPs have waived their rights to dividends.
At December 31, 1998 the ESOPs held 3,133,000 (1997 3,274,000 and 1996
1,296,000) shares for potential future awards.
NOTE 35 -- DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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, 1997 or 1996.
NOTE 36 -- LOANS TO OFFICERS
Miss J C Hanratty has a low interest loan of $43,000 made to her prior to
her appointment as Company Secretary on October 1, 1994.
F-52
<PAGE> 53
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 37 -- EMPLOYEE COSTS AND NUMBERS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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-53
<PAGE> 54
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
and $15,631 million at January 1, 1996). The actuarial value of the assets of
these plans represented 123% (1997 119% and 1996 115%) 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 and $1,768 million at December 31, 1996). Of this amount,
$1,345 million ($1,220 million at December 31, 1997 and $1,350 million at
December 31, 1996) has been provided in these accounts.
F-54
<PAGE> 55
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 38 -- PENSIONS (CONTINUED)
Further information in respect of the Group's principal defined benefit
pension plans required under FASB Statement of Financial Accounting Standards
No. 132 -- 'Employers' Disclosures about Pensions and Other Postretirement
Benefits' is set out below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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-55
<PAGE> 56
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 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation at January 1.......... 11,567 11,183 10,200 4,388 4,334 4,286
Service cost............................. 221 195 183 154 140 134
Interest cost............................ 787 840 807 302 296 296
Plan amendments.......................... -- -- -- -- (100) --
Settlement loss.......................... -- -- -- 12 9 (12)
Actuarial loss........................... 518 383 (36) 60 166 40
Plan participants' contributions......... 20 13 9 -- -- --
Settlement payments...................... -- -- -- (26) (16) --
Benefit payments......................... (619) (666) (544) (466) (441) (410)
Exchange adjustment...................... 176 (381) 564 -- -- --
------- ------- ------- ------- ------- -------
Benefit obligation at December 31........ 12,670 11,567 11,182 4,424 4,388 4,334
------- ------- ------- ------- ------- -------
Fair value of plan assets at January 1... 15,915 13,762 11,756 4,774 4,226 3,875
Actual return on plan assets............. 2,456 2,903 1,367 833 914 651
Plan participants' contributions......... 20 13 9 -- -- --
Employer contributions................... 8 9 7 115 92 124
Settlement payments...................... -- -- -- (26) (16) (14)
Benefit payments......................... (515) (558) (424) (466) (442) (410)
Exchange adjustment...................... 107 (214) 1,047 -- -- --
------- ------- ------- ------- ------- -------
Fair value of plan assets at December
31..................................... 17,991 15,915 13,762 5,230 4,774 4,226
------- ------- ------- ------- ------- -------
Funded status............................ 5,321 4,349 2,604 806 386 (108)
Unrecognized transition asset............ (318) (394) (453) (32) (47) (62)
Unrecognized net actuarial (gain) loss... (4,914) (4,010) (2,588) (207) 138 591
Unrecognized prior service cost.......... 111 125 143 (53) (62) 19
------- ------- ------- ------- ------- -------
Net amount recognized.................... 200 70 (294) 514 415 440
======= ======= ======= ======= ======= =======
Prepaid benefit cost..................... 1,545 1,290 1,055 656 528 550
Accrued benefit liability................ (1,644) (1,479) (1,659) (190) (161) (71)
Intangible asset......................... 126 138 167 -- -- --
Accumulated other comprehensive income... 173 121 143 48 48 (39)
------- ------- ------- ------- ------- -------
200 70 (294) 514 415 440
======= ======= ======= ======= ======= =======
</TABLE>
F-56
<PAGE> 57
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 38 -- PENSIONS (CONCLUDED)
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>
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 and $1,704 million at December 31, 1996). The provision for
postretirement benefits at December 31, 1998 was $2,311 million ($2,348 million
at December 31, 1997 and $2,353 million at December 31, 1996).
The discount rate used to assess the obligation at December 31, 1998 was
6.5% (6.9% at December 31, 1997 and 7.0% at December 31, 1996). The assumed
future healthcare cost trend rate for 1999 are 5% to 7.6% for beneficiaries aged
under 65 and 5% to 6.5% for beneficiaries aged over 65, which reduce to 5% for
both age groups in the year 2002 and for subsequent years.
