20-F 1 bp20f31122017.htm 20-F 31.12.2017 BP 20-F Combined Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended 31 December 2017
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-6262

BP p.l.c.
(Exact name of Registrant as specified in its charter)
 
England and Wales
(Jurisdiction of incorporation or organization)

1 St James’s Square, London SW1Y 4PD
United Kingdom
(Address of principal executive offices)

Dr Brian Gilvary
BP p.l.c.
1 St James’s Square, London SW1Y 4PD
United Kingdom
Tel +44 (0) 20 7496 5311
Fax +44 (0) 20 7496 4573
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)





Securities registered or to be registered pursuant to Section 12(b) of the Act
 
 
 
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New York Stock Exchange*
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New York Stock Exchange
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New York Stock Exchange
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New York Stock Exchange
1.375% Guaranteed Notes due 2018
 
New York Stock Exchange
2.241% Guaranteed Notes due 2018
 
New York Stock Exchange
4.750% Guaranteed Notes due 2019
 
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New York Stock Exchange
 
*
Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission

Securities registered or to be registered pursuant to Section 12(g) of the Act.
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.





 
 
Ordinary Shares of 25c each
21,288,193,071

Cumulative First Preference Shares of £1 each
7,232,838

Cumulative Second Preference Shares of £1 each
5,473,414

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

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Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer," "accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒     Accelerated filer  ☐    Non-accelerated filer  ☐ Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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Item 17  ☐                Item  18  ☐

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4 B P A nnual R eport and Form 20-F 2017 A year of strong delivery and growth BP Annual Report and Form 20-F 2017


 
Strategic report Overview 2 BP at a glance 4 How we run our business 6 Chairman’s letter 8 Group chief executive’s letter 10 The changing world of energy Strategy 12 Our strategy 14 A year of delivery 18 Measuring our progress Performance 20 Global energy markets 21 Group performance 26 Upstream 32 Downstream 38 Rosneft 41 Other businesses and corporate 41 Gulf of Mexico oil spill 42 Alternative Energy 44 Innovation in BP 47 Sustainability 47 Safety and security 50 Climate change 51 Managing our impacts 51 Value to society 52 Human rights 52 Environment 52 Ethical conduct 53 Our people 55 How we manage risk 57 Risk factors Corporate governance 60 Board of directors 66 Executive team 70 Introduction from the chairman 72 Board activity in 2017 76 Shareholder engagement 76 International advisory board 77 Audit committee 84 Safety, ethics and environment assurance committee 86 Remuneration committee 87 Geopolitical committee 88 Chairman’s committee 89 Nomination committee 90 Directors’ remuneration report Financial statements 123 Consolidated financial statements of the BP group 130 Notes on financial statements 191 Supplementary information on oil and natural gas (unaudited) Additional disclosures 247 Contents Including information on liquidity and capital resources, oil and gas disclosures, upstream regional analysis and legal proceedings. Shareholder information 279 Contents Including information on dividends, our annual general meeting and share prices. 289 Glossary 294 Non-GAAP measures reconciliations 297 Signatures 298 Cross-reference to Form 20-F 299 Information about this report Glossary Words with this symbol are defined in the glossary on page 289. Cautionary statement This document should be read in conjunction with the cautionary statement on page 277. Contents


 
The energy we produce serves to power economic growth and lift people out of poverty. The way heat, light and mobility are delivered is changing. We aim to anchor our business in these changing patterns of demand, rather than in the quest for supply. We have a real contribution to make to the world’s ambition of a low carbon future. BP Annual Report and Form 20-F 2017 1


 
BP at a glance See Glossary ScaleWe are a global energy business with wide reach across the world’s energy system. We have operations in Europe, North and South America, Australasia, Asia and Africa. 74,000 70 18,441 employees countries million barrels of oil equivalent – proved hydrocarbon reservesa 18,300 1.5bn retail sites barrels of oil equivalent transported by BP shipping a On a combined basis of subsidiaries and equity-accounted entities. Senegal Made a major gas discovery offshore Senegal with joint venture partner Kosmos Energy. US Achieved record crude throughput levels at Whiting refinery, and listed BP Midstream Partners as a separate company. Azerbaijan Signed a contract that will help maximize recovery from the Azeri-Chirag-Deepwater Gunashli fields over the next 32 years. Europe Established Lightsource BP – Europe’s biggest developer of large-scale solar projects, and achieved record production at our Geel petrochemicals plant in Belgium. Trinidad Made two significant gas discoveries with the Savannah and Macadamia exploration wells. BP in action Highlights of some of our activities in 2017. Argentina Formed a new integrated energy company with Bridas, to create the country’s largest privately owned energy company. Egypt Made a gas discovery in the North Damietta Offshore Concession in the East Nile Delta. Mexico Opened more than 120 retail sites, and became one of the first private companies to supply natural gas to its domestic market. Gulf of Mexico Found significant additional oil resources at our Atlantis field using new seismic imaging technology. BP Annual Report and Form 20-F 20172


 
See Glossary Performance Data as at or for the year ended 31 December 2017 unless otherwise stated. More information Group performance Page 21 Upstream Page 26 Downstream Page 32 Rosneft Page 38 Alternative Energy Page 42 $3.4bn 3.6 18 profit attributable to BP shareholders (2016 $115 million) KPI million barrels of oil equivalent per day – hydrocarbon production (2016 3.3mmboe/d) KPI tier 1 process safety events (2016 16) KPI $6.2bn 143% underlying replacement cost profit (2016 $2.6 billion) KPI group proved reserves replacement ratio a (2016 109%) KPI We delivered seven major projects in 2017 1 Taurus and Libra 2 Trinidad onshore compression 3 Quad 204 4 Persephone 5 Juniper 6 Khazzan Phase 1 7 Zohr See A year of delivery on page 14. a On a combined basis of subsidiaries and equity-accounted entities. KPI See key performance indicators on page 18. Russia Agreed to develop resources in the Kharampurskoe and Festivalnoye licence areas jointly with Rosneft. China Sold our interest in SECCO petrochemical company to Sinopec. Indonesia Established a retail joint venture with AKR. India Agreed to work with Reliance Industries in areas such as differentiated fuels and lower carbon energy solutions. Strategic report – overview 3BP Annual Report and Form 20-F 2017


 
How we run our business From the deep sea to the desert, from rigs to retail, we deliver energy products and services to people around the world. We provide customers with fuel for transport, energy for heat and light, lubricants to keep engines moving and the petrochemicals products used to make everyday items such as paints, clothes and packaging. We have a diverse portfolio across businesses, resource types and geographies. Having upstream and downstream businesses, along with well-established trading capabilities, helps to mitigate the impact of commodity pricing cycles. Our geographic reach gives us access to growing markets and new resources, as well as diversifying exposure to geopolitical events. We believe that our long history, well-recognized brands and customer offers, combined with our unique partnership with Rosneft, help differentiate us from our peers. Our role in society The energy we produce helps to support economic growth and improve quality of life for millions of people. We strive to be a world-class operator, a responsible corporate citizen and a good employer. We believe that the societies and communities we work in should benefit from our presence. In supplying energy we contribute to economies around the world by employing local staff, helping to develop national and local suppliers, and through the taxes we pay to governments. Additionally, we aim to create meaningful, sustainable and positive impacts in those communities through our social investments. bp.com/society Business model foundations We also seek to grow or extend the life of existing fields – such as our Quad 204 major project which aims to unlock additional resources from the Schiehallion area of the UK North Sea. Transporting and trading We move oil and gas through pipelines and by ship, truck and rail. We also trade a variety of products including oil, natural gas, liquefied natural gas, power, carbon products and currencies. BP’s traders complete around 550,000 transactions and serve more than 12,000 customers across some 140 countries in a year. Our customers range from independent power producers to utilities and municipalities. In addition we are helping to meet LNG demand in Asia including developments in China and Vietnam. Finding oil and gas New access allows us to renew our portfolio, discover additional resources and replenish our development options. We focus our exploration activities in the areas that are competitive in the portfolio, and develop and use technology to reduce costs and risks. Developing and extracting oil and gas We create value by seeking to progress hydrocarbon resources and turn them into proved reserves or divest them if they do not fit with our strategic priorities. We develop the resources that meet our return threshold, and produce hydrocarbons that we then sell to the market or distribute to our downstream facilities. Our upstream pipeline of future projects gives us choice about which we pursue – see page 30. Creating shareholder value Safe and reliable operations We strive to create and maintain a safe operating culture where safety is front and centre. This is not only safer for people and the environment – it also improves the reliability of our assets. See Safety and security on page 47. Talented people We work to attract, motivate, develop and retain the best talent the world offers and equip our people with the right skills for the future. Our performance and ability to thrive globally depends on it. See Our people on page 53. Finding oil and gas Developing and extracting oil and gas 4 BP Annual Report and Form 20-F 2017


 
Generating renewable energy We have been investing in renewables for many years – and our focus today is on biofuels, biopower, wind energy and solar energy. We operate a biofuels business in Brazil, using one of the world’s most sustainable and advantaged feedstocks to produce both low carbon ethanol and low carbon power. We provide renewable power through our significant interests in onshore wind energy in the US, and develop and deploy technology in our wind business to drive efficiency. Through our acquisition of Clean Energy’s renewable natural gas business, we are helping to power vehicle fleets from organic waste. And in solar energy we will target the growing demand for large-scale solar projects worldwide, including with our partner Lightsource. Our lubricants business has premium brands and access to growth markets. It also leverages technology and customer relationships, all of which we believe gives us competitive advantage. We serve automotive, industrial, marine and energy markets across the world. And in petrochemicals our proprietary technology solutions deliver leading cost positions compared to our competitors. In addition to our own petrochemicals plants, we work with partners and license our technology to third parties. We use our market intelligence to analyse supply and demand for commodities across our global network. This helps us deliver what the market needs, when it needs it, identify the best markets for BP’s crude oil, source optimal raw materials for our refineries and provide competitive supply for our marketing businesses. Manufacturing and marketing fuels and products We produce refined petroleum products at our refineries and supply distinctive fuel and convenience retail services to consumers. Our advantaged infrastructure, logistics network and key partnerships help us to have differentiated fuels businesses and deliver compelling customer offers. Technology, innovation and venturing New technologies are enabling us to produce energy safely and more efficiently. We selectively research and invest in areas with the potential to add greatest value to our business now and in the future. See Innovation in BP on page 44. Partnerships and collaboration We aim to build enduring relationships with governments, customers, partners, suppliers and communities in the countries where we operate. See Rosneft on page 38. Governance and oversight Our risk management systems and policy provide a consistent and clear framework for managing and reporting risks. The board regularly reviews how we identify, evaluate and manage risks. See How we manage risk on page 55. Manufacturing Transporting and trading Marketing fuels and products Generating renewable energy 5 Strategic report – overview BP Annual Report and Form 20-F 2017


 
Chairman’s letter Above: Meeting with investors at the 2017 annual general meeting. Dear fellow shareholder, In 2017, the global economy continued to be strong and to grow while concerns around the geopolitical environment increased. For BP, as a global business, this was the backdrop to our operations. Against this background we have had a strong year. A year in which there was delivery and growth across all our businesses as Bob describes later in his letter. This was achieved with continued strong focus on safety. It’s an impressive performance from a great team. They are now fully into their stride and are performing very well. All of this gave us confidence to continue the dividend at 10 cents per ordinary share through 2017 and shareholders can still take dividends in shares rather than cash. In the fourth quarter we restarted share buybacks to offset the dilutive effects of the scrip shares. It remains the board’s policy to grow sustainable free cash flow and distributions to shareholders. So, a strong year and an important first year in the delivery of the commitment we made in 2016 to shareholders. So, I’d like to take stock and reflect on where BP is now and the progress that we’ve made over the past eight years. BP’s path We were faced with a crisis in 2010 that could have threatened the very being of the company. A crisis that should never have happened. It required resolute action on many fronts to see us through and it is a great tribute to everyone in BP that the foundations were laid for our recovery. This involved doing things differently and thinking differently. We had to act simultaneously on many fronts. We had to address the issues in the US while restructuring our investments in Russia – and all the while ensuring that we had a clear strategy for delivering value for our shareholders. All of this in a world that is looking towards a transition to lower carbon. In addressing these challenges, BP showed a deep resilience. With the leadership of Bob and his team the whole organization was engaged with the board playing a full role. It is from this resilience that we have been able to set a clear strategy with goals out to 2021. A strategy which will grow BP and be responsive to the many changes that are happening in the world around us. Our challenge for the future Our goals aim to balance society’s need for more energy with our clear ambition of playing our part in the transition to a lower carbon world. We are investing for the future in both hydrocarbons and in technologies which will be important in that transition. The world is changing quickly, quicker than we have seen before. There is no one solution and no one right way ahead. Our approach is clearly aimed at being flexible and responsive. Our goals aim to balance society’s need for more energy with our clear ambition of playing our part in the transition to a lower carbon world. We are investing for the future in both hydrocarbons and in technologies which will be important in that transition. BP Annual Report and Form 20-F 20176


 
Above: Visiting Aker’s Tranby technology centre near Oslo. More information Corporate governance Page 59 Whatever scenario we look at, whether from BP or the IEA, there will need to be investment to ensure that sufficient hydrocarbons are available during the transition for the years to come. The world will continue to need supplies of hydrocarbons. We need the understanding and trust of society to make these investments to meet this global demand. Renewables cannot be developed quickly enough to meet the increasing need for energy. This is not a choice between two investment approaches, both are needed for the world to be able to grow. Our strategic priorities address this. We are committed and we demonstrate that commitment in reports that we will soon publish. Remuneration Executive remuneration remains a clear issue of focus for shareholders and society. I would like to thank our shareholders for the support which you gave to our new remuneration report at the 2017 AGM. This was an important step forward in regaining your confidence. As is clear from Dame Ann Dowling’s letter later in this report, we are implementing this policy in a considered way. As is the case with the way remuneration works, there are awards maturing which are governed by our previous policy. We have carefully considered the impact of these. Working with the executives, the committee has exercised appropriate discretion to reflect your experience as shareholders over the past three years. Ann will be standing down from this committee at the AGM after three years in the chair. I would like to thank her for all the work that she has done in leading the committee through some very difficult times. Paula Reynolds will take the chair of this committee. The board The board has continued to work with Bob and his team on many issues relating to our strategy, our oversight of the risks that BP faces and our understanding of the evolving challenges of the lower carbon transition. Our oversight of these risks is principally carried out through the work of our committees. However there are certain risks, such as cyber security, where it is important that it is considered by the board. As a board we know that we can only bring long-term value to our shareholders if we understand the needs of and serve the communities in which we work. We need to listen to and be responsive to the voices of those communities and of our own employees. Membership of the board continues to evolve. Paul Anderson will be retiring at the AGM in May. Paul joined the board two months before the Deepwater Horizon accident. He has very deep experience of the energy industry and has been a major source of advice and counsel to me and to the board over these years. Paul has made a great contribution to the board and its committees over some difficult times. I thank him on my own behalf and on behalf of the board. Melody Meyer was elected to the board at the 2017 AGM. Melody has an extensive career in global oil and gas at Chevron. The board is proposing that Dame Alison Carnwath be elected as a director at the 2018 AGM. Alison has extensive financial experience both as an executive and non-executive. She has worked with global organizations and will bring a broad range of skills to the BP board and to the audit committee which she will join upon appointment. Both these appointments emphasize the board’s commitment to diversity. This will continue to enhance independent thinking and healthy challenge. Our purpose BP has a clear purpose. Our role is to produce energy which can power economic growth and lift people out of poverty. We need to do this in a way that responds to the ambition of a world for a low carbon future. We have made considerable progress in 2017. It has been a great year, but we must not be complacent. We are in a competitive environment in a quickly changing world and our business needs to be ready to meet those demands. Bob and his team have once again done an excellent job in steering BP through this year and setting a course for the future. Thank you to Bob and the team, to my colleagues on the board and to all our employees for all their work during the year. My thanks also go to you our shareholders for your support of BP. I will be standing down during 2018 at some time after the May AGM and as I look back I feel good about the company. It’s in a great position to grow. I am sure that I will have the opportunity to thank you for the support you have given me in due course. Carl-Henric Svanberg Chairman 29 March 2018 $7.9 bn total dividends distributed to BP shareholders 5.7% ordinary shareholders annual dividend yield 5.7% ADS shareholders annual dividend yield See GlossaryBP Annual Report and Form 20-F 2017 7 Strategic report – ????


 
Group chief executive’s letter Dear fellow shareholder, In this report last year, BP set out a five-year strategy and promised a story of growth. One year into that five-year plan I am pleased to report that your company has just delivered a significant year of both disciplined execution and exciting growth. In many ways it was an extraordinary year for BP. Here are some of the headlines: • Underlying profit $6.2 billion. • Upstream production up 12%. • Record earnings in Downstream. • Our most successful year for exploration since 2004. • Group reserves replacement ratio the highest in 10 years. Of course, we were helped by an improving oil price. But that only tells part of the story. 2017 was a year where we again maintained our improved trend in safety performance for most of our main personal and process safety metrics, although we have seen a slight increase in our tier 1 events. Better safety and improved operational reliability, combined with strong discipline in our cash and capital costs, fed through into our financial performance. In a complex and uncertain world this may seem like a simple equation – safe and reliable operations plus cost discipline is good for the bottom line. But it works and the numbers prove this. We plan for the long term and we also measure our progress year on year and quarter by quarter. We were disappointed that we had to increase the provision relating to claims associated with the Gulf of Mexico spill, although we made real progress during the year in our efforts to close out the remaining claims. The claims facility is now winding down although a number of claims remain to be resolved. Our five-year plan As I said, last year we set out our strategic priorities. Simply put, these are designed to meet the dual challenge: to produce more of the affordable energy that the world needs while producing and delivering it in new ways, with fewer emissions, that society wants. The key to this dual challenge is to recognize that this is not just a race to renewables, it’s a race to lower greenhouse gas emissions. So, while we are fully committed to the energy transition that is underway, we also see a lot of uncertainty around the pace and path of how this will unfold. Our aim is to build a strong and flexible strategy with a high-quality portfolio and the ability to adapt quickly as the pace and path become clearer. That means in the Upstream we are focused on growing oil and gas in a way that offers us advantages in terms of margin and value, with the reduced emissions in mind. In the Downstream we continue to develop advantaged manufacturing and marketing businesses that can create value from existing, new and emerging markets. Above: Chairing the panel of the Oil and Gas Climate Initiative meeting in London. We said that 2017 would be a very important year for BP. We set out ambitious plans for the year and we delivered on them. $3.4bn profit attributable to BP shareholders BP Annual Report and Form 20-F 20178


 
We are preparing for a low carbon future by investing in new companies and technologies across BP while also leveraging knowledge from the development of our existing Alternative Energy businesses. And we are modernizing how BP works, using technology and data to work more efficiently and digitizing our processes. Disciplined execution in 2017 We said that 2017 would be a very important year for BP. We set out ambitious plans for the year and we delivered on them. We promised to start up seven major projects in the Upstream. We brought these online and under budget for the portfolio as a whole. These projects, along with the six we brought online in 2016, have contributed to a 12% increase in our production. That helps to put us on track to deliver 900,000 barrels of new production per day by 2021. We also strengthened our portfolio with our most successful year of exploration since 2004, sanctioned three exciting new projects in Trinidad, India and the Gulf of Mexico and added 143% reserves replacement for the group. In the Downstream we promised to grow earnings. In fact, we had our best ever year, with a replacement cost profit of $7.2 billion, driven by strong earnings growth in our marketing and manufacturing businesses. This came from volume growth in our premium fuels and lubricants, the growth of our successful convenience retail partnerships around the world and strong performance in manufacturing. Exciting growth opportunities This is a time of transformational change for our industry. An era of abundant resources and a changing fuel mix mean that we must be competitive today and adapt fast to change for tomorrow. So, we must modernize how we work, embrace new advanced technologies and maintain our downward pressure on costs. We are already in action across BP. In the Upstream we are growing gas and advantaged oil on many fronts: signing a 25-year extension to our ACG production-sharing agreement in Azerbaijan; strengthening our relationship with Petrobras and accessing the prolific Santos basin in Brazil; extending our innovative alliance with Kosmos in West Africa; growing in Norway though our Aker BP joint venture; and adding production from onshore Abu Dhabi following the deepening of our long-term strategic relationship with the Abu Dhabi National Oil Company (ADNOC) at the end of 2016. In the Downstream we are building competitively advantaged businesses; extending our differentiated retail fuels offer in material new markets such as Mexico, India, Indonesia and China; entering into a new joint venture with DongMing Petrochemical as part of a focused growth strategy in China; renewing and creating new partnerships in lubricants with Renault Nissan, Ford, VW and Volvo. At the same time, we must look to produce and deliver energy in new ways, with fewer emissions, to help meet the world’s climate goals. At BP we have been working on this challenge for over two decades and that has informed our approach today: working to reduce emissions in our operations; improving the products our customers use to help them reduce their emissions; creating new low carbon businesses and offers that complement our existing portfolio. In the low carbon space, we entered into a new partnership with Lightsource, a global leader in the development, acquisition and long-term management of large-scale solar projects. In new ventures, we have a pipeline of more than 40 active investments with more than 200 partners looking to exploit opportunities in advanced mobility, bio products, carbon management and low carbon power and storage. These are a few examples that I believe show we are in great shape to act where we see opportunity to make a real difference to this transition and, at the same time, create value for our shareholders. Strength in relationships The world is changing fast and there is a lot of uncertainty of what the future will actually look like. To stay competitive a company needs to be in tune with society. While we are making progress with issues such as gender and ethnicity representation, we recognize we still have more to do. Beyond having the right strategy, to succeed and thrive in uncertainty requires strong and trusting relationships. I am grateful to our partners, host governments and other stakeholders who have stood by us in hard times and continue to work with us to help shape our future and the future energy landscape. I am also grateful to you, our shareholders who have shown great patience while we stabilized BP and built up our resilience. I hope you see our recent performance as signs that this patience is being rewarded. And last, but not least, I want to thank the global BP team. I don’t believe there is another company of our size and scale that can adapt and manage change better than we can. This spirit of invention and purpose has been alive across BP for over a century and will carry us forward into what, I believe, is a very bright future. Bob Dudley Group chief executive 29 March 2018 Above: At the inauguration of the first phase of development of Oman’s giant Khazzan gas field. More information Strategy Page 12 Group performance Page 21 95.3% refining availability 94.7% Upstream plant reliability See GlossaryBP Annual Report and Form 20-F 2017 9 Strategic report – overview


 
Above: Our Ituiutaba sugar cane processing unit in Brazil. 0 3 6 9 12 15 18 2020 2000 2040 Energy consumption by region (billion tonnes of oil equivalent) OECD Other Asia Rest of World China Africa India a a Evolving transition scenario. The changing world of energy The world of energy is changing every day. With rising concerns about climate, technological advances and geopolitical shifts, the energy mix is moving towards lower carbon sources. Growing demand for energy People rely on energy for heat, light and mobility. Growing economies need energy to support their industry and infrastructure. How that energy is delivered is changing rapidly and the energy mix of the future will become increasingly lower carbon. The demand for energy continues to grow – largely driven by rising incomes in emerging economies and a global population heading towards nine billion by 2040. But this growth is much slower than in the previous 20 years. The extent of the increase is being curbed by gains in energy efficiency, as there is greater attention around the world on using energy more sustainably. Energy mix is shifting Today, oil and gas account for almost 60% of all energy used. Even in a scenario that is consistent with the Paris goals of limiting warming to less than 2ºC, oil and gas could provide around 40% of all energy used by 2040. So it’s essential that action is taken to reduce emissions from their production and use. In a low carbon world, gas offers a much cleaner alternative to coal for power generation and a valuable back-up for renewables, for example when the sun and wind aren’t available. Gas also provides heat for industry and homes and fuel for trucks and ships. • To meet the rising demand for cleaner energy, we are increasing our gas production. Renewables are the fastest-growing energy source and could account for at least 14% of all energy in 2040. • We are building up our renewable portfolio – focusing on biofuels, biopower, wind energy and solar energy. Oil is the primary fuel for transport today. We expect its share of the total energy mix will gradually decline as we see more energy efficiency in traditional engines, greater use of biofuels and gas, and growth in fully electric and hybrid vehicles, as well as ride sharing, in the years ahead. • We are developing new efficient fuels and lubricants that can help our customers and consumers to lower their emissions. Advances in technology Insights from our Energy Outlook and Technology Outlook help shape our strategic thinking. We consider how policy, consumer behaviour and advances in technology could affect the pace of the energy transition and how we produce and use energy in the coming decades. • We prioritize certain new technologies for in-depth analysis – based on their fit with our strategy and how soon and likely we think they are to break through technological and commercial barriers. We also invest in start-up companies to understand and participate in these potentially transformational technologies. See Innovation in BP on page 44. 2040 outlook BP Annual Report and Form 20-F 201710


 
Emerging greenhouse gas policy and regulation Governments are putting in place taxes, carbon trading schemes and other measures to limit greenhouse gas (GHG) emissions. A fifth of the world’s GHG emissions are now covered by carbon pricing systems, double the coverage from just five years ago. We expect around two thirds of BP’s direct emissions will be in countries subject to emissions and carbon policies by 2020. And we have been active as a trader in the world’s current emissions trading systems since their inception. To help anticipate greater regulatory requirements affecting our GHG emissions, we use a carbon cost when evaluating our plans for large new projects and those for which emissions costs would be a material part of the project. In industrialized countries, this is currently $40 per tonne of carbon dioxide equivalent. • We also stress test at a carbon price of $80 per tonne. Our carbon cost, along with energy efficiency considerations, encourages projects to be set up in a way that will have lower GHG emissions. Around 80-90% of carbon dioxide emissions from oil and gas products are from their use by consumers in transportation, power plants, industries and buildings. So one of the biggest contributions we can make to advance the energy transition is by providing products and services that help consumers lower their carbon footprint. More information BP Energy Outlook Provides our projections of future energy trends and factors that could affect them out to 2040. See bp.com/energyoutlook Technology Outlook Describes how technology could influence the way we meet the energy challenge into the future. See bp.com/technologyoutlook 0 3 6 9 12 15 18 22 % 19 % 10 % 8% 8% 33 % 25 % 22 % 13 % 7% 8% 25 % 27 % 26 % 21 % 5% 7% 14 % 33 % 24 % 28 % 4% 7% 4% 2040 Faster transition 2040 Even faster transition 2016 Actual energy mix 2040 Evolving transition Oil Billion tonnes of oil equivalent. The sum of the fuel shares may not equal 100% due to rounding. Gas Coal Nuclear Hydro Renewables Energy consumption – 2040 projections Evolving transition In this scenario, government policies, technology and social preferences evolve in a manner and speed seen in the recent past. The growing world economy requires more energy but consumption increases less quickly than in the past. Faster transition This scenario sees carbon prices rising faster than in the evolving transition scenario with other policy interventions encouraging more rapid energy efficiency gains and fuel switching. Even faster transition This scenario matches carbon emissions similar to the International Energy Agency’s sustainable development scenario which aims to limit the global temperature rise to well below 2°C. 80-90% CO2 emissions BP Annual Report and Form 20-F 2017 11 Strategic report – overview


 
More information Financial framework How this underpins our commitment to sustain the dividend for our shareholders. See page 25 Growing gas and advantaged oil in the upstream Our strategy Seismic success Found significant additional oil resources at our Atlantis field in the Gulf of Mexico using a new seismic imaging technique. Enduring relationships Extended our contract in the Azeri-Chirag- Gunashi field in Azerbaijan for a further 25 years, continuing our long-term advantaged oil production. Invest in more gas and oil, producing both with increasing efficiency. Key highlights See page 27 Our industry is changing at a pace not seen in decades. Oil, gas and renewables are becoming more abundant and less costly. Through new technologies, energy will be produced more efficiently and in new ways, helping to meet the expected rise in demand. And the world is working towards a lower carbon future. Our strategy allows us to be competitive at a time when prices, policy, technology and customer preferences are evolving. We believe having a balanced portfolio with advantaged oil and gas, competitive downstream and low carbon activities, as well as a dynamic investment strategy give us resilience. With the experience we have, the portfolio we have created and the flexibility of our strategy, we can embrace the energy transition in a way that enhances our investor proposition, while meeting the need for energy today. Major project start-ups Started up seven major projects , making a significant contribution to the 900,000 barrels per day of expected new production by 2021. Exploration successes Made six potentially commercial discoveries – two in the UK, two in Trinidad, one in Egypt and one in Senegal with our partner Kosmos Energy. See Glossary12 BP Annual Report and Form 20-F 2017


 
Modernizing the whole group Market-led growth in the downstream Venturing and low carbon across multiple fronts Automating well construction Launched DrillPlan® – a new technology to automate the entire well construction process – at our Khazzan field in Oman, in partnership with Schlumberger. Serving customers digitally Launched a range of digital apps to enhance our customers’ experiences, such as BPMe and in partnership with TomTom Telematics, BP FleetMove. Speedier solutions Began a multi-year project to move our electronic information from physical data centres to the cloud. Carbon trading Used our powerful market insights and innovative platforms to help generate over 12 million tonnes of CO2 reductions through carbon offsetting projects to help customers meet their emissions commitments. Renewable gas Acquired Clean Energy’s renewable natural gas business – giving BP access to its network of gas transport customers and helping to make biogas, made from organic waste, more accessible to natural gas powered vehicle fleets. Generating solar energy Partnered with Lightsource – Europe’s largest solar development company – to help propel its continuing and rapid expansion worldwide. Advancing biofuel technology Acquired the Nesika ethanol plant in Kansas, with joint venture partner DuPont, to commercialize Butamax® bio-isobutanol technology. Investing in artificial intelligence Invested in AI software for the oil and gas industry with venture partner Beyond Limits. Convenience partnerships Continued the rollout of our convenience partnership model across our retail network – adding more than 220 sites in 2017, bringing the total to 1,100. Retail sites in Mexico Became the first global brand to enter the Mexican retail fuels market since deregulation – opening more than 120 BP-branded retail sites during the year. Pursue new opportunities to meet evolving technology, consumer and policy trends. Simplify our processes and enhance our productivity through digital solutions. Innovate with advanced products and strategic retail partnerships. See page 46 See page 23 Strategic report – strategy Lower carbon products Expanded our lower carbon products portfolio with Castrol EDGE BIO-SYNTHETIC now available in the US, the supply of jet biofuel in Sweden and Norway, and our PTAir brand – now available globally. High-quality lubricants Announced plans to build a high-quality lubricants blend plant in China. See page 33 13BP Annual Report and Form 20-F 2017 See Glossary


 
Fast facts Operator BP Partners BP (82.75%) RWE Dea (17.25%) Project type Conventional gas Peak annual average production ~105mboe/d (gross) ~80mboe/d (net) Fast facts Operator Atlantic LNG Partners 100% owned by BP Trinidad and Tobago which is owned by BP (70%) and Repsol (30%) Project type Liquefied natural gas Peak annual average production ~35mboe/d (gross) ~35mboe/d (net) 2 Trinidad: TROC • Increased production from low-pressure wells in our existing acreage in the Columbus Basin. • This onshore facility has the capacity to deliver nearly 200 million standard cubic feet of gas per day when fully operational. A year of delivery This was a big year for BP with seven major projects coming onstream, making it one of the most significant years for commissioning new projects in our history. This puts us well on the way to achieving our aim of 900,000 barrels of oil equivalent per day of new production from our new major projects by 2021. 1 Egypt: Taurus and Libra • Production around 20% above plan. • Added significant gas production to the Egyptian market. 1 Taurus and Libra 2 Trinidad onshore compression (TROC) 3 Quad 204 4 Persephone 5 Juniper 6 Khazzan Phase 1 7 Zohr See Glossary 100% of the gas from the project will be used for the national grid BP and its partners operate across 55,000km2 in Egypt – about the size of Croatia +50 years as largest contributor to natural gas production in Trinidad 14 BP Annual Report and Form 20-F 2017


 
Fast facts Operator Woodside Partners BP (16.67%) BHP, Chevron, Shell, Woodside and Mitsubishi-Mitsui (16.67% each) Project type Liquefied natural gas Peak annual average production ~50mboe/d (gross) ~8mboe/d (net) 4 Australia: Persephone • Increased gas production from the North West Shelf project – Australia’s largest oil and gas resource development. • The North West Shelf project contributes around a third of Australia’s oil and gas production. Fast facts Operator BP Partners BP (36%) Shell (54%) Siccar Point Energy (10%) Project type Conventional oil Peak annual average production ~125mboe/d (gross) ~45mboe/d (net) 3 UK North Sea: Quad 204 • Extended the lives of the Schiehallion and Loyal fields out to 2035 and beyond. • Constructed and installed Glen Lyon, the world’s largest harsh-water floating production, storage and offloading vessel. • Progressed BP’s aim to double UK North Sea production by 2020. Quad 204 is expected to return the fields to their historical peak production £2bn+ contracts awarded to UK companies Strategic report – strategy 15BP Annual Report and Form 20-F 2017


 
Fast facts Operator BP Partners 100% owned by BP Trinidad and Tobago, which is owned by BP (70%) and Repsol (30%) Project type Liquefied natural gas Peak annual average production ~95mboe/d (gross) ~95mboe/d (net) 5 Trinidad: Juniper • Our first subsea field development in Trinidad. • We expect Juniper will make a significant contribution to Trinidad & Tobago’s national gas production. Fast facts Operator BP Partners BP (60%) Oman Oil (40%) Project type Tight gas Peak annual average production ~172mboe/d (gross) ~103mboe/d (net) 6 Oman: Khazzan Phase 1 • Accessed gas in extremely hard rock at depths of up to 5km using expertise from our US Lower 48 business. • Conducted the world’s largest onshore seismic survey and 3D modelling of the subsurface. • Designed to be inherently efficient and lower in greenhouse gas emissions. It weighs about 10,000 tons – equivalent to 20 Boeing 747s fully loaded for take off One of the biggest tight gas projects in the Middle East 16 BP Annual Report and Form 20-F 2017


 
BP’s net share from our seven major projects at peak production (in thousand barrels of oil equivalent per day) 8 Taurus and Libra TROC Quad 204 Persephone Juniper Khazzan Phase 1 Zohr 80 35 95 103 3645 Fast facts Operator ENI Partners BP (10%) Eni (60%) Rosneft (30%) Project type Dry gas Peak annual average production ~364mboe/d (gross) ~36mboe/d (net) 7 Egypt: Zohr • Started up in less than two and a half years from discovery – a record time for a field of this size in deepwater. • Thought to be the largest gas discovery in the Mediterranean. More information Go to youtube.com/bp to watch the stories behind our seven major projects. Looking ahead We plan to start-up six projects in 2018. 1 2 Egypt 3 UK North Sea 4 Azerbaijan 5 US 6 Russia More information Upstream project pipeline See page 30 ~1.3 billion barrels of proved reserves 17BP Annual Report and Form 20-F 2017 Strategic report – strategy


