6-K 1 u53342-6k.htm  

 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934

for the period ended 30 June 2007

BP p.l.c.
(Translation of registrant’s name into English)

1 ST JAMES’S SQUARE, LONDON, SW1Y 4PD, 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 
  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 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-110203) OF BP CANADA FINANCE COMPANY, BP CAPITAL MARKETS p.l.c., BP CAPITAL MARKETS AMERICA, INC AND BP p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-9790) OF BP p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-65996) of BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 33-21868) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-9020) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-09798) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-79399) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-34968) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-67206) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-74414) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-103924) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-102583) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-103923) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119934) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-123482) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-123483) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-131583) OF BP p.l.c. AND THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-131584) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO 333-132619) OF BP 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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BP p.l.c. AND SUBSIDIARIES

FORM 6-K FOR THE PERIOD ENDED 30 JUNE 2007

        Page  
           
1.   Management’s Discussion and Analysis of Financial Condition and Results of Operations for the period January-June 2007   3  
           
2.   Consolidated Financial Statements including Notes to Consolidated Financial Statements for the period January-June 2007.   15  
           
3.   Environmental, Operating and Other Information   66  
           
4.   Legal Proceedings Update   69  
           
5.   Signatures   70  
           
6.   Exhibit 99.1: Computation of Ratio of Earnings to Fixed Charges   71  
    Exhibit 99.2: Capitalization and Indebtedness   72  
           

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GROUP RESULTS JANUARY – JUNE 2007

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Sales and other operating revenues from                  
continuing operations   71,872   72,132   133,179   135,420  
                   
Profit from continuing operations(a)   7,441   7,580   12,187   13,377  
                   
Profit for the period   7,441   7,658   12,187   13,352  
                   
Profit for the period attributable to BP shareholders   7,376   7,581   12,040   13,204  
               
- per ordinary share (pence)   19.35   20.59   31.69   36.25  
- per ordinary share (cents)   38.37   37.49   62.43   64.89  
- per ADS (dollars)   2.30   2.25   3.75   3.89  
                   
                   


(a) Excludes Innovene which was treated as a discontinued operation in accordance with IFRS 5 ‘Non Current Assets Held for Sale and Discontinued Operations’. See Note 3 for further details.

The following discussion should be read in conjunction with the consolidated financial statements and the related notes provided elsewhere in this Form 6-K and with the information, including the consolidated financial statements and related notes, for the year ended 31 December 2006 in BP p.l.c.’s Annual Report on Form 20-F for the year ended 31 December 2006.
   
BP’s second quarter profit was $7,376 million, compared with $7,581 million a year ago, a decrease of 3%. For the half year, profit was $12,040 million compared with $13,204 million, down 9%. The second quarter profit included inventory holding gains of $1,289 million compared with gains of $1,148 million in the same period last year. For the half year, inventory holding gains were $1,592 million compared with $1,506 million in the first half of 2006. See footnote (b) on page 4 for further information.
   
The second quarter result (before tax) included net disposal gains of $1,239 million and net fair value gains on embedded derivatives of $283 million and was after impairment charges of $385 million. The second quarter of 2006 included net disposal gains of $497 million, net fair value gains on embedded derivatives of $261 million and was after an impairment charge of $35 million and a charge of $76 million in respect of a donation to the BP Foundation.
   
The first-half result (before tax) included net disposal gains of $1,876 million and net fair value gains on embedded derivatives of $438 million, and was after impairment and other charges of $615 million. The first half of 2006 included net disposal gains of $1,071 million and is after net fair value losses on embedded derivatives of $181 million, impairment charges of $35 million and a charge of $76 million in respect of a donation to the BP Foundation.
   
Finance costs and other finance income for the second quarter and half year was $155 million and $326 million compared with $107 million and $250 million for the comparable periods of 2006. The increases in both periods reflected higher interest costs and lower capitalized interest, partially offset by an increase in net pension finance income due to a relatively higher return on pension assets in comparison with the discount unwinding on pension obligations.
   
The effective tax rate on profit from continuing operations for the second quarter was 31% and for the half year was 32%; the rate was 32% for the second quarter of 2006 and was 33% for the first half of 2006.

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

GROUP RESULTS JANUARY – JUNE 2007 (continued)

Net cash provided by operating activities for the second quarter was $6.1 billion compared with $9.1 billion a year ago. The decrease primarily reflects higher working capital requirements, partially offset by higher dividends received from jointly-controlled entities and associates and lower taxes paid. For the half year, net cash provided by operating activities was $14.1 billion compared with $18.1 billion for the first half of 2006. The decrease primarily reflects higher working capital requirements and lower profit before tax, partially offset by lower taxes paid and a higher depreciation, depletion and amortization charge.
   
Net cash used in investing activities for the second quarter was $1.4 billion compared with $1.5 billion in the second quarter of 2006. This reflects higher capital expenditure and higher disposal proceeds. For the half year, net cash used in investing activities was $5.2 billion compared with $4.3 billion in the first half of 2006. The increase primarily reflects higher capital expenditure and higher expenditure on acquisitions, partially offset by higher disposal proceeds.
   
Net debt at the end of the quarter was $21.1 billion. The ratio of net debt to net debt plus equity was 19% compared with 15% a year ago.
   
Capital expenditure, excluding acquisitions and asset exchanges, was $4.4 billion for the quarter and for the half year was $8.0 billion. Total capital expenditure and acquisitions was $4.7 billion for the quarter and $9.5 billion for the half year. The half year included $1.1 billion in respect of the acquisition of Chevron’s Netherlands manufacturing company. Disposal proceeds were $2.7 billion for the quarter and were $3.7 billion for the half year.
   
The quarterly dividend, to be paid in September, is 10.825 cents per share ($0.6495 per ADS) compared with 9.825 cents per share a year ago. For the half year, the dividend showed an increase of 10%. In sterling terms, the quarterly dividend is 5.278 pence per share, compared with 5.324 pence per share a year ago; for the half year, the decrease was 1%. During the quarter, the company repurchased 176 million of its own shares for cancellation at a cost of $2.0 billion. For the first half, share repurchases were 414 million at a cost of $4.5 billion.
   
Non-GAAP information on fair value accounting effects in relation to Refining and Marketing and Gas, Power and Renewables is set out on page 13.
 

(b) Inventory holding gains and losses represent the difference between the cost of sales calculated using the average cost of supplies incurred during the year and the cost of sales calculated on the first-in first-out (“FIFO”) method. Under the FIFO method, which we use for IFRS reporting, the cost of inventory charged to the income statement is based upon the historic cost of acquisition or manufacture rather than the current replacement cost. In volatile energy markets, this can have a significant distorting effect on reported income. The amounts disclosed represent the difference between the charge to the income statement on a FIFO basis and the charge which would arise using average cost of supplies incurred during the period. For this purpose average cost of supplies incurred during the period is calculated by dividing the total cost of inventory purchased in the period by the number of barrels acquired. The amounts disclosed are not separately reflected in the financial statements as a gain or loss.
   
  Management believes this information is useful to illustrate to investors the fact that crude oil and product prices can vary significantly from period to period and that the impact on our reported result under IFRS can be significant. Inventory holding gains and losses vary from period to period due principally to changes in oil prices as well as changes to underlying inventory levels. In order for investors to understand the operating performance of the Group excluding the impact of oil price changes on the replacement of inventories, and to make comparisons of operating performance between reporting periods, BP’s Management believes it is helpful to disclose this information.

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

GROUP RESULTS JANUARY – JUNE 2007 (continued)

 Per share amounts
    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
Results for the period ($ million)                  
Profit(a)   7,376     7,581   12,040   13,204  
   
 
 
 
 
Shares in issue at period end (thousand)(b)   19,133,973   19,993,613   19,133,973   19,993,613  
– ADS equivalent (thousand)(b)   3,188,996   3,332,269   3,188,996   3,332,269  
Average number of shares outstanding (thousand)(b)   19,186,461   20,171,546   19,284,938   20,345,750  
– ADS equivalent (thousand)(b)   3,197,744   3,361,924   3,214,156   3,390,958  
Shares repurchased in the period (thousand)   175,806   375,744   413,722   724,823  
                   
Per ordinary share (cents)                  
Profit for the period   38.37   37.49   62.43   64.89  
                   
Per ADS (cents)                  
Profit for the period   230.22   224.94   374.58   389.34  


(a) Profit attributable to BP shareholders.
(b) Excludes treasury shares.

Dividends
On 24 July 2007, BP announced a dividend of 10.825 cents per ordinary share to be paid in September. Holders of ordinary shares will receive 5.278 pence per share and holders of American Depositary Receipts (ADRs) $0.6495 per ADS. The dividend is payable on 4 September to shareholders on the register on 10 August. Participants in the Dividend Reinvestment Plan (DRIP) or the DRIP facility in the US Direct Access Plan will receive the dividend in the form of shares, also on 4 September.

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
Dividends paid per ordinary share                  
cents   10.325   9.375   20.650   18.750  
pence   5.151   5.251   10.409   10.539  
Dividends paid per ADS (cents)   61.95   56.25   123.90   112.50  
   
 
 
 
 

Net Debt Ratio – Net Debt : Net Debt + Equity

    At 30 June 2007
(Unaudited)
  At 31 December 2006
(Unaudited)
 
   


 
$ million          
Gross debt   23,754   24,010  
Cash and cash equivalents   2,643   2,590  
   
 
 
Net debt   21,111   21,420  
   
 
 
Equity   89,423   85,465  
Net debt ratio   19%    20%  
   
 
 

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

GROUP RESULTS JANUARY – JUNE 2007 (concluded)

Financing the group’s activities

Net debt at 30 June 2007 was $21.1 billion compared with $21.4 billion at 31 December 2006. The ratio of net debt to net debt plus equity was 19% at 30 June 2007 compared with 20% at 31 December 2006. This ratio shows the proportion of debt and equity used to finance our operations, and can also be used to measure borrowing capacity. In addition to reported debt, BP uses conventional off balance sheet sources of finance such as operating leases and joint venture and associate borrowings.

The group has access to other sources of liquidity in the form of committed facilities and other funding through the capital markets. BP believes that, taking into account the substantial amounts of undrawn borrowing facilities available, the group has sufficient working capital for foreseeable requirements.

In the normal course of business the group has entered into certain long-term purchase commitments principally relating to take or pay contracts for the purchase of natural gas, crude oil and chemicals feedstocks and throughput arrangements for pipelines. The group expects to fulfil its obligations under these arrangements with no adverse consequences to the group’s results of operations or financial condition.

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

REVIEW OF BUSINESSES

EXPLORATION AND PRODUCTION

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
$ million                  
Sales and other operating revenues from 
  continuing operations
  12,747   13,495   24,966   27,413  
Profit before interest and tax(a)   6,894   7,827   12,948   14,643  
                   
By region:                  
UK   1,113   1,834   2,175   2,999  
Rest of Europe   183   393   903   696  
US   2,037   2,255   3,700   4,559  
Rest of World   3,561   3,345   6,170   6,389  
   
 
 
 
 
    6,894   7,827   12,948   14,643  
   
 
 
 
 
                   
Exploration expense                  
UK   7     27   7  
Rest of Europe          
US   54   55   131   121  
Rest of World   94   42   153   158  
   
 
 
 
 
    155   97   311   286  
   
 
 
 
 
                   
Liquids(b)                  
Average prices realized by BP(c) ($/bbl)   62.58   62.86   57.96   59.36  
Production for subsidiaries (mb/d) (net of royalties)   1,320   1,373   1,343   1,386  
Production for equity-accounted entities (mb/d) (net of royalties)   1,129   1,158   1,105   1,146  
                   
Natural gas                  
Average prices realized by BP(c) ($/mcf)   4.45   4.44   4.66   4.99  
Production for subsidiaries (mmcf/d) (net of royalties)   6,945   7,620   7,224   7,660  
Production for equity-accounted entities (mmcf/d) (net of royalties)   914   1,004   955   1,008  
                   
Total hydrocarbons(d)                  
Average prices realized by BP(c) ($/boe)   44.97   44.58   42.97   44.39  
Production for subsidiaries (mboe/d)   2,517   2,686   2,588   2,706  
Production for equity-accounted entities (mboe/d)   1,287   1,332   1,269   1,320  


(a) Profit from continuing operations and includes profit after interest and tax of equity-accounted entities.
(b) Crude oil and natural gas liquids.
(c) Based on sales of consolidated subsidiaries only. This excludes equity-accounted entities.
(d) Natural gas is converted to oil equivalent at 5.8 billion cubic feet = 1 million barrels.
(e) Additional operating information is provided on pages 67-68.

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

EXPLORATION AND PRODUCTION (concluded)

Sales and other operating revenues for the three months ended 30 June 2007 were $12.7 billion and were $13.5 billion in the corresponding period in 2006, primarily reflecting a decrease of around $0.5 billion due to lower production volumes from subsidiaries (realizations were broadly flat).

Sales and other operating revenues for the six months ended 30 June 2007 were $25 billion, compared with $27 billion in the corresponding period in 2006, primarily reflecting a decrease of around $1 billion related to lower liquids and gas realizations and a decrease of around $1 billion due to lower production volumes from subsidiaries.

The profit before interest and tax for the second quarter was $6,894 million, a decrease of 12% from the second quarter of 2006. This included inventory holding gains of $1 million in both periods. This result was impacted by lower reported volumes, decreasing the result by around $400 million, and higher costs of around $700 million, reflecting the continued impact of sector-specific inflation, increased integrity spend and higher depreciation charges associated primarily with the change to SEC guidelines for reserves reporting as well as increased decommissioning provisions. The result for the second quarter of 2007 included net disposal gains of $212 million (mainly arising from net gains on the disposal of interests in the Permian, Entrada and Kaybob assets in North America) and fair value gains of $299 million on embedded derivatives relating to North Sea gas contracts, and was after an impairment charge of $112 million related to the cancellation of the DF1 project in Scotland. The result for the second quarter of 2006 included net disposal gains of $330 million and fair value gains on embedded derivatives of $149 million.

Reported production for the quarter was 2,517 mboe/d for subsidiaries and 1,287 mboe/d for equity-accounted entities, compared with 2,686 mboe/d and 1,332 mboe/d respectively in the second quarter of 2006. For subsidiaries, the decrease primarily reflects the effect of disposals and entitlement changes in our production-sharing agreements. For equity-accounted entities, the decrease primarily reflects the effect of disposals.