Further information presented in compliance with the requirements of FASB
Statement of Financial Accounting Standards No. 132 -- 'Employers' Disclosures
about Pensions and Other Postretirement Benefits' is set out below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ 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-57
<PAGE> 58
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 39 -- OTHER POSTRETIREMENT BENEFITS (CONCLUDED)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Benefit obligation at January 1............................. 1,709 1,704 1,858
Service cost................................................ 39 40 45
Interest cost............................................... 114 116 126
Settlement (gain) loss...................................... -- -- (12)
Actuarial (gain) loss....................................... 52 (51) (220)
Benefit payments............................................ (100) (100) (78)
Curtailment (gain) loss..................................... -- -- (15)
------- ------- -------
Benefit obligation at December 31........................... 1,814 1,709 1,704
------- ------- -------
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) (1,704)
Unrecognized net actuarial gain............................. (382) (452) (434)
Unrecognized prior service cost............................. (164) (187) (239)
------- ------- -------
Provision for postretirement benefits....................... (2,311) (2,348) (2,377)
======= ======= =======
</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
F-58
<PAGE> 59
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 40 -- CONTINGENT LIABILITIES (CONCLUDED)
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 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. In 1996 there were no relevant joint ventures. 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 48.
<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
F-59
<PAGE> 60
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 41 -- JOINT VENTURES AND ASSOCIATED UNDERTAKINGS (CONCLUDED)
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).
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 48.
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 and December 31, 1996 $90 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 and December 31, 1996 $69 million). At December 31, 1996 there
was an amount payable to Erdolchemie of $15 million.
F-60
<PAGE> 61
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a)
CAPITALIZED COSTS AT DECEMBER 31
<TABLE>
<CAPTION>
United Rest of Rest of
Kingdom Europe USA World Total
------- ------- ------- ------- -------
($ million)
<S> <C> <C> <C> <C> <C>
1998
Gross capitalized costs:
Proved properties.................... 23,290 2,934 35,383 15,078 76,685
Unproved properties.................. 400 76 890 1,915 3,281
------- ------- ------- ------- -------
23,690 3,010 36,273 16,993 79,966
Accumulated depreciation (b)........... 12,670 1,865 20,741 8,183 43,459
------- ------- ------- ------- -------
Net capitalized costs.................. 11,020 1,145 15,532 8,810 36,507
======= ======= ======= ======= =======
1997
Gross capitalized costs:
Proved properties.................... 21,250 2,917 34,166 14,137 72,470
Unproved properties.................. 323 55 914 1,776 3,068
------- ------- ------- ------- -------
21,573 2,972 35,080 15,913 75,538
Accumulated depreciation (b)........... 10,975 1,736 20,924 7,889 41,524
------- ------- ------- ------- -------
Net capitalized costs.................. 10,598 1,236 14,156 8,024 34,014
======= ======= ======= ======= =======
1996
Gross capitalized costs:
Proved properties.................... 19,975 3,031 32,403 13,540 68,949
Unproved properties.................. 343 50 871 1,809 3,073
------- ------- ------- ------- -------
20,318 3,081 33,274 15,349 72,022
Accumulated depreciation (b)........... 9,873 1,765 18,902 8,157 38,697
------- ------- ------- ------- -------
Net capitalized costs.................. 10,445 1,316 14,372 7,192 33,325
======= ======= ======= ======= =======
</TABLE>
F-61
<PAGE> 62
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-62
<PAGE> 63
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...... 1,183 169 1,168 1,072 3,592
------- ------- ------- ------- -------
2,160 392 3,969 3,122 9,643
------- ------- ------- ------- -------
Profit (loss) before taxation (f)...... 1,384 201 840 (84) 2,341
Allocable taxes........................ 378 79 111 115 683
------- ------- ------- ------- -------
Results of operations.................. 1,006 122 729 (199) 1,658
======= ======= ======= ======= =======
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........................... 1,236 185 1,163 707 3,291
------- ------- ------- ------- -------
2,468 448 3,980 3,331 10,227
------- ------- ------- ------- -------
Profit before taxation (f)............. 2,029 452 2,791 1,106 6,378
Allocable taxes........................ 655 206 896 501 2,258
------- ------- ------- ------- -------
Results of operations.................. 1,374 246 1,895 605 4,120
======= ======= ======= ======= =======
</TABLE>
F-63
<PAGE> 64
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........................... 1,372 176 1,159 686 3,393
------- ------- ------- ------- -------
2,955 398 4,172 3,243 10,768
------- ------- ------- ------- -------
Profit before taxation (f)............. 2,057 315 2,961 1,510 6,843
Allocable taxes........................ 700 199 1,086 690 2,675
------- ------- ------- ------- -------
Results of operations.................. 1,357 116 1,875 820 4,168
======= ======= ======= ======= =======
</TABLE>
- ---------------
The Group's share of associated undertakings results of operations in 1998
was a profit of $40 million (1997 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 $1,349 million and 1996 nil).
