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2016-03-04 19:40:00






Chairman's letter

Dear fellow shareholder,

2015 has been another challenging year: oil prices have remained low, falling by more than 50% and our industry finds itself in a position not seen for some 30 years. This sustained low price is a result, not of lack of demand, but of oversupply. However, our work in reconfiguring BPfollowing the incidentin the Gulf of Mexico has meant that we were prepared and well positioned to respond to this volatile environment as we move through 2016.

Shareholders and distributions

We have maintained our dividend during the year and remain committed to growing sustainable free cash flow and shareholder distributions over the long term. I believe that our current financial framework can support these commitments.

The board considers shareholder distributions in the context of how to achieve long-term growth and value creation. In the current weaker price environment, our aim is to rebalance our sources and uses of cash to ensure we cover capital expenditure and shareholder distributions with operating cash flow. This will enable BP to continue to develop its business while maintaining safe and reliable operations. We anticipate that all the actions we are taking will capture more deflation and drive the point of rebalance to below $60 per barrel. The board will keep all of this under review and will make any adjustments to our financial framework as circumstances require. 


The proposed consent decreewith the United States federal governmentand settlements with the US Gulf states arean important step. It has enabled us to look at the future with greater confidence. However the current price environment continues to be a cause for concern and so we have set a financial path for the next two years. This medium-term strategy is based on optimizing our deployment and allocation of capital and the continuing simplification of our business while maintaining our commitment to safety and reliability. 

Our financial results over the year demonstrated the benefit from the integration of our upstream and downstream activities. We have a strong, refocused and rebalanced portfolio based on our distinctive capabilities which we believe will enable us to withstand lower prices. In the future, we will continue to invest in a balanced range of resources and geographies across the Upstream and Downstream to enable us to achieve long-term growth. 

We have recently published our BP Energy Outlook. I believe this makes an important contribution to the discourse and debate in this area. As the world continues to develop economically then oil, and increasingly gas, will be needed for the foreseeable future. This is the core of our business. Overall we keep under review the broader strategic direction of the groupas the market for ourproducts evolves and the energy landscape starts to change. 

2015 has seen increased focus on climate change. BP has consistently argued for a price on carbon and recognized the part we all must play in being part of the solution. However governments must take the lead in developingpolicies to reduce carbon emissions and we continue to engage in this debate. The UN conference on climate change has produced some clear results and I am proud of the part that Bob has played in leading the initiative within our industry. At our last AGM in April the board was pleased to support a resolution brought by a group of our shareholders that encouraged greater disclosure of our work in this area; our evolving response to this is set out in our Sustainability Report due for publication this March. 


The world continues to be a troubled place and the risks faced by BPare ever evolving.  The board keeps under review its approach to the monitoring of risk – as demonstrated by the board's oversight of cybersecurity and the sharpened focus on geopolitical risk through the formation of the geopolitical committee. This is complemented by the work of our international advisory board. As we progress with our litigation in the US, we expect to stand down the Gulf of Mexico committee during 2016 and I would like to thank my colleagues for the important work and focus they have given to this committee over the past five years. Oversight of the continuing litigation will fall to the full board. 

Governance and succession 

Membership of the board has continued to be refreshed and during the year Paula Reynolds and Sir John Sawers joined us as non-executive directors. Paula brings deep experience from the financial and energy worlds, while John brings long experience of international politics and security that are so important to our business. Professor Dame Ann Dowling has taken the chair of the remuneration committee in anticipation of Antony Burgmans standing down from the board after twelve years. Antony has chaired the remuneration committee and is also chairing the newly formed geopolitical committee until April when Sir John Sawers will succeed him. Phuthuma Nhleko, who joined the board in 2011, has decided not to offer himself for re-election at the forthcoming AGM due to external business commitments. On behalf of the board I thank Antony and Phuthuma for the substantial contribution that they have made to all of our work. 