The profit before interest and tax of $12,948 million for the half year represented a decrease of 12% over the same period of the previous year. This included inventory holding gains of $12 million in the first half of 2007 compared with inventory holding losses of $6 million in the first half of 2006. This result was impacted by lower oil and gas realizations, decreasing the result by around $700 million, as well as lower reported volumes, decreasing the result by around $700 million and higher costs of around $1,400 million, reflecting sector-specific inflation, increased integrity spend and higher depreciation charges. The half-year 2007 result included net disposal gains of $815 million and net fair value gains on embedded derivatives of $444 million and was after an impairment charge of $112 million. The first half of 2006 included net disposal gains of $339 million and was after net fair value losses on embedded derivatives of $246 million.

Reported production for the half year was 2,588 mboe/d for subsidiaries and 1,269 mboe/d for equity-accounted entities compared with 2,706 mboe/d and 1,320 mboe/d respectively in the first half of 2006. The decrease for subsidiaries primarily reflects the effect of disposals and entitlement changes in our production-sharing agreements. For equity-accounted entities, the decrease primarily reflects the effect of disposals.

During the quarter, we had first production from the Rosa project in Angola, where BP holds a 16.67% working interest. Also in Angola, we made our 14th discovery in Block 31 (Cordelia). Additionally, we announced the Isabela discovery in the deepwater Gulf of Mexico.

In May, we signed agreements with Occidental Petroleum Corporation to dispose of our 100% interest in the West Texas pipeline system and our interests in non-core Permian assets in the US. In exchange, BP acquired a 42% interest in the Badin field in Pakistan and a 331/3% interest in Horn Mountain in the deepwater Gulf of Mexico and received a cash payment. Separately, in April, we divested our interest in the Entrada field in the Gulf of Mexico and in June we divested some of our interests in the Kaybob field in Alberta, Canada.

During the quarter, we also announced a major exploration and production agreement with Libya’s National Oil Company, a memorandum of understanding to establish a global strategic alliance with Gazprom and TNK-BP and the proposed divestment of TNK-BP’s interests in the Kovytka gas project.

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

REFINING AND MARKETING

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
$ million                  
Sales and other operating revenues from 
  continuing operations
  63,960   63,373   117,079   117,910  
Profit (loss) before interest and tax(a)   3,981   3,492   5,110   5,530  
                   
By region:                  
UK   1,028   166   964   11  
Rest of Europe   1,029   785   1,510   1,471  
US   1,631   2,026   1,920   2,854  
Rest of World   293   515   716   1,194  
   
 
 
 
 
    3,981   3,492   5,110   5,530  
   
 
 
 
 
Refinery throughputs (mb/d)                  
UK   123   162   136   137  
Rest of Europe   700   671   670   655  
US   996   1,200   1,074   1,088  
Rest of World   309   256   300   276  
   
 
 
 
 
Total throughput   2,128   2,289     2,180   2,156  
   
 
 
 
 
Refining availability (%)(b)   82.7   86.4     82.2   83.1  
   
 
 
 
 
Oil sales volumes (mb/d)                  
Refined products                  
UK   343   354   339   350  
Rest of Europe   1,271   1,311   1,258   1,313  
US   1,579   1,631   1,571   1,615  
Rest of World   615   579   620   573  
   
 
 
 
 
Total marketing sales   3,808   3,875   3,788   3,851  
Trading/supply sales   1,867   1,682   1,947   1,943  
   
 
 
 
 
Total refined product sales   5,675   5,557   5,735   5,794  
Crude oil   2,161   1,996   2,089   2,283  
   
 
 
 
 
Total oil sales   7,836   7,553   7,824   8,077  
   
 
 
 
 
Global Indicator Refining Margin ($/bbl)(c)                  
NWE   7.12   5.78   5.65   4.33  
USGC   24.46   17.74   17.34   14.30  
Midwest   26.05   14.75   16.89   9.82  
USWC   22.71   21.27   22.46   16.25  
Singapore   6.01   6.83   5.43   5.18  
BP Average   16.66   12.59   13.07   9.44  
   
 
 
 
 
Chemicals production (kte)                  
UK   246   298   251   601  
Rest of Europe   655   741   701   1,583  
US   1,047   816   1,062   1,605  
Rest of World   1,497   1,728   1,509   3,415  
   
 
 
 
 
Total production   3,445   3,583   3,523   7,204  
   
 
 
 
 


(a) Profit from continuing operations and includes profit after interest and tax of equity-accounted entities.
(b) Refining availability is defined as the ratio of units which are available for processing, regardless of whether they are actually being used, to total capacity.  Where there is planned maintenance, such capacity is not regarded as being available.  During 2006, there was planned maintenance of a substantial part of the Texas City refinery.
(c) The Global Indicator Refining Margin (GIM) is the average of regional indicator margins weighted for BP’s crude refining capacity in each region. Each regional indicator margin is based on a single representative crude with product yields characteristic of the typical level of upgrading complexity. The regional indicator margins may not be representative of the margins achieved by BP in any period because of BP’s particular refinery configurations and crude and product slate.

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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

REFINING AND MARKETING (continued)

The changes in sales and other operating revenues are described in more detail below:

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
$ million                  
Sale of crude oil through spot and term contracts   11,587   11,040   20,548   20,955  
Marketing, spot and term sales of refined products   49,590   48,081   89,874   88,122  
Other sales including non-oil and to other segments   2,783   4,252   6,657   8,833  
   
 
 
 
 
    63,960   63,373   117,079   117,910  
   
 
 
 
 
Mb/d                  
Sale of crude oil through spot term contracts   2,161   1,996   2,089   2,283  
Marketing, spot and term sales of refined products   5,675   5,557   5,735   5,794  

Sales and other operating revenues for the three months ended 30 June 2007 were $64 billion compared with $63 billion for the same period in the prior year. Marketing, spot and term sales of refined products increased by $2 billion due to higher volumes of around $2 billion and a positive foreign exchange impact of around $1 billion, partly offset by lower prices of $1 billion. Sales of crude oil through spot and term contracts increased by less than $1 billion due to higher volumes. Other sales decreased by $1 billion primarily due to lower volumes.

Sales and other operating revenues for the six months ended 30 June 2007 were $117 billion compared with $118 billion for the same period in the prior year. Marketing, spot and term sales of refined products increased by $2 billion due to a positive foreign exchange impact of $3 billion, partly offset by lower prices of around $1 billion. Sales of crude oil through spot and term contracts were broadly flat. Other sales decreased by around $2 billion due to lower volumes of around $3 billion, partly offset by a positive foreign exchange impact of around $1 billion.

The profit before interest and tax for the second quarter and half year was $3,981 million and $5,110 million respectively. This included inventory holding gains of $1,241 million and $1,532 million respectively. The results in the equivalent periods of 2006 were $3,492 million and $5,530 million respectively and included inventory holding gains of $1,136 million and $1,562 million.

The result for the second quarter of 2007 included disposal gains of $1,025 million primarily related to the sale of the Coryton refinery, which completed on 31 May 2007, and the sale of the US West Texas pipeline system to Occidental Petroleum Corporation, and was after an impairment charge of $258 million. The result for the second quarter of 2006 included net disposal gains of $147 million and was after an impairment charge of $35 million and a charge of $76 million in respect of a donation to the BP Foundation.

The result for the first half of 2007 included net disposal gains of $1,026 million and was after impairment and other charges of $488 million. The result for the first half of 2006 included net disposal gains of $711 million and was after a charge of $76 million in respect of a donation to the BP Foundation and an impairment charge of $35 million.

Compared with 2006, both the second quarter and half-year results benefited from significantly stronger refining margins (particularly in the US), partially offset by lower supply optimization benefits, which increased the result by around $100 million and $50 million respectively; marketing margins were also stronger, increasing the result by around $400 million and $650 million respectively. However, these benefits were more than offset by the impact of operational issues and scheduled turnarounds at a number of our refineries in the US, reducing the result by around $600 million and $650 million respectively. Compared with 2006, the second quarter and first half results reflect higher integrity management and refinery turnaround costs, decreasing the result by around $250 million and $450 million respectively.

Non-GAAP information on fair value accounting effects is set out on page 13.

Refining throughputs for the quarter and half year were 2,128 mb/d and 2,180 mb/d respectively, compared with 2,289 mb/d and 2,156 mb/d for the same periods last year. The lower throughputs were mainly due to the outages in our Mid West US refineries and were only partially offset by the benefits of the ongoing recommissioning at the Texas City refinery.

-10-


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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

REFINING AND MARKETING (concluded)

Operational issues at the Whiting refinery in the US have limited the site’s throughput and ability to make low- sulphur gasoline from sour crude oil.  Repairs are ongoing and we expect to resume sour crude processing in the fourth quarter of 2007 and to restore the refinery to its full flexibility and crude capacity in the first half of 2008.

Marketing sales were 3,808 mb/d for the quarter and 3,788 mb/d for the half year, slightly lower than the comparative periods in the previous year, mainly due to divestments and lower European heating oil demand as a result of milder weather.

On 26 June 2007, BP, Associated British Foods and DuPont announced investment of $400 million in the construction of a world-scale bioethanol plant with expected annual production capacity of some 420 million litres from wheat feedstock, to be commissioned in late 2009. On 29 June 2007, BP announced a joint venture with D1 Oils plc, a UK-based global producer of biodiesel, for the development of jatropha as a new energy crop.

GAS, POWER AND RENEWABLES

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
$ million                  
Sales and other operating revenues from 
  continuing operations
  5,403   6,091   11,016   12,644  
Profit before interest and tax(a)   235   463   441   701  
                   
By region:                  
UK   (38 ) 188   10   116  
Rest of Europe   (7 ) (2 )   5  
US   124   257   148   425  
Rest of World   156   20   283   155  
   
 
 
 
 
    235   463   441   701  
   
 
 
 
 

(a) Profit from continuing operations and includes profit after interest and tax of equity-accounted entities.

The changes in sales and other operating revenues are explained below in more detail:

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
$ million                  
Gas marketing sales   2,342   2,907   4,750   6,280  
Other sales (including NGL marketing)   3,061   3,184   6,266   6,364  
   
 
 
 
 
    5,403   6,091   11,016   12,644  
   
 
 
 
 
Mb/d                  
Gas marketing sales volumes   3,476   3,897   3,496   3,922  
Natural gas sales by Exploration and Production   4,731   4,813   4,992   4,899  

Sales and other operating revenues for the three months ended 30 June 2007 were $5.4 billion compared with $6.1 billion for the same period in 2006. Gas marketing sales decreased by $0.6 billion reflecting price decreases of $0.3 billion and lower volumes of $0.3 billion. Other sales (including NGL marketing) decreased by $0.1 billion primarily due to lower prices.

Sales and other operating revenues for the six months ended 30 June 2007 were $11.0 billion compared with $12.6 billion for the same period in 2006. Gas marketing sales decreased by $1.5 billion reflecting price decreases of $0.8 billion and lower volumes of $0.7 billion. Other sales (including NGL marketing) decreased by $0.1 billion primarily due to lower volumes.

-11-


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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

GAS, POWER AND RENEWABLES (concluded)

The profit before interest and tax for the second quarter was $235 million compared with $463 million a year ago. This included inventory holding gains of $45 million compared with $10 million in the second quarter of 2006. The result for the second quarter of 2007 included fair value losses of $23 million on embedded derivatives related to long-term gas contracts and was after an impairment charge of $15 million. The corresponding period in 2006 included net fair value gains on embedded derivatives of $107 million.

The profit before interest and tax for the first half of 2007 was $441 million compared with $701 million a year ago. The first half of 2007 included inventory holding gains of $45 million compared with an inventory holding loss of $53 million in the first half of 2006. The first half of 2007 included net disposal gains of $4 million was after net fair value losses on embedded derivatives of $16 million and an impairment charge of $15 million. The first half of 2006 included net fair value gains on embedded derivatives of $52 million.

The second quarter result decreased by 49% over the second quarter of 2006 and the first half result was also lower. The results for both periods were impacted by weaker contributions from the gas trading and marketing business, decreasing profit by around $100 million and $270 million respectively, higher expenditure in the Alternative Energy business, reducing the result by around $40 million and $60 million respectively and a negative impact in respect of fair value losses on embedded derivatives and impairment charges. However, the decreases in the first half of 2007 were partially offset by better operating performance in the NGL business in North America, increasing the result by around $65 million.

Non-GAAP information on fair value accounting effects is set out on page 13.

In May, BP and Rio Tinto announced the formation of a new jointly owned company, Hydrogen Energy, which will develop decarbonized energy projects around the world. The venture will initially focus on hydrogen-fuelled power generation, using fossil fuels and carbon capture and storage (CCS) technology to produce new large-scale supplies of clean electricity.

OTHER BUSINESSES AND CORPORATE

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
$ million                  
Sales and other operating revenues from 
  continuing operations
  178   252   384   458  
                 
Profit (loss) before interest and tax(a)   (162 ) (192 ) (277 ) (407 )

(a) Profit from continuing operations and includes profit (loss) after interest and tax of equity-accounted entities.

Other businesses and corporate comprises Finance, the group’s aluminium asset, interest income and costs relating to corporate activities.

The loss for the second quarter of 2007 was $162 million compared with $192 million in the second quarter of 2006. This included inventory holding gains of $2 million and $1 million respectively. The second quarter’s result includes a net fair value gain of $7 million on embedded derivatives and the second quarter of 2006 included a disposal gain of $21 million and net fair value gains on embedded derivatives of $5 million.

The loss for the first half of 2007 was $277 million compared with $407 million in the first half of 2006. This included inventory holding gains of $3 million in both periods. The first half of 2007 included net disposal gains of $31 million and net fair value gains on embedded derivatives of $10 million. The first half of 2006 included net disposal gains of $22 million and net fair value gains on embedded derivatives of $13 million.

-12-


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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Non-GAAP information on fair value accounting effects
BP uses derivative instruments to manage the economic exposure relating to inventories above normal operating requirements of crude oil, natural gas and petroleum products as well as certain contracts to supply physical volumes at future dates. Under IFRS, these inventories and contracts are recorded at historic cost and on an accruals basis respectively. The related derivative instruments, however, are required to be recorded at fair value with gains and losses recognized in income because hedge accounting is either not permitted or not followed, principally due to the impracticality of effectiveness testing requirements. Therefore, measurement differences in relation to recognition of gains and losses occur. Gains and losses on these inventories and contracts are not recognized until the commodity is sold in a subsequent accounting period. Gains and losses on the related derivative commodity contracts are recognized in the income statement from the time the derivative commodity contract is entered into on a fair value basis using forward prices consistent with the contract maturity.

IFRS requires that inventory held for trading be recorded at its fair value using period end spot prices whereas any related derivative commodity instruments are required to be recorded at values based on forward prices consistent with the contract maturity. Depending on market conditions, these forward prices can be either higher or lower than spot prices resulting in measurement differences.