(a) Information given in this note relates to the Group's oil and natural gas
activities. Midstream activities of natural gas gathering and distribution
and the operation of the main pipelines and tankers are excluded. The main
midstream activities are the Alaskan transportation facilities, the Forties
Pipeline system, the Central Area Transmission system and Ruhrgas gas
distribution operations. Profits on sale of businesses and fixed assets
relating to the oil and natural gas exploration and production activities
which have been accounted as exceptional items are also excluded.
(b) Accumulated depreciation consists of depreciation, depletion and
amortization related to oil and natural gas producing activities.
(c) Exploration and appraisal drilling expenditure and licence acquisition
costs are initially capitalized within intangible fixed assets in
accordance with the Group's accounting policy.
(d) Turnover represents sales of production excluding royalty oil where royalty
is payable in kind.
(e) Includes cost of royalty oil not taken in kind and property taxes.
F-64
<PAGE> 65
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 42 -- OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (a) (CONCLUDED)
(f) The exploration and production total replacement cost operating profit
comprises:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997 1996
------ ------ ------
($ million)
<S> <C> <C> <C>
Exploration and production activities
Group..................................................... 2,341 6,378 6,843
Associated undertakings................................... 21 13 (1)
Midstream activities........................................ 869 994 921
----- ----- -----
Total replacement cost operating profit..................... 3,231 7,385 7,763
===== ===== =====
</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 prior to the adoption of FRS12 -- See Note 45. 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-65
<PAGE> 66
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
-----------------------
Pre FRS9
Restated(a) --------
($ 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 on sale of businesses................................ 127 127
Profit 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-66
<PAGE> 67
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
-----------------------
Pre FRS9
Restated(a) --------
($ 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-67
<PAGE> 68
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
-----------------------
Pre FRS9
Restated(a) --------
($ 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>
- ------------
(a) Restated prior to the adoption of FRS12 -- See Note 45.
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, December 31, 1997 and
December 31, 1996.
F-68
<PAGE> 69
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
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).
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 and 1996 nil) 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 million). The carrying value of inventory is increased by $549 million
in 1998 (1997 $955 million and 1996 $1,506 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 and 1996 $1,690 million).
F-69
<PAGE> 70
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
(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 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 and
1996 $286 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 $211 million.
F-70
<PAGE> 71
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
US/UK Total
Amoco GAAP Amoco Pre FRS12
US GAAP adjustment UK GAAP BP BP Amoco
-------- ---------- -------- ------- ---------
($ 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-71
<PAGE> 72
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 Total
Amoco GAAP Amoco Pre FRS12
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-72
<PAGE> 73
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 Total
Amoco GAAP Amoco Pre FRS12
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-73
<PAGE> 74
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>
Total
Amoco US/UK GAAP Amoco Pre FRS12
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-74
<PAGE> 75
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>
Total
Amoco US/UK GAAP Amoco Pre FRS12
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
------- ------ ------ ------ ------
6,557 1,018 7,575 13,151 20,726
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-75
<PAGE> 76
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 44 -- MERGER ACCOUNTING (CONTINUED)
BALANCE SHEET AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Total
Amoco US/UK GAAP Amoco Pre FRS12
US GAAP adjustment UK GAAP BP BP Amoco
------- ---------- ------- ------ ---------
($ million)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets........................... 983 (10) 973 1,621 2,594
Tangible assets............................. 23,267 (204) 23,063 31,780 54,843
Investments
Joint ventures........................... -- -- --
Associated undertakings.................. 689 3,301 3,990
Other.................................... -- 174 174
------ ------ ------
796 (107) 689 3,475 4,164
------ ------ ------ ------ ------
TOTAL FIXED ASSETS............................ 25,046 (321) 24,725 36,876 61,601
------ ------ ------ ------ ------
CURRENT ASSETS
Inventories................................. 1,069 1,498 2,567 5,085 7,652
Trade and other receivables -- falling due:
Within one year.......................... 4,076 -- 4,076 10,606 14,682
After more than one year................. 540 39 579 2,221 2,800
Investments................................. 1,135 -- 1,135 98 1,233
Cash at bank and in hand.................... 186 -- 186 161 347
------ ------ ------ ------ ------
7,006 1,537 8,543 18,171 26,714
CURRENT LIABILITIES -- AMOUNTS FALLING DUE
WITHIN ONE YEAR
Finance debt................................ 972 -- 972 1,788 2,760
Trade payables, other accounts payable and
accrued liabilities...................... 5,014 (94) 4,920 16,155 21,075
------ ------ ------ ------ ------
NET CURRENT ASSETS (LIABILITIES).............. 1,020 1,631 2,651 228 2,879
------ ------ ------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES......... 26,066 1,310 27,376 37,104 64,480
NONCURRENT LIABILITIES
Finance debt................................ 4,217 -- 4,217 5,871 10,088
Accounts payable and accrued liabilities.... 279 -- 279 2,586 2,865
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation........................... 2,185 (1,666) 519 684 1,203
Other....................................... 2,848 (11) 2,837 6,155 8,992
------ ------ ------ ------ ------
NET ASSETS.................................... 16,537 2,987 19,524 21,808 41,332
Minority shareholders' interest............... 129 -- 129 184 313
------ ------ ------ ------ ------
BP AMOCO SHAREHOLDERS' INTEREST............... 16,408 2,987 19,395 21,624 41,019
====== ====== ====== ====== ======
</TABLE>
F-76
<PAGE> 77
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>
Total
Amoco Pre FRS12
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 -- NEW ACCOUNTING STANDARD FOR PROVISIONS
The group has adopted Financial Reporting Standard No. 12 "Provisions,
Contingent Liabilities and Contingent Assets" (FRS12) with effect from January 1
1999. This standard changes the criteria for recognizing provisions for such
costs as decommissioning, environmental liabilities and restructuring charges.