 
2016 2017 2015 2014 2013 Profit (loss) for the year Underlying RC profit for the year 3.8 12.1 13.4 5.9 (6.5) 2.6 3.4 6.2 0.1 0 Underlying replacement cost profit ($ billion) 23.5 REM 3,230 3,141 3,239 3,268 3 , 5 9 5 2016 2017 2015 2013 2014 Production (mboe/d) 21.1 32.8 19.1 10.7 18.9 2016 2017 2015 2013 2014 Operating cash flow ($ billion) REM 4 7 7 4 62016 2017 2015 2013 2014 Major project delivery REM 20 28 20 16 18 REM Tier 1 process safety events a 2016 2017 2015 2013 2014 REM Reported recordable injury frequencya REM REM 2016 2017 2015 2013 2014 0.31 0.31 0.24 0.21 0.22 Measuring our progress We monitor the progress of our major projects to gauge whether we are delivering our core pipeline of projects under construction on time. Projects take many years to complete, requiring differing amounts of resource, so a smooth or increasing trend should not be anticipated. Major projects are defined as those with a BP net investment of at least $250 million, or considered to be of strategic importance to BP, or of a high degree of complexity. 2017 performance We started up seven major projects in Australia, Egypt, the UK North Sea, Oman and Trinidad. Operating cash flow is net cash flow provided by operating activities, as reported in the group cash flow statement. Operating activities are the principal revenue-generating activities of the group and other activities that are not investing or financing activities. 2017 performance Operating cash flow was higher due to improved business results, including a more favourable price environment and higher production as well as lower Gulf of Mexico oil spill payments which amounted to $5.2 billion in 2017. Underlying RC profit is a useful measure for investors because it is one of the profitability measures BP management uses to assess performance. It assists management in understanding the underlying trends in operational performance on a comparable year-on-year basis. It reflects the replacement cost of inventories sold in the period and is arrived at by excluding inventory holding gains and losses from profit or loss. Adjustments are also made for non-operating items and fair value accounting effects . 2017 performance Profit for the year and underlying RC profit reflect higher oil and gas prices, and a stronger refining environment compared with 2016, as well as the benefit of major project start-ups, and stronger refining operational performance. Production is a useful measure for tracking how our major projects are helping to grow our business. We report production of crude oil, condensate, natural gas liquids (NGLs), natural bitumen and natural gas on a volume per day basis for our subsidiaries and equity-accounted entities. Natural gas is converted to barrels of oil equivalent at 5,800 standard cubic feet of natural gas = 1 boe. 2017 performance BP’s total reported production including Upstream and Rosneft segments was 10% higher than in 2016 due to the Abu Dhabi onshore concession renewal and major project start-ups. We report tier 1 process safety events which are losses of primary containment of greatest consequence – causing harm to a member of the workforce, costly damage to equipment or exceeding defined quantities. 2017 performance We have seen a slight increase in tier 1 process safety events, and we remain focused on our systematic approach to safety management and assurance. We assess our performance across a wide range of measures and indicators. Our key performance indicators (KPIs) provide a balanced set of metrics that give emphasis to both financial and non- financial measures. These help the board and executive management assess performance against our strategic priorities and business plans, with non-financial metrics playing a useful role as leading indicators of future performance. BP management uses these measures to evaluate operating performance and make financial, strategic and operating decisions. Changes to KPIs We have added Upstream plant reliability to our KPIs this year to reflect our strategy and align the measures used for Upstream and Downstream. It will also be used to assess performance for the annual bonus in our 2018 remuneration outcomes assessment. We no longer report loss of primary containment as we are focusing on more comparable industry metrics. And in light of our refreshed strategy, announced in February 2017, we’ve updated the employee survey questions to reflect our new priorities and retired the group priorities index, which was based on priorities set in 2012. Remuneration To help align the focus of our board and executive management with the interests of our shareholders, certain measures are used for executive remuneration. Reported recordable injury frequency (RIF) measures the number of reported work-related employee and contractor incidents that result in a fatality or injury per 200,000 hours worked. 2017 performance We have seen a small increase in our RIF compared with 2016. Improving safety in our operations is a high priority and we are working on it right across the business. a This represents reported incidents occurring within BP’s operational HSSE reporting boundary. That boundary includes BP’s own operated facilities and certain other locations or situations. REM Measures used for the remuneration policy approved by shareholders at the 2017 AGM. REM These measures were used for executive remuneration under the terms of our discontinued 2014-16 policy. Measures for the annual bonus are focused on safety, reliable operations and financial performance. Measures for performance shares are focused on shareholder value, capital discipline and future growth. More information Directors’ remuneration Page 90 BP Annual Report and Form 20-F 201718 See Glossary


 
2016 2017 2015 2014 2013 REM 0 29.0 20.0 9.5 (11.6) (16.5) 14.0 14.7 (8.3) (12.8) ADS basis Ordinary share basis Total shareholder return (%) 55.5 REM 71 73 73 73 73 2016 2017 2015 2014 2013 Employee engagement (%) 2016 2015 2013 2014 95.3 94.9 94.7 95.3 95.32017 Refining availability (%) REM 129 63 61 109 143 2016 2017 2015 2013 2014 Reserves replacement ratio (%) REM 2016 2017 2015 2014 2013 Women Non UK/US c 21 21 18 18 23 21 19 22 21 24 Diversity and inclusion b (%) Return on average capital employed (%) 12 2016 2015 2013 2014 10.2 9.6 5.5 2.8 5.82017 REM 2016 2015 2013 2014 50.3 48.7 49.0 50.1 49.42017 Greenhouse gas emissions (million tonnes of CO 2 equivalent) 2016 2015 2013 2014 13.16 12.75 10.46 8.46 7.112017 Upstream unit production costs ($/boe) REM 95.0 91.7 93.4 95.3 94.7 2016 2015 2013 2014 2017 Upstream plant reliability (%) Proved reserves replacement ratio is the extent to which the year’s production has been replaced by proved reserves added to our reserve base. The ratio is expressed in oil-equivalent terms and includes changes resulting from discoveries, improved recovery and extensions and revisions to previous estimates, but excludes changes resulting from acquisitions and disposals. The ratio reflects both subsidiaries and equity-accounted entities. This measure helps to demonstrate our success in accessing, exploring and extracting resources. 2017 performance The ratio was higher due to development activity in Abu Dhabi and Rosneft, expansion of the Khazzan development in Oman and extension of the ACG licence. Each year we report the percentage of women and individuals from countries other than the UK and the US among BP’s group leaders. 2017 performance While the percentage of our group leaders who are women decreased slightly, the number of non-UK/US people rose. We are developing mentoring, sponsorship and coaching programmes to help more women advance. Total shareholder return (TSR) represents the change in value of a BP shareholding over a calendar year. It assumes that dividends are reinvested to purchase additional shares at the closing price on the ex-dividend date. We are committed to maintaining a progressive and sustainable dividend policy. 2017 performance Reduced TSR reflects lower share price growth in 2017 compared with 2016, while the dividend per share was maintained at the same level. We conduct an annual employee survey to understand and monitor levels of employee engagement and identify areas for improvement. 2017 performance The overall employee engagement score was up from two years ago, when we saw a decline that coincided with the uncertainties of a low oil price environment. Return on average capital employed (ROACE) gives an indication of a company’s capital efficiency, dividing the underlying RC profit after adding back net interest by average capital employed, excluding cash and goodwill. See page 295 for more information including the nearest GAAP equivalent data. In recent years, ROACE has been lower in the oil and gas sector, due to the impact of lower oil prices on earnings and the capital investment made during the preceding period of $100 per barrel oil prices. 2017 performance The 2017 increase in ROACE is due to a stronger environment and improved business performance. Refining availability represents Solomon Associates’ operational availability. The measure shows the percentage of the year that a unit is available for processing after deducting the time spent on turnaround activity and all mechanical, process and regulatory downtime. Refining availability is an important indicator of the operational performance of our Downstream businesses. 2017 performance Refining availability was similar to 2016, reflecting continued strong operational performance in our portfolio. This performance is underpinned by our global reliability improvement programme which provides our refineries with a more structured and systematic approach to improving availability. The upstream unit production cost indicator shows how supply chain, headcount and scope optimization impact cost efficiency. 2017 performance The lower unit production costs in 2017 reflect further efficiency increases and the benefit of new production start-ups. BP-operated Upstream plant reliability is calculated as 100% less the ratio of total unplanned plant deferrals divided by installed production capacity. 2017 performance The slight decrease in 2017 plant reliability was due in part to our new major projects ramping up, however this was partly offset by solid performance across existing assets. We provide data on greenhouse gas (GHG) emissions material to our business on a carbon dioxide-equivalent basis. This includes carbon dioxide (CO2) and methane for direct emissions. Our GHG KPI encompasses all BP’s consolidated entities as well as our share of equity-accounted entities other than BP’s share of Rosneft. 2017 performance The primary reasons for the overall decrease include operational changes such as planned shutdowns at several of our refineries for maintenance, and actions taken by our businesses to reduce emissions in areas such as flaring, methane and energy efficiency. b Relates to BP employees. c Figures for 2013-16 have been amended. See GlossaryBP Annual Report and Form 20-F 2017 19 Strategic report – strategy


 
BP Annual Report and Form 20-F-201720 Global energy markets Oil prices recovered in 2017, but averaged only half the prices seen in 2011-13. While the market continues to rebalance in the face of ongoing co-ordinated OPEC and non-OPEC production restraint, inventories remain above their recent historical average. The world economy grew at 3.1% in 2017, its fastest rate of growth since 2011. This was significantly faster than the 2.4% seen in 2016 and slightly more than the average of nearly 3% over the past 20 years. Growth in the OECD picked up to 2.4%, from just 1.7% in 2016, benefiting from improvements in both consumption and investment across all major regions, and a pick-up in global trade. The non-OECD showed a similar broad-based improvement, growing by 4.3% in 2017, compared with 3.8% in 2016. Oil Crude oil prices ($/bbl – quarterly average) 150 120 90 60 08 09 10 11 12 13 14 15 16 2017 Brent dated Prices Dated Brent crude oil prices averaged $54.19 per barrel in 2017 – the first annual increase since 2012 but roughly half the average of over $110 seen in 2011-13. Prices drifted lower over the first half of the year before rebounding, ending the year at their monthly high point, averaging $64 in December. Consumptiona Global consumption increased by 1.6 million barrels per day (mmb/d) to 97.8mmb/d for the year (1.6%) – due to continued low oil prices and a recovering world economy. Demand once again grew most rapidly in Asia’s emerging economies (+1mmb/d), but OECD demand also increased for a third consecutive year. Productiona Global oil production saw weak growth for a second consecutive year, rising by just 0.4mmb/d. However, the source of global weakness was different in 2017. After falling in 2016, non-OPEC production recovered (+0.8mmb/d), led by the US. In contrast OPEC production declined by 0.4mmb/d – the first decline since 2013 – as the group engaged with certain non-OPEC producers to restrain output. Inventoriesa These changes resulted in global demand exceeding supply in 2017. As a result, oil inventories in the OECD began to decline, although they remained well above the recent historical range. At the end of November OECD commercial inventories were roughly 100 million barrels less than 2016, but remained 90 million barrels above the five-year average. The surplus relative to the five-year average was well below the peak of 366 million barrels seen in July 2016. Natural gas 08 09 10 11 12 13 14 15 16 12 10 6 8 4 2 Henry HubNatural gas prices ($/mmBtu – quarterly average) 2017 Prices Gas prices rebounded in all key markets in 2017, as global markets tightened. Liquefied natural gas (LNG) supply increased more slowly than expected, while LNG demand from China was unexpectedly strong, and high coal prices supported gas prices in the power generation sector. Gas prices in the US averaged $3.11 per million British thermal units (mmBtu), up by $0.65 compared with 2016 ($2.46). The Japanese spot price rebounded to $7.13/mmBtu in 2017 from $5.72/mmBtu in 2016, driven by stronger Asian LNG demand, notably from China but also Japan, Korea and Pakistan. The UK National Balancing Point hub price was 44.95 pence per therm, 30% higher than in 2016 (34.63), supported by increasing coal prices. Meanwhile pipeline outages and cold weather put pressure on UK prices towards the end of 2017. Broad differentials between regional gas prices have increased, even though they remain at much lower levels than the peaks observed in 2012 and 2013. Consumptionb Global consumption is estimated to have grown more rapidly in 2017 than in 2016. Strong growth in Asia, the Middle East and Africa offset a decline in North American consumption, where higher gas prices caused gas to lose market share to coal in the US power sector. Meanwhile demand in core European markets was broadly stable. And higher weather-related demand towards the end of the year boosted global annual demand. Productionb Total gas production is estimated to have increased substantially in 2017, in contrast to 2016, which had similar production to 2015. Significant production increases were achieved in Australia – supported by the start of new LNG trains , and in Russia. Global LNG supply capacity expanded strongly in 2017, adding almost three times as much new capacity as in 2016. Several trains came online in the US, Australia, Russia and Malaysia. See Glossary More information Prices and margins Pages 26 and 32 a From IEA Oil Market Report, 13 February 2018 ©, OECD/IEA 2018. b Based on BP estimates from the BP Energy Outlook.


 
BP Annual Report and Form 20-F 2017 21 Group performance We had strong delivery and growth across BP in 2017, enabling the company to get back into balance. The full-year underlying result was more than double a year earlier and our financial frame remains resilient. We recommenced share buybacks during the fourth quarter with the intention to offset any ongoing dilution from scrip dividends over time. Brian Gilvary, group chief financial officer In summary (20) (10)(15) (5) 0 105 15 20 2016 2015 2017 Segment RC profit (loss) before interest and tax ($ billion) Downstream Rosneft Upstream Other businesses and corporate – other Other businesses and corporate – Gulf of Mexico oil spill Consolidation adjustment – UPII Group RC profit (loss) before interest and tax Financial and operating performance $ million except per share amounts 2017 2016 2015 Profit (loss) before interest and taxation 9,474 (430) (7,918) Finance costs and net finance expense relating to pensions and other post-retirement benefits (2,294) (1,865) (1,653) Taxation (3,712) 2,467 3,171 Non-controlling interests (79) (57) (82) Profit (loss) for the yeara 3,389 115 (6,482) Inventory holding (gains) losses , before tax (853) (1,597) 1,889 Taxation charge (credit) on inventory holding gains and losses 225 483 (569) Replacement cost profit (loss) 2,761 (999) (5,162) Net (favourable) adverse impact of non-operating items and fair value accounting effects , before tax 3,730 6,746 15,067 Taxation charge (credit) on non-operating items and fair value accounting effects (325) (3,162) (4,000) Underlying replacement cost profit 6,166 2,585 5,905 Dividends paid per share – cents 40.0 40.0 40.0 – pence 30.979 29.418 26.383 a Profit (loss) attributable to BP shareholders. More information Upstream Page 26 Downstream Page 32 Rosneft Page 38 Other businesses and corporate Page 41 Oil and gas disclosures for the group Page 259 See Glossary $6.2bn underlying replacement cost (RC) profit (2016 $2.6 billion) $3.4bn $18.9bn profit attributable to BP shareholders (2016 $115 million) operating cash flow (2016 $10.7 billion) Strategic report – perform ance


 
BP Annual Report and Form 20-F-201722 Results Profit for the year ended 31 December 2017 was $3.4 billion, compared with $115 million in 2016. Excluding inventory holding gains, replacement cost (RC) profit was $2.8 billion, compared with a loss of $1.0 billion in 2016. After adjusting for non-operating items of $3.3 billion and net adverse fair value accounting effects of $96 million (both on a post-tax basis), underlying RC profit for the year ended 31 December 2017 was $6.2 billion, an increase of $3.6 billion compared with 2016. The increase was predominantly due to higher results in both Upstream and Downstream segments. The Upstream result reflected higher oil and gas prices and increased production. The Downstream result reflected strong refining performance, including an improved margin environment and growth in fuels marketing. The profit for the year ended 31 December 2016 was $115 million, compared with a loss of $6.5 billion in 2015. Excluding inventory holding gains, RC loss was $1.0 billion, compared with a loss of $5.2 billion in 2015. After adjusting for non-operating items of $2.8 billion and net adverse fair value accounting effects of $0.8 billion (both on a post-tax basis), underlying RC profit for the year ended 31 December 2016 was $2.6 billion, a decrease of $3.3 billion compared with 2015. The reduction was predominantly due to lower results in both the Upstream and Downstream segments reflecting lower oil and gas prices and the weaker refining environment. Non-operating items The net charge for non-operating items was $3.6 billion pre-tax and $3.3 billion post tax in 2017. The post-tax non-operating charge includes a charge of $1.7 billion recognized in the fourth quarter relating to business economic loss and other claims associated with the Gulf of Mexico oil spill and a $0.9 billion deferred tax charge following the change in the US tax rate enacted in December 2017. In addition, the net charge also reflects an impairment charge in relation to upstream assets. The net charge for non-operating items of $5.7 billion pre-tax and $2.8 billion post tax in 2016 mainly related to additional charges for the Gulf of Mexico oil spill which were partially offset by net impairment reversals. Non- operating items in 2016 also included a restructuring charge of $0.8 billion (2015 $1.1 billion). More information on non-operating items and fair value accounting effects can be found on pages 250 and 294. See Financial statements – Note 2 for further information on the impact of the Gulf of Mexico oil spill on BP’s financial results. Taxation The charge for corporate income taxes in 2017 includes a one-off deferred tax charge of $0.9 billion in respect of the revaluation of deferred tax assets and liabilities following the reduction in the US federal corporate income tax rate from 35% to 21% enacted in December 2017. The effective tax rate (ETR) on the profit or loss for the year was 52% in 2017, 107% in 2016 and 33% in 2015. The ETR for all three years was impacted by various one-off items. Adjusting for inventory holding impacts, non-operating items which include the impact of the US tax rate change, fair value accounting effects and the deferred tax adjustments as a result of the reductions in the UK North Sea supplementary charge in 2016 and 2015, the adjusted ETR on RC profit was 38% in 2017 (2016 23%, 2015 31%). The adjusted ETR for 2017 is higher than 2016 predominantly due to changes in the geographical mix of profits, notably the impact of the renewal of our interest in the Abu Dhabi onshore oil concession. The adjusted ETR for 2016 was lower than 2015 predominantly due to changes in the geographical mix of profits as a result of the lower oil price and the absence of foreign exchange impacts from the strengthening of the US dollar in 2015. In the current environment, the adjusted ETR in 2018 is expected to be above 40%. Cash flow and net debt information $ million 2017 2016 2015 Operating cash flow 18,931 10,691 19,133 Net cash used in investing activities (14,077) (14,753) (17,300) Net cash provided by (used in) financing activities (3,296) 1,977 (4,535) Cash and cash equivalents at end of year 25,586 23,484 26,389 Capital expenditure a Organic capital expenditure (16,501) (16,675) N/A Inorganic capital expenditure (1,339) (777) N/A (17,840) (17,452) (20,202) Gross debt 63,230 58,300 53,168 Net debt 37,819 35,513 27,158 Gross debt ratio (%) 38.6% 37.6% 35.1% Net debt ratio (%) 27.4% 26.8% 21.6% a From 2017 onwards we are reporting organic, inorganic and total capital expenditure on a cash basis which were previously reported on an accruals basis. This aligns with BP's financial framework and is now consistent with other financial metrics used when comparing sources and uses of cash. An analysis of capital expenditure on a cash basis for 2015 is not available. Operating cash flow Net cash provided by operating activities for the year ended 31 December 2017 was $18.9 billion, $8.2 billion higher than the $10.7 billion reported in 2016. Operating cash flow in 2017 reflects $5.3 billion of pre-tax cash outflows related to the Gulf of Mexico oil spill (2016 $7.1 billion). Compared with 2016, operating cash flows in 2017 were impacted by improved business results, including a more favourable price environment and higher production, working capital effects, and a $2.5 billion increase in income taxes paid. Movements in inventories and other current and non-current assets and liabilities adversely impacted cash flow in the year by $3.4 billion. There was an adverse impact on working capital from the Gulf of Mexico oil spill of $5.2 billion. Other working capital effects, arising from a variety of different factors had a favourable effect of $1.8 billion. Receivables and inventories increased during the year principally due to higher oil prices. The effect of this on operating cash flow was more than offset by a corresponding increase in payables. BP actively manages its working capital balances to optimize cash flow. There was a decrease in net cash provided by operating activities of $8.4 billion in 2016 compared with 2015, of which $6.0 billion related to higher pre-tax cash outflows associated with the Gulf of Mexico oil spill. Cash flows were impacted by the continuing low oil price environment, with a lower average oil price in 2016 compared with 2015, working capital effects, and a reduction of $0.7 billion in income taxes paid. Movements in inventories and other current and non-current assets and liabilities adversely impacted cash flow in 2016 by $3.2 billion. There was an adverse impact from the Gulf of Mexico oil spill of $4.8 billion. Other working capital effects, arising from a variety of different factors, had a favourable impact of $1.6 billion. Inventories increased during 2016 because volumes were increased in our trading business to benefit from market opportunities, and due to higher prices towards the end of the year. The increase in inventory was largely offset by a corresponding increase in payables, limiting the increase in working capital. See Glossary


 
From our headquarters in London to the underwater facilities in Western Australia – our modernization programme is transforming how we work across BP. We are simplifying how we operate to create a more agile organization and working to change mindsets so that they fit the increasingly competitive and margin-dependent industry. At the same time, we're digitizing and automating more of our work. We are in the process of systematically migrating our vast amounts of data from physical centres to the cloud, embracing the agility and power of cloud technologies, while maintaining necessary levels of data security. We have already moved our corporate website to Amazon Web Services®, and we now plan to close all our physical datacentres over several years, fully embracing the agility and power of cloud technologies. Microsoft Azure® is intended to become a group-wide platform for collaboration and data analytics, with services such as visualization and predictive tools to help us analyse data, gain insights and make decisions faster. We are also piloting the use of blockchain database technology in our oil and gas trading business to help increase efficiency in terms of speed and verification of transactions. Blockchain is a digital ledger system that records online transactions and helps to streamline financial processes and cut back office costs. Modernizing the whole group Speedier solutions Activity on 7,000 servers in four datacentres moving to the cloud Strategic report – perform ance BP Annual Report and Form 20-F 2017 23 Strategic report – perform ance


 
BP Annual Report and Form 20-F 201724 Net cash used in investing activities Net cash used in investing activities for the year ended 31 December 2017 decreased by $0.7 billion compared with 2016. The decrease mainly reflected an increase of $0.8 billion in disposal proceeds. The decrease of $2.5 billion in 2016 compared with 2015 reflected a reduction in cash outflow in respect of capital expenditure, including investment in joint ventures and associates , of $2.8 billion. The reduction in cash capital expenditure in 2016 reflected the group’s response to the lower oil price environment. There were no significant cash flows in respect of acquisitions in 2017, 2016 and 2015. The group has had significant levels of capital investment for many years. Total capital expenditure for 2017 was $17.8 billion (2016 $17.5 billion), of which organic capital expenditure was $16.5 billion (2016 $16.7 billion). Sources of funding are fungible, but the majority of the group’s funding requirements for new investment comes from cash generated by existing operations. We expect organic capital expenditure to be in the range of $15-16 billion in 2018. Disposal proceeds for 2017 were $3.4 billion (2016 $2.6 billion, 2015 $2.8 billion), including amounts received for the disposal of our interest in the SECCO joint venture. In addition, we received $0.8 billion in relation to the initial public offering of BP Midstream Partners LP’s common units, shown within financing activities in the cash flow statement, and total proceeds for the year were $4.3 billion. In 2016 disposal proceeds included amounts received for the sale of certain midstream assets in the Downstream fuels business and our Decatur petrochemicals complex. In addition, we received $0.6 billion in relation to the sale of 20% from our shareholding in Castrol India Limited, shown within financing activities in the cash flow statement, giving total proceeds of $3.2 billion for the year. We expect disposal proceeds to be in the range of $2-3 billion in 2018. Net cash used in financing activities Net cash used in financing activities for the year ended 31 December 2017 was $3.3 billion, compared with $2.0 billion provided by financing activities in 2016. This was mainly the result of a reduction of $3.5 billion in net proceeds from financing. The total dividend paid in cash in 2017 was $1.5 billion higher than in 2016, see below for further information. In 2016 the net cash provided by financing activities reflected higher net proceeds from financing of $3.6 billion ($4.0 billion higher net proceeds from long-term debt offset by a decrease of $0.4 billion in short-term debt). In addition, there was a cash inflow of $0.9 billion relating to increases in non-controlling interests, including the sale of 20% from our shareholding in Castrol India Limited described above. The total dividend paid in cash in 2016 was $2.1 billion lower than in 2015 – see below for further information. Total dividends distributed to shareholders in 2017 were 40.00 cents per share, the same as 2016. This amounted to a total distribution to shareholders of $7.9 billion (2016 $7.5 billion, 2015 $7.3 billion), of which shareholders elected to receive $1.7 billion (2016 $2.9 billion, 2015 $0.6 billion) in shares under the scrip dividend programme. The total amount distributed in cash amounted to $6.2 billion during the year (2016 $4.6 billion, 2015 $6.7 billion). Debt Gross debt at the end of 2017 increased by $4.9 billion from the end of 2016. The gross debt ratio at the end of 2017 increased by 1%. Net debt at the end of 2017 increased by $2.3 billion from the 2016 year-end position. The net debt ratio at the end of 2017 increased by 0.6%. We continue to target a net debt ratio in the range of 20-30%. Net debt and the net debt ratio are non-GAAP measures. See Financial statements – Note 25 for gross debt, which is the nearest equivalent measure on an IFRS basis, and for further information on net debt. Cash and cash equivalents at the end of 2017 were $2.1 billion higher than 2016. For information on financing the group’s activities, see Financial statements – Note 27 and Liquidity and capital resources on page 251. Group reserves and production (including Rosneft segment)a 2017 2016 2015 Estimated net proved reserves (net of royalties) Liquids (mmb) 10,672 10,333 9,560 Natural gas (bcf) 45,060 43,368 44,197 Total hydrocarbons (mmboe) 18,441 17,810 17,180 Of which: Equity-accounted entitiesb 8,949 8,679 7,928 Production (net of royalties) Liquids (mb/d) 2,260 2,048 2,007 Natural gas (mmcf/d) 7,744 7,075 7,146 Total hydrocarbons (mboe/d) 3,595 3,268 3,239 Of which: Subsidiaries 2,164 1,939 1,969 Equity-accounted entitiesc 1,431 1,329 1,270 a Because of rounding, some totals may not agree exactly with the sum of their component parts. b Includes BP’s share of Rosneft. See Rosneft on page 38 and Supplementary information on oil and natural gas on page 191 for further information. c Includes BP’s share of Rosneft. See Rosneft on page 38 and Oil and gas disclosures for the group on page 259 for further information. Total hydrocarbon proved reserves at 31 December 2017, on an oil-equivalent basis including equity-accounted entities, increased by 4% compared with 31 December 2016. The change includes a net increase from acquisitions and disposals of 47mmboe (increase of 90mmboe within our subsidiaries, decrease of 43mmboe within our equity-accounted entities). Acquisition activity in our subsidiaries occurred in Egypt, the US and the UK, and divestment activity in our subsidiaries was in the UK. In our equity-accounted entities, acquisitions occurred in Aker BP and Rosneft and divestments occurred in Aker BP and in Pan American Energy. Our total hydrocarbon production for the group was 10% higher compared with 2016. The increase comprised a 12% increase (12% increase for liquids and 11% increase for gas) for subsidiaries and an 8% increase (9% increase for liquids and 5% increase for gas) for equity-accounted entities. Above: On board Glen Lyon, our floating production storage and offloading vessel in the UK North Sea. See Glossary


 
BP Annual Report and Form 20-F 2017 25 See Glossary Principle 2017 achievement 2018 guidance Looking ahead – 2019 to 2021 Nearest GAAP equivalent measures * Capital expenditure : $17.8 billion. ** Gross debt ratio: 38.6%. *** Numerator: Profit attributable to BP shareholders $3.4 billion; Denominator: Average capital employed $159.4 billion. BP’s financial framework underpins our commitment to sustain the dividend for our shareholders. We have been meeting those expectations each year. We expect our strong balance sheet to be able to deal with any near-term volatility. Beyond that, we aim to increase operating cash flow – from our planned upstream start-ups and growth in the downstream. With a constant capital frame, we intend to grow sustainable free cash flow and distributions to shareholders in the long term. Our financial framework Focused on delivering competitive returns Optimize capital expenditure Organic capital expenditure a was $16.5 billion*. This was within our original guidance of $15-17 billion. We expect organic capital expenditure of $15-16 billion. We expect organic capital expenditure of $15-17 billion per year. Make selective divestments Total divestment and other proceeds of $4.3 billionb achieved. This was just under our expected guidance of $4.5-5.5 billion for the year. We expect divestments of $2-3 billion. We expect $2-3 billion of divestments per year. Payments related to the Gulf of Mexico oil spill 2017 payments totalled $5.2 billion. We expect just over $3 billion of cash payments. We expect around $2 billion in 2019, then stepping down to around $1 billion per year. Maintain flexibility around gearing Gearing at the end of 2017 was 27.4%** within our target range. Within the 20-30% band. Within the 20-30% band. Group return on average capital employed (ROACE) ROACE was 5.8%***. Further improvement. We are aiming to exceed 10% by 2021 at real oil prices around $55/barrel. a From 2017 onwards we are reporting organic, inorganic and total capital expenditure on a cash basis, which were previously reported on an accruals basis. This aligns with BP's financial framework and is now consistent with other financial metrics used when comparing sources and uses of cash. b This includes proceeds of $0.8 billion received in relation to the initial public offering of BP Midstream Partners LP’s common units. Divestment proceeds for 2017 were $3.4 billion. Strategic report – perform ance


 
BP Annual Report and Form 20-F 201726 2017 was a strong year of delivery, demonstrated by the start-up of seven major projects. This shows we are creating real value and tangible growth – with opportunities out to 2021 and beyond. Bernard Looney, chief executive, Upstream 28,000km2 94.7% 6 new exploration access (2016 71,000km2) BP-operated upstream plant reliability (2016 95.3%) successful completion of turnarounds (2016 11) 3 80.5% 2.5 final investment decisions (2016 5) BP-operated upstream operating efficiency million barrels of oil equivalent per day – hydrocarbon production (2016 2.2mmboe/d) Upstream See Glossary The global wells organization and the global projects organization are responsible for the safe, reliable and compliant execution of wells (drilling and completions) and major projects . The exploration function is responsible for renewing our resource base through access, exploration and appraisal, while the reservoir development function is responsible for the stewardship of our resource portfolio over the life of each field. The global operations organization is responsible for safe, reliable and compliant operations, including upstream production assets and midstream transportation and processing activities. Quality execution We want to be the best at what we do – everywhere we work. This starts with executing our activity safely. In every basin, we will benchmark against the competition and aim to be the best – whether it be operating facilities reliably and cost effectively, with a focus on emissions, drilling wells, managing our reservoirs, exploring, building projects, or deploying technology. Through the quality of our execution, scale and infrastructure, we aim to be the low-cost developer and producer in each basin, and as a business, get more from a unit of capital than our competitors. Growing gas and advantaged oil We will manage our portfolio through disciplined investment in the world’s best oil and gas basins. We plan to grow both oil and gas production. Natural gas is a big lever for reducing greenhouse gas emissions. This means taking a leadership role in tackling the challenge of methane. Around half of our portfolio is currently gas and we expect this to grow as we bring our major projects on line. Our gas portfolio will be complemented by advantaged oil assets – oil we can produce at a higher margin or at a lower cost, creating a portfolio that is resilient whatever the price environment. Returns-led growth We want to grow – but not at any cost. We always look to grow returns and value. We believe this growth will come from many sources – production growth, expanding and managing our margins, operational efficiency, unit cost reduction, and capital efficiency with disciplined levels of capital reinvestment. Strategy Our strategy has three parts and is enabled by: Exploration Global wells organization Global operations organization Business model The Upstream segment is responsible for our activities in oil and natural gas exploration, field development and production. We do this through five global technical and operating functions: 2017 2016 2015 2014 2013 Replacement cost (RC) profit (loss) before interest and tax Underlying RC profit (loss) before interest and tax Upstream profitability ($ billion) -0.9 0.6 5.2 5.9 -0.5 1.2 15.2 18.3 8.9 16.7 In summary


 
BP Annual Report and Form 20-F 2017 27 Expanding gas projects in Trinidad Growing gas and advantaged oil Trinidad & Tobago is a key contributor to BP's growing gas portfolio and 2017 was a pivotal year for our business in the country. We started up two major gas projects in 2017: Juniper – our first subsea field development in Trinidad and the area’s largest project for several years, and Trinidad onshore compression – the first project of its kind in the region and for BP. And we completed the Sercan 2 field development – a joint venture with EOG Resources. But these are just the start. We also made two significant gas discoveries with our Savannah and Macadamia exploration wells in offshore Trinidad. This demonstrates the benefit of our investment in seismic technology, which is helping us access the full potential of the Columbus Basin. Our next planned major project in Trinidad is the development of the Angelin natural gas field, which will include construction of our fifteenth offshore production facility in Trinidad. We expect first gas in early 2019. Largest contributor to natural gas production in Trinidad 50+ years In addition to our core Upstream exploration, development and production activities, the segment is responsible for midstream transportation, storage and processing. We also market and trade natural gas, including liquefied natural gas (LNG), power and natural gas liquids (NGL). In 2017 our activities took place in 29 countries. With the exception of our US Lower 48 onshore business, we deliver our exploration, development and production activities through five global technical and operating functions. We optimize and integrate the delivery of these activities across 13 regions, with support provided by global functions in specialist areas of expertise: technology, finance, procurement and supply chain, human resources, information technology and legal. The US Lower 48 continues to operate as a separate, asset-focused, onshore business. In 2016 we identified a future growth target of 900,000 barrels of oil equivalent per day of production from new projects by 2021 and we remain on track to deliver that. We expect this production to deliver 35% higher operating cash margins on average than our 2015 upstream assets, which supports our value over volume strategy. We see our scale and long history in many of the great basins in the world as a differentiator for BP and believe in the strength of our incumbent positions. We are resilient and balanced – in terms of geography, hydrocarbon type and geology – and rather than being restricted by a traditional way of working, we have and will continue to use creative business models to generate value. We are also investing to modernize and transform the Upstream – embracing innovation, digitization and the adoption of big data, which we believe can drive a real step change in performance and efficiency. Extending the life of our Galeota terminal for 20+ years 15 million tonnes per annum capacity at our Atlantic liquefaction plant BP Annual Form 20-F 2017 See Glossary Strategic report – perform ance


 
BP Annual Report and Form 20-F 201728 Financial performance $ million 2017 2016 2015 Sales and other operating revenuesa 45,440 33,188 43,235 RC profit (loss) before interest and tax 5,221 574 (937) Net (favourable) adverse impact of non-operating items and fair value accounting effects 644 (1,116) 2,130 Underlying RC profit (loss) before interest and tax 5,865 (542) 1,193 Organic capital expenditure b 13,763 14,344 N/A BP average realizationsc $ per barrel Crude oild 51.71 39.99 49.72 Natural gas liquids 26.00 17.31 20.75 Liquids 49.92 38.27 47.32 $ per thousand cubic feet Natural gas 3.19 2.84 3.80 US natural gas 2.36 1.90 2.10 $ per barrel of oil equivalent Total hydrocarbons 35.38 28.24 35.46 Average oil marker pricese $ per barrel Brent 54.19 43.73 52.39 West Texas Intermediate 50.79 43.34 48.71 Average natural gas marker prices $ per million British thermal units Average Henry Hub gas pricef 3.11 2.46 2.67 pence per therm Average UK National Balancing Point gas price e 44.95 34.63 42.61 a Includes sales to other segments. b A reconciliation to GAAP information at the group level is provided on page 249. Organic capital expenditure on a cash basis in 2015 is not available. c Realizations are based on sales by consolidated subsidiaries only, which excludes equity-accounted entities. d Includes condensate and bitumen. e All traded days average. f Henry Hub First of Month Index. Market prices Brent remains an integral marker to the production portfolio, from which a significant proportion of production is priced directly or indirectly. Certain regions use other local markers that are derived using differentials or a lagged impact from the Brent crude oil price. 90 60 30 120 150 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Brent ($/bbl) 2016 2017 2015 Five-year range The dated Brent price in 2017 averaged $54.19 per barrel. Prices drifted lower over the first half of the year before rebounding, ending the year at their monthly high point, averaging $64 in December. After falling in 2016, non-OPEC production recovered (+0.8mmb/d), led by the US. In contrast OPEC production declined by 0.4mmb/d – the first decline since 2013 – as the group engaged with certain non-OPEC producers to restrain output. 6 3 9 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Henry Hub ($/mmBtu) 2016 2017 2015 Five-year range The 2017 Henry Hub First of Month Index price was higher than 2016 ($2.46). The UK National Balancing Point hub price was 44.95 pence per therm, 30% higher than in 2016 (34.63), supported by increasing coal prices. Meanwhile pipeline outages and cold weather put pressure on UK prices towards the end of 2017. For more information on the global energy market in 2017 see page 20. Financial results Sales and other operating revenues for 2017 increased compared with 2016, primarily reflecting higher liquids realizations, higher production and higher gas marketing and trading revenues. The decrease in 2016 compared with 2015 primarily reflected lower liquids and gas realizations and lower gas marketing and trading revenues. See Glossary Above: Dolphin Island vessel overlooking our Atlantis platform in the Gulf of Mexico.