The Gas, Power and Renewables business enters into contracts for pipelines and storage capacity which, under IFRS, are recorded on an accruals basis. These contracts are risk managed using a variety of derivative instruments which are fair valued under IFRS. This results in measurement differences in relation to recognition of gains and losses.

The way that BP manages the economic exposures described above, and measures performance internally, differs from the way these activities are measured under IFRS. BP calculates this difference by comparing the IFRS result with management’s internal measure of performance, under which the inventory and the supply and capacity contracts in question are valued based on fair value using relevant forward prices prevailing at the end of the period. We believe that disclosing management’s estimate of this difference provides useful information for investors because it enables investors to see the economic effect of these activities as a whole. The impact of fair value accounting effects, relative to management’s internal measure of performance, is shown in the table below and is non-GAAP.

$ million   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
Refining and Marketing                  
Unrecognized gains (losses) brought forward from                  
   previous period   750   406   157   283  
Unrecognized (gains) losses carried forward   (446 ) (336 ) (446 ) (336 )
   
 
 
 
 
Favourable/(unfavourable) impact relative to                  
   management’s measure of performance   304   70   (289 ) (53 )
   
 
 
 
 
Gas, Power and Renewables                  
Unrecognized gains (losses) brought forward from                  
   previous period   124   226   155   123  
Unrecognized (gains) losses carried forward   (198 ) (376 ) (198 ) (376 )
   
 
 
 
 
Favourable/(unfavourable) impact relative to                  
   management’s measure of performance   (74 ) (150 ) (43 ) (253 )
   
 
 
 
 
By region                  
Refining and Marketing                  
UK   83   7   (98 ) 25  
Rest of Europe   48   41   (117 ) 6  
US   141   22   (78 ) (76 )
Rest of World   32     4   (8 )
   
 
 
 
 
    304   70   (289 ) (53 )
   
 
 
 
 
Gas, Power and Renewables                  
UK   (4 )   34   36  
Rest of Europe          
US   (71 ) (147 ) (77 ) (264 )
Rest of World   1   (3 )   (25 )
   
 
 
 
 
    (74 ) (150 ) (43 ) (253 )
   
 
 
 
 

-13-


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BP p.l.c. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)

Reconciliation of non-GAAP information

$ million   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
Refining and Marketing                  
Profit before interest and tax adjusted for fair value                  
   accounting effects   3,677   3,422   5,399   5,583  
Impact of fair value accounting effects   304   70   (289 ) (53 )
   
 
 
 
 
Profit before interest and tax   3,981   3,492   5,110   5,530  
   
 
 
 
 
                   
Gas, Power and Renewables                  
Profit before interest and tax adjusted for fair value                  
   accounting effects   309   613   484   954  
Impact of fair value accounting effects   (74 ) (150 ) (43 ) (253 )
   
 
 
 
 
Profit before interest and tax   235   463   441   701  
   
 
 
 
 

FORWARD-LOOKING STATEMENTS

In order to utilize the ‘Safe Harbour’ provisions of the United States Private Securities Litigation Reform Act of 1995, BP is providing the following cautionary statement. The foregoing discussion contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of BP and certain of the plans and objectives of BP with respect to these items. These statements may generally, but not always, be identified by the use of words such as ‘will’, ‘expects’, ‘is expected to’, ‘should’, ‘may’, ‘objective’, ‘is likely to’, ‘intends’, ‘believes’, ‘plans’, ‘we see’ or similar expressions. In particular, among other statements, certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations with regard to management aims and objectives, future capital expenditure, date or period(s) in which production is scheduled or expected to come on stream or a project or action is scheduled or expected to be completed, capacity of planned plants or facilities, and future cash flows and liquidity.By their nature, forward looking statements involve risk and uncertainty and actual results may differ from those expressed in such statements depending on a variety of factors including the following: the timing of bringing new fields on stream; industry product supply; demand and pricing; operational problems; general economic conditions (including inflation); political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; exchange rate fluctuations; development and use of new technology; the success or otherwise non-success of partnering; the actions of competitors; natural disasters and severe adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism or sabotage; and other factors discussed in this report. In addition to factors set forth elsewhere in this report, those set out above are important factors, although not exhaustive, that may cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. For more information you should refer to our Annual Report and Accounts 2006 and our 2006 Annual Report on Form 20-F filed with the US Securities and Exchange Commission.

-14-


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BP p.l.c. AND SUBSIDIARIES
GROUP INCOME STATEMENT

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million, except per share amounts)  
Sales and other operating revenues (Note 4)   71,872   72,132   133,179   135,420  
Earnings from jointly controlled entities – after
  interest and tax
  910   818   1,243   1,391  
Earnings from associates – after interest and tax   173   114   336   229  
Interest and other revenues   128   106   361   304  
   
 
 
 
 
Total revenues   73,083   73,170   135,119   137,344  
Gains on sale of businesses and fixed assets   1,309   541   1,989   1,138  
   
 
 
 
 
Total revenues and other income   74,392   73,711   137,108   138,482  
Purchases   49,983   50,427   92,643   94,246  
Production and manufacturing expenses   6,276   5,376   12,028   10,593  
Production and similar taxes (Note 5)   827   855   1,574   1,787  
Depreciation, depletion and amortization   2,535   2,309   5,054   4,493  
Impairment and losses on sale of businesses
  and fixed assets
  455   79   678   102  
Exploration expense   155   97   311   286  
Distribution and administration expenses   3,565   3,516   7,022   6,612  
Fair value (gain) loss on embedded derivatives   (283 ) (261 ) (438 ) 181  
   
 
 
 
 
Profit before interest and taxation from
  continuing operations
  10,879   11,313   18,236   20,182  
Finance costs (Note 6)   251   153   515   344  
Other finance income (Note 7)   (96 ) (46 ) (189 ) (94 )
   
 
 
 
 
Profit before taxation from continuing
  operations
  10,724   11,206   17,910   19,932  
Taxation   3,283   3,626   5,723   6,555  
   
 
 
 
 
Profit from continuing operations   7,441   7,580   12,187   13,377  
Profit (loss) from Innovene operations (Note 3)     78     (25 )
   
 
 
 
 
Profit for the period(a)   7,441   7,658   12,187   13,352  
   
 
 
 
 
Attributable to:                  
     BP shareholders   7,376   7,581   12,040   13,204  
     Minority interest   65   77   147   148  
   
 
 
 
 
    7,441   7,658   12,187   13,352  
   
 
 
 
 
Earnings per ordinary share – cents(a)
  (Note 11)
                 
Profit attributable to BP shareholders                  
     Basic   38.37   37.49   62.43   64.89  
     Diluted   38.18   37.12   62.12   64.25  
                   
Profit from continuing operations attributable to
  BP shareholders
                 
     Basic   38.37   37.12   62.43   65.02  
     Diluted   38.18   36.74   62.12   64.37  
                   
Earnings per American Depositary share
  cents(a)
                 
Profit attributable to BP shareholders                  
     Basic   230.22   224.94   374.58   389.34  
     Diluted   229.08   222.72   372.72   385.50  

(a) A summary of the material adjustments to profit for the period which would be required if generally accepted accounting principles in the United States had been applied instead of International Financial Reporting Standards is given in Note 13.

-15-


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BP p.l.c. AND SUBSIDIARIES
GROUP BALANCE SHEET

    30 June 2007   31 December 2006  
    (Unaudited)      
   


 
    ($ million)   
Non-current assets          
Property, plant and equipment   95,193   90,999  
Goodwill   11,055   10,780  
Intangible assets   5,735   5,246  
Investments in jointly controlled entities   15,088   15,074  
Investments in associates   5,849   5,975  
Other investments   1,657   1,697  
   
 
 
Fixed assets   134,577   129,771  
Loans   864   817  
Other receivables   926   862  
Derivative financial instruments   2,950   3,025  
Prepayments and accrued income   1,075   1,034  
Defined benefit pension plan surplus   7,298   6,753  
   
 
 
    147,690   142,262  
   
 
 
Current assets          
Loans   163   141  
Inventories   20,645   18,915  
Trade and other receivables   39,847   38,692  
Derivative financial instruments   7,234   10,373  
Prepayments and accrued income   3,494   3,006  
Current tax receivable   178   544  
Cash and cash equivalents   2,643   2,590  
   
 
 
    74,204   74,261  
Assets classified as held for sale     1,078  
   
 
 
    74,204   75,339  
   
 
 
Total assets   221,894   217,601  
   
 
 
Current liabilities          
Trade and other payables   42,634   42,236  
Derivative financial instruments   6,736   9,424  
Accruals and deferred income   5,803   6,147  
Finance debt   11,566   12,924  
Current tax payable   4,637   2,635  
Provisions   1,690   1,932  
   
 
 
    73,066   75,298  
Liabilities directly associated with the assets
   classified as held for sale
    54  
   
 
 
    73,066   75,352  
   
 
 
Non-current liabilities          
Other payables   1,240   1,430  
Derivative financial instruments   3,888   4,203  
Accruals and deferred income   1,001   961  
Finance debt   12,188   11,086  
Deferred tax liabilities   18,582   18,116  
Provisions   13,070   11,712  
Defined benefit pension plan and other
   post-retirement benefit plan deficits
  9,436   9,276  
   
 
 
    59,405   56,784  
   
 
 
   
 
 
Total liabilities   132,471   132,136  
   
 
 
Net assets   89,423   85,465  
   
 
 
Equity          
BP shareholders’ equity(a)   88,549   84,624  
Minority interest   874   841  
   
 
 
Total equity   89,423   85,465  
   
 
 

(a) A summary of the material adjustments to BP shareholders’ equity which would be required if generally accepted accounting principles in the United States had been applied instead of International Financial Reporting Standards is given in Note 13.

-16-


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BP p.l.c. AND SUBSIDIARIES
GROUP STATEMENT OF RECOGNIZED INCOME AND EXPENSE

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Currency translation differences   621   309   795   462  
Exchange gain on translation of foreign operations transferred to gain on sale of businesses and fixed assets
  (128 )   (147 )  
Available–for–sale investments marked to market   6   (44 ) (103 ) 153  
Available–for–sale investments – recycled to the                  
   income statement     (79 )   (425 )
Cash flow hedges marked to market   13   230   41   287  
Cash flow hedges – recycled to the income statement   (21 ) 19   (81 ) 76  
Cash flow hedges – recylced to the balance sheet       (7 )  
Taxation   105   (15 ) 28   46  
   
 
 
 
 
Net income (expense) recognized directly in equity   596   420   526   599  
Profit for the period   7,441   7,658   12,187   13,352  
   
 
 
 
 
Total recognized income and expense for the period   8,037   8,078   12,713   13,951  
   
 
 
 
 
Attributable to:                  
   BP shareholders   7,967   8,001   12,545   13,803  
   Minority interest   70   77   168   148  
   
 
 
 
 
    8,037   8,078   12,713   13,951  
   
 
 
 
 

MOVEMENT IN BP SHAREHOLDERS’ EQUITY

    (Unaudited)  
    ($ million)  
       
At 31 December 2006   84,624  
Profit for the period   12,040  
Distribution to shareholders   (3,984 )
Currency translation differences (net of tax)   574  
Exchange gain on translation of foreign operations      
   transferred to gain on sale (net of tax)   (147 )
Share–based payments (net of tax)   616  
Repurchase of ordinary share capital   (4,993 )
Available–for–sale investments (net of tax)   (136 )
Cash flow hedges (net of tax)   (16 )
Other   (29 )
   
 
At 30 June 2007   88,549  
   
 

-17-


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BP p.l.c. AND SUBSIDIARIES
GROUP CASH FLOW STATEMENT

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Operating activities                  
Profit before taxation from continuing operations   10,724   11,206   17,910   19,932  
Adjustments to reconcile profits before tax to net cash
   provided by operating activities:
                 
Exploration expenditure written off   60   13   115   127  
Depreciation, depletion and amortization   2,535   2,309   5,054   4,493  
Impairment and (gain) loss on sale of businesses and fixed
   assets
  (854 ) (462 ) (1,311 ) (1,036 )
Earnings from jointly controlled entities and associates   (1,083 ) (932 ) (1,579 ) (1,620 )
Dividends received from jointly controlled entities and
   associates
  813   268   1,042   1,279  
Working capital and other movements   (6,109 ) (3,253 ) (7,167 ) (5,103 )
   
 
 
 
 
Net cash provided by operating activities(a)   6,086   9,149   14,064   18,072  
   
 
 
 
 
Investing activities                  
Capital expenditure   (4,334 ) (3,412 ) (7,979 ) (6,707 )
Acquisitions, net of cash acquired   (111 )   (1,198 )  
Investment in jointly controlled entities   (12 ) (26 ) (21 ) (26 )
Investment in associates   (65 ) (151 ) (109 ) (308 )
Proceeds from disposal of fixed assets   836   1,899   1,146   2,383  
Proceeds from disposal of businesses, net of cash disposed   1,905   90   2,513   256  
Proceeds from loan repayments   33   58   78   130  
Other   374     374    
   
 
 
 
 
Net cash used in investing activities   (1,374 ) (1,542 ) (5,196 ) (4,272 )
   
 
 
 
 
Financing activities                  
Net repurchase of shares   (1,918 ) (4,411 ) (4,320 ) (8,272 )
Proceeds from long-term financing   1,513   514   2,871   910  
Repayments of long-term financing   (93 ) (720 ) (1,227 ) (785 )
Net increase (decrease) in short-term debt   (1,499 ) 941   (2,057 ) 231  
Dividends paid – BP shareholders   (1,983 ) (1,894 ) (3,984 ) (3,816 )
  – Minority interest   (71 ) (88 ) (135 ) (154 )
   
 
 
 
 
Net cash used in financing activities   (4,051 ) (5,658 ) (8,852 ) (11,886 )
   
 
 
 
 
Currency translation differences relating to cash and cash
   equivalents
  26   (36 ) 37   (22 )
   
 
 
 
 
Increase (decrease) in cash and cash equivalents   687   1,913   53   1,892  
Cash and cash equivalents at beginning of period   1,956   2,939   2,590   2,960  
   
 
 
 
 
Cash and cash equivalents at end of period   2,643   4,852   2,643   4,852  
   
 
 
 
 

(a) Operating cash flow is calculated from the starting point of profit before taxation which includes inventory holding gains and losses. Operating cash flow also reflects working capital movements including inventories, trade and other receivables and trade and other payables. The carrying value of these working capital items will change for various reasons, including movements in oil, gas and products prices.