It also requires provisions for liabilities which may not be settled for a
number of years to be discounted to their net present value. The adoption of
this standard has been treated as a change in accounting policy. Comparative
figures have been restated to reflect this change in accounting policy.
The principal effects of the adoption of FRS12 are as follows:
(a) Provisions for environmental liabilities are determined on a
discounted basis as the effect of the time value of money is material.
Previously these liabilities were on an undiscounted basis.
(b) Provisions for decommissioning are recognized in full, on a
discounted basis, at the commencement of oil and natural gas production.
The group's prior practice was to accrue the expected cost of
decommissioning oil and natural gas production facilities on a unit-of-
production basis over the life of the field. FRS12 also requires the
group to capitalize an amount equivalent to the provision as a tangible
fixed asset and to amortize this amount over the life of the field on a
unit-of-production basis.
(c) The unwinding of the discount, which represents a period-by-period
cost, is included within interest expense.
(d) Certain restructuring costs associated with refinery network
rationalization and European refining and marketing joint venture
implementation are recognized in a later period than originally
charged.
Information for 1998, 1997 and 1996 has been restated to conform with
FRS12. A summarized income statement and balance sheet for BP Amoco on a FRS12
basis and as would have been prepared previously are shown below. There is no
impact on the BP Amoco cash flow statement.
F-77
<PAGE> 78
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 45 -- NEW ACCOUNTING STANDARD FOR PROVISIONS (CONTINUED)
INCOME STATEMENT
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Restated Pre FRS12 Restated Pre FRS12 Restated Pre FRS12
-------- --------- -------- --------- -------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Turnover.............................. 83,732 83,732 108,564 108,564 102,064 102,064
Less: Joint ventures.................. 15,428 15,428 16,804 16,804 -- --
BP Amoco Group turnover............... 68,304 68,304 91,760 91,760 102,064 102,064
------- -------- ------- -------- ------- --------
Total replacement cost operating
profit.............................. 6,521 6,437 10,683 10,583 10,634 10,544
Profit on sale of businesses and fixed
assets.............................. 1,048 1,048 440 440 (171) (171)
Merger expenses....................... (198) (198) -- -- -- --
Refinery network rationalization...... -- -- (47) 71 (24) --
European refining and marketing joint
venture implementation.............. -- -- (265) -- (267) (532)
------- -------- ------- -------- ------- --------
Replacement cost profit before
interest and tax.................... 7,371 7,287 10,811 11,094 10,172 9,841
Inventory holding gains (losses)...... (1,391) (1,391) (939) (939) 1,172 1,172
------- -------- ------- -------- ------- --------
Historical cost profit before interest
and tax............................. 5,980 5,896 9,872 10,155 11,344 11,013
Interest expense...................... 1,173 1,053 1,032 908 1,128 1,004
------- -------- ------- -------- ------- --------
Profit before taxation................ 4,807 4,843 8,840 9,247 10,216 10,009
Taxation.............................. 1,520 1,520 3,013 3,066 2,783 2,755
------- -------- ------- -------- ------- --------
Profit after taxation................. 3,287 3,323 5,827 6,181 7,433 7,254
Minority shareholders' interest....... 63 63 151 151 13 13
------- -------- ------- -------- ------- --------
Profit for the year................... 3,224 3,260 5,676 6,030 7,420 7,241
======= ======== ======= ======== ======= ========
</TABLE>
BALANCE SHEET
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Restated Pre FRS12 Restated Pre FRS12 Restated Pre FRS12
-------- --------- -------- --------- -------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets................... 3,037 3,037 2,582 2,582 2,594 2,594
Tangible assets..................... 54,880 54,465 52,595 52,263 55,179 54,843
Investments......................... 9,772 9,772 10,376 10,376 4,164 4,164
------- -------- ------- -------- ------- --------
67,689 67,274 65,553 65,221 61,937 61,601
------- -------- ------- -------- ------- --------
Current assets
Inventories......................... 3,642 3,642 4,923 4,923 7,652 7,652
Receivables......................... 12,709 12,709 14,381 14,381 17,482 17,482
Investments......................... 470 470 1,067 1,067 1,233 1,233
Cash at bank and in hand............ 405 405 355 355 347 347
------- -------- ------- -------- ------- --------
17,226 17,226 20,726 20,726 26,714 26,714
------- -------- ------- -------- ------- --------
</TABLE>
F-78
<PAGE> 79
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 45 -- NEW ACCOUNTING STANDARD FOR PROVISIONS (CONCLUDED)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Restated Pre FRS12 Restated Pre FRS12 Restated Pre FRS12
-------- --------- -------- --------- -------- ---------
($ million)
<S> <C> <C> <C> <C> <C> <C>
Current liabilities