 
BP Annual Report and Form 20-F 2017 29 Replacement cost profit before interest and tax for the segment included a net non-operating charge of $671 million. This primarily relates to impairment charges associated with a number of assets, following changes in reserves estimates, and the decision to dispose of certain assets. See Financial statements – Note 4 for further information. Fair value accounting effects had a favourable impact of $27 million relative to management’s view of performance. The 2016 result included a net non-operating gain of $1,753 million, primarily related to the reversal of impairment charges associated with a number of assets, following a reduction in the discount rate applied and changes to future price assumptions. Fair value accounting effects had an adverse impact of $637 million. The 2015 result included a net non-operating charge of $2,235 million, primarily related to a net impairment charge associated with a number of assets, following a further fall in oil and gas prices and changes to other assumptions. Fair value accounting effects had a favourable impact of $105 million relative to management’s view of performance. After adjusting for non-operating items and fair value accounting effects, the underlying replacement cost result before interest and tax was a profit, compared with a loss in 2016. This improved result primarily reflected higher liquids realizations, and higher production including the impact of the Abu Dhabi onshore concession renewal and major projects start-ups, partly offset by higher depreciation, depletion and amortization, and higher exploration write-offs. Compared with 2015 the 2016 result reflected significantly lower liquids and gas realizations, as well as adverse foreign exchange impacts and lower gas marketing and trading results. This was partly offset by lower costs including benefits from simplification and efficiency activities, lower exploration write-offs, lower depreciation, depletion and amortization expense and lower rig cancellation charges. Organic capital expenditure on a cash basis was $13.8 billion. In total, disposal transactions generated $1.2 billion in proceeds in 2017, with a corresponding reduction in net proved reserves of 10.6mmboe within our subsidiaries. The major disposal transactions during 2017 were the disposal of 25% of our interest in the Magnus field in the UK and a portion of our interests in the Perdido offshore hub in the US. More information on disposals is provided in Upstream analysis by region on page 253 and Financial statements – Note 3. Outlook for 2018 • We expect to start up six new major projects in 2018. • We expect underlying production to be higher than 2017. The actual reported outcome will depend on the exact timing of project start-ups, acquisitions and divestments, OPEC quotas and entitlement impacts in our production-sharing agreements . • Capital investment is expected to decrease, largely reflecting our commitment to continued capital discipline and the rephasing and refocusing of our activities and major projects where appropriate in response to the current business environment. • We expect oil prices will continue to be challenging in the near term. Exploration The group explores for oil and natural gas under a wide range of licensing, joint arrangement and other contractual agreements. We may do this alone or, more frequently, with partners. Our exploration and new access teams work to enable us to optimize our resource base and provide us with a greater number of options. In the current environment, we are spending less on exploration and we will spend a material part of our exploration budget on lower-risk, shorter-cycle-time opportunities around our incumbent positions. New access in 2017 We gained access to new acreage covering almost 28,000km2 in eight countries – Brazil, Canada, Côte D’Ivoire, Mauritania, Mexico, Senegal, the UK and the US. Exploration success We participated in six potentially commercial discoveries in 2017 – Qattameya in Egypt, Macadamia and Savannah in Trinidad, Yakaar-1 in Senegal, and Achmelvich and Capercaillie in the UK. Exploration and appraisal costs Excluding lease acquisitions, the costs for exploration and appraisal were $1,655 million (2016 $1,402 million, 2015 $1,794 million). These costs included exploration and appraisal drilling expenditures, which were capitalized within intangible fixed assets, and geological and geophysical exploration costs, which were charged to income as incurred. Approximately 12% of exploration and appraisal costs were directed towards appraisal activity. We participated in 41 gross (25.03 net) exploration and appraisal wells in nine countries. Exploration expense Total exploration expense of $2,080 million (2016 $1,721 million, 2015 $2,353 million) included the write-off of expenses related to unsuccessful drilling activities, lease expiration or uncertainties around development in Angola ($729 million), Egypt ($368 million), the Gulf of Mexico ($213 million) and others ($349 million), partially offset by a net write-back of $56 million in block KG D6 in India (see Financial statements – Note 6). Reserves booking Reserves bookings from new discoveries will depend on the results of ongoing technical and commercial evaluations, including appraisal drilling. The segment’s total hydrocarbon reserves on an oil-equivalent basis, including equity-accounted entities at 31 December 2017, increased by 2% (an increase of 4% for subsidiaries and a decrease of 12% for equity-accounted entities) compared with proved reserves at 31 December 2016. Proved reserves replacement ratio The proved reserves replacement ratio for the segment in 2017 was 127% for subsidiaries and equity-accounted entities (2016 96%), 133% for subsidiaries alone (2016 101%) and 78% for equity-accounted entities alone (2016 61%). For more information on proved reserves replacement for the group see page 259. Liquids Total 5,139 Total 5,437 Gas 1. Subsidiaries 4,447 2. Equity-accounted entities 692 3. Subsidiaries 5,045 4. Equity-accounted entities 392 2 4 3 1 Upstream proved reserves (mmboe) See Glossary Strategic report – perform ance


 
BP Annual Report and Form 20-F 201730 Estimated net proved reserves (net royalties)a 2017 2016 2015 Liquids million barrels Crude oilb Subsidiaries 4,129 3,778 3,560 Equity-accounted entitiesc 674 771 694 4,803 4,549 4,254 Natural gas liquids Subsidiaries 318 373 422 Equity-accounted entitiesc 18 16 13 336 389 435 Total liquids Subsidiariesd 4,447 4,151 3,982 Equity-accounted entitiesc 692 787 707 5,139 4,938 4,689 Natural gas billion cubic feet Subsidiariese 29,263 28,888 30,563 Equity-accounted entitiesc 2,274 2,580 2,465 31,537 31,468 33,027 Total hydrocarbons million barrels of oil equivalent Subsidiaries 9,492 9,131 9,252 Equity-accounted entitiesc 1,085 1,232 1,132 10,577 10,363 10,384 a Because of rounding, some totals may not agree exactly with the sum of their component parts. b Includes condensate and bitumen. c BP’s share of reserves of equity-accounted entities in the Upstream segment. During 2017 upstream operations in Argentina, Bolivia, Russia and Norway as well as some of our operations in Angola, Abu Dhabi and Indonesia, were conducted through equity-accounted entities. d Includes 14 million barrels (16 million barrels at 31 December 2016 and 19 million barrels at 31 December 2015) in respect of the 30% non-controlling interest in BP Trinidad & Tobago LLC. e Includes 1,860 billion cubic feet of natural gas (2,026 billion cubic feet at 31 December 2016 and 2,359 billion cubic feet at 31 December 2015) in respect of the 30% non-controlling interest in BP Trinidad & Tobago LLC. Developments We achieved seven major project start-ups in 2017: one in Australia, two in Egypt, one in Oman, two in Trinidad, and one in the UK North Sea. In addition to these, we made good progress on projects in AGT (Azerbaijan, Georgia, Turkey), Egypt, the Gulf of Mexico, and the UK. • Azerbaijan, Georgia, Turkey – the Shah Deniz Stage 2 project is now almost 99% complete in terms of engineering, procurement, construction and commissioning and remains on target for production of first gas in 2018. • Egypt – work to achieve start-up of the Giza/Fayoum wells in late 2018 is underway in the West Nile Delta with a revised scope and an amended plan of development. • Gulf of Mexico – the first development well on the Anadarko- operated Constellation project was drilled and completed in 2017. First production is expected in late 2018. • UK – commissioning offshore is well underway at the Clair Ridge development following completion of the construction phase in 2016. First oil is expected in 2018. Subsidiaries’ development expenditure incurred, excluding midstream activities, was $10.7 billion (2016 $11.1 billion, 2015 $13.5 billion). Project Location Type 2017 start-ups Juniper* Trinidad Khazzan Phase 1* Oman Persephone Australia Trinidad onshore compression* Trinidad West Nile Delta Taurus/Libra* Egypt Zohr Egypt Quad 204* UK North Sea Expected start-ups 2018-2021 Design and appraisal phase Cassia compression Trinidad KG D6 D55 India KG D6 Satellites India Khazzan Phase 2* Oman Tortue Phase 1* Mauritania and Senegal Alligin* UK North Sea Atlantis Phase 3* US Gulf of Mexico Vorlich* UK North Sea Zinia 2 Angola Expected start-ups 2018-2021 Projects currently under construction Angelin* Trinidad Atoll Phase 1*a Egypt Culzean UK North Sea KG D6 R-Series India Shah Deniz Stage 2* Azerbaijan Tangguh expansion* Indonesia West Nile Delta Giza/Fayoum* Egypt Western Flank B Australia Clair Ridge* UK North Sea Constellation US Gulf of Mexico Mad Dog Phase 2* US Gulf of Mexico Taas Expansion Russia Thunder Horse North West Expansion* US Gulf of Mexico Beyond 2021 We have a deep hopper of projects that are currently under appraisal. Our focus here is to ensure we maximize value and select the optimum project concept before we move it forward into design. We do not expect to progress all of the projects – only the best. This includes: • a mix of resource types: split across conventional oil, deepwater oil, conventional gas and unconventionals . • geographic spread: across six of the seven continents. • a range of development types: from exploration to brownfield and near-field. Our project pipeline *BP operated Gas Oil See Glossary a Production commenced in early 2018.


 
BP Annual Report and Form 20-F 2017 31 Gas marketing and trading activities Our integrated supply and trading function markets and trades our own and third-party natural gas (including LNG), biogas, power and NGLs. This provides us with routes into liquid markets for the gas we produce and generates margins and fees from selling physical products and derivatives to third parties, together with income from asset optimization and trading. This means we have a single interface with gas trading markets and one consistent set of trading compliance and risk management processes, systems and controls. We are expanding our LNG portfolio, which includes global partnerships with utility companies, gas distributors and national oil and gas companies, and in 2017 we supplied the first commercial LNG contact based on offshore ship-to-ship transfer. The activity primarily takes place in North America, Europe and Asia, and supports group LNG activities, managing market price risk and creating incremental trading opportunities through the use of commodity derivative contracts. It also enhances margins and generates fee income from sources such as the management of price risk on behalf of third-party customers. Our trading financial risk governance framework is described in Financial statements – Note 27 and the range of contracts used is described in Glossary – commodity trading contracts on page 289. Production Our offshore and onshore oil and natural gas production assets include wells, gathering centres, in-field flow lines, processing facilities, storage facilities, offshore platforms, export systems (e.g. transit lines), pipelines and LNG plant facilities. These include production from conventional and unconventional (coalbed methane and shale) assets. Our principal areas of production are Angola, Argentina, Australia, Azerbaijan, Egypt, Iraq, Trinidad, the UAE, the UK and the US. With BP-operated plant reliability increasing from around 86% in 2011 to 95% in 2017, efficient delivery of turnarounds and strong infill drilling performance, we have maintained base decline at less than 3% on average over the last five years. Our long-term expectation for managed base decline remains at the 3-5% per annum guidance we have previously given. Production (net of royalties)a 2017 2016 2015 Liquids thousand barrels per day Crude oilb Subsidiaries 1,064 943 933 Equity-accounted entitiesc 199 179 165 1,263 1,122 1,099 Natural gas liquids Subsidiaries 85 82 88 Equity-accounted entitiesc 8 4 7 93 86 95 Total liquids Subsidiaries 1,149 1,025 1,022 Equity-accounted entitiesc 207 184 172 1,356 1,208 1,194 Natural gas million cubic feet per day Subsidiaries 5,889 5,302 5,495 Equity-accounted entitiesc 547 494 456 6,436 5,796 5,951 Total hydrocarbons thousand barrels of oil equivalent per day Subsidiaries 2,164 1,939 1,969 Equity-accounted entitiesc 302 269 251 2,466 2,208 2,220 a Because of rounding, some totals may not agree exactly with the sum of their component parts. b Includes condensate and bitumen. c Includes BP’s share of production of equity-accounted entities in the Upstream segment. Our total hydrocarbon production for the segment in 2017 was 11.7% higher compared with 2016. The increase comprised an 11.6% increase (12.1% for liquids and 11.1% for gas) for subsidiaries and a 12.2% increase (12.9% for liquids and 10.8% for gas) for equity-accounted entities compared with 2016. For more information on production see Oil and gas disclosures for the group on page 259. In aggregate, underlying production increased versus 2016. The group and its equity-accounted entities have numerous long-term sales commitments in their various business activities, all of which are expected to be sourced from supplies available to the group that are not subject to priorities, curtailments or other restrictions. No single contract or group of related contracts is material to the group. Above: Smart glasses are used to share data with off-site technical experts at our Lower 48 operations in Colorado. Strategic report – perform ance


 
Safe and reliable operations This remains our core value and first priority and we continue to drive improvement in personal and process safety performance. Profitable marketing growth We invest in higher-returning fuels marketing and lubricants businesses with growth potential and reliable cash flows. Advantaged manufacturing We aim to have a competitively advantaged refining and petrochemicals portfolio underpinned by operational excellence and to grow earnings potential, making the businesses more resilient to margin volatility. Simplification and efficiency This remains central to what we do to support performance improvement and make our businesses even more competitive. Transition to a lower carbon and digitally enabled future We are developing new products, offers and business models that support the transition to a lower carbon and digitally enabled future over the longer term. Business model The Downstream segment has global marketing and manufacturing operations. It is the product and service-led arm of BP, made up of three businesses: Manufactures and markets lubricants and related products and services to the automotive, industrial, marine and energy markets globally. We add value through brand, technology and relationships, such as collaboration with original equipment manufacturing partners. Includes refineries, logistic networks and fuels marketing businesses, which together with global oil supply and trading activities, make up our integrated fuels value chains (FVCs). We sell refined petroleum products including gasoline, diesel and aviation fuel, and have a significant presence in the convenience retail sector. Manufactures and markets products that are produced using industry-leading proprietary BP technology, and are then used by others to make essential consumer products such as food packaging, textiles and building materials. We also license our technologies to third parties. Strategy We aim to run safe and reliable operations across all our businesses, supported by leading brands and technologies, to deliver high-quality products and services that meet our customers’ needs. Our strategy is to deliver underlying performance improvement in order to expand earnings and cash flow potential and improve our resilience to a range of market conditions. We also aim to further build competitively advantaged businesses. The execution of our strategy in 2017 has continued to deliver, with growth in underlying earnings and cash flow at attractive returns. Fuels >10% 1,100 44% fuels marketing earnings growth versus prior year (2016 >20%) convenience partnership sites (2016 880) of lubricant sales were premium grade (2016 43%) 95.3% 1.7 15.3 refining availability (2016 95.3%) million barrels of oil refined per day (2016 1.7mmb/d) million tonnes of petrochemicals produced (2016 14.2mmte) Downstream The execution of our strategy is delivering results and building a business that is fit for now and the future. In 2017, we had our best year ever, with a replacement cost profit of $7.2 billion. Tufan Erginbilgic, chief executive, Downstream See Glossary Lubricants Petrochemicals 2017 2016 2015 2014 2013 Downstream profitability ($ billion) Replacement cost (RC) profit before interest and tax Underlying RC profit before interest and tax 7.1 7.2 7.0 7.5 3.7 4.4 2.9 3.6 5.2 5.6 BP Annual Report and Form 20-F 201732 In summary


 
Growing retail business Every second of every day vehicles are filling up with BP fuel across 18,300 sites – making retail big business for BP. Our premium fuel volumes grew by 6% in 2017 and generated margins that are higher than our standard grades. With a retail network that spans 19 countries, we have one of the top three positions in terms of market share in most of the markets where we operate. But we’re not stopping there. We also have a significant and growing retail convenience partnership offer which we plan to continue to expand across our markets. This builds on the success we have had with other industry leading food retailers – like M&S Simply Food® and REWE to go®. Our loyalty schemes, such as PAYBACK® and Nectar®, are helping to strengthen customer relationships in key markets – with loyalty card customers tending to shop more frequently and spend more per visit. We are also expanding our global portfolio into major growth markets such as Mexico, China and Indonesia. For the first time in 75 years, companies outside Mexico can invest in its fuels market. We were the first global brand to open retail sites there in early 2017 and by the end of the year we had more than 120 BP-branded sites, serving thousands of customers a day. Mexico is one of the world’s largest consumer gasoline and diesel markets globally and we plan to have around 1,500 sites by 2021. Each day more than 250,000 consumers in Mexico are choosing BP’s differentiated offer. Market-led growth 15 countries is now available in 1,100 convenience partnership sites globally Digital and advanced mobility We are rolling out new digital and advanced mobility customer offers. This includes our new BPme app, which helps customers find a convenient BP site, order coffee and pay for fuel from their vehicle, and our investment in FreeWire, a manufacturer of mobile electric vehicle rapid charging systems, which we plan to roll out to selected European retail sites in 2018. Strategic report – perform ance 33BP Annual Report and Form 20F-2017 Some examples of our partnerships.


 
Financial performance $ million 2017 2016 2015 Sale of crude oil through spot and term contracts 47,702 31,569 38,386 Marketing, spot and term sales of refined products 159,475 126,419 148,925 Other sales and operating revenues 12,676 9,695 13,258 Sales and other operating revenuesa 219,853 167,683 200,569 RC profit before interest and taxb Fuels 4,679 3,337 5,858 Lubricants 1,457 1,439 1,241 Petrochemicals 1,085 386 12 7,221 5,162 7,111 Net (favourable) adverse impact of non-operating items and fair value accounting effects Fuels 193 390 137 Lubricants 22 84 143 Petrochemicals (469) (2) 154 (254) 472 434 Underlying RC profit before interest and taxb Fuels 4,872 3,727 5,995 Lubricants 1,479 1,523 1,384 Petrochemicals 616 384 166 6,967 5,634 7,545 Organic capital expenditure c 2,399 2,102 N/A a Includes sales to other segments. b Income from petrochemicals produced at our Gelsenkirchen and Mülheim sites in Germany is reported in the fuels business. Segment-level overhead expenses are included in the fuels business result. c A reconciliation to GAAP information at the group level is provided on page 249. Organic capital expenditure on a cash basis in 2015 is not available. Financial results Sales and other operating revenues in 2017 were higher due to higher crude and product prices as well as higher sales volumes. Sales and other operating revenues in 2016 were lower than 2015 due to lower crude and product prices. Replacement cost (RC) profit before interest and tax for the year ended 31 December 2017 included a net non-operating gain of $389 million, primarily reflecting the gain on disposal of our share in the SECCO joint venture in petrochemicals. The 2016 result included a net non- operating charge of $24 million, mainly relating to a gain on disposal in our fuels business which was more than offset by restructuring and other charges, while the 2015 result included a net non-operating charge of $590 million, mainly relating to restructuring charges. In addition, fair value accounting effects had an adverse impact of $135 million, compared with an adverse impact of $448 million in 2016 and a favourable impact of $156 million in 2015. After adjusting for non-operating items and fair value accounting effects, underlying RC profit before interest and tax in 2017 was $6,967 million. Outlook for 2018 We anticipate higher discounts for North American heavy crude oil differentials but lower industry refining margins. We also expect the level of turnaround activity to be similar in total, although higher in our petrochemicals business. Our fuels business Our fuels strategy focuses primarily on fuels value chains (FVCs). This includes building an advantaged refining portfolio through operating reliability and efficiency, location advantage and feedstock flexibility, as well as commercial optimization opportunities. We believe that having a quality refining portfolio connected to strong marketing positions is core to our integrated FVC businesses as this provides optimization opportunities in highly competitive markets. Our fuels marketing business comprises retail, business-to-business and aviation fuels. It is a material part of Downstream with a good track record of growth. We have an advantaged portfolio of assets with good growth potential, attractive returns and reliable cash flows. We continue to grow our fuels marketing business through our differentiated marketing offers and strategic convenience partnerships. We also partner with leading retailers, creating distinctive retail offers that aim to deliver good returns and reliable profit growth and cash generation. Underlying RC profit before interest and tax for our fuels business was higher compared with 2016, reflecting stronger refining performance and growth in fuels marketing, partially offset by a weaker contribution from supply and trading. Compared with 2015, the 2016 result was lower, reflecting a significantly weaker refining environment and the impact from a particularly large turnaround at our Whiting refinery. This was partially offset by lower costs, reflecting the benefits from our simplification and efficiency programmes, an increased fuels marketing performance driven by retail growth and higher refining margin capture in our operations. Refining marker margin We track the refining margin environment using a global refining marker margin (RMM). Refining margins are a measure of the difference between the price a refinery pays for its inputs (crude oil) and the market price of its products. Although refineries produce a variety of petroleum products, we track the margin environment using a simplified indicator that reflects the margins achieved on gasoline and diesel only. The RMM may not be representative of the margin achieved by BP in any period because of BP’s particular refinery configurations and crude and product slates. In addition, the RMM does not include estimates of energy or other variable costs. $ per barrel Region Crude marker 2017 2016 2015 US North West Alaska North Slope 18.8 16.9 24.0 US Midwest West Texas Intermediate 16.9 13.2 19.0 Northwest Europe Brent 11.7 10.0 14.5 Mediterranean Azeri Light 10.4 9.0 12.7 Australia Brent 12.9 10.9 15.4 BP RMM 14.1 11.8 17.0 16 8 24 32 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec BP refining marker margin ($/bbl) 2016 2017 2015 Five-year range See Glossary BP Annual Report and Form 20-F 201734


 
The average global RMM in 2017 was $14.1/bbl, $2.3/bbl higher than in 2016. The increase was driven by tighter global supply demand balances as well as lower product inventories compared with 2016. Refining At 31 December 2017 we owned or had a share in 11 refineries producing refined petroleum products that we supply to retail and commercial customers. For a summary of our interests in refineries and average daily crude distillation capacities see page 258. Underlying growth in our refining business is underpinned by our multi-year business improvement plans, which comprise globally consistent programmes focused on operating reliability and efficiency, advantaged feedstocks and commercial optimization. Operating reliability is a core foundation of our refining business and in 2017 operations remained strong, with refining availability sustained at around 95.3%, refinery utilization rates at 90% (2016 91%) and overall throughputs in 2017 higher compared with 2016. Our refinery portfolio – along with our supply capability – enables us to process advantaged crudes. For example, in the US, our three refineries all have location- advantaged access to Canadian crudes which are typically cheaper than other crudes. In 2017 we processed record levels of advantaged crude across our portfolio. Our commercial optimization programme aims to maximize value from our refineries by capturing opportunities in every step of the value chain, from crude selection through to yield optimization and utilization improvements. Refining performance was stronger in 2017 compared with 2016, reflecting continued strong operational performance, capturing higher industry refining margins, efficiency benefits as well as increased commercial optimization including the benefits of higher levels of advantaged feedstock. This was, however, partially offset by a higher level of planned turnaround activity. This stronger performance in 2017 resulted in an underlying improvement of more than 15% in our net cash margin per barrel. Compared with 2015, refining performance in 2016 was lower, reflecting a significantly weaker refining environment and the impact of a particularly large turnaround at the Whiting refinery. This was partially offset by higher refining margin capture in our operations and lower costs from our simplification and efficiency programmes. 2017 2016 2015 Refinery throughputsa thousand barrels per day US 713 646 657 Europe 773 803 794 Rest of worldb 216 236 254 Total 1,702 1,685 1,705 % Refining availability 95.3 95.3 94.7 a Refinery throughputs reflect crude oil and other feedstock volumes. b Bulwer refinery in Australia ceased refining operations in 2015. Fuels marketing and logistics Across our fuels marketing businesses, we operate an advantaged infrastructure and logistics network that includes pipelines, storage terminals and tankers for road and rail. We seek to drive excellence in operational and transactional processes and deliver compelling customer offers in the various markets where we operate. Through our retail business, we supply fuel and convenience retail services to consumers through company-owned and franchised retail sites, as well as other channels, including dealers and jobbers. We also supply commercial customers in the transport and industrial sectors. Retail is the most material part of our fuels marketing business and a significant source of earnings growth through our strong market positions, brands and distinctive customer offers. This is underpinned by the strength of our retail convenience partnerships, technology such as our most advanced premium fuels and our use of digital technology, as well as our customer relationships. This differentiation enables our growth in existing markets and supports our plans to expand our footprint in new material markets such as Mexico, India, Indonesia and China. In Mexico we became the first international oil company to open a branded network since deregulation of the fuel market, and we announced new retail joint ventures in Indonesia and, most recently, China in February 2018. We have a clear strategic frame to develop new customer offers in mobility and to transition our business to a lower carbon future over the longer term, building on our capabilities, retail assets and brand strengths. We are actively developing new offers and business models centred around digital and advanced mobility trends, for example we have invested in FreeWire Technologies Inc., a manufacturer of mobile electric vehicle rapid charging systems, and we have plans to roll out FreeWire’s Mobi Charger units at selected BP retail sites in Europe in 2018, see Innovation in BP on page 46. Our acquisition of Clean Energy Fuel Corporation’s biomethane production assets in 2017 means we are now the largest supplier of renewable natural gas to the US transport sector. In 2017, we also completed the initial public offering of common units in BP Midstream Partners LP, our subsidiary , which has interests in certain crude oil, natural gas and refined product pipelines in the US. See Glossary Above: Engineers at our Cherry Point refinery in the US. BP Annual Report and Form 20-F 2017 35 Strategic report – perform ance


 
Above: Over-wing fuelling at Adelaide airport in Australia. Fuels marketing performance in 2017 was higher compared with 2016, reflecting continued earnings growth supported by higher premium fuel volumes, which grew by 6%, and the continued rollout of our convenience partnership model to over 220 more sites, bringing the total number of convenience partnership sites to 1,100 across our retail network. Compared with 2015, fuels marketing performance in 2016 was higher, reflecting retail growth. thousand barrels per day Sales volumes 2017 2016 2015 Marketing salesa 2,799 2,825 2,835 Trading/supply salesb 3,149 2,775 2,770 Total refined product sales 5,948 5,600 5,605 Crude oilc 2,616 2,169 2,098 Total 8,564 7,769 7,703 a Marketing sales include branded and unbranded sales of refined fuel products and lubricants to both business-to-business and business-to-consumer customers, including service station dealers, jobbers, airlines, small and large resellers such as hypermarkets as well as the military. b Trading/supply sales are fuel sales to large unbranded resellers and other oil companies. c Crude oil sales relate to transactions executed by our integrated supply and trading function, primarily for optimizing crude oil supplies to our refineries and in other trading. 2017 includes 103 thousand barrels per day relating to revenues reported by the Upstream segment. Number of BP-branded retail sites Retail sitesd 2017 2016 2015 US 7,200 7,100 7,000 Europe 8,100 8,100 8,100 Rest of world 3,000 2,800 2,900 Total 18,300 18,000 18,000 d Reported to the nearest 100. Includes sites not operated by BP but instead operated by dealers, jobbers, franchisees or brand licensees under a BP brand. These may move to or from the BP brand as their fuel supply or brand licence agreements expire and are renegotiated in the normal course of business. Retail sites are primarily branded BP, ARCO and Aral and include our interest in equity-accounted entities. Aviation Our Air BP business is one of the world’s largest aviation fuels suppliers, selling fuel to major commercial airlines as well as the general aviation sector in over 800 locations across more than 50 countries globally. We also provide aviation fuel consultancy services to airlines and airports including the design, build and operation of aviation fuelling facilities. Our Air BP business is differentiated through its strong market positions, brand strength, partnerships, technology and customer relationships. Our strategy aims to maintain a strong presence in our core locations in Australia, New Zealand, Europe and the US, while expanding into major growth markets that offer long-term competitive advantages, such as in Asia and Latin America. We have marketing sales of more than 420,000 barrels per day, and in 2017 began marketing in Mexico, one of the world’s fastest-growing aviation markets. We are developing new offers and solutions in response to the needs of our customers. In 2017 we entered into a strategic partnership and preferred fuel supplier agreement with Victor, one of the world’s leading on-demand marketplaces for private jet charters. We also recognize the lower carbon commitments of the airline industry and continue to develop our capability to meet the industry’s needs. In 2017 we began supply of jet biofuel at two further locations in Sweden and Norway, in addition to Norway’s Oslo airport where in 2016, we became the world’s first supplier for commercial jet biofuel using existing fuelling infrastructure. Supply and trading Our integrated supply and trading function is responsible for delivering value across the overall crude and oil products supply chain. This structure enables our downstream businesses to maintain a single interface with oil trading markets and operate with one set of trading compliance and risk management processes, systems and controls. It has a two-fold purpose: First, it seeks to identify the best markets and prices for our crude oil, source optimal raw materials for our refineries and provide competitive supply for our marketing businesses. We will often sell our own crude and purchase alternative crudes from third parties for our refineries where this will provide incremental margin. Second, it aims to create and capture incremental trading opportunities by entering into a full range of exchange-traded commodity derivatives , over-the-counter contracts and spot and term contracts . In combination with rights to access storage and transportation capacity, this allows it to access advantageous price differences between locations and time periods, and to arbitrage between markets. The function has trading offices in Europe, North America and Asia. Our presence in the more actively traded regions of the global oil markets supports overall understanding of the supply and demand forces across these markets. Our trading financial risk governance framework is described in Financial statements – Note 27 and the range of contracts used is described in Glossary – commodity trading contracts on page 289. See Glossary BP Annual Report and Form 20-F 201736


 
which include operational efficiency, deploying our industry-leading proprietary technology, commercial optimization and competitive feedstock sourcing. We also aim to grow our third-party technology licensing income to create additional value. In line with our strategy to focus our portfolio on areas where we have industry-leading proprietary technologies and competitive advantage, in 2017 we divested our 50% shareholding in the Shanghai SECCO Petrochemical Company Limited joint venture in China for a consideration of $1.7 billion. In 2017 the petrochemicals business delivered a higher underlying RC profit before interest and tax compared with 2016 – which in turn was higher than 2015. The 2017 result reflected an improved margin environment, stronger margin optimization, the benefits from our efficiency programmes and a lower level of turnaround activity. This was partially offset by the impact of the divestment of our interest in the SECCO joint venture, which completed in the fourth quarter of 2017 and was classified as held for sale in the group balance sheet at 30 September. In 2017 we reduced our cash breakeven by more than 40% compared with 2014, making our business more resilient to volatility in the environment. Compared with 2015, the higher result in 2016 reflected strong operations and margin capture supported by the continued rollout of our latest advanced technology, as well as benefits from a slightly improved environment particularly in olefins and derivatives. Our petrochemicals production of 15.3 million tonnes in 2017 was higher than 2016 and 2015 (2016 14.2mmte, 2015 14.8mmte). Production was higher in 2017, reflecting record levels of production at a number of our plants, a lower level of turnaround activity and the increase in our interest in the Gelsenkirchen and Mülheim sites following the dissolution of our German refining joint operation with Rosneft in 2016. These increases were partially offset by the divestments of our share in the SECCO joint venture in 2017 and the Decatur petrochemicals complex in 2016. In 2017 we completed the upgrade of our PTA plant at Cooper River in South Carolina, US, to our industry-leading proprietary technology. This technology is also used at our key PTA sites at Zhuhai in China and Geel in Belgium. Since its deployment, new production records have been set at Zhuhai and Geel. We have also leveraged this technology to develop a lower carbon PTA solution for manufacturers, brand owners and their customers. Our PTAir brand, which was first launched in Europe in 2016, is now available globally. The introduction of PTAir in China in 2017 has demonstrated our long-term commitment to both promoting improved sustainability in the polyester industry and helping China to move towards a lower carbon future. Our lubricants business We manufacture and market lubricants and related products and services to the automotive, industrial, marine and energy markets across the world. Our key brands are Castrol, BP and Aral. Castrol is a recognized brand worldwide that we believe provides us with significant competitive advantage. We are one of the largest purchasers of base oil in the market, but have chosen not to produce it or manufacture additives at scale. Our participation choices in the value chain are focused on areas where we can leverage competitive differentiation and strength. Above: Castrol EDGE engine oil. Our strategy is to focus on our premium lubricants and growth markets while leveraging our strong brands, technology and customer relationships – all of which are sources of differentiation for our business. With more than 60% of profit generated from growth markets and more than 44% of our sales from premium grade lubricants, we have an excellent base for further expansion and sustained profit growth. We have a robust pipeline of technology development through which we seek to respond to engine developments and evolving consumer needs and preferences, including lower carbon options. We apply our expertise to create differentiated, premium lubricants and high-performance fluids for customers in on-road, off-road, sea and industrial applications. In 2017 in the US, we launched Castrol EDGE BIO-SYNTHETIC, an engine oil that uses 25% plant-derived oil compounds while delivering a high level of performance. The lubricants business delivered an underlying RC profit before interest and tax that was similar compared with 2016 – which in turn was higher compared with 2015. The 2017 results reflected growth in premium brands and growth markets, offset by the adverse lag impact of increasing base oil prices. The 2016 results also reflected continued strong performance in growth markets and premium brands as well as lower costs achieved through simplification and efficiency programmes. Our petrochemicals business Our petrochemicals business manufactures and markets three main product lines: purified terephthalic acid (PTA), paraxylene (PX) and acetic acid. These have a large range of uses including polyester fibre, food packaging and building materials. We also produce a number of other specialty petrochemicals products. In addition, we manufacture olefins and derivatives at Gelsenkirchen and solvents at Mülheim in Germany, the income from which is reported in our fuels business. Along with the assets we own and operate, we have also invested in a number of joint arrangements in Asia, where our partners are leading companies in their domestic market. Our strategy is to grow our underlying earnings and ensure the business is resilient to margin volatility, positioning ourselves to capture growth and investment opportunities in an attractive and growing market. We do this through the execution of our business improvement programmes See GlossaryBP Annual Report and Form 20-F 2017 37 Strategic report – perform ance