In 2015 Bob and his executive team have worked determinedly to steer the business through some difficult times with some tough decisions. They have met every challenge and as a result the business is in robust shape as we go into 2016. They deserve our thanks as do all our employees. I would like to thank the board for all that they have done. And I would like to thank our shareholders for your continued support. We are set to continue supplying energy to help meet global demand while delivering value to you from a great business. 

Carl-Henric Svanberg


Group chief executive's letter 

Dear fellow shareholder, 

In 2015 we continued to adapt to the tough environment created by the dramatic drop in oil prices. We have seen prices crash before, but this fall has been particularly steep, from over $100 a barrel in mid-2014 to below $30 by January 2016. The work we have done to reshape and strengthen BP after 2010 stood us in good stead to withstand these conditions and last year we took further action to make the business more resilient in the short term. We also continue to invest for long-term growth. Our safety record improved, along with operating reliability, while costs came down and capital discipline was maintained. The current environment has however impacted our financial results, as well as those of our competitors. So, while the oil price is beyond our control, we have performed strongly on the factors that we can control. 

A safer, more reliable, more resilient BP 

In terms of safety, our top priority, we achieved improvements year-on-year in all of our key safety measures – process safety events, leaks, spills and other releases, and recordable injuries. This performance is at a much better level than five years ago and in line with the best among our peers. Safety is also good business. When we operate safely, our operations are more reliable. When the assets run reliably, they operate more continuously.

When our operations run efficiently, we have better financial results. 

In the current business environment, competitiveness depends on minimizing our costs and being disciplined in our use of limited capital – as demonstrated by our organic capital expenditure in 2015 of $18.7 billion, down from nearly $23 billion in 2014. And we continue to focus our portfolio on the highest quality projects and operations, divesting $10 billion worth of assets in 2014 and 2015, in line with our target. 

2015 was a challenging year for our Upstream business, with weaker oil and gas realizations leading to a significantly lower underlying pre-tax replacement cost profit of $1.2 billion. However, efficiency and reliability improved across the business in 2015. 

Upstream unit production costs were down 20% on 2013, and BP-operated plant reliability increased to 95% from 86% in 2011. We have made our base production more resilient by improving our reservoir management and increasing efficiencies in our drilling and operations – lowering the decline rate and reducing non-productive time in drilling to its lowest level since 2011. And the decision to manage our US Lower 48 business separately is starting to deliver improvements in performance and competitiveness. 

Our Downstream business had a record year, delivering $7.5 billion of underlying pre-tax replacement cost profit, demonstrating the benefit of being an integrated business. Our refining business is ranked among the top performers based on net cash margin in the most recent industry benchmark. We made improvements in safety, efficiency and operational performance, and continued to develop a portfolio of highly competitive assets and products. These include the launch in Spain of a new range of fuels with enginecleaning and fuel-economy benefits, the unveiling of Nexcelfrom Castrol– a technology with the potential to revolutionize the oil changing process in vehicles, and the start-up of Zhuhai 3 in China – one of the most efficient purified terephthalic acid production units in the world. 

Our executive vice president for corporate business activities, Katrina Landis, decided to step down after a very successful 24 years in BP. We have taken this opportunity to simplify and better align responsibilities within the team, appointing Lamar McKay as deputy chief executive, leading on key accountabilities such as strategy and safety, with Bernard Looney succeeding Lamar as Upstream chief executive. 

Building a platform for growth 

The agreements we reached in July with US federal, state and the vast majority of local government bodies will, subject to court approval, settle our largest remaining legal exposures relating to the Deepwater Horizon accident and oil spill in 2010. This is a realistic outcome that gives BP clarity to plan for the future. 

To build that future, we are continuing to invest in a disciplined way in a portfolio that is well balanced in several respects – geographically across regions, across our upstream and downstream businesses and across resource types – conventional and unconventional oil and gas, as well as the renewable energies of biofuels and wind. This gives us resilience and flexibility now and in the future. 