Finance debt........................ 2,837 2,837 2,856 2,856 2,760 2,760
Other creditors..................... 15,329 15,329 17,671 17,671 20,745 21,075
------- -------- ------- -------- ------- --------
Net current assets (liabilities)...... (940) (940) 199 199 3,209 2,879
------- -------- ------- -------- ------- --------
Total assets less current
liabilities......................... 66,749 66,334 65,752 65,420 65,146 64,480
Non-current liabilities
Finance debt........................ 10,918 10,918 10,021 10,021 10,088 10,088
Other creditors..................... 2,047 2,109 2,501 2,562 2,789 2,866
Provisions for liabilities and charges
-- deferred taxation................ 1,632 1,632 1,183 1,183 1,203 1,203
-- other provisions................. 8,468 8,817 8,337 8,806 8,519 8,992
------- -------- ------- -------- ------- --------
Net assets............................ 43,684 42,858 43,710 42,848 42,547 41,331
Minority shareholders' interest....... 1,072 1,072 1,100 1,100 313 313
------- -------- ------- -------- ------- --------
BP Amoco shareholders' interest....... 42,612 41,786 42,610 41,748 42,234 41,018
------- -------- ------- -------- ------- --------
Represented by capital and reserves
Called up share capital............. 4,863 4,863 4,330 4,330 4,382 4,382
Reserves............................ 37,749 36,923 38,280 37,418 37,852 36,636
------- -------- ------- -------- ------- --------
42,612 41,786 42,610 41,748 42,234 41,018
------- -------- ------- -------- ------- --------
</TABLE>
NOTE 46 -- 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
F-79
<PAGE> 80
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(A) GROUP CONSOLIDATION (CONCLUDED)
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.
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................................... 1,173 (162) 1,011
Taxation........................................... 1,520 (132) 1,388
Profit for the year................................ 3,224 -- 3,224
</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.................. 128 123 251
Inventory holding gains (losses)................... (939) 200 (739)
Interest expense................................... 1,032 (83) 949
Taxation........................................... 3,013 (108) 2,905
Profit for the year................................ 5,676 -- 5,676
</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.................. (462) -- (462)
Inventory holding gains (losses)................... 1,172 -- 1,172
Interest expense................................... 1,128 (68) 1,060
Taxation........................................... 2,783 (141) 2,642
Profit for the year................................ 7,420 -- 7,420
</TABLE>
F-80
<PAGE> 81
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(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.
(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 $1,619 million
at December 31, 1996) and the related deferred tax liability $1,236 million
($1,492 million at December 31, 1997 and $1,666 million at December 31,
1996). 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 $127 million).
F-81
<PAGE> 82
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(E) DEFERRED TAXATION -- (CONCLUDED)
The UK/US GAAP adjustment for deferred taxation may be summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
($ million)
<S> <C> <C> <C>
Increase in provision from restricted liability to gross
potential liability....................................... 4,677 4,303 4,270
Tax liability resulting from business combination........... 1,236 1,492 1,666
Net tax asset on sale and leaseback of Chicago office
building, severance costs, European joint venture
implementation costs, and other adjustments............... (137) (74) (48)
----- ----- -----
5,776 5,721 5,888
===== ===== =====
</TABLE>
The major components of deferred tax liabilities and assets on a US GAAP
basis were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Depreciation............................................ (11,087) (11,399) (11,497)
Other taxable temporary differences..................... (1,249) (1,165) (829)
------- ------- -------
Total deferred tax liabilities.......................... (12,336) (12,564) (12,326)
------- ------- -------
Petroleum revenue tax................................... 420 484 602
Decommissioning and other provisions.................... 2,279 2,286 2,380
Advance corporation tax................................. 33 725 656
Tax credit and loss carry forward....................... 1,870 2,271 1,898
Other deductible temporary differences.................. 1,080 901 426
------- ------- -------
Gross deferred tax assets............................... 5,682 6,667 5,962
Valuation allowance..................................... (754) (1,007) (727)
------- ------- -------
Net deferred tax assets................................. 4,928 5,660 5,235
------- ------- -------
Net deferred tax liability*............................. 7,408 6,904 7,091
======= ======= =======
</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
$79 million were not recognized in 1997. Of these costs $39 million was
recognized in 1998.