 
Rosneft 2017 summary • Rosneft continued optimizing its portfolio and increased total hydrocarbon production by 6.5%. • BP received $190 million, net of withholding taxes, in July (2016 $332 million, 2015 $271 million), representing its share of Rosneft’s dividend of 5.98 Russian roubles per share. This dividend was 35% of Rosneft’s 2016 IFRS net profit. • Rosneft implemented a new dividend policy in September, which provides for a target level of dividends of no less than 50% of IFRS net profit, and a target frequency of dividend payments of at least twice a year. • BP received $124 million, net of withholding taxes, in October, representing its share of Rosneft’s interim dividend of 3.83 Russian roubles per share. This dividend was 50% of Rosneft’s IFRS net profit for the first half of 2017. • Rosneft completed the acquisition of a 100% interest in the Kondaneft project in April, which is developing four licence areas in the Khanty- Mansiysk Autonomous District in West Siberia. The acquisition price was approximately $700 million. • Rosneft completed the transaction for the sale of a 20% interest in its Verkhnechonskneftegaz subsidiary to the Beijing Gas Group in June, for around $1.1 billion. • Rosneft completed the transaction to acquire a 49.13% stake in Essar Oil Limited (EOL), an Indian downstream business, from Essar Energy Holdings Limited and its affiliates (the Essar group) in August. As a result of this transaction, Rosneft acquired an interest in the Vadinar refinery and related infrastructure in India, which is among the top 10 refineries in terms of scale and complexity worldwide. EOL’s business also includes a network of Essar-branded retail outlets across India. The acquisition price totalled $3.9 billion. • Rosneft completed the acquisition of a 30% stake in a concession agreement to develop the Zohr field in Egypt from the Italian company Eni S.p.A. (Eni) for $1.1 billion in October. Rosneft is also refunding its share in past project costs to Eni, which is estimated at $1.1 billion. Eni retains a 60% stake and BP holds the remaining 10%. • Two BP nominees, Bob Dudley and Guillermo Quintero, serve on Rosneft’s Board. The number of directors on the Board increased from nine to 11 in September. Bob Dudley became chairman of its Strategic Planning Committee, and Guillermo Quintero is a member of its HR and Remuneration Committee. • US and EU sanctions imposed in 2014 remain in place on certain Russian activities, individuals and entities, including Rosneft. In 2017 the US imposed additional sanctions on certain Russian and international activities and entities, including Rosneft. About Rosneft • Rosneft is the largest oil company in Russia and the largest publicly traded oil company in the world, based on hydrocarbon production volume. Rosneft has a major resource base of hydrocarbons onshore and offshore, with assets in all Russia’s key hydrocarbon regions. Rosneft’s hydrocarbon production reached a record of 5.7mmboe/d in 2017. Gas production for the year increased by 2% compared with 2016 to 68.4bcma or 6.62bcf/d. Rosneft is the largest oil company in Russia, with a strong portfolio of current and future opportunities. BP and Rosneft • BP’s 19.75% shareholding in Rosneft allows us to benefit from a diversified set of existing and potential projects in the Russian oil and gas sector. • Russia has one of the largest and lowest-cost hydrocarbon resource bases in the world and its resources play an important role in long-term energy supply to the global economy. • BP’s strategy in Russia is to support Rosneft’s overall performance and growth through our participation in the Rosneft Board of Directors, collaboration on safety, technology and best practice, and to build a material business based on standalone projects with Rosneft in Russia and internationally. BP remains committed to our strategic investment in Rosneft, while complying with all relevant sanctions. BP Annual Report and Form 20-F 201738


 
• Rosneft is the leading Russian refining company based on throughput. It owns and operates 13 refineries in Russia. Rosneft also owns and operates more than 2,960 retail service stations in Russia and abroad. These include Rosneft-branded sites, as well as BP-branded sites operating under a licensing agreement. Downstream operations include jet fuel, bunkering, bitumen and lubricants. Rosneft refinery throughput in 2017 reached a record level of 2,288mb/d versus 2,028mb/d in 2016. • Rosneft’s largest shareholder is Rosneftegaz JSC (Rosneftegaz), which is wholly owned by the Russian government. Rosneftegaz's shareholding in Rosneft is 50% plus one share. The following developments and activities in 2017 have served to support and progress this strategy: • In December Rosneft and BP announced an agreement to form a joint venture to develop subsoil resources within the Kharampurskoe and Festivalnoye licence areas in Yamalo-Nenets Autonomous Okrug in northern Russia. Rosneft will hold a majority stake of 51% and BP will hold a 49% stake. Completion of the deal, subject to external approvals, is expected in 2018. • BP holds a 20% interest in Taas-Yuryakh Neftegazodobycha (Taas), a joint venture with Rosneft and a consortium comprising Oil India Limited, Indian Oil Corporation Limited and Bharat PetroResources Limited. Taas is developing the Srednebotuobinskoye oil and gas condensate field. BP‘s interest in Taas is reported through the Upstream segment. • Rosneft (51%) and BP (49%) jointly own Yermak Neftegaz LLC (Yermak). This joint venture conducts onshore exploration in the West Siberian and Yenisei-Khatanga basins and currently holds seven exploration and production licences. The venture is also carrying out further appraisal work on the Baikalovskoye field, an existing Rosneft discovery in the Yenisei-Khatanga area of mutual interest. BP’s interest in Yermak is reported through the Upstream segment. • Rosneft, BP and Western GeCo (a subsidiary of Schlumberger) continued their collaboration on seismic research and the development of an innovative cableless onshore seismic acquisition technology. The technology aims to revolutionize the design and acquisition of seismic surveys and increase the efficiency of exploration, appraisal and field development. • Rosneft and BP signed an agreement on strategic co-operation in gas and a memorandum of understanding in respect to the sale and purchase of natural gas in Europe in June. We agreed to develop integrated co-operation in gas and aim to jointly implement gas projects focused on gas exploration and production, LNG production, supply and marketing in Russia and abroad. • In June Rosneft and BP also signed an agreement for collaboration in labour protection, and industrial and fire safety, including in the implementation of joint oil and gas projects. See Glossary BP’s strategy in Russia Our strategy is to work in co-operation with Rosneft to increase total shareholder return and partner with it in building a material business outside of the shareholding. This strategy is implemented through our activities in four areas: • Rosneft Board of Directors – BP has two nominees on the Rosneft Board of Directors and two of its committees. • Technology – develop and apply technology to improve oil and gas field and refining performance in collaboration with Rosneft. • Joint ventures – partner with Rosneft to generate incremental value from joint ventures that are separate from BP’s core shareholding. • Technical services – collaborate on the provision of technical and HSE services on a contractual basis to improve asset performance. BP Annual Report and Form 20-F 2017 39 Strategic report – perform ance


 
Rosneft segment performance BP’s investment in Rosneft is managed and reported as a separate segment under IFRS. The segment result includes equity-accounted earnings, representing BP’s 19.75% share of the profit or loss of Rosneft, as adjusted for the accounting required under IFRS relating to BP’s purchase of its interest in Rosneft and the amortization of the deferred gain relating to the disposal of BP’s interest in TNK-BP. See Financial statements – Note 15 for further information. $ million 2017 2016 2015 Profit before interest and taxa b 923 643 1,314 Inventory holding (gains) losses (87) (53) (4) RC profit before interest and tax 836 590 1,310 Net charge (credit) for non-operating items – (23) – Underlying RC profit before interest and tax 836 567 1,310 Average oil marker prices $ per barrel Urals (Northwest Europe – CIF) 52.84 41.68 50.97 a BP’s share of Rosneft’s earnings after finance costs, taxation and non-controlling interests is included in the BP group income statement within profit before interest and taxation. b Includes $(2) million (2016 $3 million, 2015 $16 million) of foreign exchange (gain)/losses arising on the dividend received. Market price The price of Urals delivered in North West Europe (Rotterdam) averaged $52.84/bbl in 2017, $1.35/bbl below dated Brent . The differential to Brent narrowed from $2.06/bbl in 2016 as OPEC production cuts tightened the market for medium sour crude. Financial results Replacement cost (RC) profit before interest and tax for the segment for 2016 included a non-operating gain of $23 million, whereas the 2017 and 2015 results did not include any non-operating items. After adjusting for non-operating items, the increase in the underlying RC profit before interest and tax compared with 2016 primarily reflected higher oil prices. The result also benefited from a $163-million gain representing the BP share of a voluntary out-of-court settlement between Sistema, Sistema-Invest and the Rosneft subsidiary, Bashneft. These positive effects were partially offset by adverse foreign exchange effects. Compared with 2015, the 2016 result was primarily affected by lower oil prices and increased government take, partially offset by favourable duty lag effects. See also Financial statements – Notes 15 and 30 for other foreign exchange effects. Balance sheet $ million 2017 2016 2015 Investments in associates c (as at 31 December) 10,059 8,243 5,797 Production and reserves 2017 2016 2015 Production (net of royalties) (BP share) Liquids (mb/d) Crude oild Natural gas liquids Total liquids Natural gas (mmcf/d) Total hydrocarbons (mboe/d) 900 4 904 1,308 1,129 836 4 840 1,279 1,060 809 4 813 1,195 1,019 Estimated net proved reservese (net of royalties) (BP share) Liquids (million barrels) Crude oild Natural gas liquids Total liquidsf 5,402 131 5,533 5,330 65 5,395 4,823 47 4,871 Natural gas (billion cubic feet)g 13,522 11,900 11,169 Total hydrocarbons (mmboe) 7,864 7,447 6,796 c See Financial statements – Note 15 for further information. d Includes condensate. e Because of rounding, some totals may not agree exactly with the sum of their component parts. f Includes 338 million barrels of crude oil (347 million barrels at 31 December 2016) in respect of the 6.31% non-controlling interest (6.58% at 31 December 2016) in Rosneft, held assets in Russia including 32 million barrels (28 million barrels at 31 December 2016) held through BP’s equity-accounted interest in Taas-Yuryakh Neftegazodobycha. g Includes 306 billion cubic feet of natural gas (300 billion cubic feet at 31 December 2016) in respect of the 2.30% non-controlling interest (2.53% at 31 December 2016) in Rosneft held assets in Russia including 12 billion cubic feet (3 billion cubic feet at 31 December 2016) held through BP’s equity-accounted interest in Taas-Yuryakh Neftegazodobycha. See Glossary BP Annual Report and Form 20-F 201740


 
See Glossary The replacement cost (RC) loss before interest and tax for the year ended 31 December 2017 was $4,445 million (2016 $8,157 million, 2015 $13,477 million). The 2017 result included a net charge for non-operating items of $2,847 million, primarily relating to costs for the Gulf of Mexico oil spill (2016 $6,919 million, 2015 $12,256 million). For further information, see Financial statements – Note 2. After adjusting for these non-operating items, the underlying RC loss before interest and tax for the year ended 31 December 2017 was $1,598 million, higher than 2016 due to weaker business results, higher corporate costs and adverse foreign exchange effects which had a favourable effect in 2016. The underlying RC loss before interest and tax in 2016 was $1,238 million, similar to the loss of $1,221 million in 2015. Outlook Other businesses and corporate annual charges, excluding non-operating items, are expected to be around $1.4 billion in 2018. Gulf of Mexico oil spill Further significant progress was made in 2017 toward resolving outstanding matters related to the 2010 Gulf of Mexico oil spill. The court supervised settlement programme’s determination of business economic claims was substantially completed, although a significant number of individual claims determined have been and continue to be appealed by BP and/or the claimants. Determinations with respect to remaining business economic loss claims are expected to be issued in the first half of 2018. The process safety monitor’s term of appointment came to an end in January 2018. The ethics monitor’s term of appointment will come to an end in 2019 and we continue to work with him to review ongoing progress. A further $2.7 billion pre-tax charge was recorded in 2017 and the cumulative pre-tax income statement charge since the incident in April 2010 amounted to $65.8 billion as at 31 December 2017 For further information, see Financial statements – Note 2. Financial performance $ million 2017 2016 2015 Sales and other operating revenuesa 1,469 1,667 2,048 RC profit (loss) before interest and tax Gulf of Mexico oil spill (2,687) (6,640) (11,709) Other (1,758) (1,517) (1,768) RC profit (loss) before interest and tax (4,445) (8,157) (13,477) Net adverse impact of non-operating items Gulf of Mexico oil spill 2,687 6,640 11,709 Other 160 279 547 Net charge (credit) for non-operating items 2,847 6,919 12,256 Underlying RC profit (loss) before interest and tax (1,598) (1,238) (1,221) Organic capital expenditure b 339 229 N/A a Includes sales to other segments. b A reconciliation to GAAP information at the group level is provided on page 249. Organic capital expenditure on a cash basis in 2015 is not available. Other businesses and corporate Comprises our alternative energy business, shipping, treasury and corporate activities, including centralized functions and the costs of the Gulf of Mexico oil spill. BP Annual Report and Form 20-F 2017 41 Strategic report – perform ance


 
We have been investing in renewables for many years – and our focus today is on biofuels, biopower, wind energy and solar energy. Renewables are the fastest growing form of energy. They account for around 4% of energy demand today (excluding large-scale hydroelectricity). By 2040 that could grow to at least 14% – an exceptional rate of growth for the energy industry. As part of our approach to building our alternative energy business, we are looking to grow our existing businesses and to develop further new businesses and partnerships to deliver sustainable value. Biofuels We believe that biofuels offer one of the best large-scale solutions to reduce emissions from transportation. We produce ethanol from sugar cane in Brazil. This ethanol has life cycle greenhouse gas emissions that are 70% lower than conventional transport fuels. In 2017 our three sites produced 776 million litres of ethanol equivalent. Brazil is one of the largest markets globally for ethanol fuel. To better connect our ethanol production with the country’s main fuels markets, we are partnering with Copersucar, the world’s leading ethanol and sugar trader, to operate a major ethanol storage terminal. Our largest biofuels mill is certified to Bonsucro, an independent standard for sustainable sugar cane production. Our strategy is enabled by: • Safe and reliable operations – continuing to drive improvements in personal, process and transport safety. • Competitive feedstock – concentrating our efforts in Brazil, which has one of the most cost-competitive biofuel sources currently available in the world. • Domestic and international markets – selling bioethanol and sugar domestically in Brazil and also to international markets such as the US and Europe through our integrated supply and trading function. Advanced biofuels Butamax®, our 50/50 joint venture with DuPont, has developed technology that converts sugars from corn into an energy-rich biofuel known as bio-isobutanol. It can be blended with gasoline at higher concentrations than ethanol and transported through existing fuel pipelines and infrastructure. Butamax® plans to upgrade its recently acquired ethanol plant in Kansas to enable it to produce bio-isobutanol to demonstrate the technology to ethanol producers. Biopower We create biopower by burning bagasse, the fibre that remains after crushing sugar cane stalks. In 2017 our three biofuels manufacturing facilities produced around 850GWh of electricity – enough renewable energy to power all of these sites and export the remaining 70% to the local electricity grid. This is a low carbon power source, with the CO2 emitted from burning bagasse offset by the CO2 absorbed by sugar cane during its growth. Wind energy We have interests in 14 sites in the US with a net generating capacity of 1,432MW, making BP one of the top wind energy producers in the country. We continue to optimize our business by seeking out technological advancements and finding ways to deliver power more efficiently. Solar energy BP has partnered with Lightsource, Europe’s largest solar development company, which focuses on the acquisition, development and long-term management of large- scale solar projects. We are bringing our global scale, relationships and trading capabilities to help accelerate Lightsource’s expansion worldwide. The company has been rebranded as Lightsource BP. We are investing $200 million in Lightsource BP over three years and will hold a 43% stake in the company with two seats on its board. Left: Lightsource BP's floating solar farm on the Queen Elizabeth II reservoir, just outside London. Alternative Energy 42 BP Annual Report and Form 20-F 2017


 
Shipping BP’s shipping and chartering activities help to ensure the safe transportation of our hydrocarbon products using a combination of BP-operated, time-chartered and spot-chartered vessels. At 31 December 2017 BP had four vessels supporting operations in Alaska and 49 BP-operated and 22 time-chartered vessels for our international oil and gas shipping operations. In 2017 13 new oil tankers were delivered into the BP-operated fleet. There are no new oil tankers planned for delivery in 2018. However, we have six technically advanced LNG tankers on order and planned for delivery into the BP-operated fleet between 2018 and 2019. The LNG tankers are currently under construction in Daewoo Shipbuilding and Marine Engineering in South Korea. The first ship was launched in September and will be delivered in the first half of 2018. When delivered they will be the largest and most fuel efficient LNG ships BP has ever built. Their advanced gas burning diesel engines allow a step change in flexibility and efficiency. The ships also have the facilities to re-liquefy gas and use it for cargo conditioning – making them extremely commercially flexible. All vessels conducting BP shipping activities are required to meet BP approved health, safety, security and environmental standards. Treasury Treasury manages the financing of the group centrally, with responsibility for managing the group’s debt profile, share buyback programmes and dividend payments, while ensuring liquidity is sufficient to meet group requirements. It also manages key financial risks including interest rate, foreign exchange, pension funding and investment, and financial institution credit risk. From locations in the UK, US and Singapore, treasury provides the interface between BP and the international financial markets and supports the financing of BP’s projects around the world. Treasury holds foreign exchange and interest rate products in the financial markets to hedge group exposures. In addition, treasury generates incremental value through optimizing and managing cash flows and the short-term investment of operational cash balances. For further information, see Financial statements – Note 27. Insurance The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. Some risks are insured with third parties and reinsured by group insurance companies. This approach is reviewed on a regular basis or if specific circumstances require such a review. Right: Looking out to sea from our BP-operated British Renown oil tanker in the US. BP Annual Report and Form 20-F 2017 43 Strategic report – perform ance


 
Innovation in BP Technology is ever-present in all that we do – from safely discovering and recovering oil and gas, to renewable energy, digital, and lower carbon fuels and products. We seek innovations that help to make our operations and products more efficient and sustainable. And by partnering with early and growth stage start-ups, we invest in emerging technologies that are scalable and commercially viable. We also complement our comprehensive research capability with external collaborations that provide a range of specialisms, supported by innovative academic programmes. We have scientists and technologists at eight major technology centres in the US, UK, Asia and Germany. In 2017 we invested $391 million in research and development (2016 $400 million, 2015 $418 million). This excludes the investment in technology made through venturing – which gives us alternative access to innovation. BP and its subsidiaries hold more than 3,600 granted patents and pending patent applications throughout the world. bp.com/technology More information Technology Outlook How technology could influence the way we meet the energy challenge into the future. bp.com/technologyoutlook While the focus of reducing emissions has been on battery power for passenger and small vehicle fleets, the solution for heavy-duty vehicles such as lorries isn’t as obvious. To help tackle this, we are developing a number of technologies that offer a range of ways for heavy-duty vehicles to reduce emissions. Our acquisition of the renewable natural gas business of Clean Energy Fuel Corp. is helping to make renewable energy more accessible for natural gas powered vehicle fleets, including trucks. Biogas is produced entirely from organic waste and is estimated to result in up to 70% lower greenhouse gas emissions than from equivalent gasoline or diesel-fuelled vehicles. We are working to improve the safety and efficiency of trucks through our investment in Peloton Technology. The business has developed connected and automated vehicle technology for commercial vehicles, using the same approach as cyclists who race in close formation to travel as fast as the leader but with less effort. Linked pairs of trucks have synchronized acceleration and braking to maintain a safe distance between the vehicles. Travelling in this way can reduce emissions and result in estimated fuel savings of between 8-15%. Helping heavy-duty vehicles reduce carbon emissions Technology across the business The right technology is central to the safety and reliability of our operations. In Upstream, we seek to increase recovery and gain new access. And in Downstream we develop and apply technology that enhances operational integrity, boosts conversion efficiency, reduces CO2 emissions or helps to provide high-performance products for our customers. Between 8-15% fuel savings 3,600 patents and applications 8 major technology centres BP Annual Report and Form 20-F 201744


 
Using fibre optics cables inside our wells, we ‘listen’ to the rock, so we can intervene if issues arise. We have deployed this technology in more than 30 wells to date – with many more planned globally, and are now investigating other applications for the technology, including 4D seismic and well integrity monitoring. Through our venturing partnership with BiSN, we help to protect oil production rates by shutting off unwanted water and gas. BiSN applies heat technology in a well to melt alloys so they can flow into any spaces within the cemented well. When cooled, the alloys solidify and seal the well, inhibiting water or gas entry. We have deployed this novel BiSN technology successfully in the Gulf of Mexico and Angola. Improving oil and gas recovery Operational decision-making is being transformed by a combination of cloud technology and big data software solutions. Our wells data platform Argus holds historical and real-time data in our proprietary data lake on nearly all of the 2,500 wells we operate globally, making data available to any relevant engineer, anytime. Well reviews that used to take days of preparation can now be done live using Argus, leaving more time to explore new ways to deliver efficiencies and improve production rates. We recently deployed a new proprietary seismic processing algorithm called Full Waveform Inversion in our Gulf of Mexico business, which lets us see through the salt to the reservoirs below. Applied to BP’s four hubs in the Gulf of Mexico, it has helped us identify significant additional resources. We ran that algorithm in just two weeks at our centre for high performance computing in Houston – in 1999 that would have taken us more than 2,000 years using available computer power. Sand production caused from weak rock breaking down under pressure creates a challenge for our industry. If sand enters oil production facilities, it can cause erosion and disrupt production efficiency. $400 million+ invested in corporate venturing since 2006 – $100 million in 2017 alone. 40+ active investments in our venturing portfolio, with more than 200 co-investors and 12 technologies used in BP. Creating low carbon businesses New technologies can help pave the way to a lower carbon future. We are building low carbon into what we do, across the business – in ways that can help generate value over the long term. We are an investor and an end-user of the technologies we invest in. Our approach is not about trying to do everything, but to focus on the areas that have the greatest potential value to our business now and in the future. Our venturing partnerships help us to understand and develop solutions for the future. We invest to help companies develop technology quickly – often for our own use. Our investments include: • Advanced mobility • Carbon management • Low carbon power and storage • Bio and low carbon products • Digital energy. Working in partnership Carbon capture, use and storage technology (CCUS), where CO2 can be captured and prevented from entering the atmosphere, is another important means of reducing emissions. BP is working with the Oil and Gas Climate Initiative (OGCI) to speed up wide-scale use of CCUS, which is one of the main focus areas for OGCI’s $1-billion investment vehicle. In 2017 we committed funding through OGCI to advance designs for a full-scale gas power plant with CCUS – one that can receive government support and attract private sector investors. Sustainable raw materials We are helping commercialize production of new high-performance wood. Tricoya technology changes the physical properties of wood chips that are used to make MDF panels with enhanced durability and stability. The panels can be used outside and in wet areas – where concrete, plastic or metal materials would usually be needed. The lightweight and sustainable raw material offers benefits to the construction, joinery and civil engineering industries. BP and Tricoya have formed a consortium to build a plant in the UK, producing more durable wood chips. ~2,500 wells with Argus real-time data 01010101010101010101 01010101 10101010101 01010101010101010101 01010101010101010101 010101010101 1 101 01010101010101010101 0101010101 0101010101 0 Strategic report – perform ance BP Annual Report and Form 20-F 2017 45


 
Previously used in deep space exploration – our venturing partnership with Beyond Limits is using artificial intelligence (AI) technology to transform the way we manage reservoirs here on Earth. Our investment in the start-up company is helping develop and commercialize the same technology that successfully supported NASA’s space programme for more than 20 years for the oil and gas industry. Beyond Limits aims to adapt and deliver its AI software to tackle industrial and business challenges on Earth. The work uses machine learning and human Going beyond the limits Venturing and low carbon across multiple fronts Turning carbon into concrete Our investment in Solidia, a cement and concrete company, is supporting a new technology to produce cement in a way that generates fewer emissions – using CO2 instead of water to cure the concrete. The technology has the potential to lower emissions in concrete production by up to 70%, and allows 80% of the water used in its production process to be recycled. Rapid mobile charging BP has invested $5 million in FreeWire, a US manufacturer of mobile electric vehicle rapid charging systems, and we plan to roll out the charging facilities for use at selected BP retail sites in Europe during 2018. This investment will help to build our understanding of this fast- evolving market. knowledge to simulate human reasoning, with the same exploration techniques that NASA’s Curiosity Rover used on the surface of Mars. We are supporting this work to help accelerate its delivery and provide the energy sector with new levels of process automation and better insight and effectiveness across all operations. The work supports BP’s vision of using digital technology to help transform our organization. And we believe that it could fundamentally change how we locate and develop reservoirs, produce and refine crude oil, market and supply refined products and make unmanned repairs possible for dangerous maintenance. 70% potential emissions reduction $20 million invested in Beyond Limits 20+ years supporting NASA New technologies Alternative thinking Disruptive business models BP Annual Report and Form 20-F 201746


 
Sustainability Safety and security Safety is a core value and our number one priority. Our stated aim is to have no accidents, no harm to people and no damage to the environment. We are working to continuously improve personal and process safety and operational risk management across BP, with our group-wide operating management system at its core. Our approach builds on our experience, including learning from incidents, operations audits, annual risk reviews and sharing lessons learned with our industry peers. In 2017 BP reported one fatality – a firefighter who died in the course of his duties for our biofuels business in Brazil. Nothing matters more than every one of our people returning home safely each day. We deeply regret this loss and continue to work towards eliminating injuries and fatalities in our work. Preventing incidents We carefully plan our operations, identifying potential hazards and managing risks at every stage. We design our facilities to appropriate standards and manage them throughout their lifetime. We track our safety performance using industry metrics such as the American Petroleum Institute recommended practice 754 and the International Association of Oil & Gas Producers recommended practice 456. We aim to create long-term value for our shareholders, partners and society by helping to meet growing energy demand in a safe and responsible way. Advancing the energy transition Publishes April Our 2017 sustainability focus These sustainability issues are the ones that could impact our business the most and that are of greatest interest to our stakeholders: Safety and security Climate change Managing our impacts Value to society Human rights Environment Ethical conduct Our people See Glossary In summary Tier 1 Tier 2 2014 2015 2016 20172013 100 Process safety events (number of incidents) 50 150 American Petroleum Institute US benchmark a 2014 2015 2016 20172013 0.8 0.4 0.6 0.2 Recordable injury frequency (workforce incidents per 200,000 hours worked) 0.25 0.27 0.20 0.19 0.20 Contractors Employees 0.31 0.31 0.24 0.21 0.22Workforce 0.36 0.34 0.28 0.22 0.23 International Association of Oil & Gas Producers benchmark a a API and OGP 2016 data reports are not available until May 2017. BP Sustainability Report Publishes April More information Strategic report – perform ance BP Annual Report and Form 20-F 2017 47


 
2017 2016 2015 Tier 1 process safety events a 18 16 20 Tier 2 process safety eventsb 61 84 83 Oil spills – numberc 139 149 146 Oil spills contained 81 91 91 Oil spills reaching land and water 58 58 55 Oil spilled – volume (thousand litres) 886 677 432 Oil unrecovered (thousand litres) 265 311 142 a Tier 1 process safety events are losses of primary containment of greater consequence – such as causing harm to a member of the workforce, costly damage to equipment or exceeding defined quantities. b Tier 2 events are those of lesser consequence. c Number of spills greater than or equal to one barrel (159 litres, 42 US gallons). In 2017 we continued to see a reduction in the overall number of process safety events, despite a slight increase in tier 1, the more serious events. We investigate safety incidents and near misses, including low probability, high consequence events. And we use leading indicators, like inspections and equipment tests, to monitor the strength of controls to prevent incidents. What we learn from performance insights helps us focus our safety efforts. For example, we are introducing techniques for teams to analyse and redesign tasks to reduce the chance of mistakes occurring. Proactively managing equipment corrosion is also a focus for us – and we believe this is helping to deliver improvements in process safety in our upstream and downstream businesses. Keeping people safe All members of our workforce have the responsibility and the authority to stop unsafe work. Our golden rules of safety guide our workers on staying safe while performing tasks with the potential to cause most harm. The rules are aligned with our operating management system and focus on areas such as working at heights, lifting operations and driving safety. We monitor and report on key workforce personal safety metrics and include both employees and contractors in our data. 2017 2016 2015 Recordable injury frequencyd 0.22 0.21 0.24 Day away from work case frequencye 0.055 0.051 0.061 Severe vehicle accident ratef 0.03 0.05 0.11 d Incidents that result in a fatality or injury per 200,000 hours worked. e Incidents that result in an injury where a person is unable to work for a day (shift) or more per 200,000 hours worked. f The figures for 2016 and 2017 are based on our new definition which aligns with industry practice. We have seen a small increase in our recordable injury frequency and day away from work case frequency compared to last year. Improving safety in our operations is a high priority and we are working on it right across the business. Managing safety BP-operated businesses are responsible for identifying and managing operating risks and bringing together people with the right skills and competencies to address them. They are required to carry out self- verification and are also subject to independent scrutiny and assurance. Our safety and operational risk team works alongside BP-operated businesses to provide oversight and technical guidance, while our group audit team visits sites on a risk-prioritized basis, to check how they are managing risks. Operating management system BP’s OMS is a group-wide framework designed to help us manage risks in our operating activities and drive performance improvements. It brings together BP requirements on health, safety, security, the environment, social responsibility and operational reliability, as well as related issues, such as maintenance, contractor relations and organizational learning, into a common management system. We review and amend our group requirements within OMS from time to time to reflect BP’s priorities and experience. Any variations in the application of OMS, in order to meet local regulations or circumstances, are subject to a governance process. OMS also helps us improve the quality of our activities by setting a common framework that our operations must work to. Recently acquired operations need to transition to OMS. See page 49 for information about contractors and joint arrangements . See Glossary Above: Monitoring global events at our 24-hour response information centre in the UK. BP Annual Report and Form 20-F 201748


 
Technology New technologies are helping us increase the amount and quality of data we gather from our operations and speed up our analysis, allowing us to act more quickly. For example, our wells data platform Argus holds historical and real-time data on nearly all of the 2,500 wells we operate globally, giving our engineers the ability to access and analyse alerts quickly and remotely. This enables early identification and rapid response should an issue arise (see page 45). Emergency preparedness and response The scale and spread of BP’s operations means we must be prepared to respond to a range of possible disruptions and emergency events. We maintain disaster recovery, crisis and business continuity management plans and work to build day-to-day response capabilities to support local management of incidents. Security As a global business, BP monitors for hostile actions that could harm our people or disrupt our operations. We particularly look at operating areas affected by political and social unrest, terrorism, armed conflict or criminal activity. We also run exercises and drills to test our procedures and help ensure our people are prepared in the event of an emergency. We take steps to help people stay safe when they are travelling on business. Our 24-hour response information centre keeps watch over global events and related developments. This meant that in March 2017 we were aware of the terrorist attack in London’s Westminster almost immediately. Within minutes we knew which employees had scheduled meetings or travel plans in the surrounding area, so we were able to confirm their safety and provide advice. Oil spill preparedness Our requirements for oil spill preparedness and response planning incorporate updated external requirements and what we have learned over many years. We are also using technologies to strengthen our response to oil spills. Working with Oil Spill Response Limited, an industry-funded co-operative, and others, we used satellites, drones and autonomous underwater vehicles in an oil spill response exercise. This enabled us to study an oil plume from a small controlled release and the effectiveness of dispersant in helping it to biodegrade. Cyber threats Cyber attacks are on the rise and our industry is subject to evolving risks from a variety of cyber threat actors, including nation states, criminals, terrorists, hacktivists and insiders. We have experienced threats to the security of our digital infrastructure, but none of these had a significant effect on our business in 2017. Above: Operations at our Cherry Point refinery in the US. We use a range of measures to manage this risk, including the use of cyber security policies and procedures, security protection tools, ongoing detection and monitoring of threats, and testing of response and recovery procedures. We collaborate closely with governments, law enforcement and industry peers to understand and respond to new and emerging threats. To encourage vigilance among our employees, our cyber security programme covers topics such as email phishing and the correct classification and handling of our information. Working with contractors and partners More than half of the hours worked by BP are carried out by contractors. So their skills and performance are vital to our ability to carry out our work safely and responsibly. Our standard model contracts include health, safety and security requirements. Through bridging documents, we define the way our safety management system co-exists with those of our contractors to manage risk on a site. And for our contractors facing the most serious risks, we conduct quality, technical, health, safety and security audits before awarding contracts. Once they start work, we continue to monitor their safety performance. Our OMS includes requirements and practices for working with contractors. We expect and encourage our contractors and their employees to act in a way that is consistent with our code of conduct. We take appropriate action if those expectations, or their contractual obligations, are not met. Our partners in joint arrangements In joint arrangements where we are the operator, our OMS, code of conduct and other policies apply. We aim to report on aspects of our business where we are the operator – as we directly manage the performance of these operations. Where we are not the operator, our OMS is available as a reference point for BP businesses when engaging with operators and co-venturers. We have a group framework to assess and manage BP’s exposure related to safety, operational and bribery and corruption risk from our participation in these types of arrangements. We monitor performance and how risk is managed in our joint arrangements, whether we are the operator or not. Strategic report – perform ance BP Annual Report and Form 20-F 2017 49