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BP p.l.c. AND SUBSIDIARIES
GROUP CASH FLOW STATEMENT (Concluded)

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Working capital and other movements                  
Interest receivable   (93 ) (122 ) (188 ) (252 )
Interest received   103   145   188   291  
Finance costs   251   153   515   344  
Interest paid   (335 ) (351 ) (668 ) (661 )
Other finance income   (96 ) (46 ) (189 ) (94 )
Share-based payments   107   122   182   205  
Net operating charge for pensions and other post-retirement
   benefits, less contributions
  (31 ) (47 ) (118 ) (97 )
Net charge for provisions, less payments   (257 ) (284 ) (414 ) (491 )
(Increase) decrease in inventories   (683 ) (2,351 ) (1,331 ) (1,343 )
(Increase) decrease in other current and non-current
   assets
  (621 ) 2,008   2,518   2,343  
Increase (decrease) in other current and non-current
   liabilities
  (2,429 ) 135   (4,429 ) 28  
Income taxes paid   (2,025 ) (2,615 ) (3,233 ) (5,376 )
   
 
 
 
 
    (6,109 ) (3,253 ) (7,167 ) (5,103 )
   
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of preparation

The interim financial information included in this Form 6-K has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’.

The results for the interim periods are unaudited and in the opinion of management include all adjustments necessary for a fair presentation of the results for the periods presented. All such adjustments are of a normal recurring nature. The interim financial statements and notes included in this Report should be read in conjunction with the consolidated financial statements and related notes for the year ended 31 December 2006 included in BP’s Annual Report on Form 20-F filed with the Securities and Exchange Commission.

BP prepares its Annual Report and Accounts on the basis of International Financial Reporting Standards (IFRS) as adopted for use by the European Union (EU). The financial information presented herein has been prepared in accordance with the accounting policies expected to be used in preparing the Annual Report and Accounts 2007, which do not differ significantly from those used in the Annual Report and Accounts 2006.

The impact of recently issued accounting standards and interpretations is described below.

Adopted for 2007

In August 2005, the International Accounting Standards Board (IASB) issued IFRS 7 ‘Financial Instruments – Disclosures’ which is effective for annual periods beginning on or after 1 January 2007. Under IFRS7 the group is required to disclose information about its financial instruments, their significance and the nature and extent of risks to which they give rise. More specifically, the group is required to make specified minimum disclosures about credit risk, liquidity risk and market risk. In response to this new standard the group expects to make some changes to the disclosures it provides on financial instruments in its Annual Report on Form 20-F 2007. There will be no effect on the group’s reported income or net assets.

Also in August 2005, ‘IAS 1 Amendment – Presentation of Financial Statements: Capital Disclosures’ was issued by the IASB, which requires disclosures of an entity’s objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital, whether the entity has complied with any capital requirements, and the consequences of any non-compliance. This amendment is effective for annual periods beginning on or after 1 January 2007 and the disclosures will be included in the Annual Report and Accounts 2007. There will be no effect on the group’s reported income or net assets.

The group has also adopted two International Financial Reporting Interpretations Committee (IFRIC) interpretations with effect from 1 January 2007:

IFRIC 10 – ‘Interim Financial Reporting and Impairment’ prohibits the reversal of an impairment loss relating to goodwill or certain financial assets made in an earlier interim period in the same annual period.

IFRIC 11 – ‘IFRS 2 – Group and Treasury Share Transactions’ deals with share-based payment arrangements within a group and share-based payment arrangements satisfied by using treasury shares.

There was no effect on the group’s reported income or net assets as a result of adopting these two interpretations.

Not yet adopted

The following pronouncements from the IASB will become effective for future financial reporting periods and have not yet been adopted by the group.

IFRS 8 ‘Operating Segments’ was issued in October 2006 and defines operating segments as components of an entity about which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The new standard sets out the required disclosures for operating segments and is effective for annual periods beginning on or after 1 January 2009. IFRS 8 has not yet been adopted by the EU. BP has not yet completed its evaluation of the impact on its disclosures of adopting IFRS 8.

There are three further IFRIC interpretations in issue, which are not yet effective and have not yet been adopted by the EU.

IFRIC 12 ‘Service Concession Arrangements’ gives guidance on the accounting by operators for public-to-private service concession arrangements. BP has not yet completed its evaluation of the impact of adopting this interpretation. This interpretation is effective for annual periods beginning on or after 1 January 2008.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

IFRIC 13 ‘Customer Loyalty Programmes’ addresses accounting by entities that grant loyalty award credits, e.g. “points” or “travel miles”, to customers who buy other goods or services. Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services (“awards”) to customers who redeem award credits. They may fulfil their obligations by supplying awards themselves or engaging a third party to do so. The interpretation requires entities to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations. BP has not yet completed its evaluation of the impact of adopting this interpretation, which is effective for annual periods beginning on or after 1 July 2008.

IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements, and their Interaction’. IAS 19 ‘Retirement Benefits’ limits the measurement of a defined benefit asset to ‘the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan’ plus unrecognised gains and losses. Minimum funding requirements exist in many countries to improve the security of the post-employment benefit promise made to members of an employee benefit plan. Such requirements normally stipulate a minimum amount or level of contributions that must be made to a plan over a given period. Therefore, a minimum funding requirement may limit the ability of the entity to reduce future contributions. BP has not yet completed its evaluation of the impact of adopting this interpretation, which is effective for annual periods beginning on or after 1 January 2008.

Note 2 – Changes to comparatives

In 2005 the basis of accounting for over-the-counter forward sale and purchase contracts for oil, natural gas, NGLs and power was changed. Certain transactions are now reported on a net basis in sales and other operating revenues, whereas previously they had been reported gross in sales and purchases. This change, while reducing sales and other operating revenues and purchases, had no impact on reported profit, profit per ordinary share, cash flow or the balance sheet.

During 2006, as part of a continuous process to review how individual contracts are accounted for, certain other minor adjustments were identified that should have been reflected in the restatement from gross to net presentation. Though these adjustments are not significant to the group income statement, the amendment has been made to bring the comparatives onto a consistent basis. The comparative figures have been amended to reflect these items as set out below.

    Amended   Reported  
   
 
 
    Three months 
ended 
30 June 
2006
  Six months 
ended 
30 June 
2006
  Three months 
ended 
30 June 
2006
  Six months 
ended 
30 June 
2006
 
   
 
 
 
 
    (Unaudited)  
    ($ million)  
Sales and other operating revenues                  
Exploration and Production   13,495   27,413   13,495   27,413  
Refining and Marketing   63,373   117,910   64,025   119,905  
Gas, Power and Renewables   6,091   12,644   5,735   12,714  
Other businesses and corporate   252   458   252   458  
   
 
 
 
 
Sales by continuing operations   83,211   158,425   83,507   160,490  
Less: sales between businesses   11,079   23,005   11,079   23,005  
   
 
 
 
 
Third party sales of continuing operations   72,132   135,420   72,428   137,485  
   
 
 
 
 
Purchases   50,427   94,246   50,723   96,311  
   
 
 
 
 

-21-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 – Sale of Olefins and Derivatives business

The sale of Innovene, BP’s olefins, derivatives and refining group, to INEOS, was completed on 16 December 2005. The second quarter and first half of 2006 include a loss on remeasurement to fair value of $88 million and $184 million respectively.

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Loss recognized on the remeasurement to fair value     (88 )   (184 )
Taxation                  
   Related to profit before tax     166     166  
   Related to remeasurement to fair value         (7 )
   
 
 
 
 
Profit (loss) from Innovene operations     78     (25 )
   
 
 
 
 
Earnings (loss) per share from Innovene
   operations – cents
                 
Basic     0.37     (0.13 )
Diluted     0.38     (0.12 )
   
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4 – Sales and other operating revenues

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
By business                  
Exploration and Production   12,747   13,495   24,966   27,413  
Refining and Marketing   63,960   63,373   117,079   117,910  
Gas, Power and Renewables   5,403   6,091   11,016   12,644  
Other businesses and corporate   178   252   384   458  
   
 
 
 
 
Sales by continuing operations   82,288   83,211   153,445   158,425  
Less: sales between businesses   10,416   11,079   20,266   23,005  
   
 
 
 
 
Total third party sales   71,872   72,132   133,179   135,420  
   
 
 
 
 
By geographical area                  
UK   27,713   26,300   51,768   54,033  
Rest of Europe   19,064   19,406   35,652   37,780  
US   26,825   27,054   49,859   49,120  
Rest of World   18,273   19,067   35,117   37,442  
   
 
 
 
 
Sales by continuing operations   91,875   91,827   172,396   178,375  
Less: sales between areas   20,003   19,695   39,217   42,955  
   
 
 
 
 
Total third party sales   71,872   72,132   133,179   135,420  
   
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Note 5 – Profits before interest and taxation is after charging:
    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Production and similar taxes                  
UK     72   67   307  
Overseas   827   783   1,507   1,480  
   
 
 
 
 
    827   855   1,574   1,787  
   
 
 
 
 


Note 6 – Finance costs                  
Interest payable   345   285   692   578  
Capitalized   (94 ) (132 ) (177 ) (234 )
   
 
 
 
 
    251   153   515   344  
   
 
 
 
 


Note 7 – Other finance income                  
Interest on pension and other post-retirement
   benefit plan liabilities
  546   484   1,084   955  
Expected return on pension and other
   post-retirement benefit plan assets
  (708 ) (599 ) (1,406 ) (1,181 )
   
 
 
 
 
Interest net of expected return on plan assets   (162 ) (115 ) (322 ) (226 )
Unwinding of discount on provisions   66   61   133   115  
Unwinding of discount on deferred consideration
   for acquisition of investment in TNK-BP
    8     17  
   
 
 
 
 
    (96 ) (46 ) (189 ) (94 )
   
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 – Analysis of changes in net debt

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Opening balance                  
Finance debt   23,728   18,679   24,010   19,162  
Less: Cash and cash equivalents   1,956   2,939   2,590   2,960  
   
 
 
 
 
Opening net debt   21,772   15,740   21,420   16,202  
   
 
 
 
 
Closing balance                  
Finance debt   23,754   19,286   23,754   19,286  
Less: Cash and cash equivalents   2,643   4,852   2,643   4,852  
   
 
 
 
 
Closing net debt   21,111   14,434   21,111   14,434  
   
 
 
 
 
Decrease (increase) in net debt   661   1,306   309   1,768  
   
 
 
 
 
                   
Movement in cash and cash equivalents (excluding
   exchange adjustments)
  661   1,949   16   1,914  
Net cash outflow (inflow) from financing (excluding share
   capital)
  79   (734 ) 413   (355 )
Fair value hedge adjustment   (51 ) 60   (81 ) 142  
Other movements   (13 ) 26   (24 ) 58  
   
 
 
 
 
Movement in net debt before exchange effects   676   1,301   324   1,759  
Exchange adjustments   (15 ) 5   (15 ) 9  
   
 
 
 
 
Decrease (increase) in net debt   661   1,306   309   1,768  
   
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9 – TNK-BP financial information

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
       
Income statement (BP share)   ($ million)  
Profit before interest and tax   1,016   1,084   1,372   1,936  
Interest expense*   (64 ) (45 ) (125 ) (88 )
Taxation   (188 ) (348 ) (291 ) (698 )
Minority interest   (78 ) (46 ) (108 ) (87 )
   
 
 
 
 
Net income   686   645   848   1,063  
   
 
 
 
 
Excludes unwinding of discount on deferred
   consideration
    8     17  
   
 
 
 
 
Cash flow                  
Dividends received(a)   500     500   771  
   
 
 
 
 


    30 June 
2007
(Unaudited)
  31 December 
2006
 
   


 
Balance Sheet          
           
Investments in jointly controlled entities   8,193   8,353  
   
 
 

(a) Six months ended 30 June 2006 includes $771 million declared in fourth quarter 2005.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 – Business and geographical analysis

By business   Exploration
and
Production
  Refining
and
Marketing
  Gas,
Power
and
Renewables
  Other
businesses
and
corporate
  Consolidation
adjustment
and
eliminations
  Total
group
  Innovene (Note 3)   Total
continuing
operations
 
    (Unaudited)  
   
 
 
 
 
 
 
 
 
    ($ million)  
Three months
   ended 30 June 2007
                                 
Sales and other
   operating revenues
                                 
- segment revenues   12,747   63,960   5,403   178   (10,416 ) 71,872     71,872  
Less: sales between businesses   (9,188 ) (585 ) (643 )   10,416        
   
 
 
 
 
 
 
 
 
Third party sales   3,559   63,375   4,760   178     71,872     71,872  
   
 
 
 
 
 
 
 
 
Equity-accounted income   872   159   52       1,083     1,083  
   
 
 
 
 
 
 
 
 
Profit (loss) before interest
   and tax
  6,894   3,981   235   (162 ) (69 ) 10,879     10,879  
   
 
 
 
 
 
 
 
 
Capital expenditure
   and acquisitions
  3,630   858   141   67     4,696     4,696  
   
 
 
 
 
 
 
 
 
                                   
Three months
   ended 30 June 2006
                                 
Sales and other
   operating revenues
                                 
- segment revenues   13,495   63,373   6,091   252   (11,079 ) 72,132     72,132  
Less: sales between businesses   (9,107 ) (932 ) (1,040 )   11,079        
   
 
 
 
 
 
 
 
 
Third party sales   4,388   62,441   5,051   252     72,132     72,132  
   
 
 
 
 
 
 
 
 
Equity-accounted income   809   77   45   1     932     932  
   
 
 
 
 
 
 
 
 
Profit (loss) before interest
   and tax
  7,827   3,492   463   (280 ) (277 ) 11,225   88   11,313  
   
 
 
 
 
 
 
 
 
Capital expenditure
   and acquisitions
  2,984   545   64   119     3,712     3,712  
   
 
 
 
 
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 – Business and geographical analysis (continued)

By business   Exploration
and
Production
  Refining
and
Marketing
  Gas,
Power
and
Renewables
  Other
businesses
and
corporate
  Consolidation
adjustment
and
eliminations
  Total
group
  Innovene (Note 3)   Total
continuing
operations
 
    (Unaudited)      
   
 
 
 
 
 
 
 
 
    ($ million)      
Six months
   ended 30 June 2007
                                 
Sales and other
   operating revenues
                                 
- segment revenues   24,966   117,079   11,016   384   (20,266 ) 133,179     133,179  
                                   
Less: sales between businesses   (17,397 ) (1,449 ) (1,420 )   20,266        
   
 
 
 
 
 
 
 
 