(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-82
<PAGE> 83
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- 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 $257 million in 1997.
(H) ORDINARY SHARES HELD FOR FUTURE AWARDS TO EMPLOYEES
Under UK GAAP, Company shares held by an ESOP to meet future requirements
of employee share schemes are recorded in the balance sheet as Fixed assets
-- investments. Under US GAAP, such shares are recorded in the balance
sheet as a reduction of shareholders' interest.
(I) SALE AND LEASEBACK
The sale and leaseback of the Amoco building in Chicago, Illinois is
treated as a sale for UK GAAP whereas for US GAAP it is treated as a
financing transaction.
(J) DIVIDENDS
Under UK GAAP, dividends are recorded in the year in respect of which they
are announced or declared by the board of directors to the shareholders.
Under US GAAP, dividends are recorded in the period in which dividends are
declared.
F-83
<PAGE> 84
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The following is a summary of the adjustments to profit for the year and to
BP Amoco shareholders' interest which would be required if US GAAP had been
applied instead of UK GAAP:
PROFIT FOR THE YEAR
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million except
per share amounts)
<S> <C> <C> <C>
Profit as reported in the consolidated statement of
income.................................................... 3,224 5,676 7,420
Adjustments:
Depreciation charge....................................... (76) (101) (118)
Decommissioning expenses.................................. (131) (161) (148)
Deferred taxation......................................... (72) 41 (490)
Interest expense.......................................... 120 124 124
Severance costs........................................... (39) 79 4
European joint venture implementation costs............... (8) 8 --
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 $0.56 $0.73
Diluted................................................... $0.29 $0.56 $0.73
======= ======= =======
Per American Depositary Share
Basic..................................................... $1.74 $3.54 $4.26
Diluted................................................... $1.74 $3.54 $4.26
======= ======= =======
</TABLE>
F-84
<PAGE> 85
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
BP AMOCO SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
BP Amoco shareholders' interest as reported in the
consolidated balance sheet................................ 42,612 42,610 42,234
Adjustments:
Fixed assets.............................................. 1,112 1,116 1,283
Deferred taxation......................................... (5,776) (5,721) (5,888)
Severance costs........................................... 32 71 120
European joint venture implementation costs............... -- 8 287
Ordinary shares held for future awards to employees....... (489) (319) --
Sale and leaseback of Chicago office building............. (413) -- --
Fourth quarterly dividend................................. 968 543 465
Pension liability adjustment.............................. (143) (110) (100)
Decommissioning........................................... (349) (474) (490)
Other..................................................... (220) (220) (652)
------- ------- -------
BP Amoco shareholders' interest as adjusted to accord with
US GAAP................................................... 37,334 37,504 37,259
======= ======= =======
</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 and $2,800
million at December 31, 1996), 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
F-85
<PAGE> 86
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
short-term investments with original maturities exceeding three months are
included in operating activities.
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....................................... 3,287 5,827 7,433
Adjustments to reconcile profit after tax to net cash
provided by operating activities:
Depreciation and amounts provided......................... 5,301 5,117 5,426
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 2,370 (2,560)
Other..................................................... 251 379 250
------- ------- -------
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>
- ---------------
F-86
<PAGE> 87
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
\
<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) (1,489) 2,437
------- ------- -------
380 2,370 (2,560)
======= ======= =======
</TABLE>
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 December 31, 1996 gains $1,079 million) and pension liability
adjustments of $143 million (December 31, 1997 $110 million and December 31,
1996 $117 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.