 
Reporting on greenhouse gas emissions We report on direct and indirect GHG emissions on a carbon dioxide equivalent (CO2e) basis. Direct emissions include CO2 and methane from the combustion of fuel and the operation of facilities, and indirect emissions include those resulting from the purchase of electricity and steam. There was a slight decrease in our direct GHG emissions in 2017. The primary reasons for this include operational changes such as planned shutdowns at several of our refineries for maintenance, and actions taken by our businesses to reduce emissions in areas such as flaring, methane and energy efficiency. Greenhouse gas emissions (MteCO2e) 2017 2016 2015 Operational controla Direct emissions 50.5 51.4 51.2 Indirect emissions 6.1 6.2 7.0 BP equity shareb Direct emissions 49.4 50.1 49.0 Indirect emissions 6.8 6.2 6.9 a Operational control data comprises 100% of emissions from activities that are operated by BP, going beyond the IPIECA guidelines by including emissions from certain other activities such as contracted drilling activities. b BP equity share comprises our share of BP’s consolidated entities and equity-accounted entities, other than BP’s share of Rosneft. The ratio of our total GHG emissions reported on an operational control basis to gross production was 0.24teCO2e/te production in 2017 (2016 0.24 teCO2e/te, 2015 0.24teCO2e/te). Gross production comprises upstream production, refining throughput and petrochemicals produced. Our approach to reporting GHG emissions broadly follows the IPIECA/ API/IOGP Petroleum Industry Guidelines for Reporting GHG Emissions. We calculate CO2 emissions based on the fuel consumption and fuel properties for major sources. We do not include nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride as they are not material and it is not practical to collect this data. Task Force on Climate-related Financial Disclosures The TCFD was established by the Financial Stability Board with the aim of improving disclosure of climate-related risks and opportunities. Our reporting provides information relevant to each of the four TCFD recommendations. Governance Annual Report (page 70), Sustainability Report (page 73) Strategy Annual Report (page 12) and Sustainability Report (pages 4-5) and our Energy Outlook (pages 3-5) Risk management Annual Report (page 55) Metrics and targets Sustainability Report (pages 6 and 14) Working with others We are collaborating with others to help address this global challenge. As one example, the Oil and Gas Climate Initiative (OGCI) – currently chaired by our chief executive Bob Dudley – brings together 10 oil and gas companies working to reduce the GHG emissions from our industry’s operations and the use of our products. In 2017, OGCI announced its intent to provide technical and financial support for the world’s first global methane study. Climate change Our strategy sets us up to help advance the energy transition, while meeting the needs for energy today. To help drive the energy transition, we are working to reduce our operational emissions, produce new efficient fuels and lubricants for our customers and to build up our low carbon businesses. Reducing emissions in our operations We have set an emissions reduction target of 3.5 million tonnes out to 2025. Our operating businesses aim to deliver this through improved efficiency, less methane emissions and reduced flaring – leading to permanent, quantifiable GHG reductions. Improving our products We are increasing gas in our portfolio, helping to meet the rising demand for cleaner energy. We are continuing to innovate with efficient fuels, lubricants and chemicals that can help our customers and consumers lower their emissions – as well as exploring opportunities to use our retail network to support the electrification of transport. Creating low carbon businesses We are building up our renewable energy portfolio – focusing on biofuels, biopower, wind and solar. And we have established a dynamic venturing arm that is working on multiple fronts – through joint ventures , creative collaborations and new business models. Advancing Low Carbon programme BP's new Advancing Low Carbon accreditation programme is designed to motivate every part of BP to pursue lower carbon opportunities – by highlighting BP activities that demonstrate a better carbon outcome. The activities initially selected include emission reductions in our operations, carbon neutral products and investments in low carbon technologies. See bp.com/advancinglowcarbon for more information. Calling for a price on carbon BP believes that carbon pricing by governments provides the right incentives for everyone – energy producers and consumers alike – to play their part in reducing emissions. It makes energy efficiency more attractive and makes lower carbon solutions, such as renewables and CCUS, more cost competitive. To help anticipate greater regulatory requirements affecting our GHG emissions, we use a carbon cost when evaluating our plans for large new projects and those for which emissions costs would be a material part of the project. In industrialized countries, this is currently $40 per tonne of CO2 equivalent, and we also stress test at a carbon price of $80 per tonne. See Glossary BP Annual Report and Form 20-F 201750


 
Managing our environmental and social impacts We assess potential impacts through the life of our operations. Above: Uncovering a cultural heritage site in Azerbaijan. In planning our projects, we identify actions we need to take to address potential impacts from our activities in areas such as labour rights, water use and protected areas. If our screening process shows that a proposed project could enter or affect an international protected area, we work to identify ways to first avoid, and if needed, minimize and mitigate any potential impact. We consult with stakeholders who may be affected by our activities. For example, we met with more than 2,600 community members in Mauritania and Senegal over the course of 2017 to discuss issues ranging from local employment to our ability to respond to an oil spill. These consultations will contribute to an environmental and social impact assessment in 2018. Every year, our major operating sites review their performance and set local improvement targets. These can include measures on flaring, greenhouse gas emissions and the use of water. Value to society We aim to have a positive and enduring impact on the communities in which we operate. We contribute to economies through our core business activities, such as helping to develop national and local suppliers, and through the taxes we pay to governments. Additionally, our social investments support communities’ efforts to increase their incomes and improve standards of living. As one example, we are equipping women living in rural areas of Turkey close to the Baku-Tbilisi-Ceyhan pipeline with entrepreneurial skills so they can set up their own businesses, or enhance existing ones. In 2017 we provided training to more than 250 women and supported around 25 start-up companies. We run programmes to build the skills of businesses and develop the local supply chain in a number of locations. For example, our enterprise development programme in Azerbaijan enables local companies to build their skills so that they can improve their competitiveness when bidding for work with international firms. And in Indonesia we have set a target of sourcing 38% of our services and project materials from local suppliers for our Tangguh expansion project. We aim to recruit our workforce from the community or country in which we operate. In Angola, for example, around 88% of our workforce is Angolan. We contributed $89.5 million in social investment in 2017. One area in which we focus our investment is education. We support science, technology, engineering and mathematics programmes in countries such as the UK, the US and India, to encourage more young people to consider careers in these fields. See bp.com/society for more information on how we generate value to society. Tax and transparency BP is committed to complying with tax laws in a responsible manner and having open and constructive relationships with tax authorities. We paid $5.8 billion in income and production taxes to governments in 2017 (2016 $2.2 billion, 2015 $3.5 billion). We support transparency in the flow of revenue from oil and gas activities to governments. Transparency helps citizens hold public authorities to account for the way they use funds received through taxes and other agreements. We are a founding member of the Extractive Industries’ Transparency Initiative (EITI), which requires disclosure of payments made to and received by governments in relation to oil, gas and mining activity. As part of the EITI, we work with governments, non-governmental organizations and international agencies to improve the transparency of payments to governments. In 2017 we supported EITI implementation in a number of countries where we operate, including Iraq and Trinidad & Tobago. In addition, we disclose information on payments to governments for our upstream activities on a country-by-country and project basis under national reporting regulations such as those in effect in the UK. We also make payments to governments in connection with other parts of our business – such as the transporting, trading, manufacturing and marketing of oil and gas. See bp.com/tax for our approach to tax and our payments to governments report. Human rights We are committed to respecting the rights and dignity of all people when conducting business. We respect internationally recognized human rights as set out in the International Bill of Human Rights and the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work. These include the rights of our workforce and those living in communities affected by our activities. We set out our commitments in our human rights policy and our code of conduct. Our operating management system contains guidance on respecting the rights of workers and community members. We are aligning our business processes with the UN Guiding Principles, which set out how companies should prevent, address and remedy human rights impacts. Our current focus areas include the recruitment, working and living conditions of contracted workforces at our sites, responsible security, community grievance mechanisms and channels for workforces to raise their concerns. In 2017 our actions included: • Reviewing the risk of modern slavery in prioritized locations. • Delivering additional human rights training specifically on modern slavery. Strategic report – perform ance BP Annual Report and Form 20-F 2017 51


 
Hydraulic fracturing Some stakeholders have raised concerns about the potential environmental and community impacts of hydraulic fracturing during unconventional gas development. BP seeks to apply responsible well design practices to mitigate these risks. For example, our wells are designed, constructed, operated and decommissioned to prevent gas and hydraulic fracturing fluids entering underground aquifers such as drinking water sources. We list the chemicals that we use at each site. We also submit data on their use in our hydraulically fractured wells in the US, to the extent allowed by our suppliers, who own the chemical formulas, at fracfocus.org or other state-designated websites. Ethical conduct Our code of conduct defines our commitment to high ethical standards. Our values Our values of safety, respect, excellence, courage and one team, represent the qualities and actions we wish to see in BP. They guide the way we do business and the decisions we make. We use these values as part of our recruitment, promotion and individual performance assessment processes. See bp.com/values for more information. The BP code of conduct Our code of conduct is based on our values and sets clear expectations for how we work at BP. It applies to all BP employees and members of the board. Employees, contractors or other third parties who have a question about our code of conduct or see something that they feel is unsafe or unethical can discuss these with their managers, supporting teams, works councils (where relevant) or through OpenTalk, a confidential helpline operated by an independent company. A total of 817 concerns or enquiries were received through OpenTalk in 2017 (2016 956, 2015 1,158). The most common concerns related to the people section of the code. This includes treating people fairly, with dignity and giving everyone equal opportunity; creating a respectful, harassment-free workplace; and protecting privacy and confidentiality. We take steps to identify and correct areas of non-conformance and take disciplinary action where appropriate. In 2017 our businesses dismissed 70 employees for non-conformance with our code of conduct or unethical behaviour (2016 109, 2015 132). This excludes dismissals of staff employed at our retail service stations. See bp.com/codeofconduct for more information. Anti-bribery and corruption We operate in some of the world’s highest risk countries from an anti-bribery and corruption perspective. We have a responsibility to our employees, our shareholders and to the countries and communities in which we do business to be ethical and lawful in all our work. Our code of conduct explicitly prohibits engaging in bribery or corruption in any form. Our group-wide anti-bribery and corruption policy and procedures include measures and guidance to assess risks, understand relevant laws and report concerns. They apply to all BP-operated businesses. We provide training to employees appropriate to the nature or location of their role. A total of 12,500 employees completed anti-bribery and corruption training in 2017 (2016 13,000, 2015 13,500). • Publishing our expectations of suppliers on the way they do business with and for BP in line with our code of conduct, including respect for human rights. • Continued implementation of the Voluntary Principles on Security and Human Rights, with periodic internal assessments to identify areas for improvement. See bp.com/humanrights for more information about our approach to human rights. Environment We work to avoid, minimize and mitigate environmental impacts from our activities. We consider local conditions when determining which issues would benefit from the greatest focus. At a site close to communities, for example, the immediate concern may be air quality, whereas a remote desert site may require greater consideration of water management issues. See pages 48-49 for information on our oil spill performance and preparedness. Water Each year we review water risks in our portfolio – considering the local availability, quantity, quality and regulatory requirements. We assess different approaches for optimizing freshwater withdrawals and wastewater treatment performance. In our gas operations in Oman – an area where the availability of fresh water is extremely scarce – we use saline water from a local underground aquifer. We desalinate the water and use it for drilling and hydraulic fracturing. We continue to look for ways in which we can reduce our demand, such as reusing treated wastewater. See bp.com/water for information about our approach to water. Air quality We put measures in place to manage our air emissions, in line with regulations and guidelines designed to protect the health of local communities and the environment. We are introducing six liquefied natural gas (LNG) carriers with energy efficiency enhancements to our shipping fleet. They are designed to use approximately 25% less fuel and emit less nitrogen oxides than our older LNG ships. Above: Engineers on a wind turbine at our Sherbino wind farm in Texas. BP Annual Report and Form 20-F 201752


 
Above: A team meeting at the BP office in Baku, Azerbaijan. We assess any exposure to bribery and corruption risk when working with suppliers and business partners. Where appropriate, we put in place a risk mitigation plan or we reject them if we conclude that risks are too high. We also conduct anti-bribery compliance audits on selected suppliers when contracts are in place. For example, our upstream business conducts audits for a number of suppliers in higher-risk regions to assess their compliance with our anti-bribery and corruption contractual requirements. Potential areas for improvement are shared with our suppliers and we often work with them to find the best ways to strengthen their procedures, such as improvements to training and management of subcontractors. We issued a total of 36 audit reports in 2017 (2016 25, 2015 35). We take corrective action with suppliers and business partners who fail to meet our expectations, which may include terminating contracts. Lobbying and political donations We prohibit the use of BP funds or resources to support any political candidate or party. We recognize the rights of our employees to participate in the political process and these rights are governed by the applicable laws in the countries in which we operate. For example, in the US we provide administrative support for the BP employee political action committee (PAC), which is a non-partisan committee that encourages voluntary employee participation in the political process. All BP employee PAC contributions are reviewed for compliance with federal and state law and are publicly reported in accordance with US election laws. We work with governments on a range of issues that are relevant to our business, from regulatory compliance, to understanding our tax liabilities, to collaborating on community initiatives. The way in which we interact with those governments depends on the legal and regulatory framework in each country. Our people BP’s success depends on having a talented and diverse workforce. BP employees Number of employees at 31 Decembera 2017 2016 2015 Upstream 17,700 18,700 21,700 Downstream 42,100 41,800 44,800 Other businesses and corporate 14,200 14,000 13,300 Total 74,000 74,500 79,800 Service station staff 16,800 16,200 15,600 Agricultural, operational and seasonal workers in Brazil 4,300 4,600 4,800 Total excluding service station staff and workers in Brazil 52,900 53,700 59,400 a Reported to the nearest 100. For more information see Financial Statements – Note 33. We have reshaped our organization over the past few years to adapt to a lower oil price environment. Our focus is on retaining the skills we require to maintain safe and reliable operations while developing and attracting individuals with capabilities we judge important to growing the business in new ways. The group people committee helps facilitate the group chief executive’s oversight of policies relating to employees. In 2017 the committee discussed remuneration policy, progress in our diversity and inclusion programme, modernizing and strengthening our attractiveness as an employer, and long-term people priorities. Attraction and retention A total of 314 graduates joined BP in 2017 (2016 231, 2015 298). We were named the UK’s leading recruiter in the oil and gas sector in The Times newspaper’s Graduate Employer rankings in 2017. We invest in our employees’ development – with an average spend of around $3,300 per person. This includes online and classroom-based courses and resources, supported by a wide range of on-the-job learning and mentoring programmes. Diversity We are committed to making our workplaces reflect the communities in which we are based. The gender balance across BP as a whole is steadily improving, with women representing 34% of BP’s total population (2016 33%, 2015 32%). We are working to improve these numbers further by, for example, developing mentoring, sponsorship and coaching programmes to help more women advance. That said, we still have work to do at the executive and senior levels. We have published 2017 data on our gender pay gap in the UK at bp.com/ukgenderpaygap. Strategic report – perform ance BP Annual Report and Form 20-F 2017 53


 
At the end of 2017 there were three female directors (2016 3, 2015 3) on our board of 13. Our nomination committee remains mindful of diversity when considering potential candidates. For more information on the composition of our board, see page 73. Workforce by gender Members as at 31 December Male Female Female % Board directors 10 3 23 Group leaders 310 84 21 Subsidiary directors 1,155 218 16 All employees 48,795 25,239 34 We are also committed to increasing the national diversity of our workforce to reflect the countries in which we operate. A total of 24% of our group leaders came from countries other than the UK and the US in 2017 (2016 23%, 2015 21%). Inclusion Our goal is to create an environment of inclusion and acceptance, where everyone is treated equally and without discrimination. To promote an inclusive culture we provide leadership training and support employee-run advocacy groups in areas such as gender, sexual orientation and parenting. As well as bringing employees together, these groups support BP’s recruitment programmes and provide feedback on the potential impact of policy changes. Each group is sponsored by a senior executive. We aim to ensure equal opportunity in recruitment, career development, promotion, training and reward for all employees – regardless of ethnicity, national origin, religion, gender, age, sexual orientation, marital status, disability, or any other characteristic protected by applicable laws. Where existing employees become disabled, our policy is to provide continued employment, training and occupational assistance where needed. Employee engagement Managers hold regular team and one-to-one meetings with their staff, complemented by formal processes through works councils in parts of Europe. We regularly communicate with employees on factors that affect BP’s performance, and seek to maintain constructive relationships with labour unions formally representing our employees. Each year, we survey our employees to gauge how they feel about BP. The overall employee engagement score in 2017 was 73% – up from two years ago when we saw a decline which coincided with the uncertainties of a low oil price environment. Pride in working for BP increased to 75% in 2017, compared with 73% in 2016 and 68% in 2015. Scores for diversity, inclusion and respect also recorded strong improvements. We are considering how to address employee dissatisfaction with opportunities to develop their skills – which had lower scores in 2017. Share ownership We encourage employee share ownership and have a number of employee share plans in place. For example, under our ShareMatch plan, which operates in more than 50 countries, we match BP shares purchased by our employees. We also operate a group-wide discretionary share plan, which allows employee participation at different levels globally and is linked to the company’s performance. See Glossary BP Annual Report and Form 20-F 201754


 
BP manages, monitors and reports on the principal risks and uncertainties that can impact our ability to deliver our strategy of meeting the world’s energy needs responsibly while creating long-term shareholder value. These risks are described in the Risk factors on page 57. Our management systems, organizational structures, processes, standards, code of conduct and behaviours together form a system of internal control that governs how we conduct the business of BP and manage associated risks. BP’s risk management system BP’s risk management system and policy is designed to be a consistent and clear framework for managing and reporting risks from the group’s operations to the board. The system seeks to avoid incidents and maximize business outcomes by allowing us to: • Understand the risk environment, identify the specific risks and assess the potential exposure for BP. • Determine how best to deal with these risks to manage overall potential exposure. • Manage the identified risks in appropriate ways. • Monitor and seek assurance of the effectiveness of the management of these risks and intervene for improvement where necessary. • Report up the management chain and to the board on a periodic basis on how significant risks are being managed, monitored, assured and the improvements that are being made. Our risk management activities Day-to-day risk management Business and strategic risk management Oversight and governance Identify, manage and report risks Plan, manage performance and assure Set policy and monitor principal risks Facilities, assets and operations Business segments and functions Executive and corporate functions Board Day-to-day risk management – management and staff at our facilities, assets and functions seek to identify and manage risk, promoting safe, compliant and reliable operations. BP requirements, which take into account applicable laws and regulations, underpin the practical plans developed to help reduce risk and deliver these safe, compliant and reliable operations as well as greater efficiency and sustainable financial results. Business and strategic risk management – our businesses and functions integrate risk management into key business processes such as strategy, planning, performance management, resource and capital allocation, and project appraisal. We do this by using a standard framework for collating risk data, assessing risk management activities, making further improvements and planning new activities. Oversight and governance – throughout the year functional leadership, the executive team, the board and relevant committees provide oversight of how significant risks to BP are identified, assessed and managed. They help to ensure that risks are governed by relevant policies and are managed appropriately. BP’s group risk team analyses the group’s risk profile and maintains the group risk management system. Our group audit team provides independent assurance to the group chief executive and board as to whether the group’s system of internal control is adequately designed and operating effectively to respond appropriately to the risks that are significant to BP. Risk oversight and governance Key risk oversight and governance committees include the following: Executive committees • Executive team meeting – for strategic and commercial risks. • Group operations risk committee – for health, safety, security, environment and operations integrity risks. • Group financial risk committee – for finance, treasury, trading and cyber risks. • Group disclosure committee – for financial reporting risks. • Group people committee – for employee risks. • Group ethics and compliance committee – for legal and regulatory compliance and ethics risks. • Resource commitment meeting – for investment decision risks. Board and its committees • BP board. • Audit committee. • Safety, ethics and environment assurance committee. • Geopolitical committee. See Board activity in 2017 on page 72 and committee reports on pages 77-89. Risk management processes As part of BP’s annual planning process, we review the group’s principal risks and uncertainties. These may be updated throughout the year in response to changes in internal and external circumstances. We aim for a consistent basis of measuring risk to allow comparison on a like-for-like basis, taking into account potential impact and likelihood, and to inform how we prioritize specific risk management activities and invest resources to manage them. How we manage risk Strategic report – perform ance BP Annual Report and Form 20-F 2017 55


 
Our risk profile The nature of our business operations is long term, resulting in many of our risks being enduring in nature. Nonetheless, risks can develop and evolve over time and their potential impact or likelihood may vary in response to internal and external events. We identify high priority risks for particular oversight by the board and its various committees in the coming year. Those identified for 2018 are listed in this section. These may be updated throughout the year in response to changes in internal and external circumstances. The oversight and management of other risks, for example technological change or the transition to a lower carbon economy, is undertaken in the normal course of business and in the executive team, the board and relevant committees. There can be no certainty that our risk management activities will mitigate or prevent these, or other risks, from occurring. Further details of the principal risks and uncertainties we face are set out in Risk factors on page 57. Risks for particular oversight by the board and its committees in 2018 The risks for particular oversight by the board and its committees in 2018 have been reviewed and updated. These risks remain the same as for 2017. Strategic and commercial risks Financial liquidity External market conditions can impact our financial performance. Supply and demand and the prices achieved for our products can be affected by a wide range of factors including political developments, global economic conditions and the influence of OPEC. We seek to manage this risk through BP’s diversified portfolio, our financial framework, liquidity stress testing, regular reviews of market conditions and our planning and investment processes. Geopolitical The diverse locations of our operations around the world expose us to a wide range of political developments and consequent changes to the economic and operating environment. Geopolitical risk is inherent to many regions in which we operate, and heightened political or social tensions or changes in key relationships could adversely affect the group. We seek to manage this risk through development and maintenance of relationships with governments and stakeholders and by becoming trusted partners in each country and region. In addition, we closely monitor events and implement risk mitigation plans where appropriate. Cyber security The targeted and indiscriminate threats to the security of our digital infrastructure continue to evolve rapidly and are increasingly prevalent across industries worldwide. The oil and gas industry is subject to evolving risks from a variety of cyber threat actors, including nation states, criminals, terrorists, hacktivists and insiders. A cyber security breach could disrupt our business, injure people, harm the environment or our assets, or result in legal or regulatory breaches. We seek to manage this risk through a range of measures, which include cyber security standards, security protection tools, ongoing detection and monitoring of threats and testing of cyber response and recovery procedures. We collaborate closely with governments, law enforcement agencies and industry peers to understand and respond to new and emerging cyber threats. We build awareness with our staff, share information on incidents with leadership for continuous learning and conduct regular exercises including with the executive team to test response and recovery procedures. Safety and operational risks Process safety, personal safety and environmental risks The nature of the group’s operating activities exposes us to a wide range of significant health, safety and environmental risks such as incidents associated with releases of hydrocarbons when drilling wells, operating facilities and transporting hydrocarbons. Our operating management system helps us manage these risks and drive performance improvements. It sets out the rules and principles which govern key risk management activities such as inspection, maintenance, testing, business continuity and crisis response planning and competency development. In addition, we conduct our drilling activity through a global wells organization in order to promote a consistent approach for designing, constructing and managing wells. Security Hostile acts such as terrorism or piracy could harm our people and disrupt our operations. We monitor for emerging threats and vulnerabilities to manage our physical and information security. Our central security team provides guidance and support to our businesses through a network of regional security advisers who advise and conduct assurance with respect to the management of security risks affecting our people and operations. We continue to monitor threats globally and maintain disaster recovery, crisis and business continuity management plans. Compliance and control risks Ethical misconduct and legal or regulatory non-compliance Ethical misconduct or breaches of applicable laws or regulations could damage our reputation, adversely affect operational results and shareholder value, and potentially affect our licence to operate. Our code of conduct and our values and behaviours, applicable to all employees, are central to managing this risk. Additionally, we have various group requirements and training covering areas such as anti-bribery and corruption, anti-money laundering, competition/ anti-trust law and international trade regulations. We seek to keep abreast of new regulations and legislation and plan our response to them. We offer an independent confidential helpline, OpenTalk, for employees, contractors and other third parties. Under the terms of the 2014 settlement with the US Environmental Protection Agency, an ethics monitor is reviewing and providing recommendations concerning BP’s ethics and compliance programme. Trading non-compliance In the normal course of business, we are subject to risks around our trading activities which could arise from shortcomings or failures in our systems, risk management methodology, internal control processes or employees. We have specific operating standards and control processes to manage these risks, including guidelines specific to trading, and seek to monitor compliance through our dedicated compliance teams. We also seek to maintain a positive and collaborative relationship with regulators and the industry at large. See Glossary BP Annual Report and Form 20-F 201756


 
The risks discussed below, separately or in combination, could have a material adverse effect on the implementation of our strategy, our business, financial performance, results of operations, cash flows, liquidity, prospects, shareholder value and returns and reputation. Strategic and commercial risks Prices and markets – our financial performance is impacted by fluctuating prices of oil, gas and refined products, technological change, exchange rate fluctuations, and the general macroeconomic outlook. Oil, gas and product prices are subject to international supply and demand and margins can be volatile. Political developments, increased supply from new oil and gas sources, technological change, global economic conditions and the influence of OPEC can impact supply and demand and prices for our products. Decreases in oil, gas or product prices could have an adverse effect on revenue, margins, profitability and cash flows. If significant or for a prolonged period, we may have to write down assets and re-assess the viability of certain projects, which may impact future cash flows, profit, capital expenditure and ability to maintain our long-term investment programme. Conversely, an increase in oil, gas and product prices may not improve margin performance as there could be increased fiscal take, cost inflation and more onerous terms for access to resources. The profitability of our refining and petrochemicals activities can be volatile, with periodic over-supply or supply tightness in regional markets and fluctuations in demand. Exchange rate fluctuations can create currency exposures and impact underlying costs and revenues. Crude oil prices are generally set in US dollars, while products vary in currency. Many of our major project development costs are denominated in local currencies, which may be subject to fluctuations against the US dollar. Access, renewal and reserves progression – our inability to access, renew and progress upstream resources in a timely manner could adversely affect our long-term replacement of reserves. Delivering our group strategy depends on our ability to continually replenish a strong exploration pipeline of future opportunities to access and produce oil and natural gas. Competition for access to investment opportunities, heightened political and economic risks in certain countries where significant hydrocarbon basins are located and increasing technical challenges and capital commitments may adversely affect our strategic progress. This, and our ability to progress upstream resources and sustain long-term reserves replacement, could impact our future production and financial performance. Major project delivery – failure to invest in the best opportunities or deliver major projects successfully could adversely affect our financial performance. We face challenges in developing major projects, particularly in geographically and technically challenging areas. Operational challenges and poor investment choice, efficiency or delivery at any major project that underpins production or production growth could adversely affect our financial performance. Geopolitical – exposure to a range of political developments and consequent changes to the operating and regulatory environment could cause business disruption. We operate and may seek new opportunities in countries and regions where political, economic and social transition may take place. Political instability, changes to the regulatory environment or taxation, international sanctions, expropriation or nationalization of property, civil strife, strikes, insurrections, acts of terrorism and acts of war may disrupt or curtail our operations or development activities. These may in turn cause production to decline, limit our ability to pursue new opportunities, affect the recoverability of our assets or cause us to incur additional costs, particularly due to the long-term nature of many of our projects and significant capital expenditure required. Events in or relating to Russia, including trade restrictions and other sanctions, could adversely impact our income and investment in or relating to Russia. Our ability to pursue business objectives and to recognize production and reserves relating to these investments could also be adversely impacted. Liquidity, financial capacity and financial, including credit, exposure – failure to work within our financial framework could impact our ability to operate and result in financial loss. Failure to accurately forecast or work within our financial framework could impact our ability to operate and result in financial loss. Trade and other receivables, including overdue receivables, may not be recovered and a substantial and unexpected cash call or funding request could disrupt our financial framework or overwhelm our ability to meet our obligations. An event such as a significant operational incident, legal proceedings or a geopolitical event in an area where we have significant activities, could reduce our credit ratings. This could potentially increase financing costs and limit access to financing or engagement in our trading activities on acceptable terms, which could put pressure on the group’s liquidity. Credit rating downgrades could also trigger a requirement for the company to review its funding arrangements with the BP pension trustees and may cause other impacts on financial performance. In the event of extended constraints on our ability to obtain financing, we could be required to reduce capital expenditure or increase asset disposals in order to provide additional liquidity. See Liquidity and capital resources on page 251 and Financial statements – Note 27. Joint arrangements and contractors – varying levels of control over the standards, operations and compliance of our partners, contractors and sub-contractors could result in legal liability and reputational damage. We conduct many of our activities through joint arrangements , associates or with contractors and sub-contractors where we may have limited influence and control over the performance of such operations. Our partners and contractors are responsible for the adequacy of the resources and capabilities they bring to a project. If these are found to be lacking, there may be financial, operational or safety risks for BP. Should an incident occur in an operation that BP participates in, our partners and contractors may be unable or unwilling to fully compensate us against costs we may incur on their behalf or on behalf of the arrangement. Where we do not have operational control of a venture, we may still be pursued by regulators or claimants in the event of an incident. Digital infrastructure and cyber security – breach of our digital security or failure of our digital infrastructure including loss or misuse of sensitive information could damage our operations, increase costs and damage our reputation. The oil and gas industry is subject to fast-evolving risks from cyber threat actors, including nation states, criminals, terrorists, hacktivists and insiders. A breach or failure of our digital infrastructure – including control systems – due to breaches of our cyber defences, or those of third parties, negligence, intentional misconduct or other reasons, could seriously disrupt our operations. This could result in the loss or misuse of data or sensitive information, injury to people, disruption to our business, harm to the environment or our assets, legal or regulatory breaches and legal liability. Furthermore, the rapid detection of attempts to gain unauthorized access to our digital infrastructure, often through the use of sophisticated and co-ordinated means, is a challenge and any delay or failure to detect could compound these potential harms. These could result in significant costs including the cost of remediation or reputational consequences. Climate change and the transition to a lower carbon economy – policy, legal, regulatory, technology and market change related to the issue of climate change could increase costs, reduce demand for our products, reduce revenue and limit certain growth opportunities. Changes in laws, regulations, policies, obligations, social attitudes and customer preferences relating to the transition to a lower carbon economy could have a cost impact on our business, including increasing compliance and litigation costs, and could impact our strategy. Such changes could lead to constraints on production and supply and access to new reserves. Technological improvements or innovations that support the transition to a lower carbon economy, and customer preferences or regulatory incentives related to such changes that alter fuel or power choices, such as towards low emission energy sources, could impact demand for oil and gas. Depending on the nature and speed of any such changes and our response, this could adversely affect the demand for our products, investor sentiment, our financial performance and our competitiveness. See Climate change on page 50. Competition – inability to remain efficient, maintain a high quality portfolio of assets, innovate and retain an appropriately skilled workforce could negatively impact delivery of our strategy in a highly competitive market. Our strategic progress and performance could be impeded if we are unable to control our development and operating costs and margins, or to sustain, develop and operate a high-quality portfolio of assets efficiently. We could be adversely affected if competitors offer superior terms for access rights or licences, or if our innovation in areas such as exploration, production, refining, manufacturing, renewable energy or new technologies lags the industry. Our performance could also be negatively impacted if we fail to protect our intellectual property. Risk factors See Glossary Strategic report – perform ance BP Annual Report and Form 20-F 2017 57