Third party sales   7,569   115,630   9,596   384     133,179     133,179  
   
 
 
 
 
 
 
 
 
Equity-accounted income   1,201   289   89       1,579     1,579  
   
 
 
 
 
 
 
 
 
Profit (loss) before interest
  and tax
  12,948   5,110   441   (277 ) 14   18,236     18,236  
   
 
 
 
 
 
 
 
 
Capital expenditure
   and acquisitions
  6,626   2,490   204   136     9,456     9,456  
   
 
 
 
 
 
 
 
 
                                   
Six months
   ended 30 June 2006
                                 
Sales and other
   operating revenues
                                 
- segment revenues   27,413   117,910   12,644   458   (23,005 ) 135,420     135,420  
                                   
Less: sales between businesses   (18,247 ) (2,443 ) (2,315 )   23,005        
   
 
 
 
 
 
 
 
 
Third party sales   9,166   115,467   10,329   458     135,420     135,420  
   
 
 
 
 
 
 
 
 
Equity-accounted income   1,406   149   66   (1 )   1,620     1,620  
   
 
 
 
 
 
 
 
 
Profit (loss) before interest
   and tax
  14,643   5,530   701   (591 ) (285 ) 19,998   184   20,182  
   
 
 
 
 
 
 
 
 
Capital expenditure
   and acquisitions
  5,684   1,036   104   146     6,970     6,970  
   
 
 
 
 
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 – Business and geographical analysis (concluded)



By geographical area
  UK   Rest of
Europe
  US   Rest of
World
  Sales
between
areas
  Total  
   
 
 
 
 
 
 
    (Unaudited)      
    ($ million)      
Three months ended 30 June 2007                          
Sales and other operating revenues   27,713   19,064   26,825   18,273   (20,003 ) 71,872  
   
 
 
 
 
 
 
Equity-accounted income   2   30   48   1,003     1,083  
   
 
 
 
 
 
 
Profit (loss) before interest and tax   2,080   1,213   3,622   3,964     10,879  
   
 
 
 
 
 
 
Capital expenditure and acquisitions   322   377   1,985   2,012     4,696  
   
 
 
 
 
 
 
                           
Three months ended 30 June 2006                          
Sales and other operating revenues   26,300   19,406   27,054   19,067   (19,695 ) 72,132  
   
 
 
 
 
 
 
Equity-accounted income   5   4   31   892     932  
   
 
 
 
 
 
 
Profit (loss) before interest and tax                          
-continuing operations   2,148   1,059   4,217   3,889     11,313  
-Innovene operations (Note 3)   (90 ) (40 ) (6 ) 48     (88 )
   
 
 
 
 
 
 
    2,058   1,019   4,211   3,937     11,225  
   
 
 
 
 
 
 
Capital expenditure and acquisitions   372   182   1,554   1,604     3,712  
   
 
 
 
 
 
 
                           
Six months ended 30 June 2007                          
Sales and other operating revenues   51,768   35,652   49,859   35,117   (39,217 ) 133,179  
   
 
 
 
 
 
 
Equity-accounted income   3   45   72   1,459     1,579  
   
 
 
 
 
 
 
Profit (loss) before interest and tax   3,078   2,458   5,554   7,146     18,236  
   
 
 
 
 
 
 
Capital expenditure and acquisitions   658   1,683   3,372   3,743     9,456  
   
 
 
 
 
 
 
                           
Six months ended 30 June 2006                          
Sales and other operating revenues   54,033   37,780   49,120   37,442   (42,955 ) 135,420  
   
 
 
 
 
 
 
Equity-accounted income     6   48   1,566     1,620  
   
 
 
 
 
 
 
Profit (loss) before interest and tax                          
-continuing operations   2,920   2,054   7,462   7,746     20,182  
-Innovene operations (Note 3)   (145 ) (61 ) 1   21     (184 )
   
 
 
 
 
 
 
    2,775   1,993   7,463   7,767     19,998  
   
 
 
 
 
 
 
Capital expenditure and acquisitions   635   321   2,861   3,153     6,970  
   
 
 
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 – Earnings per share

Basic earnings per ordinary share amounts are calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. The average number of shares outstanding excludes treasury shares and the shares held by the Employee Share Ownership Plans.

For the diluted earnings per share calculation, the profit attributable to ordinary shareholders is adjusted for the unwinding of the discount on the deferred consideration for the acquisition of our interest in TNK-BP. The weighted average number of shares outstanding during the period is adjusted for the number of shares to be issued for the deferred consideration for the acquisition of our interest in TNK-BP and the number of shares that would be issued on conversion of outstanding share options into ordinary shares using the treasury stock method.

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   


 


 
    ($ million)  
Profit for the period attributable to
   BP shareholders
                 
Continuing operations   7,376   7,503   12,040   13,229  
Discontinued operations     78     (25 )
   
 
 
 
 
    7,376   7,581   12,040   13,204  
Unwinding of discount on deferred
   consideration for acquisition of investment
   in TNK-BP (net of tax)
    6     12  
   
 
 
 
 
Diluted profit for the period attributable to
   BP shareholders
  7,376   7,587   12,040   13,216  
   
 
 
 
 
       
    (shares thousands)  
Weighted average number of ordinary shares   19,186,461   20,171,546   19,284,938   20,345,750  
Ordinary shares issuable under employee
   share schemes
  80,405   117,712   94,366   111,147  
Ordinary shares issuable as consideration for
   BP’s interest in the TNK-BP joint venture
    107,326     111,804  
   
 
 
 
 
    19,266,866   20,396,584   19,379,304   20,568,701  
   
 
 
 
 

Earnings (loss) per share for the discontinued operations is derived from the net profit (loss) attributable to ordinary shareholders from discontinued operations of $78 million profit and $25 million loss for the three months and six months ended 30 June 2006 respectively, divided by the weighted average number of ordinary shares for both basic and diluted amounts as shown above. There is no profit (loss) attributable to ordinary shareholders from discontinued operations for the three months and six months ended 30 June 2006.

-30-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12 – Pension and other post-retirement benefits

    Three months ended 30 June 2007  
    (Unaudited)  
   
 
    UK   US   Other   Total  
   
 
 
 
 
    ($ million)  
Current service cost   122   67   33   222  
Past service cost          
Settlement, curtailment and special termination
   benefits
  7       7  
Payments to defined contribution plans     44   5   49  
   
 
 
 
 
Total operating charge   129   111   38   278  
   
 
 
 
 
Expected return on plan assets   (514 ) (152 ) (42 ) (708 )
Interest on plan liabilities   297   152   97   546  
   
 
 
 
 
Interest net of expected return on plan assets   (217 )   55   (162 )
   
 
 
 
 


    Three months ended 30 June 2006  
    (Unaudited)  
   
 
    UK   US   Other   Total  
   
 
 
 
 
    ($ million)  
Current service cost   108   64   33   205  
Past service cost       10   10  
Settlement, curtailment and special termination
   benefits
  13     2   15  
Payments to defined contribution plans     39   4   43  
   
 
 
 
 
Total operating charge   121   103   49   273  
   
 
 
 
 
Expected return on plan assets   (424 ) (142 ) (33 ) (599 )
Interest on plan liabilities   250   153   81   484  
   
 
 
 
 
Interest net of expected return on plan assets   (174 ) 11   48   (115 )
   
 
 
 
 

-31-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12 – Pension and other post-retirement benefits (concluded)

    Six months ended 30 June 2007  
    (Unaudited)  
   
 
    UK   US   Other   Total  
   
 
 
 
 
    ($ million)  
Current service cost   241   135   63   439  
Past service cost          
Settlement, curtailment and special termination
   benefits
  13       13  
Payments to defined contribution plans     101   10   111  
   
 
 
 
 
Total operating charge   254   236   73   563  
   
 
 
 
 
Expected return on plan assets   (1,020 ) (306 ) (80 ) (1,406 )
Interest on plan liabilities   589   306   189   1,084  
   
 
 
 
 
Interest net of expected return on plan assets   (431 )   109   (322 )
   
 
 
 
 


    Six months ended 30 June 2006  
    (Unaudited)  
   
 
    UK   US   Other   Total  
   
 
 
 
 
    ($ million)  
Current service cost   211   129   66   406  
Past service cost       10   10  
Settlement, curtailment and special termination
   benefits
  23     5   28  
Payments to defined contribution plans     92   9   101  
   
 
 
 
 
Total operating charge   234   221   90   545  
   
 
 
 
 
Expected return on plan assets   (832 ) (283 ) (66 ) (1,181 )
Interest on plan liabilities   490   305   160   955  
   
 
 
 
 
Interest net of expected return on plan assets   (342 ) 22   94   (226 )
   
 
 
 
 

-32-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles

The consolidated financial statements of the BP group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the EU, which differ in certain respects from US generally accepted accounting principles (US GAAP). IFRS as adopted by the EU differs in certain respects from IFRS as issued by the International Accounting Standards Board (IASB). However, the consolidated financial statements for the periods presented would be no different had the group applied IFRS as issued by the IASB.

The following is a summary of the adjustments to profit for the period attributable to BP shareholders and to BP shareholders’ equity which would be required if US GAAP had been applied instead of IFRS.

Profit for the period

   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
     2007      2006      2007      2006  
 


 


 
    ($ million)  
Profit as reported to accord with IFRS   7,376     7,581     12,040     13,204  
                         
Adjustments                        
   Provisions (i)   11     11     (13 )   15  
   Oil and natural gas reserves differences (ii)   (53 )   (187 )   (31 )   (205 )
   Goodwill and intangible assets (iii)   (3 )   18     (3 )   18  
   Derivative financial instruments (iv)   2     88     (38 )   129  
   Inventory valuation (v)   31     (10 )   2     129  
   Gain arising on asset exchange (vi)   (3 )   (2 )   (6 )   (6 )
   Pensions and other post-retirement benefits (vii)   (195 )   (201 )   (382 )   (406 )
   Impairments (viii)   (37 )   (132 )   (125 )   (132 )
   Equity-accounted investments (ix)   (30 )   (32 )   (47 )   (59 )
   Consolidation of variable interest entities (x)   1     (3 )   19     (6 )
   Share-based payments (xi)   26     51     38     46  
   Income taxes (xii)   (282 )   (68 )   (259 )   (127 )
   Other   2     4     4     2  
                         
Profit for the period as adjusted to accord with US GAAP   6,846     7,118     11,199     12,602  
Dividend requirements on preference shares   1     1     1     1  
 
 
 
 
 
Profit for the period attributable to ordinary shares as
   adjusted to accord with US GAAP
  6,845     7,117     11,198     12,601  
 
 
 
 
 
                         
Per ordinary share – cents                        
Basic   35.61     35.21     58.07     61.93  
   Diluted   35.43     34.86     57.78     61.32  
Per American depositary share – cents(a)                        
Basic   213.66     211.26     348.42     371.58  
   Diluted   212.58     209.16     346.68     367.92  

(a) One American depositary share is equivalent to six ordinary shares.

-33-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

BP shareholders’ equity

   At
30 June
2007
  At
31 December
2006
 
   (Unaudited)        
 
 
 
    ($ million)    
             
BP shareholders’ equity as reported to accord with IFRS   88,549     84,624  
             
Adjustments            
   Provisions (i)   49     63  
   Oil and natural gas reserves differences (ii)   (233 )   (202 )
   Goodwill and intangible assets (iii)   257     248  
   Derivative financial instruments (iv)   190     202  
   Inventory valuation (v)   (3 )   (5 )
   Gain arising on asset exchange (vi)   223     229  
   Impairments (viii)   (117 )   2  
   Equity-accounted investments (ix)   (207 )   (160 )
   Consolidation of variable interest entities (x)   14     (5 )
   Share-based payments (xi)   (259 )   (254 )
   Income taxes (xii)   1,512     1,801  
   Commitment for repurchase of ordinary shares (xiii)   495      
   Other   (22 )   (26 )
             
BP shareholders’ equity as adjusted to accord with US GAAP   90,448     86,517  
 
 
 

Comprehensive income

The components of comprehensive income, net of related tax, are as follows:

    Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
    2007   2006   2007   2006  
   

 

 
    ($ million)  
Profit for the period as adjusted to accord
   with US GAAP
  6,846   7,118   11,199   12,602  
Currency translation differences, net of tax
   benefit (expense) of $(182), $(28), $(199) and $11
  318   304   448   602  
Investments                  
Unrealized gains, net of tax benefit (expense) of $(21),
   $16, $(33), and $(58)
  39   (28 ) 61   95  
Unrealized losses, net of tax benefit (expense)
   of $nil, $nil, $nil, and $nil
  (54 )   (197 )  
Less: reclassification adjustment for gains included in net income,
   net of tax benefit (expense) of $nil, $28, $nil, and $125
    (51 )   (300 )
Unrealized gains (losses) on cash flow
   hedges, net of tax benefit (expense) of
   $11, $(59), $11, and $(84)
  (4 ) 97   10   139  
Pensions and other post-retirement benefits,
   net of tax benefit (expense) of $(80), $nil,
   $(165) and $nil
  195     382    
   
 
 
 
 
Comprehensive income   7,340   7,440   11,903   13,138  
   
 
 
 
 

-34-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

Accumulated other comprehensive income

    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Currency translation differences   3,764   3,320  
Net unrealized gains on investments   250   386  
Unrealized losses on cash flow hedges   (19 ) (29 )
Pensions and other post-retirement benefits   (1,001 ) (1,383 )
   
 
 
Accumulated other comprehensive income   2,994   2,294  
   
 
 

Consolidated statement of cash flows

The group’s financial statements include a consolidated cash flow statement in accordance with IAS 7 ‘Cash Flow Statements’. The statement prepared under IAS 7 presents substantially the same information as that required under SFAS No. 95 ‘Statement of Cash Flows’; however, as permitted under IAS 7, the group includes payments in respect of capitalized interest in operating activities. Under SFAS 95, these payments are treated as investing activities.

The adjustments to the group’s cash flow statement for the period to accord with US GAAP are summarized below:

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   
 
 
 
 
    ($ million)  
Net cash provided by operating activities   94   132   177   234  
Net cash provided by (used in) investing
   activities
  (94 ) (132 ) (177 ) (234 )
Increase (decrease) in cash and cash
   equivalents
         
   
 
 
 
 

The principal differences between IFRS and US GAAP for BP group reporting relate to the following:

(i) Provisions

Under IFRS, provisions for decommissioning and environmental liabilities are estimated using costs based on current prices and discounted using rates that take into consideration the time value of money and risks inherent in the liability. The periodic unwinding of the discount is included in other finance expense. Similarly, the effect of a change in the discount rate is included in other finance expense in connection with all provisions other than decommissioning liabilities. Adjustments to the decommissioning liabilities, associated with changes to the future cash flow assumptions or changes in the discount rate, are reflected as increases or decreases to the corresponding item of property, plant and equipment and depreciated prospectively over the asset’s remaining useful life.