F-87
<PAGE> 88
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 46 -- US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONCLUDED)
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
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 47 -- 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-88
<PAGE> 89
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 47 -- 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)................ 3,231 2,564 1,100 (374) 6,521
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.......... 3,610 1,730 997 (357) 5,980
----------- --------- --------- --------- -------
Total assets (f)................... 47,808 21,029 12,562 3,516 84,915
Operating capital employed (g)..... 39,165 13,256 10,516 (1,845) 61,092
Depreciation and amounts provided
(h).............................. 4,272 790 497 115 5,674
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)................ 7,385 2,292 1,530 (524) 10,683
Exceptional items (e).............. 587 (422) (15) (22) 128
Inventory holding gains (losses)... 12 (849) (102) -- (939)
----------- --------- --------- --------- -------
Historical cost profit (loss)
before interest and tax.......... 7,984 1,021 1,413 (546) 9,872
----------- --------- --------- --------- -------
Total assets (f)................... 46,024 24,055 12,141 4,059 86,279
Operating capital employed (g)..... 36,773 14,764 10,010 (1,035) 60,512
Depreciation (h)................... 3,957 842 559 124 5,482
Capital expenditure and
acquisitions (i)................. 7,879 1,824 1,145 572 11,420
</TABLE>
F-89
<PAGE> 90
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 47 -- 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)................ 7,763 1,708 1,654 (491) 10,634
Exceptional items (e).............. (100) (313) 169 (218) (462)
Inventory holding gains (losses)... 8 1,076 88 -- 1,172
----------- --------- --------- --------- -------
Historical cost profit (loss)
before interest and tax.......... 7,671 2,471 1,911 (709) 11,344
----------- --------- --------- --------- -------
Total assets (f)................... 44,450 27,646 12,128 4,427 88,651
Operating capital employed (g)..... 34,656 15,033 9,859 (793) 58,755
Depreciation (h)................... 4,287 1,146 447 120 6,000
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).......................... 1,931 1,249 2,631 710 6,521
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............................. 1,756 1,072 2,422 730 5,980
------- ------- ------- ------- -------
Total assets (f)...................... 22,747 8,538 35,823 17,807 84,915
Operating capital employed (g)........ 14,188 5,053 26,740 15,111 61,092
Capital expenditure and acquisitions
(i)................................. 2,463 1,248 3,720 2,931 10,362
</TABLE>
F-90
<PAGE> 91
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 47 -- 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).......................... 2,767 1,332 4,360 2,224 10,683
Exceptional items (e)................. (133) (205) 456 10 128
Inventory holding gains (losses)...... (85) (103) (647) (104) (939)
------- ------- ------- ------- -------
Historical cost profit before interest
and tax............................. 2,549 1,024 4,169 2,130 9,872
------- ------- ------- ------- -------
Total assets (f)...................... 22,520 9,246 36,533 17,980 86,279
Operating capital employed (g)........ 12,853 4,821 26,563 16,275 60,512
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).......................... 2,742 988 4,265 2,639 10,634
Exceptional items (e)................. (255) (186) 133 (154) (462)
Inventory holding gains (losses)...... 60 219 717 176 1,172
------- ------- ------- ------- -------
Historical cost profit before interest
and tax............................. 2,547 1,021 5,115 2,661 11,344
------- ------- ------- ------- -------
Total assets (f)...................... 23,575 10,724 36,399 17,953 88,651
Operating capital employed (g)........ 12,077 5,308 25,983 15,387 58,755
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-91
<PAGE> 92
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 47 -- 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 1,362 249 3,990
----------- --------- --------- ------------ -------
</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
$646 million) for the BP/Mobil joint venture.
(j) United Kingdom area includes the UK-based international activities of
Refining and Marketing.
(k) Turnover to third parties is stated by origin which is not materially
different from turnover by destination.
NOTE 48 -- SUMMARIZED FINANCIAL INFORMATION ON ASSOCIATED UNDERTAKINGS AND JOINT
VENTURES
A summarized statement of income and assets and liabilities based on latest
information available, with respect to the Group's equity accounted associated
undertakings and joint ventures, is set out below:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1998 1997(a) 1996
------- ------- -------
($ 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)
------- ------- 1996
($ million) -------
<S> <C> <C> <C>
Fixed and other assets...................................... 25,534 21,243 15,511
Current assets.............................................. 11,626 12,671 7,063
------- ------- -------
37,160 33,914 22,574
Current liabilities......................................... (12,703) (11,098) (6,725)
Noncurrent liabilities...................................... (7,604) (7,111) (5,059)
------- ------- -------
Net assets.................................................. 16,853 15,705 10,790
======= ======= =======
</TABLE>
- ------------
F-92
<PAGE> 93
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 48 -- 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 49 -- 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)............................................ 1,819 3,204 3,710
Profit for the year (c)(d).................................. 527 930 1,167
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Fixed and other assets...................................... 13,783 13,265 12,986
Current assets.............................................. 3,002 3,642 4,008
------- ------- -------
Total assets................................................ 16,785 16,907 16,994
======= ======= =======
Current liabilities......................................... 5,172 5,048 4,659
Noncurrent liabilities...................................... 5,759 6,436 7,145
Shareholders' interest...................................... 5,854 5,423 5,190
------- ------- -------
Total liabilities and shareholders' interest................ 16,785 16,907 16,994
======= ======= =======
</TABLE>
F-93
<PAGE> 94
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 49 -- 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)............................................ 1,617 2,897 3,416
Profit for the year (c)(d)(e)(f)............................ 655 1,010 1,583