 
Our industry faces increasing challenge to recruit and retain skilled and experienced people in the fields of science, technology, engineering and mathematics. Successful recruitment, development and retention of specialist staff is essential to our plans. Crisis management and business continuity – failure to address an incident effectively could potentially disrupt our business. Our business activities could be disrupted if we do not respond, or are perceived not to respond, in an appropriate manner to any major crisis or if we are not able to restore or replace critical operational capacity. Insurance – our insurance strategy could expose the group to material uninsured losses. BP generally purchases insurance only in situations where this is legally and contractually required. Some risks are insured with third parties and reinsured by group insurance companies. Uninsured losses could have a material adverse effect on our financial position, particularly if they arise at a time when we are facing material costs as a result of a significant operational event which could put pressure on our liquidity and cash flows. Safety and operational risks Process safety, personal safety, and environmental risks – exposure to a wide range of health, safety, security and environmental risks could result in regulatory action, legal liability, business interruption, increased costs, damage to our reputation and potentially denial of our licence to operate. Technical integrity failure, natural disasters, extreme weather or a change in its frequency or severity, human error and other adverse events or conditions could lead to loss of containment of hydrocarbons or other hazardous materials or constrained availability of resources used in our operating activities, as well as fires, explosions or other personal and process safety incidents, including when drilling wells, operating facilities and those associated with transportation by road, sea or pipeline. There can be no certainty that our operating management system or other policies and procedures will adequately identify all process safety, personal safety and environmental risks or that all our operating activities will be conducted in conformance with these systems. See Safety and security on page 47. Such events or conditions, including a marine incident, or inability to provide safe environments for our workforce and the public while at our facilities, premises or during transportation, could lead to injuries, loss of life or environmental damage. As a result we could face regulatory action and legal liability, including penalties and remediation obligations, increased costs and potentially denial of our licence to operate. Our activities are sometimes conducted in hazardous, remote or environmentally sensitive locations, where the consequences of such events or conditions could be greater than in other locations. Drilling and production – challenging operational environments and other uncertainties could impact drilling and production activities. Our activities require high levels of investment and are sometimes conducted in challenging environments such as those prone to natural disasters and extreme weather, which heightens the risks of technical integrity failure. The physical characteristics of an oil or natural gas field, and cost of drilling, completing or operating wells is often uncertain. We may be required to curtail, delay or cancel drilling operations because of a variety of factors, including unexpected drilling conditions, pressure or irregularities in geological formations, equipment failures or accidents, adverse weather conditions and compliance with governmental requirements. Security – hostile acts against our staff and activities could cause harm to people and disrupt our operations. Acts of terrorism, piracy, sabotage and similar activities directed against our operations and facilities, pipelines, transportation or digital infrastructure could cause harm to people and severely disrupt operations. Our activities could also be severely affected by conflict, civil strife or political unrest. Product quality – supplying customers with off-specification products could damage our reputation, lead to regulatory action and legal liability, and impact our financial performance. Failure to meet product quality standards could cause harm to people and the environment, damage our reputation, result in regulatory action and legal liability, and impact financial performance. Compliance and control risks US government settlements – failure to comply with the terms of our settlement with the US Environmental Protection Agency related to the Gulf of Mexico oil spill may expose us to further penalties or liabilities or could result in suspension or debarment of certain BP entities. Failure to satisfy the requirements or comply with the terms of the administrative agreement with the US Environmental Protection Agency (EPA), under which BP agreed to a set of safety and operations, ethics and compliance and corporate governance requirements, could result in suspension or debarment of certain BP entities. Regulation – changes in the regulatory and legislative environment could increase the cost of compliance, affect our provisions and limit our access to new growth opportunities. Governments that award exploration and production interests may impose specific drilling obligations, environmental, health and safety controls, controls over the development and decommissioning of a field and possibly, nationalization, expropriation, cancellation or non-renewal of contract rights. Royalties and taxes tend to be high compared with those imposed on similar commercial activities, and in certain jurisdictions there is a degree of uncertainty relating to tax law interpretation and changes. Governments may change their fiscal and regulatory frameworks in response to public pressure on finances, resulting in increased amounts payable to them or their agencies. Such factors could increase the cost of compliance, reduce our profitability in certain jurisdictions, limit our opportunities for new access, require us to divest or write down certain assets or curtail or cease certain operations, or affect the adequacy of our provisions for pensions, tax, decommissioning, environmental and legal liabilities. Potential changes to pension or financial market regulation could also impact funding requirements of the group. Following the Gulf of Mexico oil spill, we may be subjected to a higher level of fines or penalties imposed in relation to any alleged breaches of laws or regulations, which could result in increased costs. Ethical misconduct and non-compliance – ethical misconduct or breaches of applicable laws by our businesses or our employees could be damaging to our reputation, and could result in litigation, regulatory action and penalties. Incidents of ethical misconduct or non-compliance with applicable laws and regulations, including anti-bribery and corruption and anti-fraud laws, trade restrictions or other sanctions, or non-compliance with the recommendations of the ethics monitor appointed under the terms of the EPA settlements, could damage our reputation, result in litigation, regulatory action and penalties. Treasury and trading activities – ineffective oversight of treasury and trading activities could lead to business disruption, financial loss, regulatory intervention or damage to our reputation. We are subject to operational risk around our treasury and trading activities in financial and commodity markets, some of which are regulated. Failure to process, manage and monitor a large number of complex transactions across many markets and currencies while complying with all regulatory requirements could hinder profitable trading opportunities. There is a risk that a single trader or a group of traders could act outside of our delegations and controls, leading to regulatory intervention and resulting in financial loss, fines and potentially damaging our reputation. See Financial statements – Note 27. Reporting – failure to accurately report our data could lead to regulatory action, legal liability and reputational damage. External reporting of financial and non-financial data, including reserves estimates, relies on the integrity of systems and people. Failure to report data accurately and in compliance with applicable standards could result in regulatory action, legal liability and damage to our reputation. See Glossary The Strategic report was approved by the board and signed on its behalf by David J Jackson, company secretary on 29 March 2018. BP Annual Report and Form 20-F 201758


 
BP Annual Report and Form 20-F 2017 59 C orporate governance al rt a r - 60 Board of directors 66 Executive team 68 Executive management teams 70 Introduction from the chairman 71 Governance framework 71 Board and committee attendance 72 Board activity in 2017 72 Role of the board 73 Skills and expertise 73 Diversity 73 Independence 73 Appointment and time commitment 74 Training and induction 74 Board evaluation 75 Site visits 76 Shareholder engagement 76 Institutional investors 76 Private investors 76 AGM 76 UK Corporate Governance Code compliance 76 International advisory board 77 Committee reports 77 Audit committee 84 Safety, ethics and environment assurance committee 86 Remuneration committee 87 Geopolitical committee 88 Chairman’s committee 89 Nomination committee 90 Directors’ remuneration report 93 Summary of pay and performance 94 Summary of policy approach 95 Single figure table 96 Alignment with strategy 98 Pay and performance for 2017 102 Implementation of policy for 2018 105 Stewardship 107 Non-executive directors 108 Executive directors’ interests 110 Policy summary tables Corporate governance


 
BP Annual Report and Form 20-F 201760 Board of directors As at 29 March 2018 Carl-Henric Svanberg Chairman Chair of the nomination and chairman’s committees; attends SEEAa, remuneration and geopolitical committees Bob Dudley Group chief executive Brian Gilvary Chief financial officer Nils Andersen Independent non-executive director Member of the audit and chairman’s committees Paul Anderson Independent non-executive director Member of the SEEA, geopolitical and chairman’s committees Alan Boeckmann Independent non-executive director Chair of SEEA committee; member of the remuneration, nomination and chairman’s committees Admiral Frank Bowman Independent non-executive director Member of the SEEA, geopolitical and chairman’s committees Ian Davis Senior independent non-executive director Member of the remuneration, geopolitical, nomination and chairman’s committees Professor Dame Ann Dowling Independent non-executive director Chair of the remuneration committee; member of the SEEA, nomination and chairman’s committees Melody Meyer Independent non-executive director Member of the SEEA, geopolitical and chairman’s committees Brendan Nelson Independent non-executive director Chair of the audit committee; member of the chairman’s and remuneration committees Paula Rosput Reynolds Independent non-executive director Member of the audit, chairman’s and remuneration committees Sir John Sawers Independent non-executive director Chair of the geopolitical committee; member of the SEEA, nomination and chairman’s committees David Jackson Company secretary See BP’s board governance principles relating to director independence on page 275. a Safety, ethics and environment assurance


 
BP Annual Report and Form 20-F 2017 61 Corporate governance Carl-Henric Svanberg Chairman Tenure Appointed 1 September 2009 Board and committee activities Chair of the nomination and chairman’s committees; attends the safety, ethics and environment assurance, remuneration and geopolitical committees Outside interests • Chairman of AB Volvo Age 65 Nationality Swedish Career Carl-Henric Svanberg became chairman of the BP board on 1 January 2010. He spent his early career at Asea Brown Boveri and the Securitas Group, before moving to the Assa Abloy Group as president and chief executive officer. From 2003 until December 2009, he was president and chief executive officer of Ericsson, also serving as the chairman of Sony Ericsson Mobile Communications AB. He was a non-executive director of Ericsson between 2009 and 2012. He was appointed chairman and a member of the board of AB Volvo in April 2012. He is a member of the External Advisory Board of the Earth Institute at Columbia University and a member of the Advisory Board of Harvard Kennedy School. He is also the recipient of the King of Sweden’s medal for his contribution to Swedish industry. Relevant skills and experience Carl-Henric Svanberg is a highly experienced leader of global corporations. He has served as chief executive officer and chairman to several high profile businesses, leading them through both periods of growth and restructuring. These experiences bring not only a deep understanding of international strategic and commercial issues, but the skills to co-ordinate the diverse range of knowledge and perspectives provided by the board. He therefore enables the board to present clear and united leadership on behalf of shareholders. Carl-Henric has successfully led the board for the past eight years and has announced his intention to stand down before the AGM in 2019. Carl-Henric’s performance has been evaluated by the chairman’s committee, led by Ian Davis. Bob Dudley Group chief executive Tenure Appointed to the board 6 April 2009 Outside interests • Fellow of the Royal Academy of Engineering • Non-executive director of Rosneft • Member of the Tsinghua Management University Advisory Board, Beijing, China • Member of the BritishAmerican Business International Advisory Board • Member of the US Business Council • Member of the US Business Roundtable • Member of the UAE/UK CEO Forum • Member of the Emirates Foundation Board of Trustees • Member of the World Economic Forum (WEF) International Business Council • Chair of the WEF Oil and Gas Climate Initiative • Member of the Russian Geographical Society Board of Trustees Age 62 Nationality American and British Career Bob Dudley became group chief executive on 1 October 2010. Bob joined Amoco Corporation in 1979, working in a variety of engineering and commercial posts. Between 1994 and 1997 he worked on corporate development in Russia. In 1997 he became general manager for strategy for Amoco and in 1999, following the merger between BP and Amoco, was appointed to a similar role in BP. Between 1999 and 2000 he was executive assistant to the group chief executive, subsequently becoming group vice president for BP’s renewables and alternative energy activities. In 2002 he became group vice president responsible for BP’s upstream businesses in Russia, the Caspian region, Angola, Algeria and Egypt. From 2003 to 2008 he was president and chief executive officer of TNK-BP. On his return to BP in 2009, he was appointed to the BP board and oversaw the group’s activities in the Americas and Asia. Between 23 June and 30 September 2010, he served as the president and chief executive officer of BP’s Gulf Coast Restoration Organization in the US. He was appointed a director of Rosneft in March 2013 following BP’s acquisition of a stake in Rosneft. Relevant skills and experience Bob Dudley has spent his whole career in the oil and gas industry. As group chief executive, Bob has transformed BP into a safer, stronger and simpler business. This approach, governed by a consistent set of values, has guided BP to a position of greater resilience, enabling it to continue delivering results in an uncertain economic environment. Bob has demonstrated excellent leadership and vision throughout. Bob continues to lead the development of the group’s strategy, as we adapt to the challenges of the transition to a lower carbon economy. Under Bob’s leadership, BP successfully delivered seven major projects in 2017. Bob Dudley’s performance has been considered and evaluated by the chairman’s committee. Brian Gilvary Chief financial officer Tenure Appointed to the board 1 January 2012 Outside interests • Non-executive director and member of audit committee of L’Air Liquide • Non-executive director and vice chair of audit committee of the Navy Board • Vice chair of the 100 Group Committee • Member of Trilateral Commission • Visiting professor at Manchester University • Great Britain Age Group triathlete Age 56 Nationality British Career Brian Gilvary was appointed chief financial officer on 1 January 2012. The role includes responsibility for finance, tax, treasury, mergers and acquisitions, investor relations, audit, global business services, information technology and procurement. He also has accountability for both integrated supply and trading, and the shipping division responsible for BP's tanker fleet. Brian joined BP in 1986 after obtaining a PhD in mathematics from the University of Manchester. Following a broad range of roles in upstream, downstream and trading in Europe and the US, he became downstream’s commercial director from 2002 to 2005. From 2005 until 2009 he was chief executive of the integrated supply and trading function, BP’s commodity trading arm. In 2010 he was appointed deputy group chief financial officer with responsibility for the finance function.


 
BP Annual Report and Form 20-F 201762 He was a director of TNK-BP over two periods, from 2003 to 2005 and from 2010 until the sale of the business and BP’s acquisition of Rosneft equity in 2013. He served on the HM Treasury Financial Management Review Board from 2014 to 2017. Relevant skills and experience Brian Gilvary has spent his entire career with BP. Brian has broad experience across the group which gives him a deep insight into BP’s assets and businesses. This knowledge has been invaluable as BP has implemented its strategy to transform into a ‘value not volume’ based business where trading is a key creator of value. His strong understanding of finance and trading has been vital in adjusting capital structures and operational costs while ensuring the group continues to be capable of meeting new opportunities. Brian has been at the centre of the group’s work on addressing cyber risk. Brian Gilvary’s performance has been evaluated by the group chief executive and considered by the chairman’s committee. Nils Andersen Independent non-executive director Tenure Appointed 31 October 2016 Board and committee activities Member of the audit and chairman’s committees Outside interests • Non-executive director of Unilever Plc and Unilever NV • Chairman of Dansk Supermarked Group A/S • Chairman of Unifeeder Group A/S • Chairman of Faerch Plast A/S Age 59 Nationality Danish Career Nils Andersen was group chief executive of A.P. Møller-Mærsk from 2007 to June 2016. Prior to this he was executive vice president of Carlsberg A/S and Carlsberg Breweries A/S from 1999 to 2001, becoming president and chief executive officer from 2001 to 2007. Previous roles include non-executive director of Inditex S.A. and William Demant A/S. He has also served as managing director of Union Cervecera, Hannen Brauerei and chief executive officer of the drinks division of the Hero Group. Nils has been nominated for election as a member and chairman of the supervisory board of Akzo Nobel N.V. following his successful appointment at their AGM in April 2018. Nils received his graduate degree from the University of Aarhus. Relevant skills and experience Nils Andersen has extensive experience in consumer goods, retail and logistics, having led global corporations with integrated operations worldwide. He has substantial skill, knowledge and experience in marketing, brand and reputation issues. He has broad shipping and upstream energy industry experience which aligns with BP’s shipping business. His leadership earlier in his career focused on the transformation of businesses, leaner organizations and increasing competitiveness, as well as increasing transparency and communication with stakeholders. Nils’ economics and broad financial background make him well suited to his role on the audit committee. Paul Anderson Independent non-executive director Tenure Appointed 1 February 2010 Board and committee activities Member of the safety, ethics and environment assurance, geopolitical and chairman’s committees Outside interests No external appointments Age 73 Nationality American Career Paul Anderson was formerly chief executive at BHP Billiton and Duke Energy, where he also served as chairman of the board. Having previously been chief executive officer and managing director of BHP Limited and then BHP Billiton Limited and BHP Billiton Plc, he rejoined these latter two boards in 2006 as a non-executive director, retiring in January 2010. Previously he served as a non-executive director of BAE Systems PLC and on a number of boards in the US and Australia, and was also chief executive officer of Pan Energy Corp. Relevant skills and experience Paul Anderson has spent his career in the energy industry working with global organizations, and brings the skills of an experienced chairman and chief executive officer to the board. His specific experience of driving safety-related cultural change throughout a business has been invaluable during his tenure as chair of the safety, ethics, and environment assurance committee from 2012 to 2016, and he remains a valuable member of the committee. Paul’s experience of business in the US and its regulatory environment is a great asset to the geopolitical committee. Paul Anderson will be retiring from the board at the 2018 AGM in May. Alan Boeckmann Independent non-executive director Tenure Appointed 24 July 2014 Board and committee activities Chair of the safety, ethics and environment assurance committee; member of the remuneration, nomination and chairman’s committees Outside interests • Non-executive director of Sempra Energy • Non-executive director of Archer Daniels Midland Age 69 Nationality American Career Alan Boeckmann retired as non-executive chairman of Fluor Corporation in February 2012, ending a 35-year career with the company. Between 2002 and 2011 he held the post of chairman and chief executive officer, having previously been president and chief operating officer from 2001 to 2002. His tenure with the company included responsibility for global operations. As chairman and chief executive officer, he refocused the company on engineering, procurement, construction and maintenance services. After graduating from the University of Arizona with a degree in electrical engineering, he joined Fluor in 1974 as an engineer and worked in a variety of domestic and international locations, including South Africa and Venezuela.


 
BP Annual Report and Form 20-F 2017 63 Corporate governance Alan was previously a non-executive director of BHP Billiton and the Burlington Santa Fe Corporation, and has served on the boards of the American Petroleum Institute, the National Petroleum Council, the Eisenhower Medical Center and the advisory board of Southern Methodist University’s Cox School of Business. He led the formation of the World Economic Forum’s ‘Partnering Against Corruption’ initiative in 2004. Relevant skills and experience Alan Boeckmann has worked in a wide range of industries including engineering, construction, chemicals and the energy sector. He has been involved in delivering very large projects particularly in the energy industry. In his senior roles he directed the focus of global corporations towards the advanced technology needed to remain competitive in response to the growth of the internet, e-commerce and the globalization of the workforce. At the same time he actively promoted fairness, transparency, accountability and responsibility in business dealings through the ‘Partnering Against Corruption’ initiative. This overall experience makes Alan ideal to lead the SEEAC. His remuneration experience on other boards means that he makes a strong contribution to the remuneration committee. Admiral Frank Bowman Independent non-executive director Tenure Appointed 8 November 2010 Board and committee activities Member of the safety, ethics and environment assurance, geopolitical and chairman’s committees Outside interests • President of Strategic Decisions, LLC • Director of Morgan Stanley Mutual Funds • Director of Naval and Nuclear Technologies, LLP Age 73 Nationality American Career Frank L Bowman served for more than 38 years in the US Navy, rising to the rank of Admiral. He commanded the nuclear submarine USS City of Corpus Christi and the submarine tender USS Holland. After promotion to flag officer, he served on the joint staff as director of political-military affairs and as the chief of naval personnel. He served over eight years as director of the Naval Nuclear Propulsion Program where he was responsible for the operations of more than 100 reactors aboard the US Navy’s aircraft carriers and submarines. After his retirement as an Admiral in 2004, he was president and chief executive officer of the Nuclear Energy Institute until 2008. He served on the BP Independent Safety Review Panel and was a member of the BP America External Advisory Council. He holds two masters degrees in engineering from the Massachusetts Institute of Technology. He was appointed Honorary Knight Commander of the British Empire in 2005. He was elected to the US National Academy of Engineering in 2009. Frank is a member of the US CNA military advisory board and has participated in studies of climate change and its impact on national security, and on future global energy solutions and water scarcity. Additionally he was co-chair of a National Academies study investigating the implications of climate change for naval forces. Relevant skills and experience Frank Bowman’s exemplary safety record in running the US Navy’s nuclear submarine program indicates his deep understanding of process safety and its implementation. Frank makes a substantial contribution to the safety culture within BP. Combined with his specific knowledge of BP’s safety goals from his work on the BP Independent Safety Review Panel and his special interest in climate change, he brings an important perspective to the board and the SEEAC. He has led the oversight of BP’s compliance with the agreements with the US government stemming from the Deepwater Horizon accident. Frank’s experience of the US and global political and regulatory systems is a valuable asset to the geopolitical committee. Ian Davis Senior independent non-executive director Tenure Appointed 2 April 2010 Board and committee activities Member of the remuneration, geopolitical, nomination and chairman’s committees Outside interests • Chairman of Rolls-Royce Holdings plc • Non-executive director of Majid Al Futtaim Holding LLC • Non-executive director of Johnson & Johnson, Inc. • Non-executive director of Teach for All Age 67 Nationality British Career Ian Davis is senior partner emeritus of McKinsey & Company. He was a partner at McKinsey for 31 years until 2010 and served as chairman and managing director between 2003 and 2009. Ian has a MA in Politics, Philosophy and Economics from Balliol College, University of Oxford. Relevant skills and experience Ian Davis brings global financial and strategic experience to the board. He has worked with and advised global organizations and companies in a wide variety of sectors including oil and gas and the public sector. He is able to draw on knowledge of diverse issues and outcomes to assist the board and its committees. Ian led the board’s oversight of the response in the Gulf and chaired the Gulf of Mexico committee from its formation in 2010 until it was stood down in 2016. He was previously a non-executive director in the Cabinet Office giving him an important perspective on government affairs which is an asset to both the board and the geopolitical committee. In his role as the senior independent director, Ian is responsible for the annual evaluation of the chairman’s performance and is leading the search for the successor to the chairman.


 
BP Annual Report and Form 20-F 201764 Professor Dame Ann Dowling Independent non-executive director Tenure Appointed 3 February 2012 Board and committee activities Chair of the remuneration committee; member of the safety, ethics and environment assurance, nomination and chairman’s committees Outside interests • President of the Royal Academy of Engineering • Deputy vice-chancellor and professor of Mechanical Engineering at the University of Cambridge • Member of the Prime Minister’s Council for Science and Technology • Non-executive director of the Department for Business, Energy and Industrial Strategy (BEIS) Age 65 Nationality British Career Dame Ann Dowling is a deputy vice-chancellor at the University of Cambridge where she was appointed a professor of mechanical engineering in the department of engineering in 1993. She was head of the department of engineering at the university from 2009 to 2014. Her research is in fluid mechanics, acoustics and combustion, and she has held visiting posts at MIT and at Caltech. She chairs BP’s technical advisory council. Dame Ann is a fellow of the Royal Society and the Royal Academy of Engineering and a foreign associate of the US National Academy of Engineering, the Chinese Academy of Engineering and the French Academy of Sciences. She has honorary degrees from 15 universities, including the University of Oxford, Imperial College London and the KTH Royal Institute of Technology, Stockholm. She was elected President of the Royal Academy of Engineering in September 2014 and in December 2015 was appointed to the Order of Merit. Relevant skills and experience Dame Ann is an internationally respected leader in engineering research and the practical application of new technology in industry. Her contribution in these fields has been widely recognized by universities around the world. Her academic background provides balance to the board and brings a different perspective to the SEEAC and nomination committee. Dame Ann became chair of the remuneration committee in 2015. Following an extensive consultation, a revised remuneration policy was approved by shareholders at the 2017 AGM. This was a direct result of Dame Ann's leadership of the committee. Dame Ann will hand the chair of the committee to Paula Reynolds after the 2018 AGM. Melody Meyer Independent non-executive director Tenure Appointed 17 May 2017 Board and committee activities Member of the safety, ethics and environment assurance, geopolitical and chairman’s committees Outside interests • President of Melody Meyer Energy LLC • Director of the National Bureau of Asian Research • Trustee of Trinity University • Non-executive director of AbbVie Inc. • Senior Advisor to Cairn India Limited • Non-executive director of National Oilwell Varco, Inc. Age 60 Nationality American Career Melody Meyer started her career with Gulf Oil in Houston. Gulf Oil later merged with Chevron where Melody remained until her retirement in 2016. During her career with Chevron, Melody had key leadership roles in global exploration and production, working on international projects and operational assignments. In 2004 Melody became the vice president for the Gulf of Mexico business unit, and in 2008 became president of the Chevron Energy Technology Company. From 2011 Melody was president of Asia Pacific Exploration and Production, responsible for the financial and operating performance of the upstream assets in nine countries in Chevron’s Asia Pacific region. Melody was the executive sponsor of the Chevron Women’s Network and continues as a mentor and advocate for the advancement of women in the industry. She was recognized as a 2009 Trinity Distinguished Alumni, with the BioHouston Women in Science Award, was the ASME Rhodes Petroleum Industry Leadership Award recipient and in 2018 as an Influential Woman in Energy. Relevant skills and experience Melody Meyer has spent her entire career in the oil and gas industry. The breadth, variety and geographic scope of her experience is distinctive. Her career has been marked by a focus on excellence, safety and performance improvement. She has expertise in the execution of major capital projects, creation of businesses in new countries, strategic and business planning, merger integration and safe and reliable operations. Melody brings a world class operational perspective to the board, with a deep understanding of the factors influencing safe, efficient and commercially high-performing projects in a global organization. Brendan Nelson Independent non-executive director Tenure Appointed 8 November 2010 Board and committee activities Chair of the audit committee; member of the chairman’s and remuneration committees Outside interests • Non-executive director and chairman of the group audit committee of The Royal Bank of Scotland Group plc • Member of the Financial Reporting Review Panel Age 68 Nationality British


 
BP Annual Report and Form 20-F 2017 65 Corporate governance Career Brendan Nelson is a chartered accountant. He was made a partner of KPMG in 1984. He served as a member of the UK board of KPMG from 2000 to 2006, subsequently being appointed vice chairman until his retirement in 2010. At KPMG International he held a number of senior positions including global chairman, banking and global chairman, financial services. He served for six years as a member of the Financial Services Practitioner Panel and in 2013 was the president of the Institute of Chartered Accountants of Scotland. Relevant skills and experience Brendan Nelson has completed a wide variety of audit, regulatory and due-diligence engagements over the course of his career. He played a significant role in the development of the profession’s approach to the audit of banks in the UK, with particular emphasis on establishing auditing standards. He continues to contribute in his role as a member of the Financial Reporting Review Panel. This wide experience makes him ideally suited to chair the audit committee and to act as its financial expert. He brings related input from his role as the chair of the audit committee of a major bank. His specializm in the financial services industry allows him to contribute insight into the challenges faced by global businesses by regulatory frameworks. Brendan led the successful tendering of BP’s audit services and joined the remuneration committee in 2017. Paula Rosput Reynolds Independent non-executive director Tenure Appointed 14 May 2015 Board and committee activities Member of the audit and chairman’s committees Outside interests • Non-executive director of BAE Systems Ltd • Non-executive director of TransCanada Corporation • Non-executive director of CBRE Group Age 61 Nationality American Career Paula Rosput Reynolds is the former chairman, president and chief executive officer of Safeco Corporation, a Fortune 500 property and casualty insurance company that was acquired by Liberty Mutual Insurance Group in 2008. She also served as vice chair and chief restructuring officer for American International Group (AIG) for a period after the US government became the financial sponsor from 2008 to 2009. Previously Paula was an executive in the energy industry. She was chairman, president and chief executive officer of AGL Resources Inc., an operator of natural gas infrastructure in the US, now a subsidiary of Southern Company. Prior to this, she led a subsidiary of Duke Energy Corporation that was a merchant operator of electricity generation. She commenced her energy career at PG&E Corp. Paula was awarded the National Association of Corporate Directors (US) Lifetime Achievement Award in 2014. Relevant skills and experience Paula Rosput Reynolds has had a long career leading global companies in the energy and financial sectors. Her financial background and deep experience of trading makes her ideally suited to serve on the audit committee. Her experience with international and US companies, including several restructuring processes and mergers, gives her insight into strategic and regulatory issues, which is an asset to the board. Paula joined the remuneration committee in 2017. Paula currently serves as the chair of the remuneration committee of BAE Systems Ltd and will take the chair of BP’s remuneration committee after the 2018 AGM. Sir John Sawers Independent non-executive director Tenure Appointed 14 May 2015 Board and committee activities Chair of the geopolitical committee; member of the safety, ethics and environment assurance, nomination and chairman’s committees Outside interests • Chairman and partner of Macro Advisory Partners LLP • Visiting professor at King’s College London • Governor of the Ditchley Foundation Age 62 Nationality British Career Sir John Sawers spent 36 years in public service in the UK, working on foreign policy, international security and intelligence. Sir John was chief of the Secret Intelligence Service, MI6, from 2009 to 2014 – a period of international upheaval and growing security threats, as well as closer public scrutiny of the intelligence agencies. Prior to that, the bulk of his career was in diplomacy, representing the British government around the world and leading negotiations at the UN, in the European Union and in the G8. He was the UK ambassador to the United Nations (2007-09), political director and main board member of the Foreign Office (2003-07), special representative in Iraq (2003), ambassador to Egypt (2001-03) and foreign policy adviser to the Prime Minister (1999-01). Earlier in his career, he was posted to Washington, South Africa, Syria and Yemen. Sir John is now chairman of Macro Advisory Partners, a firm that advises clients on the intersection of policy, politics and markets. Relevant skills and experience Sir John Sawers’ deep experience of international political and commercial matters is an asset to the board in navigating the geopolitical issues faced by a modern global company. Sir John brings a unique perspective and broad experience which makes him ideal to lead the geopolitical committee. His knowledge and skills related to analysing and negotiating on a worldwide basis are invaluable to both the board and the SEEAC. David Jackson Company secretary Tenure Appointed 2003 David Jackson, a solicitor, is a director of BP Pension Trustees Limited. The ages of the board are correct as at 29 March 2018.


 
BP Annual Report and Form 20-F 201766 Tufan Erginbilgic Chief executive, Downstream Executive team tenure Appointed 1 October 2014 Outside interests • Independent non-executive director of GKN plc • Member of the Turkish-British Chamber of Commerce & Industry Board of Directors • Member of the Strategic Advisory Board of the University of Surrey Age 58 Nationality British and Turkish Career Tufan Erginbilgic was appointed chief executive, Downstream on 1 October 2014. Prior to this, Tufan was the chief operating officer of the fuels business, accountable for BP’s fuels value chains worldwide, the global fuels businesses and the refining, sales and commercial optimization functions for fuels. Tufan joined Mobil in 1990 and BP in 1997 and has held a wide variety of roles in refining and marketing in Turkey, various European countries and the UK. In 2004 he became head of the European fuels business. Tufan took up leadership of BP’s lubricant business in 2006 before moving to head the group chief executive’s office. In 2009 he became chief operating officer for the eastern hemisphere fuels value chains and lubricants businesses. Bob Fryar Executive vice president, safety and operational risk Executive team tenure Appointed 1 October 2010 Outside interests No external appointments Age 54 Nationality American Career Bob Fryar is responsible for strengthening safety, operational risk management and the systematic management of operations across the BP group. He is group head of safety and operational risk, with accountability for group-level disciplines including engineering, health, safety, security, remediation management and the environment. In this capacity, he looks after the group-wide operating management system implementation and capability programmes. Bob has over 30 years’ experience in the oil and gas industry, having joined Amoco Production Company in 1985. Between 2010 and 2013, Bob was executive vice president of the production division, accountable for safe and compliant exploration and production operations and stewardship of resources across all regions. Prior to this, Bob was chief executive of BP Angola and also held several management positions in Trinidad, including chief operating officer for Atlantic LNG and vice president of operations. Bob has also served in a variety of engineering and management positions in onshore US and the deepwater Gulf of Mexico. Andy Hopwood Executive vice-president, chief operating officer, strategy and regions, Upstream Executive team tenure Appointed 1 November 2010 Outside interests No external appointments Age 60 Nationality British Career Andy Hopwood is responsible for BP’s upstream strategy, portfolio and leadership of its global regional presidents. Andy joined BP in 1980, spending his first 10 years in operations in the North Sea, Wytch Farm and Indonesia. In 1989 Andy joined the corporate planning team formulating BP’s upstream strategy and subsequent portfolio rationalization. Andy held commercial leadership positions in Mexico and Venezuela before becoming the Upstream’s planning manager. Following the BP-Amoco merger, Andy spent time leading BP’s businesses in Azerbaijan, Trinidad & Tobago and onshore North America. In 2009 he joined the Upstream executive team as head of portfolio and technology and in 2010 was appointed executive vice president, exploration and production. Bernard Looney Chief executive, Upstream Executive team tenure Appointed 1 November 2010 Outside interests • Fellow of the Royal Academy of Engineering • Member of the Stanford University Graduate School of Business Advisory Council • Fellow of the Energy Institute Age 47 Nationality Irish Career Bernard Looney is responsible for the Upstream segment which consists of exploration, development and production. Bernard joined BP in 1991 as a drilling engineer, working in the North Sea, Vietnam and the Gulf of Mexico. In 2005 he became senior vice president for BP Alaska before becoming head of the group chief executive’s office in 2007. In 2009 he became the managing director of BP’s North Sea business in the UK and Norway. At the same time, Bernard became a member of the Oil & Gas UK Board. He became executive vice president, developments, in October 2010, and in February 2013 became chief operating officer, production, serving in the role until April 2016. Executive team As at 29 March 2018


 
C orporate governance C orporate governance BP Annual Report and Form 20-F 2017 67 Lamar McKay Deputy group chief executive Executive team tenure Appointed 16 June 2008 Outside interests No external appointments Age 59 Nationality American Career Lamar McKay is accountable for group strategy and long-term planning, safety and operational risk and group technology. In addition to supporting the group chief executive, he also focuses on various corporate governance activities including ethics and compliance. Lamar started his career in 1980 with Amoco and held a range of technical and leadership roles. During 1998 to 2000, he worked on the BP-Amoco merger and served as head of strategy and planning for the exploration and production business. In 2000 he became business unit leader for the central North Sea. In 2001 he became chief of staff for exploration and production, and subsequently for BP’s deputy group chief executive. Lamar became group vice president, Russia and Kazakhstan in 2003. He served as a member of the board of directors of TNK-BP between February 2004 and May 2007. In 2007 he was appointed executive vice president, BP America. In 2008 he became executive vice president, special projects where he led BP’s efforts to restructure the governance framework for TNK-BP. In 2009 Lamar was appointed chairman and president of BP America, serving as BP’s chief representative in the US. In January 2013, he became chief executive, Upstream, responsible for exploration, development and production, serving in the role until April 2016. Eric Nitcher Group general counsel Executive team tenure Appointed 1 January 2017 Outside interests No external appointments Age 55 Nationality American Career Eric Nitcher is responsible for legal matters across the BP group. Eric began his career in the late 1980s working as a litigation and regulatory lawyer in Wichita, Kansas. He joined Amoco in 1990 and over the years has held a wide variety of roles, both within and outside the US. In 2000, Eric moved to London to work in the mergers and acquisitions legal team where he played a key role in the formation of the Russian joint venture TNK-BP. Eric returned to Houston in 2007 where he served as special counsel and chief of staff to BP America’s chairman and president. Most recently he played a leading role in the settlement of the Deepwater Horizon government claims and resolution of most of the remaining private claims being litigated in New Orleans. Dev Sanyal Chief executive, alternative energy and executive vice president, regions Executive team tenure Appointed 1 January 2012 Outside interests • Independent non-executive director of Man Group plc • Member of the Accenture Global Energy Board • Member, International Advisory Board of the Ministry of Petroleum and Natural Gas, Government of India • Member of the Board of Advisors of the Fletcher School of Law and Diplomacy, Tufts University Age 52 Nationality British and Indian Career Dev Sanyal is responsible for alternative energy and for the Europe and Asia regions and functionally for risk management, government and political affairs, economics and policy. Dev joined BP in 1989 and has held a variety of international roles in London, Athens, Istanbul, Vienna and Dubai. He was general manager, Former Soviet Union and Eastern Europe, prior to being appointed chief executive, BP Eastern Mediterranean Fuels in 1999. In November 2003 he was appointed chief executive officer of Air BP International and in June 2006 was appointed head of the group chief executive’s office. He was appointed group vice president and group treasurer in 2007. During this period, he was also chairman of BP Investment Management Ltd and was accountable for the group’s aluminium interests. Until April 2016, Dev was executive vice president, strategy and regions. Helmut Schuster Executive vice president, group human resources Executive team tenure Appointed 1 March 2011 Outside interests • Non-executive director of Ivoclar Vivadent AG, Germany Age 57 Nationality Austrian Career Helmut Schuster became group human resources (HR) director in March 2011. In this role he is accountable for the BP human resources function. He completed his post graduate diploma in international relations and his PhD in economics at the University of Vienna and then began his career working for Henkel in a marketing capacity. Since joining BP in 1989 Helmut has held a number of leadership roles. He has worked in BP in the US, UK and continental Europe and within most parts of refining, marketing, trading and gas and power. Before taking on his current role, his portfolio of responsibilities as vice president, HR included the refining and marketing segment of BP and corporate and functions. That role saw him leading the people agenda for roughly 60,000 people across the globe that included businesses such as petrochemicals, fuels value chains, lubricants and functional experts across the group. Outside of his role, Helmut is a non-executive director of Ivoclar Vivadent. Additionally, he is an alumni and advocate of AFS, an international exchange organization. The executive team represents the principal executive leadership of the BP group. Its members include BP’s executive directors (Bob Dudley and Dr Brian Gilvary whose biographies appear on pages 61-65) and the senior management listed on these pages. The ages of the executive team are correct as at 29 March 2018.