In the Upstream, in addition to a well-managed base of existing operations, we had three major project start-ups in 2015 and we made final investment decisions on four projects, including the West Nile Delta project in Egypt, where we are seeing some best-in-class drilling performance. Looking ahead, we expect significant new production from projects starting up between 2015 and 2020, including our mega projects at Shah Deniz 2 in Azerbaijan and Khazzan in Oman, which will create value for decades. These projects are on time and on budget. 

In the Downstream, we continue to focus on resilient and improving performance and growth from a quality portfolio of high-performing refineries, a competitive petrochemicals business and growing fuelsmarketing and lubricants businesses. 

In 2015 we furthered our relationship with Rosneft to that of a strategic partner, with involvement in exploration, appraisal and production in some of the world's most prolific oil and gas provinces. In China, we have signed new agreements to supply liquefied natural gas and to explore for shale gas. And we continue to build relationships in BP's historic heartlands of the Middle East, with growing opportunities in Oman, Kuwait, Egypt and Iraq. 

Acting on climate change 

We continue to support action to address the risk of climate change. Through the Oil and Gas Climate Initiative – a business coalition that accounts for over a fifth of global oil and gas production – we are sharing best practices and developing common approaches, such ason the role of natural gas, the lowest-carbon fossil fueland on energy efficiency. We also joined with BG Group, Eni, Reliance, Repsol, Royal Dutch Shell, Statoil and Total to call on the UN and governments to put a price on carbon so that businesses and consumers of energy can better work within frameworks that are clear. 

We welcome the direction provided by the historic agreement reached at the UNclimate conference in Paris. Governments, companies and consumers all have to make an appropriate contribution and we will continue to play our part through means including energy efficiency, renewable energy and increasing the share of natural gas in our portfolio. 

Adapting for now and the future 

Over the years BP has responded to changing circumstances many times. Each time we have learned, adapted and evolved. This experience, gained over more than 100 years, is one of our greatest assets. Today, we are well placed to weather the storm and navigate through a testing environment to emerge in good shape for taking advantage of new opportunities. I am confident that BP will be delivering energy for our customers and value for our shareholders long into the future. 

Bob Dudley


Our market outlook 

We believe that a diverse mix of fuels and technologies will be essential to meet the growing demand for energy and challenges facing our industry. 

Near-term outlook 

The global economy continues to experience weaker growth in the main developing economies and slower than expected recovery in the developed world. World gross domestic product (GDP) is expected to grow by 2.8% in 2016, led by the OECD, but with significant downside risks from emerging economies, particularly commodity exporters.

After around four years of averaging about $100 per barrel, oil prices fell by nearly 50% in 2015. 

Even as US production growth stalled and global oil demand rebounded, a large increase in OPEC production continued to push inventories higher. 

Price declines continued into early 2016, with daily prices reaching levels not seen since 2004. 

Prices are expected to remain low at least through the near term. And while we anticipate supply chain deflation in 2016 and beyond, as industry costs follow oil prices with a lag, this will be a tough period of intense change for the industry as it adapts to this new reality. 

Long-term outlook 

The world economy is likely to more than double from 2014 to 2035, largely driven by rising incomes in the emerging economies and a projected population increase of 1.5 billion. 

We expect world demand for energy to increase by as much as 34% between 2014 and 2035. 

This is after taking into account improvements in energy efficiency, a shift towards less energyintensive activities in fast-growing economies, governmental policies that incentivize lowercarbon activity,and national pledges made at the 2015 UNclimateconference in Paris.

There are more than enough energy resources to meet this growing demand, but there are a number of challenges. 


Fossil fuels are currently cheaper than renewables but their future costs are hard to predict. Some fossil fuels may become more costly as the difficulty to access and process them increases; others may bemore affordable with technological progress, as seen with US shale gas. While many renewables remain expensive, innovation and wider deployment are likely to bring down their costs. 