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Fixed and other assets...................................... 12,387 11,693 11,227
Current assets.............................................. 4,547 5,032 5,286
------- ------- -------
Total assets................................................ 16,934 16,725 16,513
======= ======= =======
Current liabilities......................................... 2,772 2,687 2,534
Noncurrent liabilities...................................... 5,562 5,847 5,872
Shareholders' interest...................................... 8,600 8,191 8,107
------- ------- -------
Total liabilities and shareholders' interest................ 16,934 16,725 16,513
======= ======= =======
</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)............................................ 239 242 271
Profit for the year (c)(e)(f)............................... 140 123 334
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Fixed and other assets...................................... 1,362 1,373 1,434
Current assets.............................................. 803 614 495
------- ------- -------
Total assets................................................ 2,165 1,987 1,929
======= ======= =======
Current liabilities......................................... 152 97 98
Noncurrent liabilities...................................... 994 985 999
Shareholders' interest...................................... 1,019 905 832
------- ------- -------
Total liabilities and shareholders' interest................ 2,165 1,987 1,929
======= ======= =======
</TABLE>
F-94
<PAGE> 95
BP AMOCO P.L.C. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 49 -- 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)..................................... (65) 1,150 1,377
(Loss) profit for the year (e)(f)........................... (60) 959 820
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
------- ------- -------
($ million)
<S> <C> <C> <C>
Fixed and other assets...................................... 9,267 9,828 9,932
Current assets.............................................. 2,273 2,507 2,446
------- ------- -------
Total assets................................................ 11,540 12,335 12,378
======= ======= =======
Current liabilities......................................... 628 1,084 1,050
Noncurrent liabilities...................................... 1,582 1,612 1,962
Shareholders' interest...................................... 9,330 9,639 9,366
------- ------- -------
Total liabilities and shareholders' interest................ 11,540 12,335 12,378
======= ======= =======
</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) 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.
(e) 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.
(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-95
<PAGE> 96
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........................................................................... 1,110
Purchases of reserves-in-place....................................................... 90
Production........................................................................... (72)
-------
At December 31......................................................................... 1,128
=======
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS.............................. 8,432
=======
</TABLE>
F-96
<PAGE> 97
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................................................ 984
Net revisions and other changes........................... (23)
Purchases of reserves-in-place............................ 194
Production................................................ (45)
-----
At December 31.............................................. 1,110 (d)
=====
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS... 8,722
=====
</TABLE>
F-97
<PAGE> 98
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....................................................................... 1,027
Net revisions and other changes.................................................. (1)
Production....................................................................... (42)
-------
At December 31..................................................................... 984
=======
TOTAL GROUP AND BP AMOCO SHARE OF ASSOCIATED UNDERTAKINGS.......................... 8,309
=======
</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) Excludes reserves in Sidanco and Rusia.
F-98
<PAGE> 99
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-99
<PAGE> 100
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-100
<PAGE> 101
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-101
<PAGE> 102
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-102
<PAGE> 103
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-103
<PAGE> 104
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-104
<PAGE> 105
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-105
<PAGE> 106
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-106
<PAGE> 107
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...... 2,886 130 96 (31) 3,081
========== ========== ========== ========== ============
1997
Fixed assets -- Investments
(b)........................... 34 -- (1) (8) 25
========== ========== ========== ========== ============
Doubtful debts (b).............. 159 45 (6) (68) 130
========== ========== ========== ========== ============
Decommissioning provisions...... 2,857 57 57 (85) 2,886
========== ========== ========== ========== ============
1996
Fixed assets -- Investments
(b)........................... 34 -- 2 (2) 34
========== ========== ========== ========== ============
Doubtful debts (b).............. 155 37 (2) (31) 159
========== ========== ========== ========== ============
Decommissioning provisions...... 2,803 60 154 (160) 2,857
========== ========== ========== ========== ============
</TABLE>
- ------------
(a) Principally currency translations.
(b) Deducted in the balance sheet from the assets to which they apply.
S-1
<PAGE> 108
(LOGO) Printed in London U40594
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...................................... 4,807
BP Amoco's share of income in excess of dividends from joint
ventures and associated undertakings...................... (136)
Capitalized interest........................................ (119)
------------
Profit as adjusted.......................................... 4,552
============
Fixed charges
Interest net of interest expense of joint ventures and
associated undertakings and unwinding of discount...... 891
Rental expense representative of interest................. 369
Capitalized interest...................................... 119
------------
1,379
============
Total adjusted earnings available for payment of fixed
charges................................................... 5,931
============
Ratio of earnings to fixed charges.......................... 4.30
============
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