Under US GAAP, decommissioning liabilities are measured based on estimated fair value. Estimated fair value is measured using the expected cash flow approach discounted using a credit-adjusted risk-free rate. The unwinding of the discount is included in operating profit for the period. Unlike IFRS, subsequent changes to the discount rate do not impact the carrying value of the asset or liability. Subsequent changes to the estimates of the timing or amount of future cash flows, resulting in an increase to the asset and liability, are remeasured using updated assumptions related to the credit-adjusted risk-free rate.

In addition, the use of different oil and natural gas reserves volumes between US GAAP and IFRS until 1 October 2006 (see note (ii) Oil and natural gas reserves differences) resulted in different field lives and hence differences in the manner in which the subsequent unwinding of the discount and the depreciation of the corresponding assets associated with decommissioning provisions were recognized.

Under US GAAP, environmental liabilities are discounted only where the timing and amounts of payments are fixed and reliably determinable.

-35-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

Under IFRS, an expected loss is recognized immediately as a provision for an executory contract if the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Under US GAAP, an expected loss can only be recognized if the contract is within the scope of authoritative literature that specifically provides for such accruals. The group has recognized losses under IFRS on certain sales contracts with fixed-price ceilings which do not meet loss recognition criteria under US GAAP.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   

 
 
 
    ($ million)  
Production and manufacturing expenses and
   depreciation, depletion and amortization
  41   53   123   87  
Distribution and administration expenses   3     26    
Other finance income   (66 ) (61 ) (133 ) (115 )
Taxation   11   (3 ) (3 ) 13  
Profit for the period   11   11   (13 ) 15  
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Property, plant and equipment   (1,840 ) (2,065 )
Provisions   (1,943 ) (2,184 )
Deferred tax liabilities   54   56  
BP shareholders’ equity   49   63  
   
 
 

The following data summarizes the movements in the asset retirement obligations, as adjusted to accord with US GAAP, for the six months ended 30 June 2007.

    (Unaudited)  
    ($ million)  
At 1 January 2007   6,037  
Exchange adjustments   3  
New provisions   259  
Adjustment to provisions   1,326  
Unwinding of discount   175  
Utilized/deleted   (155 )
   
 
At 30 June 2007   7,645  
   
 

-36-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

(ii) Oil and natural gas reserves differences

The group’s past practice was to use the UK accounting rules contained in the Statement of Recommended Practice ‘Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities’ (SORP) for estimating oil and natural gas reserves for accounting and reporting purposes. These rules are different in certain respects from the corresponding SEC rules. In particular, the SEC requires the use of year-end prices, whereas under SORP the group used long-term planning prices. The consequential difference in reserves volumes resulted in different charges for depreciation, depletion and amortization (DD&A) between IFRS and US GAAP.

At the end of 2006, the group adopted the SEC rules for estimating oil and natural gas reserves for IFRS accounting and reporting purposes and the charge for DD&A was calculated on this basis for the last three months of the year. This was a change in accounting estimate and the impact of the change is applied prospectively. Differences in charges for DD&A between IFRS and US GAAP will continue due to the difference in net book values of the underlying oil and natural gas properties.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   

 

 
    ($ million)  
Gain on sale of businesses and fixed assets   (98 ) (176 ) (98 ) (176 )
Depreciation, depletion and amortization   (11 ) 137   (47 ) 166  
Taxation   (34 ) (126 ) (20 ) (137 )
Profit for the period   (53 ) (187 ) (31 ) (205 )
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   

 
    ($ million)  
Property, plant and equipment   (382 ) (331 )
Deferred tax liabilities   (149 ) (129 )
BP shareholders’ equity   (233 ) (202 )
   
 
 

For IFRS reporting, the unit-of-production rate for the amortization of field development costs takes into account total proved reserves, capitalised costs incurred to date, and sanctioned future development expenditure. US GAAP requires the unit-of-production depreciation calculation to be based on development expenditure incurred to date and proved developed reserves. Where production commences before all development wells are drilled, a portion of the development costs incurred to date is excluded from the calculation. The difference, due to these factors, in the group’s charge for unit-of-production depreciation between IFRS and US GAAP is not material.

(iii) Goodwill and intangible assets

As a result of the transition rules available under IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’, the group did not restate its past business combinations in accordance with IFRS 3 and assumed its UK GAAP carrying amount for goodwill as its IFRS carrying amount upon transition to IFRS at 1 January 2003.

Under US GAAP, goodwill and other indefinite lived intangible assets have not been amortized since 31 December 2001. Such assets are subject to periodic impairment testing. The group has goodwill, but does not have any other intangible assets with indefinite lives. Under IFRS, goodwill amortization ceased from 1 January 2003.

The movement in the goodwill difference during all periods presented is the result of movements in foreign exchange rates and differences in the amount of goodwill allocated to certain disposals.

-37-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 US generally accepted accounting principles (continued)

During the fourth quarter of 2006 the group completed a goodwill impairment review using the two-step process prescribed in US GAAP. The first step includes a comparison of the fair value of a reporting unit to its carrying value, including goodwill. When the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and the second step is then completed in order to measure the impairment loss, if any. No impairment charge resulted from this review.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   

 

 
    ($ million)  
Gain on sale of businesses and fixed assets   (3 ) 18   (3 ) 18  
Profit for the period   (3 ) 18   (3 ) 18  
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Goodwill   257   248  
BP shareholders’ equity   257   248  
   
 
 

In accordance with group accounting practice, exploration licence acquisition costs are capitalized initially as an intangible asset and are amortized over the estimated period of exploration. Where proved reserves of oil or natural gas are determined and development is sanctioned, the unamortized cost is transferred to property, plant and equipment. Where exploration is unsuccessful, the unamortized cost is charged against income. At 30 June 2007 and 31 December 2006, exploration licence acquisition costs included in the group’s property, plant and equipment and intangible assets, net of accumulated amortization were as follows.

    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Exploration licence acquisition cost included in non-current assets
   (net of accumulated amortization)
         
   Property, plant and equipment   1,258   1,076  
   Intangible assets   726   639  

Changes to the net book amount of exploration expenditure, goodwill and other intangible assets, as adjusted to accord with US GAAP, during the six months ended 30 June 2007 are shown below.

    Exploration
expenditure
  Goodwill
 
  Other
intangibles
  Total  
    (Unaudited)  
   
 
 
 
 
     ($ million)    
Net book amount                  
At 1 January 2007   4,110   11,149   1,136   16,395  
Amortization expense   (115 )   (134 ) (249 )
Other movements   507   294   231   1,032  
   
 
 
 
 
At 30 June 2007   4,502   11,443   1,233   17,178  
   
 
 
 
 

Amortization expense relating to other intangibles is expected to be in the range $250-$300 million in each of the succeeding five years.

-38-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

(iv) Derivative financial instruments

For IFRS reporting, upon adoption of IAS 39 ‘Financial Instruments: Recognition and Measurement’ on 1 January 2005, all cash flow and fair value hedges that previously qualified for hedge accounting under UK GAAP were recorded on the balance sheet at fair value with the offset recorded through equity.

Prior to 1 January 2005, the group did not designate any of its derivative financial instruments as part of hedged transactions under US GAAP. As a result, all changes in fair value were recognized in the income statement. A difference therefore exists between the treatment applied for US GAAP reporting and that upon initial adoption of IFRS associated with those specific derivative instruments. This difference will remain until these individual derivative transactions mature.

Additionally, under IFRS, hedge accounting can be applied to certain centrally-hedged foreign currency exposures. Under US GAAP, hedge accounting can be applied only where the companies between the central treasury and the entity having the foreign currency exposure have the same functional currency.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   
 
 

 
    ($ million)  
Production and manufacturing expenses   3     66    
Finance costs   (4 ) (88 ) (8 ) (129 )
Taxation   (1 )   (20 )  
Profit for the period   2   88   (38 ) 129  
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Goodwill   131   131  
Finance debt   (105 ) (117 )
Deferred tax liabilities   46   46  
BP shareholders’ equity   190   202  
   
 
 

-39-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

(v) Inventory valuation

Under IFRS, inventory held for trading purposes is remeasured to fair value with the changes in fair value recognized in the income statement. Under US GAAP, all balances recorded in inventory are measured at the lower of cost and net realizable value.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   

 

 
    ($ million)  
Purchases   (47 ) 16   (2 ) (198 )
Taxation   16   (6 )   69  
Profit for the period   31   (10 ) 2   129  
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Inventories   (5 ) (7 )
Deferred tax liabilities   (2 ) (2 )
BP shareholders’ equity   (3 ) (5 )
   
 
 

(vi) Gain arising on asset exchange

Under IFRS, exchanges of non-monetary assets are generally accounted for at fair value at the date of the transaction, with any gain or loss recognized in profit or loss. Under US GAAP prior to 1 January 2005, exchanges of non-monetary assets were accounted for at book value. From 1 January 2005 exchanges of non-monetary assets are generally accounted for at fair value under both IFRS and US GAAP.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   

 

 
    ($ million)  
Depreciation, depletion amortization   4   4   9   9  
Taxation   (1 ) (2 ) (3 ) (3 )
Profit for the period   (3 ) (2 ) (6 ) (6 )
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Property, plant and equipment   343   352  
Deferred tax liabilities   120   123  
BP shareholders’ equity   223   229  
   
 
 

-40-

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

(vii) Pensions and other post-retirement benefits

Under IFRS, the group accounts for its pension and other post-retirement benefit plans according to IAS 19 ‘Employee Benefits’. Surpluses and deficits of pension and other post-retirement benefit plans are included in the group balance sheet at their fair values each year-end and all movements in these balances are reflected in the income statement, except for those relating to actuarial gains and losses which are reflected in the statement of recognized income and expense. In the past, this treatment has differed from the group’s US GAAP treatment under SFAS No. 87 ‘Employers’ Accounting for Pensions’ and SFAS No. 106 ‘Employers’ Accounting for Post-retirement Benefits Other Than Pensions’, where actuarial gains and losses were not recognized in the income statement as they occurred but were recognized within income in full only when they exceeded certain thresholds, and otherwise were amortized. This difference in recognition rules for actuarial gains and losses gave rise to differences in periodic pension and other post-retirement benefit expense as measured under IAS 19 compared to SFAS 87 and SFAS 106.

In addition, when a pension plan had an accumulated benefit obligation which exceeded the fair value of the plan assets, SFAS 87 required the unfunded amount to be recognized as a minimum liability in the balance sheet. The offset to this liability was recorded as an intangible asset up to the amount of any unrecognized prior service cost or transitional liability, and thereafter directly in other comprehensive income. IAS 19 does not have a similar concept. As a result, this created a difference in shareholders’ equity as measured under IFRS and US GAAP.

In September 2006, the FASB issued SFAS No. 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)’. SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit post-retirement plan (other than a multi-employer plan) as an asset or liability in the balance sheet and to recognize changes in that funded status in other comprehensive income in the year in which the changes occur. Because the funded status of benefit plans is fully recognized in the balance sheet, a minimum liability will no longer be recognized. Retrospective application of SFAS 158 is not permitted. Upon adoption of SFAS 158, the recognition of the overfunded or underfunded status of the group’s defined benefit pension and other post-retirement plans generally accords with the group’s IFRS accounting. Differences in recognition rules for actuarial gains and losses will continue to give rise to differences in periodic pension and other post-retirement benefit expense as measured under IFRS and US GAAP. The group adopted SFAS 158 with effect from 31 December 2006.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

 Increase (decrease) in caption heading   Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
  2007   2006   2007   2006  
   


 


 
    ($ million)  
Production and manufacturing expenses   113   177   225   365  
Other finance income   162   115   322   226  
Taxation   (80 ) (91 ) (165 ) (185 )
Profit for the period   (195 ) (201 ) (382 ) (406 )
   
 
 
 
 


    At
30 June
2007
  At
31 December
2006
 
    (Unaudited)      
   
 
 
    ($ million)  
Current liabilities   603   603  
Defined benefit pension plan and other post-retirement
benefit plan deficits
  (603 ) (603 )
BP shareholders’ equity      
   
 
 

-41-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

(viii) Impairments

Under IFRS, in determining the amount of any impairment loss, the carrying value of property, plant and equipment and goodwill is compared with the discounted value of the future cash flows. Under US GAAP the carrying value is compared with the undiscounted future cash flows to determine if an impairment is present, and only if the carrying value is less than the undiscounted cash flows is an impairment loss recognized. The impairment is measured using the discounted value of the future cash flows. Due to this difference, some impairment charges recognized under IFRS, adjusted for the impacts of depreciation, have not been recognized for US GAAP.

Additionally, under IFRS, in certain situations and subject to certain limitations, a previously-recognized impairment loss is reversed. Under US GAAP, the reversal of a previously-recognized impairment loss for an asset to be held and used is not permitted.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

  Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
Increase (decrease) in caption heading 2007   2006   2007   2006  
 
 
 
 
 
  ($ million)  
Gain on sale of businesses and fixed assets   (208 )   (208 )
Depreciation, depletion and amortization   2   2   2  
Impairment and losses on sale of businesses and fixed assets 54     177    
Taxation (17 ) (78 ) (54 ) (78 )
Profit for the period (37 ) (132 ) (125 ) (132 )
 
 
 
 
 

 

  At
30 June
2007
(Unaudited)
  At
31 December
2006
 
 
 
 
  ($ million)  
Property, plant and equipment (211 ) (40 )
Deferred tax liabilities (94 ) (42 )
BP shareholders’ equity (117 ) 2  
 
 
 
   
(ix) Equity-accounted investments

Under IFRS the group’s accounting policies are applied in arriving at the amounts to be included in the financial statements in relation to equity-accounted investments. The major difference between IFRS and US GAAP as applied to the investees’ financial statements relates to deferred tax (see note (xii) Income taxes).