 
BP Annual Report and Form 20-F 201768 Upstream Other business and functions leaders 1. David Eyton Group head of technology 2. Dominic Emery Vice president, group strategic planning 3. Laura Folse Chief executive officer, wind, alternative energy 4. Richard Hookway Chief operating officer of global business services and information technology and systems 5. David Jardine Group head of audit 6. Robert Lawson Global head of mergers and acquisitions 7. Dev Sanyal Chief executive, alternative energy and executive vice president, regions 8. Joan Wales Head of safety and operational risk, alternative energy 9. Craig Marshall Group head of investor relations 10. Spencer Dale Group chief economist 11. Geoff Morrell Group head of communications and external affairs 12. Lucy Knight Human resources vice president, corporate business activities and functions 13. Trudi Charles Associate general counsel, integrated supply and trading 1. Andy Hopwood Chief operating officer, strategy and regions 2. James Dupree Chief operating officer, developments and technology 3. Kerry Dryburgh Head of human resources 4. Tony Brock Head of safety and operational risk 5. Bernard Looney Chief executive 6. Murray Auchincloss Chief financial officer 7. Nigel Jones Associate general counsel 8. Gordon Birrell Chief operating officer, production, transformation and carbon 1 2 1 2 4 5 6 8 3 3 7 5 7 9 10 12 4 6 8 11 13 Executive management teams


 
C orporate governance C orporate governance BP Annual Report and Form 20-F 2017 69 Downstream 1. Rita Griffin Chief operating officer, petrochemicals 2. Mike O’Sullivan Chief financial officer 3. Michael Sosso Associate general counsel, downstream and BP shipping 4. Doug Sparkman Chief operating officer, fuels, North America 5. Angela Strank Head of technology and BP chief scientist 6. Tufan Erginbilgic Chief executive 7. Mandhir Singh Chief operating officer, lubricants 8. Evelyn Gardiner Head of human resources 9. Guy Moeyens Chief operating officer, fuels, Europe and Southern Africa 10. Andy Holmes Chief operating officer, fuels ASPAC and Air BP 14. David Anderson Chief financial officer, alternative energy 15. Ashok Pillai Vice president, group reward 16. Kate Thomson Group treasurer 17. Rahul Saxena Group ethics and compliance officer 18. Mario Lindenhayn Chief executive officer, biofuels, alternative energy 19. Susan Dio Chief executive officer, shipping 20. Jan Lyons Group head of tax 21. Alan Haywood Chief executive officer, integrated supply and trading 22. William Lin Head of group chief executive’s office 23. Carol Howle Head of group chief executive’s office 24. Camille Drummond Head of global business services 25. David Bucknall Group controller and chief financial officer, other businesses and corporate 26. Nick Wayth Chief development officer, alternative energy 1 3 4 6 7 9 8 102 5 14 15 17 19 20 23 21 26 16 18 22 24 25 Our diverse and talented leaders have a wide range of skills and disciplines that support our executive team’s work. These include experts in fields such as renewable energy, finance, trading, technology and digital, and tax and treasury. Job titles correct as at 1 January 2018.


 
Introduction from the chairman The work of the board continued to progress in 2017. We focused on the development and implementation of our strategy out to 2021 that we communicated to investors last year. We have seen substantial variations in the oil price and have had to ensure that BP is robust for all financial cycles. We believe there will be a continuing demand for hydrocarbons over the coming decades. Our strategy is designed to balance our role in supplying energy for the world with the growing need to be part of the transition to a lower carbon global economy. The board’s focus has been on this dual challenge, which is crucial to the company’s long-term sustainability. The role of business in society remains a major issue which all boards must address. In the UK, the Financial Reporting Council has published its consultation on a material revision to the UK Corporate Governance Code. There is a clear emphasis on the need for boards to focus on their relationship with all those with whom the company comes into contact. In particular, boards are encouraged to ensure they find ways to hear the voice of the employee in the board room. We are participating in this consultation and have already established a variety of ways to speak and listen to our employees around the world. We will need to ensure that all voices – those of shareholders, employees, customers and communities – find their way to the board. Our long-term investments and relationships in many countries have already helped with this. Remuneration continued to be an area of focus in the year. We are grateful to our shareholders for their support of the remuneration report at the 2017 AGM. This was very important to us. The remuneration committee continued its work this year, as it implements the new policy and some legacy awards from the 2014 policy. The committee has again had some challenging decisions to take. Dame Ann Dowling will be standing down from the committee at the 2018 AGM after three years in the chair. I would like to thank her and pay tribute to her work. Paula Reynolds, already an experienced remuneration committee chair, will succeed Dame Ann. I will be standing down as chairman at an appropriate time after the 2018 AGM. Ian Davis, the senior independent director, has already begun the search for my successor. I will have served as chairman for almost nine years by the time I stand down. The board has faced and risen to many challenges during that time and membership has evolved and remained balanced. I believe that we are well placed for the future – with the appropriate mix of skills, experience and diversity. Throughout I have wanted to ensure that we used our time wisely as it was essential that we had the space in our meetings to discuss strategy and the direction of the company. In 2010 we formed the Gulf of Mexico committee, originally to have oversight of our commitment on the ground following the accident. The work of this committee evolved into considering the reports on the causes of the accident and subsequently leading the work around the ensuing litigation. The committee sat for five years. We also formed a special committee to oversee negotiations in Russia which eventually led to our equity ownership in Rosneft. This experience led to the formation of the geopolitical committee which is now well in its stride. We have used the evaluations of the board and the committees to ensure that we have been focusing on the right issues and adding value. I am pleased that over the summer we will be carrying out an externally facilitated evaluation, which I am sure will assist my successor. I am very grateful to Bob, his executive colleagues and all my fellow directors for all the work that they have done during the year. BP has an exciting future and we have the right team to take advantage of the opportunities that it will bring. Carl-Henric Svanberg Chairman The board has a clear focus on the issues that are crucial to the long-term sustainability of the company. BP Annual Report and Form 20-F 201770


 
Board and committee attendance in 2017 BP board Owners/shareholders Group chief executive Nomination committee See page 89 D eleg atio n Remuneration committee See page 86 Chairman’s committee See page 88 SEEAC See page 84 Geopolitical committee See page 87 Strategy/group risks/annual plan Group chief executive’s delegations Audit committee See page 77 Monitoring, information and assurance BP board governance principles: • Group audit • Finance • Safety and operational risk • Group ethics and compliance • Business integrity • External market and reputation research • Independent auditor • Independent adviser • Independent advice (if requested) • BP goal • Governance process • Delegation model • Executive limitations Delegation Delegation of authority through policy with monitoring Accountability Assurance through monitoring and reporting A cc o u n ta b ili ty Resource commitments meeting (RCM) Group people committee (GPC) Group disclosure committee (GDC) Executive management Group financial risk committee (GFRC) Group operations risk committee (GORC) Group ethics and compliance committee (GECC) Board Audit committee SEEAC Joint audit/ SEEAC Remuneration committee Geopolitical committee Nomination committee Chairman’s committee Non-executive directors A B A B A B A B A B A B A B A B Carl-Henric Svanberg+ 11 11 Nils Andersen 11 11 13 13 4 4 7 7 Paul Anderson 11 11 6 6 4 4 3 3 10 10 Alan Boeckmann+ 11 10 6 6 4 4 8 7 3 3 10 10 Frank Bowman 11 11 6 6 4 4 3 3 10 10 Cynthia Carroll 5 5 2 1 1 1 1 0 3 2 Ian Davis 11 11 8 8 3 3 3 3 10 10 Ann Dowling+ 11 11 6 6 4 4 8 8 3 3 10 10 Melody Meyer 6 6 4 4 3 3 2 2 7 7 Brendan Nelson+ 11 11 13 13 4 4 4 4 10 10 Paula Rosput Reynolds 11 10 13 13 4 3 2 2 10 9 John Sawers+ 11 11 6 6 4 4 3 3 3 3 10 10 Andrew Shilston 5 4 5 5 1 1 4 4 1 1 1 1 3 3 Executive directors A B Bob Dudley 11 11 Brian Gilvary 11 11 A = Total number of meetings the director was eligible to attend. B = Total number of meetings the director did attend. + Committee chair. Nils Andersen did not attend meetings of the chairman’s committee when succession was discussed. Alan Boeckmann missed the telephone meetings of the board and remuneration committee that had been called at short notice, due to a clash with another board. Paula Reynolds missed a board, joint audit-SEEAC and chairman’s committee meeting due to travel arrangements. Cynthia Carroll missed a SEEAC, geopolitical committee and chairman’s committee meeting due to a clash with an external commitment. Andrew Shilston missed a board meeting immediately prior to the 2017 AGM as he was retiring from the board. BP governance framework The board operates within a system of governance that is set out in the BP board governance principles. These principles define the role of the board, its processes and its relationship with executive management. This system is reflected in the governance of the group’s subsidiaries. See bp.com/governance for the board governance principles. C orporate governance BP Annual Report and Form 20-F 2017 71


 
Board activity in 2017 1 Role of the board The board is responsible for the overall conduct of the group’s business. Directors have duties under both UK company law and BP’s Articles of Association. The primary tasks of the board include: Active consideration and direction of long-term strategy and approval of the annual plan Monitoring of BP’s performance against the strategy and plan Ensuring that the principal risks and uncertainties to BP are identified and that systems of risk management and control are in place Board and executive management succession Performance and monitoring The board reviews financial and operational performance at each meeting. It receives regular updates on the group’s performance for the year across a range of metrics as well as the latest view on expected full-year delivery against external scorecard measures. Updates are also given on various components of value delivery for BP’s business. Regular reports presented to the board include: • Chief executive’s report. • Group performance report. • Group financial outlook. • Effectiveness of investment review. • Quarterly and full-year results. • Shareholder distributions. The board reviews the quarterly and full-year results, including the shareholder distribution policy. The 2017 annual report was assessed in terms of the directors’ obligations and appropriate regulatory requirements. The board monitors employee opinion via an annual ‘pulse’ survey which includes measurement of how the BP values are incorporated into culture around our global operations. Strategy During the year the board provided input on the group’s strategy to senior management. This included a two-day strategy session in September where it examined developments in the wider environment and debated strategic themes relating to BP’s segments, key functions and the impact of the lower carbon transition on the group’s business model. The board discussed the transition to a lower carbon world frequently during the year. It received regular reports on the progress and implementation of the strategy – through updates from management and by means of a strategic performance scorecard which is discussed at each full board meeting. The board monitored the company’s performance against the annual plan for 2017 and approved the forward framework for the annual plan in 2018. The board reviewed the BP Energy Outlook, updated in February 2018, which looks at long-term energy trends and projections for world energy markets. Risk The board, either directly or through its monitoring committees, regularly reviews the processes whereby risks are identified, evaluated and managed. Activities include: • Assessing the effectiveness of the group’s system of internal control and risk management as part of the review of the BP Annual Report and Form 20-F 2017. • Identification and allocation of risks to the board and monitoring committees (the audit, SEEA and geopolitical committees) for 2017, and confirmation of the schedule for oversight. The board reviewed the group risk of cyber security in 2017 – with the audit committee and SEEAC assessing elements of cyber security risk in their work programme for the year. The allocation of the group cyber security risk to the board (with additional monitoring by the audit and SEEA committees) remains unchanged for 2018. The group risks allocated to the committees for review over the year are outlined in the reports of the committees on pages 77-89. Further information on BP’s system of risk management is outlined in How we manage risk on page 55. Succession The board, in conjunction with the nomination and chairman’s committees, reviews succession plans for executive and non- executive directors on a regular basis. The board needs to ensure that potential candidates are identified and evaluated as current directors reach the end of their recommended term of office, including in the event of a director leaving unexpectedly. The board employs executive search firms when it concludes that this is an effective way of finding suitable candidates. In 2017 we appointed Egon Zehnder to assist in the search for non-executive directors. • Cynthia Carroll and Andrew Shilston stood down from the board at the 2017 AGM. • Melody Meyer was elected as a director at the 2017 AGM. On appointment she joined the SEEA and geopolitical committees. • Brendan Nelson and Paula Reynolds joined the remuneration committee in May and September 2017 respectively. • Paul Anderson will retire from the board at the 2018 AGM. • Ann Dowling will step down from the remuneration committee after the 2018 AGM, having served three years as chair, and Paula Reynolds will then assume the role. BP Annual Report and Form 20-F 201772


 
Skills and expertise In order to carry out its duties on behalf of shareholders, the board needs to manage its non-executive membership and continuously maintain its knowledge and expertise to benefit the business. It does this through four activity sets: Succession planning to ensure future diversity and balance Diversity including skills, experience, gender, ethnicity and tenure EvaluationTraining including site visits and induction of new directors Diversity BP recognizes the importance of diversity, including gender, at the board and all levels of the group. We are committed to increasing diversity across our operations and have a wide range of activities to support the development and promotion of talented individuals, regardless of gender and ethnic background. The board operates a policy that aims to promote diversity in its composition. Under this policy, director appointments are evaluated against the existing balance of skills, knowledge and experience on the board, with directors asked to be mindful of diversity, inclusiveness and meritocracy considerations when examining nominations to the board. Implementation of this policy is monitored through agreed metrics. During its annual evaluation, the board considered diversity as part of the review of its performance and effectiveness. At the end of 2017, there were three female directors (2016 3, 2015 3) on our board of 13. Our nomination committee actively considers diversity in seeking potential candidates for appointment to the board. The board looked at gender and wider diversity across the group as part of its annual review of HR, capability and talent management. The remuneration committee and the board reviewed and discussed BP’s data and report on the UK gender pay gap prior to its publication in February 2018. Focus was given to the data in the report, and what action BP is taking to address the gap and the broader issue of diversity within the group. Independence Non-executive directors (NEDs) are expected to be independent in character and judgement and free from any business or other relationship that could materially interfere with exercising that judgement. It is the board’s view that all NEDs, with the exception of the chairman, are independent. The board is satisfied that there is no compromise to the independence of, and nothing to give rise to conflicts of interest for, those directors who serve together as directors on the boards of other entities or who hold other external appointments. The nomination committee keeps the other interests of the NEDs under review to ensure that the effectiveness of the board is not compromised. Appointment and time commitment The chairman and NEDs have letters of appointment. There is no term limit on a director’s service, as BP proposes all directors for annual re-election by shareholders (a practice followed since 2004). While the chairman’s letter of appointment sets out the time commitment expected of him, those for NEDs do not set a fixed-time commitment, but instead set a general guide of between 30-40 days per year. The time required of directors may fluctuate depending on demands of BP business and other events. They are expected to allocate sufficient time to BP to perform their duties effectively and make themselves available for all regular and ad hoc meetings. Background and diversity Non-executive director Background Diversity Oil & gas/ extractives/ energy Engineering/ technology Financial expertise Safety Brand/ marketing/ reputation Regulatory/ government affairs Female Non UK/US Tenure (years) Nils Andersen 2 Paul Anderson 8 Alan Boeckmann 4 Frank Bowman 7 Ian Davis 8 Ann Dowling 6 Melody Meyer 1 Brendan Nelson 7 Paula Reynolds 3 John Sawers 3 Carl-Henric Svanberg 9 C orporate governance BP Annual Report and Form 20-F 2017 73


 
Executive directors are permitted to take up one external board appointment, subject to the agreement of the chairman. Fees received for an external appointment may be retained by the executive director and are reported in the directors’ remuneration report (see page 90). Neither the chairman nor the senior independent director are employed as an executive of the group. Training and induction To help develop an understanding of BP’s business, the board continues to build its knowledge through briefings and site visits. In 2017 the board received training on ethics and compliance. NEDs are expected to visit at least one business a year as part of their learning programme. In 2017 the board visited the group’s response information centre in Sunbury, operations of Aker in Norway and the trading business in London. Members of the SEEAC and other directors also visited the Cherry Point refinery in the US and the Glen Lyon FPSO vessel in the North Sea. Newly appointed NEDs follow a structured induction process. This includes one-to-one meetings with management and the external auditors and also covers the board committees that they join. Board evaluation BP undertakes an annual review of the board, its committees and individual directors. The chairman’s performance is evaluated by the chairman’s committee and his evaluation is led by the senior independent director. The evaluation operates on a three-year cycle, with one externally led evaluation followed by two subsequent years of internal evaluations carried out using a questionnaire prepared by an external facilitator. Activity following prior year evaluation Actions arising from the 2016 evaluation and how these were addressed included: • Focus on implementing the strategy, in particular the opportunities relating to the transition to a lower carbon economy: reporting on the implementation of the strategy was further developed and as a result the board receives updates from management and a strategic progress report at each meeting. The board held a number of discussions on the transition to a lower carbon economy, including a session at the strategy away day, with further sessions scheduled for 2018. The group’s quarterly results announcement was amended in 2017 to include narrative on the implementation of strategy. • More detailed examination of the financial performance of the business, in particular capital allocation and returns: the board discusses financial performance at each board meeting and reviews the proposed disclosures and investor presentation for each quarter’s results. A return on average capital employed measure was included in the 2017 remuneration policy and the board reviews this as part of its performance monitoring. A review of the group’s capital allocation process and investment effectiveness was also held during the year. • Obtaining a better understanding of the group’s ability to effectively deliver the strategy, including technology, digital and big data: this included a deep dive into technology trends and their potential impact on the group’s business model. • Bringing wider perspectives into the board room and gaining deeper insight into shareholder views: the board considered output from BP’s remuneration engagement programme as well as broader governance issues from investor meetings held throughout the year. Feedback from institutional investors on the group’s performance and strategy – compiled by an independent third party – was discussed with the board following the strategy update. • Continued emphasis on improving operational excellence: the board received data and commentary on BP’s operations through monthly reports and updates from management; and operational measures were included in the annual bonus scorecard as part of the remuneration assessment for the year. 2017 evaluation The evaluation was undertaken through a questionnaire facilitated by an external consultant (Lintstock) and individual interviews between the chairman and each director. The results of the evaluation and feedback from the interviews were collectively discussed by the board including: • Investment decisions: continue focusing on capital allocation and the way in which investment decisions are taken. • Longer-term vision and strategy: extend the timeframe of strategic discussions, including challenges faced by BP’s core business and the lower carbon transition. • Geopolitics: consider how to further optimize the output of the work undertaken by the board, geopolitical committee and the international advisory board. • Improve the board’s understanding of employees’ views: expand the existing ways employee views are disseminated to the board to include more local and business based feedback. Director induction programme Melody Meyer, appointed in 2017, followed a tailored induction process, which also covered the SEEAC and geopolitical committee. The programme of topics included: Board and governance • BP’s board governance model, directors’ duties, interests and potential conflicts. Business introduction • BP’s business • Upstream (exploration, development, production, overview of our operations) • Downstream (refining, marketing and lubricants) • Alternative Energy • Strategy and planning • Lower carbon transition • BP’s performance relative to its competitors. Functional input • Human resources, including capability and reward • Ethics and compliance • Research and technology • Investor relations • Trading • Communications and corporate reporting • Group audit • External audit • BP women’s network • Legal. SEEAC specific • Safety and operational risk (S&OR), BP’s operating management system (OMS) and environmental performance • Operational, safety and environmental reporting • Group security and crisis management. Geopolitical committee specific • BP’s regional businesses • Government affairs. BP executives devoted substantial time to ensure a high quality induction. Melody Meyer Non-executive director See Glossary BP Annual Report and Form 20-F 201774


 
Site visits Washington state, US Members of the SEEAC and other directors visited the Cherry Point refinery in Blaine, Washington in June. The visit focused on operating procedures and safety and risk mitigation. Investment was discussed, including technology enhancements to produce ultra-low sulphur diesel, increasing logistical optionality and a coker heater project. Other discussions included the cultural and environmental outreach projects in the area. They also took a tour of the refinery, control room, the operator training simulator and dock area. Global business services, Hungary The audit committee visited BP’s global business service (GBS) centre located in Budapest in September, where standardized business services including finance, procurement, HR, trading settlement and tax are delivered for businesses across the BP group. The committee received presentations on the GBS strategy, business model and controls framework. They also met local staff across a range of job levels, including those involved in diversity and inclusion initiatives such as LGBT and working parent programmes. Integrated supply and trading, London Members of the board visited BP’s trading operations in London in December to gain an insight into the group’s approach to trading, oil and gas market fundamentals, risk profile and strategy. Directors received presentations from traders and originators on the trading floor and deepened their understanding of the group’s oil products and LNG business models. North Sea, UK In July members of the SEEAC and other directors visited Glen Lyon – the floating, production, storage and offloading vessel for our Quad 204 major project start-up in the North Sea. The committee was the first to visit the vessel following production start-up. Discussions on board the vessel covered project completion and future plans including reviews of production efficiency, operational management, safety, risk mitigation and OMS conformance. They also visited key areas of the vessel including the control room and riser tower. Tranby, Norway The board visited Aker’s Tranby technology centre near Oslo to see the manufacture of subsea well heads and the research and development centre. The Tranby site has been an established centre of excellence for subsea equipment manufacturing for over a decade. The board heard about the research being undertaken in subsea trees, workover systems and subsea pumps and saw new digital technologies to integrate engineering and manufacturing processes being tested. Non-executive directors are expected to visit at least one business per year, as part of their learning programme. In 2017 the board visited partner operations in Tranby, Norway and BP’s trading business in London. Members of the SEEAC and other directors visited operations in the North Sea and Washington state, and the audit committee visited our global business services offices in Hungary. The board met local management at each visit, and after each one, the board or appropriate committee was briefed on the impressions gained by the directors during the visit. C orporate governance BP Annual Report and Form 20-F 2017 75


 
Shareholder engagement Institutional investors The company operates an active investor relations programme. The board receives feedback on shareholder views through results of an anonymous investor audit and reports from management and those directors who meet with shareholders each year. In 2017 the chair of the remuneration committee undertook extensive engagement on the new remuneration policy prior to the AGM in May (see the remuneration committee report on page 86). The chair of the audit committee and the senior independent director also held one-to-one meetings with institutional investors during the year. Senior management regularly meets with institutional investors through roadshows, group and one-to-one meetings, events for socially responsible investors (SRIs) and oil and gas sector conferences throughout the year. In April the chairman and all board committee chairs held an annual investor event. This meeting enabled BP’s largest shareholders to hear about the work of the board and its committees and for NEDs to engage with investors. See bp.com/investors for investor and strategy presentations, including the group’s financial results and information on the work of the board and its committees. Private investors BP held a further event for private investors in conjunction with the UK Shareholders’ Association (UKSA) in 2017. The chairman and head of investor relations gave presentations on BP’s annual results, strategy and the work of the board. Shareholders’ questions were focused on BP’s activities and performance. AGM Voting levels decreased in 2017 to 50.8% (of issued share capital, including votes cast as withheld), compared to 64.3% in 2016 and 62.3% in 2015. We believe this drop in vote levels was due to the late return of BP stock on loan, with voting deadlines for some custodians coinciding with the date that BP shares went ‘ex-dividend’. The company is looking at future AGM voting deadlines against its financial calendar to mitigate this event recurring. All resolutions were passed at the meeting. Each year the board receives a report after the AGM giving a breakdown of the votes and investor feedback on their voting decisions to inform them on any issues arising. UK Corporate Governance Code compliance BP complied throughout 2017 with the provisions of the UK Corporate Governance Code except in the following aspects: B.3.2 Letters of appointment do not set out fixed-time commitments since the schedule of board and committee meetings is subject to change according to the demands of business and other events. Our letters of appointment set a general guide of a time commitment of between 30-40 days per year. All directors are expected to demonstrate their commitment to the work of the board on an ongoing basis. This is reviewed by the nomination committee in recommending candidates for annual re-election. D.2.2 The remuneration of the chairman is not set by the remuneration committee. Instead, the chairman’s remuneration is reviewed by the remuneration committee which makes a recommendation to the board as a whole for final approval, within the limits set by shareholders. This wider process enables all board members to discuss and approve the chairman’s remuneration, rather than solely the members of the remuneration committee. International advisory board BP’s international advisory board (IAB) advises the chairman, group chief executive and the board on geopolitical and strategic issues relating to the company. This group meets once or twice a year and between meetings IAB members remain available to provide advice and counsel when needed. The IAB was chaired by BP’s previous chairman, the late Peter Sutherland. Its membership in 2017 comprised Lord Patten of Barnes, Josh Bolten, President Romano Prodi, Dr Ernesto Zedillo and Dr Javier Solana. The chairman, chief executive and Sir John Sawers attend meetings of the IAB. Issues discussed in 2017 included the global economy, developments in the Middle East, political events in Latin America and the political and economic outlook in the US. The IAB discussed the UK’s potential exit from the European Union at both of its meetings during 2017. Shareholder engagement cycle 2017 Q1 • Fourth quarter results • BP Energy Outlook presentation • Strategy investor roadshows with executive management • US SRI meetings on remuneration • Investor meetings on remuneration, continuing into Q2 • SRI roadshow following the launch of the BP Sustainability Report 2016, continuing into Q2 Q2 • Chairman and board committee chairs meetings • UKSA private shareholders’ meeting • First quarter results • Meetings with members of the Church Investors Group and Charities Responsible Network • Institutional Investors Group on Climate Change (IIGCC) meeting • Annual general meeting • BP Statistical Review of World Energy launch • Downstream investor day, Pangbourne Q3 • Second quarter results • Investor roadshows with the group chief executive and chief financial officer Q4 • Third quarter results • IIGCC meeting BP Annual Report and Form 20-F 201776


 
Committee reports Chairman’s introduction Last year’s report highlighted our monitoring of the group’s financial performance in light of the demanding external environment. While this focus remains, the committee has continued to review the integrity of the group’s financial reporting by challenging and debating the judgements made by management, including the estimates which are made. We receive reports from management and the external auditor each quarter highlighting significant accounting issues and judgements and have used these to inform our debate on whether BP’s financial reporting is ‘fair, balanced and understandable’. In 2017 the committee focused on the effectiveness of the group audit function. We reviewed its longer-term vision and capability and oversaw an externally facilitated review of its performance, the results of which we discussed in a joint session with colleagues from the SEEAC. We will continue to focus on the actions arising from the review in 2018. Following the 2016 tender process for the statutory audit, the committee has overseen the transition to Deloitte from EY in time for 2018. We met with both EY and Deloitte during 2017 and monitored Deloitte’s progress towards independence in time for their ‘shadowing’ of the 2017 year-end audit. The committee visited one of the group’s global business service centres, located in Budapest, enabling us to see first hand the work undertaken by this growing part of BP’s operations and to meet local staff. We found this direct contact added an important additional dimension to our review and understanding, and intend to hold further site visits in 2018. Andrew Shilston retired from the committee in May 2017. I would like to thank Andrew for his service to the committee, and for the challenge and perspective he provided as a member. Brendan Nelson Committee chair The committee continued to review the integrity of the group’s disclosures by challenging and debating the judgements made by management. Audit committee Role of the committee The committee monitors the effectiveness of the group’s financial reporting, systems of internal control and risk management and the integrity of the group’s external and internal audit processes. Key responsibilities • Monitoring and obtaining assurance that the management or mitigation of financial risks is appropriately addressed by the group chief executive and that the system of internal control is designed and implemented effectively in support of the limits imposed by the board (‘executive limitations’), as set out in the BP board governance principles. • Reviewing financial statements and other financial disclosures and monitoring compliance with relevant legal and listing requirements. • Reviewing the effectiveness of the group audit function, BP’s internal financial controls and systems of internal control and risk management. • Overseeing the appointment, remuneration, independence and performance of the external auditor and the integrity of the audit process as a whole, including the engagement of the external auditor to supply non-audit services to BP. • Reviewing the systems in place to enable those who work for BP to raise concerns about possible improprieties in financial reporting or other issues and for those matters to be investigated. Members Brendan Nelson Member since November 2010 and chair since April 2011 Nils Andersen Member since October 2016 Paula Reynolds Member since May 2015 Andrew Shilston Member since February 2012; retired May 2017 Brendan Nelson is chair of the audit committee. He was formerly vice chairman of KPMG and president of the Institute of Chartered Accountants of Scotland. Currently he is chairman of the group audit committee of The Royal Bank of Scotland Group plc and a member of the Financial Reporting Review Panel. The board is satisfied that he is the audit committee member with recent and relevant financial experience as outlined in the UK Corporate Governance Code and competence in accounting and auditing as required by the FCA’s Corporate Governance Rules in DTR7. It considers that the committee as a whole has an appropriate and experienced blend of commercial, financial and audit expertise to assess the issues it is required to address, as well as competence in the oil and gas sector. The board also determined that the audit committee meets the independence criteria provisions of Rule 10A-3 of the US Securities Exchange Act of 1934 and that Brendan may be regarded as an audit committee financial expert as defined in Item 16A of Form 20-F. Meetings and attendance There were 13 committee meetings in 2017, of which six were by teleconference. All directors attended every meeting during the period in which they were committee members. Regular attendees at the meetings include the chief financial officer, group controller, chief accounting officer, group head of audit and external auditor. C orporate governance BP Annual Report and Form 20-F 2017 77


 
Activities during the year Financial disclosure The committee reviewed the quarterly, half-year and annual financial statements with management, focusing on the: • Integrity of the group’s financial reporting process. • Clarity of disclosure. • Compliance with relevant legal and financial reporting standards. • Application of accounting policies and judgements. As part of its review, the committee received quarterly updates from management and the external auditor in relation to accounting judgements and estimates including those relating to the Gulf of Mexico oil spill, recoverability of asset carrying values and other matters. The committee keeps under review the frequency of reporting during the year. The committee reviewed the assessment and reporting of longer-term viability, risk management and the system of internal control, including the reporting and categorization of risk across the group and the examination of what might constitute a significant failing or weakness in the system of internal control. It also examined the group’s modelling for stress testing different financial and operational events, and considered whether the period covered by the company’s viability statement was appropriate. The committee considered the BP Annual Report and Form 20-F 2017 and assessed whether the report was fair, balanced and understandable and provided the information necessary for shareholders to assess the group’s position and performance, business model and strategy. In making this assessment, the committee examined disclosures during the year, discussed the requirement with senior management, confirmed that representations to the external auditors had been evidenced and reviewed reports relating to internal controls. The committee made a recommendation to the board, who in turn reviewed the report as a whole, confirmed the assessment and approved the report’s publication. Other disclosures reviewed included: • Oil and gas reserves. • Pensions and post-retirement benefits assumptions. • Risk factors. • Legal liabilities. • Tax strategy. • Going concern. Risk reviews The principal risks allocated to the audit committee for monitoring in 2017 included those associated with: Trading activities: including risks arising from shortcomings or failures in systems, risk management methodology, internal control processes or employees. In reviewing this risk, the committee focused on external market developments and how BP’s trading function had responded – including new areas of activity and impacts on the control environment. The committee further considered updates in the trading function’s risk management programme, including compliance with regulatory developments and activities in response to cyber threats. Compliance with applicable laws and regulations: including ethical misconduct or breaches of applicable laws or regulations that could damage BP’s reputation, adversely affect operational results and/or shareholder value and potentially affect BP’s licence to operate. Other reviews Other reviews undertaken in 2017 by the committee included: • Downstream: including strategy and strategic progress, financial performance, risk management and controls, audit findings, key litigation and ethics and compliance findings. • Upstream: including vision and priorities, structure and portfolio, financial controls and the balance sheet, an overview of intangible assets and a review of the segment’s finance organization. • Shipping: including an overview of BP shipping’s role and operating model, financial performance, strategy, risk management and controls and the impact of IFRS 16 (lease accounting standard). • Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD): the origin, purpose and work of the TCFD along with its key recommendations and how BP’s existing reporting compares to these recommendations, see page 50. • Non-operating items (NOIs): BP’s policy for identifying and categorizing NOIs and an analysis of those NOIs impacting BP’s reported results. • Blockchain: introduction to blockchain technology, its potential impacts on the oil and gas industry and an overview of BP’s participation and approach to date. • Capability and succession in BP’s finance function, including the group’s finance modernization programme. • Assessment of financial metrics for executive remuneration: consideration of financial performance for the group’s 2017 annual cash bonus scorecard and performance share plan, including adjustments to plan conditions and NOIs. The committee reviewed key areas of BP’s ethics and compliance programme, including the integration of the business integrity and ethics and compliance functions, development of the anti-bribery and corruption elements of the programme, enhanced policies, tools and training and strengthening of counterparty risk measures, including due diligence. Security threats against BP’s digital infrastructure: including inappropriate access to or misuse of information and systems and disruption of business activity. The committee reviewed changes in the cyber security landscape, including events in the oil and gas industry and within BP itself. The review focused on the improvements made in managing cyber risk, including the application of the three lines of defence model and examining the indicators associated with risk management and barrier performance. Financial resilience: including the risk associated with external market conditions, supply and demand and prices achieved for BP’s products which could impact financial performance. The committee reviewed the key price assumptions used by the group for investment appraisal and the judgements underlying those proposals, the cost of capital and its application as a discount rate to evaluate long-term BP business projects, liquidity (including credit rating, hedging, long-term commercial commitments and credit risk) and the effectiveness and efficiency of the capital investment into major projects . BP’s principal risks are listed on page 57. For 2018, the board has agreed that the committee will continue to monitor the same four group risks as for 2017. The group risk financial resilience has been renamed ‘financial liquidity’ for 2018. See Glossary BP Annual Report and Form 20-F 201778