Supply security 

Energy resources are often distant from the hubs of energy consumption and in places facing political uncertainties. More than half of the world's known oil and natural gas reserves are located in just eight countries.


Fossil fuels – though plentiful and currently more affordable than other energy resources – emit carbon dioxide (CO2) and other greenhouse gases (GHG) through their production and use in homes, industry and vehicles. Renewables are lowercarbon but can have other environmental or social impacts, such as high water consumption or visual intrusion.

Effective policy 

BP believes that carbon pricing is the most comprehensive and economically efficient policy to limit GHGemissions. Putting a price on carbon – one that treats all carbon equally, whether it comes out of a smokestack or a car exhaust – would make energy efficiency more attractive and lower-carbon energy sources, such as natural gas and renewables,more cost competitive. A carbon price incentivizes both energy producersand consumers to reduce their GHG emissions. Governments can put a price on carbon via a well-constructed carbon tax or cap-and-trade system.

Energy efficiency 

Greater efficiency helps with affordability – because less energy is needed; with security – because it reduces dependence on imports; and with sustainability – because it reduces emissions. Innovation can play a key role in improving technology, bringing down cost and increasing efficiency. In transport, for example, we believe energy-efficient technologies and biofuels could offer the most cost-effective pathway to a secure, lower-carbon future. 

All sorts of energy required 

We believe a diverse mix of fuels and technologies is needed to meet growing energy demand, while supporting the transition to a lower-carbon economy. These are reasons why ourportfolio includes oil, gas and renewables. 

Oil and natural gas 

Over the next few decades, we think oil and natural gas are likely to continue to play a significant part in meeting demand for energy. 

They currently account for around 56% of total energy consumption, and we believe they will decrease to about 54%in 2035. For comparison, under the International Energy Agency's most ambitious climate policy scenario, oil and gas would still make up 50% of the energy mix in 2030 and 44% in 2040– assuming carbon capture and storage is widely deployed. 

Oil is a good source of energy for transportation as it has a high energy density. That means vehiclesgo further on less weight and volume of fuel than alternatives. Also, oil's liquid form makes it easy to move around, globally and locally. For these reasons, we expect oil to still account for almost 90% of transportation fuels in 2035 – compared with 94%today.

Natural gas is likely to play an increasing role in meeting global energy demand, because it's available at scale, relatively low cost and lower carbon than other fossil fuels. By 2035 gas is expected to provide 26% of global energy, placing it on a par with oil and coal. 

We believe shale gas will contribute more than halfof the growth in natural gas globally between 2014 and 2035. In the US, the growth of shale gas has already had a significant impact on gas demand as well as CO2 emissions,which have fallen back to 1990s levels.

The increasing gas supply in the US and other countries is encouraging the use of liquefied natural gas worldwide,which is expected to double between 2014 and 2035.

New sources of hydrocarbons may be more difficult to reach, extract and process. BP and others in our industry are working to improve techniques for maximizing recovery from existing and currently inaccessible or undeveloped fields. 


Renewables are the fastest-growing energy source. Over the past few years, there has been rapid expansion of the use of solar power due to cost reduction in manufacturing and public subsidies. That said, renewables, excluding large-scale hydroelectricity, currently account for around 3% of energy consumption. While they are startingfrom a low base, we estimate that by 2035 they will contribute around 9% of total global energy demand. 

Temporary policy support is needed to help  commercialize lower-carbon options and technologies, but they will ultimately need to become commercially self-sustaining, supported only by a carbon price. 

Beyond 2035 

We expect that growing population and per capita incomes will continue to drive growing demand for energy. These dynamics will be shaped by future technology developments, changes in tastes, and future policy choices – all of which are inherently uncertain. Concerns about energy security, affordability and environmental impacts are all likely to be important considerations. These factors may accelerate the trend towards more diverse sources of energy supply, a lower average carbon footprint, increased efficiency and demand management.



BP ENERGY OUTLOOK 2016 - 2035 











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