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

  Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
Increase (decrease) in caption heading 2007   2006   2007   2006  
 
 
 
 
 
  ($ million)  
Earnings from jointly controlled entities (30 ) (32 ) (47 ) (59 )
Profit for the period (30 ) (32 ) (47 ) (59 )
 
 
 
 
 

-42-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

  At
30 June
2007
(Unaudited)
  At
31 December
2006
 
 
 
 
  ($ million)  
Investments in jointly controlled entities (207 ) (160 )
BP shareholders’ equity (207 ) (160 )
 
 
 
   
(x) Consolidation of variable interest entities

The group currently has several ships under construction or in service which are accounted for under IFRS as operating leases. Under US GAAP some of the leasing arrangements represent variable interest entities that would be consolidated by the group. The maximum exposure to loss as a result of the group’s involvement with these entities is limited to the debt of the entity, less the fair value of the ships at the end of the lease term.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

  Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
Increase (decrease) in caption heading 2007   2006   2007   2006  
 
 
 
 
 
  ($ million)  
Production and manufacturing expenses (15 ) (6 ) (60 ) (12 )
Depreciation, depletion and amortization 5   7   11   14  
Finance costs 8   2   17   4  
Taxation 1     13    
Profit for the period 1   (3 ) 19   (6 )
 
 
 
 
 

 

  At
30 June
2007
(Unaudited)
  At
31 December
2006
 
 
 
 
  ($ million)  
Property, plant and equipment 484   497  
Trade and other payables (14 ) (45 )
Finance debt 475   551  
Deferred tax liabilities 9   (4 )
BP shareholders’ equity 14   (5 )
 
 
 
         
(xi) Share-based payments

The group adopted SFAS No. 123 (revised 2004), ‘Share-Based Payment’ with effect from 1 January 2005 using the modified prospective transition method. Under SFAS 123(R), share-based payments to employees are required to be measured based on their grant date fair value (with limited exceptions) and recognized over the related service period. For periods prior to 1 January 2005, the group accounted for share-based payments under Accounting Principles Board Opinion No. 25 using the intrinsic value method.

With effect from 1 January 2005, as part of the adoption of IFRS, the group adopted IFRS 2 ‘Share-based Payment’. IFRS 2 requires the recognition of expense when goods or services are received from employees or others in consideration for equity instruments. In adopting IFRS 2, the group elected to restate prior years to recognize an expense associated with share-based payments that were not fully vested at 1 January 2003, BP’s date of transition to IFRS, and the liability relating to cash-settled share-based payments at 1 January 2003.

As a result of the transition requirements of SFAS 123(R) and IFRS 2, there are certain differences between US GAAP and IFRS. For periods prior to 1 January 2005, the group recognized share-based payments under IFRS using a fair value method which is substantially different from the intrinsic value method used under US GAAP.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

From 1 January 2005, the group used the fair value method to measure share-based payment expense under both IFRS and US GAAP. A difference in expense exists however because the group used a different valuation model under US GAAP for issued options outstanding and not yet vested at 31 December 2004 as required under the transition rules of SFAS 123(R).

In addition, deferred taxes on share-based compensation are recognized differently under US GAAP than under IFRS. Under US GAAP, deferred taxes are recorded on share-based payment expense recognized during the period in accordance with SFAS 109. Under IFRS, deferred taxes are only recorded on the difference between the tax base of the underlying shares and the nil carrying value of the employee services as determined at each balance sheet date in accordance with IAS 12.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

  Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
Increase (decrease) in caption heading 2007   2006   2007   2006  
 
 
 
 
 
  ($ million)  
Production and manufacturing expenses 1   1   4   3  
Distribution and administration expenses 2   2   7   7  
Taxation (29 ) (54 ) (49 ) (56 )
Profit for the period 26   51   38   46  
 
 
 
 
 

 

  At
30 June
2007
  At
31 December
2006
 
  (Unaudited)      
 
 
 
  ($ million)  
Deferred tax liabilities 259   254  
BP shareholders’ equity (259 ) (254 )
 
 
 
   
(xii) Income taxes

Under both IFRS and US GAAP, deferred tax assets and liabilities are recognized for the difference between the assigned values and the tax bases of the assets and liabilities recognized in a purchase business combination. IFRS 3 ‘Business Combinations’ typically requires the offset to the recognition of such deferred tax assets and liabilities to be adjusted against goodwill. However, under the exemptions contained in IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’, deferred taxes for business combinations prior to the group’s date of transition to IFRS were not restated in accordance with IFRS 3 and the offset was taken as an adjustment to shareholders’ equity at the date of transition to IFRS. As such, the treatment adopted under IFRS 1 as compared with US GAAP creates a difference related to business combinations accounted for under the purchase method that occurred prior to the group’s date of transition to IFRS.

During the three months ended 30 June 2007, the group recognized the effect of a reduction in the UK corporation tax rate which was substantively enacted during the period. Under US GAAP, the effect of the rate change will not be recognized until the July 2007 enactment date.

The group adopted FASB Interpretation No. 48 ‘Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109’ with effect from 1 January 2007. Under Interpretation 48, a tax benefit relating to an uncertain tax position is recognized only where it is more likely than not that the tax position, based on underlying technical merits, will be sustained upon examination by tax authorities. The tax benefit recognized for such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized on settlement. Under IFRS, IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ is considered when accounting for uncertain tax positions. Based on facts and circumstances, IAS 37 provides various means for dealing with uncertainty, including the use of probabilities to determine expected values and a most likely outcome approach. Upon adoption of Interpretation 48, the group recorded a cumulative-effect adjustment that reduced BP shareholders’ equity as adjusted to accord with US GAAP by $64 million. At 1 January 2007, the group’s liability for unrecognized tax benefits as adjusted to accord with US GAAP was $3,195 million, of which $2,636 million would affect the effective income tax rate if recognized. The classification of the liability for unrecognized tax benefits differs under IFRS and US GAAP. Under IFRS, the group’s liability is included in current tax payable. For US GAAP reporting, a portion of the liability is classified as current based on expected settlements during the next twelve months. The remainder is reported as a non-current liability.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

The group files income tax returns in many jurisdictions throughout the world. Various tax authorities are currently examining the group’s income tax returns, principally for the years 1998 through 2005. Tax returns for these years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle.  The resolution of tax positions through negotiations with relevant tax authorities, or through litigation, can take several years to complete. While it is difficult to predict the timing of resolution of individual tax positions, the group does not anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease over the next twelve months. The following table summarizes the tax years that remain subject to examination for each of the group’s major tax jurisdictions:

  Tax Jurisdiction   Open Tax Years  
 
 
 
  United States   1999 – 2006  
  United Kingdom   1998 – 2006  
  Angola   2000 – 2006  
  Trinidad and Tobago   2000 – 2006  
  Norway   2000 – 2006  

The group includes interest and penalties related to unrecognized tax benefits in tax expense. Liabilities for the payment of penalties and interest at 1 January 2007 amounted to $251 million.

The adjustments to profit for the period and to BP shareholders’ equity to accord with US GAAP are summarized below.

  Three months ended
30 June
(Unaudited)
  Six months ended
30 June
(Unaudited)
 
Increase (decrease) in caption heading 2007   2006   2007   2006  
 
 
 
 
 
  ($ million)  
Depreciation, depletion and amortization 104   143   179   228  
Taxation 178   (75 ) 80   (101 )
Profit for the period (282 ) (68 ) (259 ) (127 )
 
 
 
 
 

 

  At
30 June
2007
  At
31 December
2006
 
  (Unaudited)      
 
 
 
  ($ million)  
Property, plant and equipment 2,883   3,062  
Current tax payable (1,503 )  
Trade and other payables 100    
Other payables 1,403    
Deferred tax liabilities 1,371   1,261  
BP shareholders’ equity 1,512   1,801  
 
 
 
         

-45-


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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

(xiii) Commitment for repurchase of ordinary shares

The group has entered into a contract with a bank to repurchase its own shares on its behalf. Under IFRS this represents a liability to be measured at the amount that is expected to be paid to the bank under the arrangement with the charge taken to equity. Under US GAAP this contract is measured at fair value which is nil.

The adjustments to BP shareholders' equity to accord with US GAAP are summarized below.

  At
30 June
2007
  At
31 December
2006
 
 Increase (decrease) in caption heading (Unaudited)      
 
 
 
  ($ million)  
         
Trade and other payables (495 )  –  
BP shareholders’ equity 495    –  
   
(xiv) Assets classified as held for sale

Recognition and measurement of assets classified as held for sale (and liabilities directly associated with assets classified as held for sale) under IFRS is substantially equivalent to US GAAP. However, the amounts presented for IFRS reporting differ from those under US GAAP due to differences in the underlying carrying values of the assets and liabilities classified as held for sale.

The adjustments to BP shareholders' equity to accord with US GAAP are summarized below.

  At
30 June
2007
  At
31 December
2006
 
 Increase (decrease) in caption heading (Unaudited)      
 
 
 
  ($ million)  
         
Goodwill   (10 )
Assets classified as held for sale   10  
BP shareholders’ equity    
   
(xv) Discontinued operations

Under IFRS, a component of an entity held for sale as part of a single plan to dispose of a separate major line of business is classified as a discontinued operation in the income statement.

Under US GAAP, a disposed component of an enterprise is classified as a discontinued operation only where the ongoing entity has no significant continuing direct cash flows and does not retain an interest, contract or other arrangement sufficient to enable the entity to exert significant influence over the disposed component’s operating and financial policies after disposal.

In connection with the sale of Innovene the group has a number of commercial arrangements with Innovene for the supply of refining and petrochemical feedstocks, and the purchase and sale of refined products.

Because of continuing direct cash flows that resulted from activities with Innovene subsequent to divestment, under US GAAP the operations of Innovene were not classified as a discontinued operation but were included in the group’s continuing operations. Under IFRS, the operations of Innovene were classified as discontinued operations.

The following summarizes the income statement reclassifications for 2006 that would have been made if the operations of Innovene were shown in continuing operations.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (continued)

  Three months ended 30 June 2006
(Unaudited)
 
 
 
  As
Reported
  Reclassification   As
Adjusted
 
 
 
 
 
  ($ million)  
             
Sales and other operating revenues 72,132     72,132  
 
 
 
 
Profit before interest and taxation from continuing operations 11,313   (88)   11,225  
Finance costs 153     153  
Other finance income (46 )   (46 )
 
 
 
 
Profit before taxation from continuing operations 11,206   (88 ) 11,118  
Taxation 3,626   (166 ) 3,460  
 
 
 
 
Profit from continuing operations 7,580   78   7,658  
Profit from Innovene operations 78   (78 )  
 
 
 
 
Profit for the period 7,658     7,658  
 
 
 
 


  Six months ended 30 June 2006
(Unaudited)
 
 
 
  As
Reported
  Reclassification   As
Adjusted
 
 
 
 
 
  ($ million)  
             
Sales and other operating revenues 135,420     135,420  
 
 
 
 
Profit before interest and taxation from continuing operations 20,182   (184 ) 19,998  
Finance costs 344     344  
Other finance income (94 )   (94 )
 
 
 
 
Profit before taxation from continuing operations 19,932   (184 ) 19,748  
Taxation 6,555   (159 ) 6,396  
 
 
 
 
Profit from continuing operations 13,377   (25 ) 13,352  
Loss from Innovene operations (25 ) 25    
 
 
 
 
Profit for the period 13,352     13,352  
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 – US generally accepted accounting principles (concluded)

Impact of new US accounting standards

Adopted for 2007

Financial instruments
In February 2006, the FASB issued SFAS No. 155, ‘Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140’. SFAS 155 simplifies the accounting for certain hybrid financial instruments under SFAS 133 by permitting fair value remeasurement for financial instruments containing an embedded derivative that otherwise would require separation of the derivative from the financial instrument. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after 15 September 2006. The group adopted SFAS 155 with effect from 1 January 2007. The adoption of SFAS 155 did not have a significant effect on the group’s profit as adjusted to accord with US GAAP, or on BP shareholders’ equity as adjusted to accord with US GAAP.

Taxes collected from customers
In June 2006, the FASB ratified the consensus reached by the EITF regarding Issue No. 06-3 ‘How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)’. Under EITF 06-3, taxes collected from customers and remitted to governmental authorities can be presented either gross within revenue and cost of sales, or net. Where such taxes are significant, EITF 06-3 requires disclosure of the accounting policy for presenting taxes and the amount of any such taxes that are recognized on a gross basis. EITF 06-3 is effective for accounting periods beginning after 15 December 2006. The group’s accounting policy with regard to taxes collected from customers and remitted to governmental authorities is to present such taxes net in the income statement. The group adopted EITF 06-3 with effect from 1 January 2007. The adoption of EITF 06-3 did not have any effect on the group’s profit as adjusted to accord with US GAAP, or on BP shareholders’ equity as adjusted to accord with US GAAP.

Income taxes
In June 2006, the FASB issued FASB Interpretation No. 48 ‘Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109’. Interpretation 48 clarifies the accounting for uncertainty with regards to income taxes recognized in an entity’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. Interpretation 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption of Interpretation 48 with effect from 1 January 2007, the group recorded a cumulative-effect adjustment that reduced BP shareholders’ equity as adjusted to accord with US GAAP by $64 million. Additional disclosures required by Interpretation 48 are provided in note (xii) Income taxes.

Not yet adopted

Fair value measurements
In September 2006, the FASB issued SFAS No. 157 ‘Fair Value Measurements’. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for accounting periods beginning after 15 November 2007. The group has not yet completed its evaluation of the impact of adopting SFAS 157 on the group’s profit as adjusted to accord with US GAAP, or on BP shareholders’ equity as adjusted to accord with US GAAP.

Fair value option
In February 2007, the FASB issued SFAS No. 159 ‘The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115’. SFAS 159 permits an entity, at specified election dates, to choose to measure certain financial instruments and other items at fair value. SFAS 159 is effective for accounting periods beginning after 15 November 2007. The group has not yet completed its evaluation of the impact of adopting SFAS 159 on the group’s profit as adjusted to accord with US GAAP, or on BP shareholders’ equity as adjusted to accord with US GAAP.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information

BP p.l.c. fully and unconditionally guarantees the payment obligations of its 100%-owned subsidiary BP Exploration (Alaska) Inc. under the BP Prudhoe Bay Royalty Trust. The following financial information for BP p.l.c., and BP Exploration (Alaska) Inc. and all other subsidiaries on a condensed consolidating basis is intended to provide investors with meaningful and comparable financial information about BP p.l.c. and its subsidiary issuers of registered securities and is provided pursuant to Rule 3-10 of Regulation S-X in lieu of the separate financial statements of each subsidiary issuer of public debt securities. Investments include the investments in subsidiaries recorded under the equity method for the purposes of the condensed consolidating financial information. Equity income of subsidiaries is the Group's share of operating profit related to such investments. The eliminations and reclassifications column includes the necessary amounts to eliminate the intercompany balances and transactions between BP p.l.c., BP Exploration (Alaska) Inc. and other subsidiaries.

BP p.l.c. also fully and unconditionally guarantees securities issued by BP Canada Finance Company, BP Capital Markets p.l.c. and BP Capital Markets America Inc. These companies are 100%-owned finance subsidiaries of BP p.l.c.

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

Income statement

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
Three months ended 30 June 2007                    
Sales and other operating revenues 1,066     71,872   (1,066 ) 71,872  
Earnings from jointly controlled entities
after interest and tax
    910     910  
Earnings from associates – after interest and tax     173     173  
Equity–accounted income of subsidiaries
after interest and tax
254   7,604     (7,858 )  
Interest and other revenues 188   110   178   (348 ) 128  
 
 
 
 
 
 
Total revenues 1,508   7,714   73,133   (9,272 ) 73,083  
Gains on sale of businesses and fixed assets 1     1,308     1,309  
 
 
 
 
 
 
Total revenues and other income 1,509   7,714   74,441   (9,272 ) 74,392  
Purchases 116     50,933   (1,066 ) 49,983  
Production and manufacturing expenses 220     6,056     6,276  
Production and similar taxes 157     670     827  
Depreciation, depletion and amortization 100     2,435     2,535  
Impairment and losses on sale of
businesses and fixed assets
    455     455  
Exploration expense     155     155  
Distribution and administration expenses 5   154   3,416   (10 ) 3,565  
Fair value (gain) loss on embedded derivatives     (283 )   (283 )
 
 
 
 
 
 
Profit before interest and taxation 911   7,560   10,604   (8,196 ) 10,879  
Finance costs   243   346   (338 ) 251  
Other finance expense (income) 3   (204 ) 105     (96 )
 
 
 
 
 
 
Profit before taxation 908   7,521   10,153   (7,858 10,724  
Taxation 228   145   2,910     3,283  
 
 
 
 
 
 
Profit for the period 680   7,376   7,243   (7,858 ) 7,441  
 
 
 
 
 
 
Attributable to:                    
     BP shareholders 680   7,376   7,178   (7,858 ) 7,376  
     Minority interest     65     65  
 
 
 
 
 
 
Profit for the period 680   7,376   7,243   (7,858 ) 7,441  
 
 
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

The following is a summary of the adjustments to the profit for the period attributable to BP shareholders which would be required if US GAAP had been applied instead of IFRS.

Income statement (continued)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
Three months ended 30 June 2007                    
Profit as reported 680   7,376   7,178   (7,858 7,376  
Adjustments:                    
    Provisions 5   11   6   (11 ) 11  
    Oil and natural gas reserve differences   (53 ) (53 ) 53   (53 )
    Goodwill and intangible assets   (3 ) (3 ) 3   (3 )
    Derivative financial instruments   2   2   (2 2  
    Inventory valuation 21   31   31   (52 ) 31  
    Gain arising on asset exchange (3 ) (3 )   3   (3 )
    Pensions and other post-retirement benefits   (195 ) (120 ) 120   (195 )
    Impairments   (37 ) (37 ) 37   (37 )
    Equity-accounted investments   (30 ) (30 ) 30   (30 )
    Consolidation of variable interest entities   1   1   (1 ) 1  
    Share-based payments   26       26  
    Income taxes (1 ) (282 ) (281 ) 282   (282 )
    Other (9 ) 2   11   (2 ) 2  
 
 
 
 
 
 
Profit for the period as adjusted to
accord with US GAAP
693   6,846   6,705   (7,398 ) 6,846  
 
 
 
 
 
 

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BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

Income statement (continued)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
Three months ended 30 June 2006                    
Sales and other operating revenues 1,445     72,132   (1,445 ) 72,132  
Earnings from jointly controlled
entities – after interest and tax
    818     818  
Earnings from associates – after interest and tax     114     114  
Equity–accounted income of
subsidiaries – after interest and tax
145   7,709     (7,854 )  
Interest and other revenues 163   111   157   (325 ) 106  
 
 
 
 
 
 
Total revenues 1,753   7,820   73,221   (9,624 ) 73,170  
Gains on sale of businesses and fixed assets     541     541  
 
 
 
 
 
 
Total revenues and other income 1,753   7,820   73,762   (9,624 ) 73,711  
Purchases 183     51,689   (1,445 ) 50,427  
Production and manufacturing expenses 185     5,191     5,376  
Production and similar taxes 91     764     855  
Depreciation, depletion and amortization 98     2,211     2,309  
Impairment and losses on sale of businesses
and fixed assets
    79     79  
Exploration expense     97     97  
Distribution and administration expenses 2   165   3,365   (16 ) 3,516  
Fair value (gain) loss on embedded derivatives     (261 )   (261 )
 
 
 
 
 
 
Profit before interest and taxation 1,194   7,655   10,627   (8,163 ) 11,313  
Finance costs 1   214   247   (309 ) 153  
Other finance expense (income) 2   (168 ) 120     (46 )
 
 
 
 
 
 
Profit before taxation 1,191   7,609   10,260   (7,854 ) 11,206  
Taxation 417   28   3,181     3,626  
 
 
 
 
 
 
Profit from continuing operations 774   7,581   7,079   (7,854 ) 7,580  
Profit (loss) from Innovene operations     78     78  
 
 
 
 
 
 
Profit for the period 774   7,581   7,157   (7,854 ) 7,658  
 
 
 
 
 
 
Attributable to:                    
     BP shareholders 774   7,581   7,080   (7,854 ) 7,581  
     Minority interest     77     77  
 
 
 
 
 
 
Profit for the period 774   7,581   7,157   (7,854 ) 7,658  
 
 
 
 
 
 

-52-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

The following is a summary of the adjustments to the profit for the period attributable to BP shareholders which would be required if US GAAP had been applied instead of IFRS.

Income statement (continued)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
Three months ended 30 June 2006                    
Profit as reported 774   7,581   7,080   (7,854 ) 7,581  
Adjustments:                    
     Provisions 2   11   9   (11 ) 11  
     Oil and natural gas reserve differences   (187 ) (187 ) 187   (187 )
     Goodwill and intangible assets   18   18   (18 ) 18  
     Derivative financial instruments   88   88   (88 ) 88  
     Inventory valuation (2 ) (10 ) (10 ) 12   (10 )
     Gain arising on asset exchange (2 ) (2   2   (2 )
     Pensions and other post-retirement benefits   (201 ) (306 ) 306   (201 )
     Impairments   (132 ) (132 ) 132   (132 )
     Equity-accounted investments   (32 ) (32 ) 32   (32 )
     Consolidation of variable interest entities   (3 ) (3 ) 3   (3 )
     Share-based payments   51       51  
     Income taxes (7 ) (68 ) (61 ) 68   (68 )
     Other   4   4   (4 ) 4  
 
 
 
 
 
 
Profit for the period as adjusted to
accord with US GAAP
765   7,118   6,468   (7,233 ) 7,118  
 
 
 
 
 
 

-53-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

Income statement (continued)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
Six months ended 30 June 2007                    
Sales and other operating revenues 2,114     133,179   (2,114 ) 133,179  
Earnings from jointly controlled
entities – after interest and tax
    1,243     1,243  
Earnings from associates – after interest and tax     336     336  
Equity–accounted income of
subsidiaries – after interest and tax
356   12,288     (12,644 )  
Interest and other revenues 388   258   407   (692 ) 361  
 
 
 
 
 
 
Total revenues 2,858   12,546   135,165   (15,450 ) 135,119  
Gains on sale of businesses and fixed assets 1     1,988     1,989  
 
 
 
 
 
 
Total revenues and other income 2,859   12,546   137,153   (15,450 ) 137,108  
Purchases 300     94,457   (2,114 ) 92,643  
Production and manufacturing expenses 450     11,578     12,028  
Production and similar taxes 269     1,305     1,574  
Depreciation, depletion and amortization 185     4,869     5,054  
Impairment and losses on sale of businesses
and fixed assets
    678     678  
Exploration expense     311     311  
Distribution and administration expenses 10   279   6,756   (23 ) 7,022  
Fair value (gain) loss on embedded derivatives     (438 )   (438 )
 
 
 
 
 
 
Profit before interest and taxation 1,645   12,267   17,637   (13,313 ) 18,236  
Finance costs   434   750   (669 ) 515  
Other finance expense (income) 7   (404 ) 208     (189 )
 
 
 
 
 
 
Profit before taxation 1,638   12,237   16,679   (12,644 ) 17,910  
Taxation 501   197   5,025     5,723  
 
 
 
 
 
 
Profit for the period 1,137   12,040   11,654   (12,644 ) 12,187  
 
 
 
 
 
 
Attributable to:                    
     BP shareholders 1,137   12,040   11,507   (12,644 ) 12,040  
     Minority interest     147     147  
 
 
 
 
 
 
Profit for the period 1,137   12,040   11,654   (12,644 ) 12,187  
 
 
 
 
 
 

-54-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

The following is a summary of the adjustments to the profit for the period attributable to BP shareholders which would be required if US GAAP had been applied instead of IFRS.

Income statement (continued)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
Six months ended 30 June 2007                    
Profit as reported 1,137   12,040   11,507   (12,644 ) 12,040  
Adjustments:                    
     Provisions 7   (13 ) (20 ) 13   (13 )
     Oil and natural gas reserve differences   (31 ) (31 ) 31   (31 )
     Goodwill and intangible assets   (3 ) (3 ) 3   (3 )
     Derivative financial instruments   (38 ) (38 ) 38   (38 )
     Inventory valuation (1 ) 2   2   (1 ) 2  
     Gain arising on asset exchange (6 ) (6 )   6   (6 )
     Pensions and other post-retirement benefits   (382 ) (233 ) 233   (382 )
     Impairments   (125 ) (125 ) 125   (125 )
     Equity-accounted investments   (47 ) (47 ) 47   (47 )
     Consolidation of variable interest entities   19   19   (19 ) 19  
     Share-based payments   38       38  
     Income taxes (10 ) (259 ) (249 ) 259   (259 )
     Other (23 ) 4   27   (4 ) 4  
 
 
 
 
 
 
Profit for the period as adjusted to
accord with US GAAP
1,104   11,199   10,809   (11,913 ) 11,199  
 
 
 
 
 
 

-55-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

Income statement (continued)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)  
  ($ million)  
Six months ended 30 June 2006                    
Sales and other operating revenues
2,714     135,420   (2,714 ) 135,420  
Earnings from jointly controlled entities – after interest and tax
    1,391     1,391  
Earnings from associates – after interest and tax
    229     229  
Equity–accounted income of subsidiaries – after interest and tax
298   13,392     (13,690 )  
Interest and other revenues
314   176   315   (501 ) 304  
 
 
 
 
 
 
Total revenues 3,326   13,568   137,355   (16,905 ) 137,344  
Gains on sale of businesses and fixed assets
2     1,136     1,138  
 
 
 
 
 
 
Total revenues and other income 3,328   13,568   138,491   (16,905 ) 138,482  
Purchases 371     96,589   (2,714 ) 94,246  
Production and manufacturing expenses
367     10,226     10,593  
Production and similar taxes 178     1,609     1,787  
Depreciation, depletion and amortization
192     4,301     4,493  
Impairment and losses on sale of businesses and fixed assets
    102     102  
Exploration expense     286     286  
Distribution and administration expenses
2   307   6,336   (33 ) 6,612  
Fair value (gain) loss on embedded derivatives
    181     181  
 
 
 
 
 
 
Profit before interest and taxation
2,218   13,261   18,861   (14,158 ) 20,182  
Finance costs 1   325   486   (468 ) 344  
Other finance expense (income) 6   (328 ) 228     (94 )
 
 
 
 
 
 
Profit before taxation 2,211   13,264   18,147   (13,690 ) 19,932  
Taxation 778   60   5,717     6,555  
 
 
 
 
 
 
Profit from continuing operations
1,433   13,204   12,430   (13,690 ) 13,377  
Profit (loss) from Innovene operations
    (25 )   (25 )
 
 
 
 
 
 
Profit for the period 1,433   13,204   12,405   (13,690 ) 13,352  
 
 
 
 
 
 
Attributable to:                    
     BP shareholders 1,433   13,204   12,257   (13,690 ) 13,204  
     Minority interest     148     148  
 
 
 
 
 
 
Profit for the period 1,433   13,204   12,405   (13,690 ) 13,352  
 
 
 
 
 
 

-56-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

The following is a summary of the adjustments to the profit for the period attributable to BP shareholders which would be required if US GAAP had been applied instead of IFRS.

Income statement (concluded)

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)  
  ($ million)  
Six months ended 30 June 2006                    
Profit as reported 1,433   13,204   12,257   (13,690 ) 13,204  
Adjustments:                    
     Provisions 4   15   11   (15 ) 15  
     Oil and natural gas reserve differences   (205 ) (205 ) 205   (205 )
     Goodwill and intangible assets   18   18   (18 ) 18  
     Derivative financial instruments   129   129   (129 ) 129  
     Inventory valuation (17 ) 129   129   (112 ) 129  
     Gain arising on asset exchange (6 ) (6 )   6   (6 )
    Pensions and other post-retirement benefits
  (406 ) (613 ) 613   (406 )
     Impairments   (132 ) (132 ) 132   (132 )
     Equity-accounted investments   (59 ) (59 ) 59   (59 )
    Consolidation of variable interest entities
  (6 ) (6 ) 6   (6 )
     Share-based payments   46       46  
     Income taxes (21 ) (127 ) (106 ) 127   (127 )
     Other   2   2   (2 ) 2  
 
 
 
 
 
 
Profit for the period as adjusted to accord with US GAAP
1,393   12,602   11,425   (12,818 ) 12,602  
 
 
 
 
 
 

-57-


Back to Contents

BP p.l.c. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 – Condensed consolidating information (continued)

Balance sheet

  Issuer   Guarantor              
 
 
             
  BP
Exploration
(Alaska) Inc.
  BP p.l.c.   Other
subsidiaries
  Eliminations
and
reclassifications
  BP
group
 
 
 
 
 
 
 
  (Unaudited)
($ million)
 
At 30 June 2007                    
Non-current assets                    
Property, plant and equipment` 6,290     88,903     95,193  
Goodwill     11,055     11,055  
Intangible assets 336     5,399     5,735  
Investments in jointly controlled entities     15,088     15,088  
Investments in associates   2   5,847     5,849  
Other investments     1,657     1,657  
Subsidiaries – equity-accounted basis 2,886   118,338     (121,224 )  
 
 
 
 
 
 
Fixed assets 9,512   118,340   127,949   (121,224 ) 134,577  
Loans 2,919   1,197   1,290   (4,542 ) 864  
Other receivables     926     926  
Derivative financial instruments     2,950     2,950  
Prepayments and accrued income     1,075     1,075