 
In te rnal control and risk management The committee received quarterly reports on the findings of group audit in 2017. It reviewed group audit’s vision for 2020, including the roadmap for 2017 and beyond. The committee met privately with the group head of audit and key members of his leadership team. The committee oversaw an external review of the effectiveness of the group audit function, which was awarded to Deloitte in July 2017 following a competitive tender process. Fieldwork and interviews with management and board members was completed by September 2017 and the results of the assessment were reviewed at a joint meeting of the audit and safety, ethics and environment assurance committees in December. The review concluded that the group audit function: • Performed strongly across Deloitte’s assessment framework. • Demonstrated a high level of maturity when assessed against internal audit functions within large FTSE (non- financial services) companies. • Had a remit covering all risk categories (financial and operational) – a breadth seen as leading practice. • Had areas where continuous improvement activity and continued dialogue with the business could result in an even stronger performance. Implementation of the agreed actions arising from the review will be tracked during 2018. The audit committee also held private meetings with the group ethics and compliance officer during the year. Training The committee held a deep dive on reserves, covering resource definition and estimation, the group’s governance processes, areas of focus for the regulator and how BP compared with its competitors in terms of approach. It received technical updates from the chief accounting officer on developments in financial reporting and accounting policy, including IFRS 9 ‘Financial Instruments’, IFRS 15 Revenues from Contracts with Customers and IFRS 16 ‘Leases’. Site visits In September, the committee visited BP’s global business services (GBS) centre in Hungary. During the visit the committee reviewed the function’s strategy, context, and how it has grown in scope and scale. It looked at its risk management and controls processes, including understanding the risks around transition of activity from the business and the standardization of global processes. It also reviewed capability and human resources issues, including talent attraction and retention, met a range of staff and heard about the various GBS diversity programmes including LGBT, working parents and disability awareness. In December, members of the committee and wider board visited BP’s integrated supply and trading (IST) business in London for a day that covered oil and gas market fundamentals, finance and risk, IST’s strategy, and presentations on oil products and LNG trading. Accounting judgements and estimates Areas of significant judgement considered by the committee in 2017 and how these were addressed included: Key judgements and estimates in financial reporting Audit committee activity Conclusions/Outcomes Gulf of Mexico oil spill BP uses judgement in relation to the recognition of provisions relating to the Gulf of Mexico oil spill. The timing and amounts of the remaining cash flows are subject to uncertainty and estimation is required to determine the amounts provided for. A review of the provisioning for and disclosure of uncertainties relating to the Gulf of Mexico oil spill was undertaken each quarter as part of the review of the stock exchange announcement. Particular focus was given to updates to the provision related to business economic loss (BEL) and other claims related to the Gulf of Mexico oil spill, including the continuing effect of the Fifth Circuit May 2017 opinion on the matching of revenues with expenses when evaluating BEL claims. Following significantly higher average claims determinations issued by the Court Supervised Settlement Program (CSSP) in the fourth quarter 2017 and the continuing effect arising from the Fifth Circuit May 2017 opinion, BP recognized a post-tax charge of $1.7 billion for BEL and other claims associated with the CSSP. Disclosure includes information on remaining uncertainties. C orporate governance BP Annual Report and Form 20-F 2017 79


 
Key judgements and estimates in financial reporting Audit committee activity Conclusions/Outcomes Oil and natural gas accounting, including reserves BP uses technical and commercial judgements when accounting for oil and gas exploration, appraisal and development expenditure and in determining the group’s estimated oil and gas reserves. Reserves estimates based on management’s assumptions for future commodity prices have a direct impact on the assessment of the recoverability of asset carrying values reported in the financial statements. Judgement is required to determine whether it is appropriate to continue to carry intangible assets related to exploration costs on the balance sheet. Held an in-depth review of BP’s policy and guidelines for compliance with oil and gas reserves disclosure regulation, including the group’s reserves governance framework and controls. Reviewed exploration write-offs as part of the group’s quarterly due diligence process. Received briefings on the status of upstream intangible assets, including the status of items on the intangibles assets ‘watch-list’. Received the output of management’s annual intangible asset certification process used to ensure accounting criteria to continue to carry the exploration intangible balance are met. Exploration write-offs totalling $1.6 billion were recognized during the year. Exploration intangibles totalled $17.0 billion at 31 December 2017. Recoverability of asset carrying values Determination as to whether and how much an asset, cash generating unit (CGU) or group of CGUs containing goodwill is impaired involves management judgement and estimates on uncertain matters such as future commodity pricing, discount rates, production profiles, reserves and the impact of inflation on operating expenses. Judgement is required in assessing the recoverability of overdue receivables, and deciding whether a provision is required. Reviewed the group’s oil and gas price assumptions. Reviewed the group’s discount rates for impairment testing purposes. Upstream impairment charges, reversals and ‘watch-list’ items were reviewed as part of the quarterly due diligence process. Reviewed the group’s credit risk management and reporting framework, including actual credit losses observed, expected loss delegations and utilization and changes in the credit portfolio quality. The group’s long-term price assumptions for Brent oil, and Henry Hub gas were unchanged from 2016. The group’s discount rates used for impairment testing were also unchanged. Impairments of $1.0 billion were recorded in the year, net of impairment reversals. The group had $1.5 billion of receivables which were not impaired but past due at 31 December 2017. Investment in Rosneft Judgement is required in assessing the level of control or influence over another entity in which the group holds an interest. BP uses the equity method of accounting for its investment in Rosneft and BP’s share of Rosneft’s oil and natural gas reserves is included in the group’s estimated net proved reserves of equity-accounted entities. The equity-accounting treatment of BP’s 19.75% interest in Rosneft continues to be dependent on the judgement that BP has significant influence over Rosneft. Reviewed the judgement on whether the group continues to have significant influence over Rosneft. Considered IFRS guidance on evidence of significant influence, including representation on the board and participation in policy-making processes. Received reports from management and the external auditor which assessed the extent of significant influence, including BP’s participation in decision making through the continued service on the Rosneft board and key board committees of two BP-nominated directors and work on significant transactions and projects. This assessment considered the appointment of two additional non-BP directors to the Rosneft board but concluded that the assessment of significant influence remained unchanged. BP has retained significant influence over Rosneft throughout 2017 as defined by IFRS. See Glossary BP Annual Report and Form 20-F 201780


 
Key judgements and estimates in financial reporting Audit committee activity Conclusions/Outcomes Derivative contracts In some instances, BP estimates the fair value of derivative contracts using internal models due to the absence of quoted market pricing or other observable, market-corroborated data. Judgement may also be required to determine whether contracts to buy or sell commodities meet the definition of a derivative. Received a briefing on the group’s trading risks and reviewed the system of risk management and controls in place, including those covering the valuation of derivative instruments, using models where observable market pricing is not available. The committee annually reviews the control process and risks relating to the trading business. BP has assets and liabilities of $7.1 billion and $6.6 billion respectively recognized on the balance sheet for derivative contracts at 31 December 2017, mainly relating to the activities of the integrated supply and trading function (IST). BP’s use of internal models to value certain of these contracts has been disclosed in Note 28 in the financial statements. Provisions BP’s most significant provisions relate to decommissioning, the Gulf of Mexico oil spill (see above), environmental remediation litigation. The group holds provisions for the future decommissioning of oil and natural gas production facilities and pipelines at the end of their economic lives. Most of these decommissioning events are many years in the future and the exact requirements that will have to be met when a removal event occurs are uncertain. Assumptions are made by BP in relation to settlement dates, technology, legal requirements and discount rates. The timing and amounts of future cash flows are subject to significant uncertainty and estimation is required in determining the amounts of provisions to be recognized. Received briefings on decommissioning, environmental, asbestos and litigation provisions, including the requirements, governance and controls for the development and approval of cost estimates and provisions in the financial statements. Reviewed the group’s discount rates for calculating provisions. Decommissioning provisions of $16.1 billion were recognized on the balance sheet at 31 December 2017. The discount rate used by BP to determine the balance sheet obligation at the end of 2017 was a real rate of 0.5% – based on long-dated US government bonds. Pensions and other post-retirement benefits Accounting for pensions and other post- retirement benefits involves making estimates when measuring the group’s pension plan surpluses and deficits. These estimates require assumptions to be made about uncertain events, including discount rates, inflation and life expectancy. Reviewed the group’s assumptions used to determine the projected benefit obligation at the year end, including the discount rate, rate of inflation, salary growth and mortality levels. The method for determining the group’s assumptions remained largely unchanged from 2016. The values of these assumptions and a sensitivity analysis of the impact of possible changes on the benefit expense and obligation are provided in Note 22. At 31 December 2017, surpluses of $4.2 billion and deficits of $9.1 billion were recognized on the balance sheet in relation to pensions and other post-retirement benefits. Income taxes Computation of the group’s income tax expense and liability, the provisioning for potential tax liabilities and the level of deferred tax asset recognition are underpinned by management judgement and estimation of the amounts which could be payable. Received regular updates on the group’s tax exposures and deferred tax asset recognition. Reviewed the judgement exercised on tax provisioning, including any material changes to deferred tax asset recognition. Reviewed the accounting treatment of taxes relating to renewal of the Abu Dhabi onshore concession. Reviewed the estimated impact of tax reforms arising from the US Tax Cuts and Jobs Act. Deferred tax assets amounting to $4.5 billion were recognized on the balance sheet at 31 December 2017. As a result of changes in the fiscal terms of the Abu Dhabi onshore concession following its renewal, the group’s taxes payable relating to the concession are now principally reported as income taxes rather than as production taxes. Changes to the US corporate tax system resulted in a one-off deferred tax charge of $0.9 billion in the fourth quarter 2017 arising from a revaluation of BP’s US deferred tax assets and liabilities. C orporate governance BP Annual Report and Form 20-F 2017 81


 
External audit Audit risk The external auditor set out its audit strategy for 2017, identifying key risks to be monitored during the year. These included: • Determining the liabilities, contingent liabilities and disclosures arising from the Gulf of Mexico oil spill. • Estimating oil and gas reserves and resources which has significant impact on the financial statements, particularly impairment testing and the calculation of depreciation, depletion and amortization. • Monitoring for unauthorized trading activity in the trading function and its potential impact on revenue. The committee received updates during the year on the audit process, including how the auditor had challenged the group’s assumptions on these issues. Audit fees The audit committee reviews the fee structure, resourcing and terms of engagement for the external auditor annually; in addition it reviews the non-audit services that the auditor provides to the group on a quarterly basis. Fees paid to the external auditor for the year were $47 million (2016 $47 million), of which 6% was for non-audit assurance work (see Financial statements – Note 34). The audit committee is satisfied that this level of fee is appropriate in respect of the audit services provided and that an effective audit can be conducted for this fee. Non-audit or non-audit related assurance fees were $3 million (2016 $2 million). The $1 million increase in non-audit fees primarily relates to non-audit related assurance services, offset by a reduction in tax compliance services. Non-audit or non-audit related services consisted of other assurance services. There were no new services contracted for tax compliance and advisory services for 2017. Audit effectiveness The effectiveness, performance and integrity of the external audit process was evaluated through separate surveys for committee members and those BP personnel impacted by the audit, including chief financial officers, controllers, finance managers and individuals responsible for accounting policy and internal controls over financial reporting. The survey sent to management comprised questions across five main criteria to measure the auditors’ performance: • Robustness of the audit process. • Independence and objectivity. • Quality of delivery. • Quality of people and service. • Value added advice. Further questions were included on BP’s attitude to the audit and the progress of the audit transition. The 2017 evaluation concluded that the external auditor’s performance had remained largely constant in key areas compared with the previous year. Areas with high scores and favourable comments included quality of accounting and auditing judgement, the working relationship with management and the insight brought through EY’s audit work. Areas of focus included the need for innovation in the audit and consistency of audit practices in locations further away from the UK and US. A further focus was BP’s assessment of its own performance in relation to the audit. Results of the annual assessment were discussed with the external auditor who considered these themes for the 2017 audit service approach. A key area of focus from 2016 related to audit team turnover, particularly for junior members of the teams. Actions taken over the year resulted in an improvement in the related score for continuity and retention of key members of the audit team in 2017. The committee held private meetings with the external auditor during the year and the committee chair met separately with the external auditor and group head of audit before each meeting. Audit transition Deloitte was appointed for the statutory audit, with effect from 2018 following a tender process in 2016. The committee monitored the transition of BP’s statutory auditor from EY to Deloitte, including activity to enable Deloitte to achieve independence by October 2017. This included: • Receiving reports from the audit transition team, including an overview of operational activities and the termination of non-audit services being provided by Deloitte to BP – which would be prohibited when Deloitte becomes the group’s statutory auditor. This included Deloitte stepping down as independent adviser to BP’s remuneration committee. • Requiring management to report to the committee on any services undertaken by the statutory auditor in line with the group’s policies relating to non-audit services. • Requiring confirmation of Deloitte’s compliance with BP’s independence and ethics and compliance rules. • Inviting Deloitte to attend meetings of the audit committee, joint audit and SEEA committees and the board from October 2017 as part of its ‘shadowing’ of the audit of the third and fourth quarters 2017. Deloitte confirmed its independence to the committee in October 2017. EY resigned on 29 March 2018 following completion of the 2017 audit. Deloitte will audit the 2018 financial year subject to shareholder approval at the 2018 AGM. Changes in Registrant’s Certifying Accountant Following a competitive tender process and on the audit committee’s recommendation, in November 2016 the board selected Deloitte as BP’s independent external auditor for the financial year ending 31 December 2018. This change in external auditor is being made in accordance with UK and EU law requirements – in particular, the UK Corporate Governance Code and the reforms of the audit market by the Competition and Markets Authority and the European Union – which require that companies put their external audit out to tender at least every ten years. EY has served as BP’s external auditor since 1909. EY continued to serve as BP’s external auditor throughout the financial year ended 31 December 2017. The audit committee supervised the transition period of Deloitte, as new external auditor, to ensure the monitoring of Deloitte’s independence and extended the audit committee’s policy on non-audit services to Deloitte during the financial year ended 31 December 2017. The board appointed Deloitte as the company's new external auditor with effect from 29 March 2018 to fill the vacancy arising from EY’s resignation following completion of their audit of BP’s 2017 financial statements. At the 2018 AGM, EY will not stand for re-election and the board will seek shareholder approval for the appointment of Deloitte as the company's external auditor until the conclusion of the next AGM at which the company's accounts are laid before shareholders. In respect of the financial years ended 31 December 2016 and 2017, EY did not issue any report on the consolidated financial statements of the BP group that contained an adverse opinion or a disclaimer of opinion, nor were the auditor’s report qualified or modified as to uncertainty, audit scope or accounting principles. There has not been any disagreement as defined in Item 16F(a)(1)(iv) of Form 20-F with EY over any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to EY’s satisfaction, would have caused EY to make reference to the subject matter of the disagreement in connection with its BP Annual Report and Form 20-F 201782


 
auditor’s reports, or any reportable event as defined in Item 16F(a)(1)(v) of Form 20-F. BP has provided EY with a copy of the foregoing disclosure and has requested that they furnish BP with a letter addressed to the US Securities and Exchange Commission (SEC) stating whether or not they agree with such disclosure and, if not, stating the respects in which they do not agree. A copy of EY’s letter dated 29 March 2018, in which they stated that they agree with such disclosure, is filed as Exhibit 15.6. During the financial years ended 31 December 2016 and 2017 BP did not consult with Deloitte regarding: (i) the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of the BP group; or (ii) any matter that was either the subject of a disagreement as defined in Item 16F(a)(1)(iv) of Form 20-F or reportable event as defined in Item 16F(a)(1)(v) of Form 20-F. Auditor appointment and independence The committee considers the reappointment of the external auditor each year before making a recommendation to the board. The committee assesses the independence of the external auditor on an ongoing basis and the external auditor is required to rotate the lead audit partner every five years and other senior audit staff every seven years. The current lead partner has been in place since the start of 2013. No partners or senior staff associated with the BP audit may transfer to the group. Non-audit services The audit committee is responsible for BP’s policy on non-audit services and the approval of non-audit services. Audit objectivity and independence is safeguarded through the prohibition of non-audit tax services and the limitation of audit-related work which falls within defined categories. BP’s policy on non-audit services states that the auditors may not perform non-audit services that are prohibited by the SEC, Public Company Accounting Oversight Board (PCAOB), UK Auditing Practices Board (APB) and the UK Financial Reporting Council (FRC). The audit committee approves the terms of all audit services as well as permitted audit-related and non-audit services in advance. The external auditor is only considered for permitted non-audit services when its expertise and experience of the company is important. For all other services which fall under the ‘permitted services’ categories, approval above a certain financial amount must be sought on a case-by-case basis. Any proposed service not included in the permitted services categories must be approved in advance either by the audit committee chairman or the audit committee before engagement commences. The audit committee, chief financial officer and group controller monitor overall compliance with BP’s policy on audit-related and non-audit services, including whether the necessary pre-approvals have been obtained. The categories of permitted and pre-approved services are outlined in Principal accountants’ fees and services on page 276. The committee’s policies were updated in 2017 to reflect the revised regulatory guidelines of the FRC, including: • Adoption of the FRC’s prohibited non-audit services list. • Prohibition of non-audit tax services by the audit firm. • Reduction of the pre-approval requirements for non-audit services in line with FRC guidance on ‘non-trivial’ engagements with the audit firm. Committee evaluation The audit committee undertakes an annual evaluation of its performance and effectiveness. 2017 evaluation For 2017 an internal questionnaire was used to evaluate the work of the committee. The review concluded that it had performed effectively. Areas of focus for 2018 include succession planning for membership of the committee and a further review of capital spending. Actions from the 2016 evaluation Priorities arising from the 2016 evaluation included a review of and visit to one of BP’s global business service (GBS) centres, a focus on streamlining committee materials and further scrutiny on risk management when undertaking business or functional reviews. The committee visited GBS in Budapest in 2017, undertaking a review of the organization’s activities and strategy. It also focused on improving committee pre-read materials, which received improved evaluation scores for the 2017 review. And an overview of risk management and controls was included in all segment and functional reviews. C orporate governance BP Annual Report and Form 20-F 2017 83


 
Safety, ethics and environment assurance committee (SEEAC) On site visits we look for ourselves and ask questions, and then we engage with management. Chairman’s introduction The committee continued its work with executive management to drive safe, ethical and reliable operations. It has reviewed the company’s management of the highest priority non-financial group risks and continues to provide constructive challenge to the risk management process. The risks under their remit remained the same as for 2016: marine, wells, pipelines, explosion or release at facilities and major security incidents and cyber security in process control network. The committee receives reports on each of these risks and monitors their management and mitigation. Following publication of the company’s Modern Slavery Act (MSA) statement in 2017, the committee reviewed related work practices in BP and will continue to review progress in developing and embedding those practices. In 2017 it also reviewed the BP Sustainability Report 2017 and will review the annual update MSA statement to be published in 2018. The committee made two site visits in the year (see page 75). In June, members of the committee visited the Cherry Point refinery in Washington, and in July members were among the first to visit the newly operating Glen Lyon floating production, storage and offloading vessel in the UK North Sea. Our level of access into the operational side is extensive and gives the committee unique insight. On site visits, we look for ourselves and ask questions, and then we engage with management on what this means for the objectives we set. The committee also continued its schedule of regular meetings with executive management. In May, Cynthia Carroll retired from the board and the committee and in the same month Melody Meyer joined the committee. Melody brings with her valuable insight through many years of industry experience, and within a few weeks of joining, participated in her first committee site visit. Alan Boeckmann Committee chair Role of the committee The role of the SEEAC is to look at the processes adopted by BP’s executive management to identify and mitigate significant non-financial risk. This includes monitoring the management of personal and process safety and receiving assurance that processes to identify and mitigate such non-financial risks are appropriate in their design and effective in implementation. Key responsibilities The committee receives specific reports from the business segments as well as cross-business information from the functions. These include, but are not limited to, the safety and operational risk function, group audit, group ethics and compliance, business integrity and group security. The SEEAC can access any other independent advice and counsel it requires on an unrestricted basis. The SEEAC and audit committee worked together, through their chairs and secretaries, to ensure that agendas did not overlap or omit coverage of any key risks during the year. Members Alan Boeckmann Member since September 2014 and chair since May 2016 Paul Anderson Member since February 2010 Frank Bowman Member since November 2010 Cynthia Carroll Member since June 2007; retired May 2017 Ann Dowling Member since February 2012 Melody Meyer Member since May 2017 John Sawers Member since July 2015 Meetings and attendance There were six committee meetings in 2017. All directors attended every meeting for which they were eligible, apart from Cynthia Carroll who missed one meeting due to a conflicting meeting. In addition to the committee members, all SEEAC meetings were attended by the group chief executive, the executive vice president for safety and operational risk (S&OR) and the head of group audit or his delegate. The external auditor attended some of the meetings and was briefed on the other meetings by the chair and secretary to the committee. The group general counsel and group ethics and compliance officer also attended some of the meetings. At the conclusion of each meeting the committee scheduled private sessions for the committee members only, without the presence of executive management, to discuss any issues arising and the quality of the meeting. The group chief executive was invited to join the private meetings on an ad hoc basis. BP Annual Report and Form 20-F 201784


 
Committee evaluation For its 2017 evaluation, the committee examined its performance and effectiveness through an internal questionnaire. Topics covered included the balance of skills and experience among its members, the quality and timeliness of information the committee receives, the level of challenge between committee members and management and how well the committee communicates its activities and findings to the board. The evaluation results continued to be generally positive. Committee members considered that they continued to possess the right mix of skills and background, had an appropriate level of support and received open and transparent briefings from management. All members emphasized that site visits remained an important element of the committee’s work, particularly because they gave members the opportunity to examine how risk management is being embedded in businesses and facilities, including in the management culture. Joint meetings between the SEEAC and the audit committee were considered important in reviewing and gaining assurance around financial and operational risks where there was overlap between the committees, particularly in relation to ethics and compliance (see below). Activities during the year System of internal control and risk management The review of operational risk and performance forms a large part of the committee’s agenda. Group audit provided quarterly reports on their assurance work on the system to inform the review. The committee also received regular reports from the group chief executive on operational risk, and from the system of internal control and risk management function, including quarterly reports prepared for executive management on the group’s health, safety and environmental performance and operational integrity. These included quarter-by-quarter measures of personal and process safety, environmental and regulatory compliance and audit findings, as well as quarterly reports from group audit. In addition, the group ethics and compliance officer and the group auditor met in private with the chairman and other members of the committee over the course of the year. During the year the committee received separate reports on the company’s management of risks relating to: • Marine • Wells • Pipelines • Explosion or release at our facilities • Major security incidents • Cyber security (process control networks). The committee reviewed these risks and their management and mitigation in depth with relevant executive management. Corporate reporting The committee is responsible for the overview of the BP Sustainability Report 2017. The committee reviewed content and the revised presentation, and worked with the external auditor with respect to their assurance of the report. Site visits In June members of the committee, and other directors, visited the Cherry Point refinery in Blaine, Washington. The site visit included a tour of the dock, training simulator and control room. Meetings with senior leadership and representatives from across the site, including a local safety committee, were held. In July committee members, and other directors, visited the newly operational floating production, storage and offloading vessel, Glen Lyon, at our Quad 204 project in the UK North Sea. This was one of the seven major projects delivered during 2017 and the committee’s visit was the first formal visit following its start-up. During visits committee members and other directors received briefings on operations, the status of conformance with BP’s operating management system , key business and operational risks and risk management and mitigation. Committee members then reported back in detail about each visit to the committee and subsequently to the board. See page 75 for further details. Joint meetings of the audit and safety, ethics and environment assurance committees The audit committee and SEEAC hold joint meetings on a quarterly basis to simplify reporting of key issues that are within the remit of both committees and to make more effective use of the committees’ time. Each committee retains full discretion to require a full presentation and discussion on any joint meeting topic at their respective meeting if deemed appropriate. The committees jointly met four times in 2017, with the chairmanship of the meetings alternating between the chairman of the audit committee and chairman of the SEEAC. Topics discussed at the joint meetings were the quarterly ethics and compliance reports (including significant investigations and allegations) and the 2018 forward programmes for the group audit and ethics and compliance functions. The committees reviewed the approach and disclosure statement under the UK Modern Slavery Act and the results of an externally facilitated review of the effectiveness and performance of group audit. See Glossary C orporate governance BP Annual Report and Form 20-F 2017 85


 
Remuneration committee Key responsibilities The committee undertakes its tasks in accordance with applicable regulations, including those made from time to time under the Companies Act 2006, the UK Corporate Governance Code and the UK Listing Authority’s Listing Rules in relation to the remuneration of directors of quoted companies. • Determine the remuneration policy for the chairman and the executive directors. • Review and determine the terms of engagement, remuneration and termination of employment for the chairman and the executive directors as appropriate and in accordance with the policy, and be responsible for compliance with all remuneration issues applicable to them. • Prepare the annual remuneration report to shareholders to show how the policy has been implemented. • Approve the principles of any equity plan that requires shareholder approval. • Approve the terms of the remuneration of the executive team (including pension and termination arrangements) as proposed by the group chief executive. • Approve changes to the design of remuneration, for BP group leaders as proposed by the group chief executive. • Monitor implementation of remuneration for group leaders to ensure alignment and proportionality. • Engage independent consultants or other advisers as the committee may from time to time deem necessary, at the expense of the company. Members Ann Dowling Member since July 2012 and chair since May 2015 Alan Boeckmann Member since May 2015 Ian Davis Member since July 2010 Brendan Nelson Member since May 2017 Paula Reynolds Member since September 2017 Andrew Shilston Member since May 2015; retired from the committee May 2017 Meetings and attendance Carl-Henric Svanberg and Bob Dudley attend meetings of the committee except for matters relating to their own remuneration. Bob Dudley is consulted on the remuneration of other executive directors, the executive team and more broadly on remuneration across the wider employee population. Both the group chief executive and chief financial officer are consulted on matters relating to the group’s performance. The group human resources director attends meetings and other executives may attend where necessary. The committee consults other board committees on the group’s performance and on issues relating to the exercise of judgement or discretion. Chair’s introduction I am pleased to report on the work of the committee in 2017. Following substantial engagement with our shareholders in 2016 and early 2017, we were pleased to receive their support at the 2017 AGM. We applied our new remuneration policy from the start of 2017 and during the year have been addressing some transitional arrangements from old to the new policies. We also reviewed BP pay below the executive team by region, job level and sector to give additional context to our decisions on executive pay. Having served on this committee for six years, and as chair for the last three, I am stepping down from the committee after the 2018 AGM. Paula Reynolds, who joined the committee in September 2017, will take the chair. She is currently chair of the remuneration committee at BAE Systems plc and has served on that committee since 2015. During the year, Deloitte LLP had to stand down as our independent adviser following their forthcoming appointment as auditor. Following a competitive tender process, we appointed PwC LLP in their place. Professor Dame Ann Dowling Committee chair Role of the committee The role of the committee is to determine and recommend to the board the remuneration policy for the chairman and executive directors. In determining the policy, the committee takes into account various factors, including structuring the policy to promote the long-term success of the company and linking reward to business performance. After extensive shareholder engagement, we were pleased to receive strong support for our new remuneration policy at the 2017 AGM. BP Annual Report and Form 20-F 201786


 
The committee met eight times during the year. All directors attended each meeting that they were eligible to attend, either in person or by telephone, except that Alan Boeckman was not able to attend a telephone meeting on 27 February in 2017. Activities during the year In the period before the 2017 AGM, the committee focused on finalizing the proposed new remuneration policy and outcomes for 2016. This involved reviewing directors’ salaries and the group’s performance outcome which in turn determined the annual bonus and the performance share plan. From the 2017 AGM, the committee focused on implementing the new policy, in particular looking more broadly at remuneration of employees below the executive team and the measures that could be used to reflect the transition to a lower carbon world. It also considered the implications of the transition from the 2014 to the 2017 policies, in particular aspects relating to share grants, and reviewed potential outcomes for 2017 at the end of the year. Following the appointment of Deloitte as the group’s statutory auditor from 2018 (subject to shareholder approval) and the need for the firm to be independent prior to the transition of the audit, the committee appointed PwC as its independent adviser effective September 2017. The committee continued to monitor developments in potential regulation and legislation and held early discussions on the possible implications for its work. It also considered the company’s disclosure on the UK gender pay gap. In each of its meetings, the committee focused on the overall quantum of executive director remuneration and its alignment to the broader group of employees in BP. It has sought to reflect the views of shareholders and the broader societal context in its decisions. Shareholder engagement There was substantial engagement with shareholders and proxy voting agencies ahead of the 2017 AGM, primarily carried out by the chair of the committee, supported by the chairman and company secretary. The committee chair tested proposals and sought support for the new policy put to shareholders at the 2017 AGM. In order to understand evolving issues – particularly around climate change – engagement continued throughout the year, primarily with larger shareholders and representative bodies. Committee evaluation We undertook an internally facilitated evaluation to examine the committee’s performance in 2017. The evaluation concluded that the committee had worked well and continued to evolve after its intense work leading up to the 2017 AGM. Focus areas for 2018 included improving oversight of stakeholders’ views on remuneration and in particular, deepening the committee’s understanding of remuneration below the executive level. In addition, we focussed on staying up to date with external developments and emerging ‘best practice’ and improving remuneration reporting. See page 90 for the Directors’ remuneration report. Chairman’s introduction I am pleased to report on the work of the geopolitical committee in 2017, which continued to develop and evolve during the year. In addition to our regular meetings, we visited the group’s response information centre in Sunbury, where we were briefed on the group’s practices and procedures. During 2017 I also joined discussions of the international advisory board. Cynthia Carroll and Andrew Shilston stood down from the board at the 2017 AGM, and Melody Meyer joined the committee in May. Other board members joined our meetings from time to time. Sir John Sawers Committee chair Role of the committee The committee monitors the company’s identification and management of geopolitical risk. Key responsibilities • Monitor the company’s identification and management of major and correlated geopolitical risk and consider reputational as well as financial consequences: – Major geopolitical risks are those brought about by social, economic or political events that occur in countries where BP has material investments. – Correlated geopolitical risks are those brought about by social, economic or political events that occur in countries where BP may or may not have a presence but that can lead to global political instability. • Review BP’s activities in the context of political and economic developments on a regional basis and advise the board on these elements in its consideration of BP’s strategy and the annual plan. Geopolitical committee C orporate governance BP Annual Report and Form 20-F 2017 87


 
Members John Sawers Member since September 2015 and chair since April 2016 Paul Anderson Member since September 2015 Frank Bowman Member since September 2015 Ian Davis Member since September 2016 Melody Meyer Member since May 2017 Cynthia Carroll Member from September 2016 to May 2017 Andrew Shilston Member from September 2015; retired May 2017 Meetings and attendance Carl-Henric Svanberg and Bob Dudley attend all committee meetings. The executive vice president, regions and the vice president, government and political affairs attend meetings as required. The committee met three times during the year. All directors attended each meeting that they were eligible to attend except that Cynthia Carroll was unable to attend the meeting on 1 February 2017. Activities during the year The committee developed and broadened its work over the year. It discussed BP’s involvement in the key countries where it has investment or is considering investment in detail. These included Angola, the US, Russia, Mexico, Brazil, India, Mauritania and Senegal. It considered broader policy issues such as the US domestic and foreign policy under the new administration and the political and economic impact of a low price on producing countries. We reviewed the geopolitical background to BP’s global investments and the politics around climate change. Committee evaluation The committee reviewed its performance by means of an internally facilitated questionnaire, and discussed the outcome of that evaluation at its meeting in January 2018. The evaluation concluded that the committee was working well and considering the right issues, but stressed the importance of considering the geopolitics in a country before an investment is made. The committee currently meets three times a year and is considering additional meetings. The committee and board felt that there should be greater integration between the work of the board, the committee and the international advisory board. Chairman’s introduction The chairman’s and the nomination committees were actively involved in the evolution of the board in 2017. In October, I announced that I would be standing down as chairman at an appropriate time after the 2018 AGM in May. As a result, the board has started the search for my successor. This is being carried out by the chairman’s committee led by Ian Davis, the senior independent director. The nomination committee continues to focus on board renewal and diversity. Carl-Henric Svanberg Chair of the committees Chairman’s committee Role of the committee To provide a forum for matters to be discussed by the non-executive directors. Key responsibilities • Evaluate the performance and the effectiveness of the group chief executive. • Review the structure and effectiveness of the business organization. • Review the systems for senior executive development and determine succession plans for the group chief executive, executive directors and other senior members of executive management. • Determine any other matter that is appropriate to be considered by non-executive directors. • Opine on any matter referred to it by the chairman of any committees comprised solely of non-executive directors. Members The committee comprises all non-executive directors. Directors join the committee immediately on their appointment to the board. The group chief executive attends meetings of the committee when requested. Chairman’s and nomination committees BP Annual Report and Form 20-F 201788


 
Meetings and attendance The committee met 10 times in 2017. All directors attended all the meetings for which they were eligible, except that Cynthia Carroll was unable to attend the meeting on 1 February, as was Paula Reynolds for the 19 May 2017 meeting. Nils Andersen did not attend the meetings where succession was discussed. The chairman did not attend the meeting on 2 February when the committee, led by Andrew Shilston, the then senior independent director, carried out an evaluation of the chairman. Bob Dudley and Brian Gilvary joined meetings where the chairman’s succession was discussed. Matters relating to the business of the nomination committee were also discussed at some meetings. Activities during the year • Evaluated the performance of the chairman and the group chief executive. • Considered the composition of and the succession plans for the executive team. • Determined the process for the search for a new chair and appointed advisers to support the committee. • Commenced the search for the new chair. • Discussed the strategy options for the company, including the lower carbon transition. Nomination committee Role of the committee The committee ensures an orderly succession of candidates for directors and the company secretary. Key responsibilities • Identify, evaluate and recommend candidates for appointment or reappointment as directors. • Identify, evaluate and recommend candidates for appointment as company secretary. • Keep the mix of knowledge, skills and experience of the board under review to ensure the orderly succession of directors. • Review the outside directorship/commitments of non-executive directors. Members Carl-Henric Svanberg Member since September 2009 and chair since January 2010 Alan Boeckmann Member since April 2016 Ann Dowling Member since May 2015 John Sawers Member since April 2016 Ian Davis Member since August 2010 Andrew Shilston Member between May 2015; retired May 2017 Andrew Shilston left the committee when he stood down from the board in May 2017. Meetings and attendance The committee met three times in 2017. During the second half of the year, matters relating to the appointment of new directors were considered jointly with the chairman’s committee. All directors attended each meeting that they were eligible to attend. Activities during the year The committee monitored the composition and skills of the board. Paul Anderson will be retiring from the board at the 2018 AGM. The committee focused on ensuring that the board’s composition is strong and diverse. As a result, the board is proposing Dame Alison Carnwath for election as a director at the 2018 AGM. Committee evaluation The committee generally continues to work well. Its balance of skills and experience needs to be maintained so that it is able to govern the company as it implements its strategy in the transition to the lower carbon world. It expressed a need to ensure that the board maintains strong former executive membership and this will be a focus in forthcoming appointments. C orporate governance BP Annual Report and Form 20-F 2017 89


 
We have made our decisions in a considered way, applying discretion where necessary, as we transition to the new policy. Professor Dame Ann Dowling Chair of the remuneration committee Directors’ remuneration report Dear shareholder, Last year, we introduced a new remuneration policy. This followed extensive consultation with major shareholders and with their representative bodies. They were clear that they wanted our policy to be simple and transparent, with a strong link between pay and performance, and deliver reduced levels of reward. We listened and responded to those concerns. We were pleased to receive strong support for this policy at the 2017 AGM. It is clear to us that you, our shareholders, expect us to implement this policy in a considered way and to be ready to apply discretion when necessary. 2017 has been a transitional year as we have moved from the old policy to the new. We applied the new policy from the start of 2017 (see panel opposite). Therefore salary, the 2017 annual bonus and long-term awards made in 2017, based on performance over the three-year period 2017-19, are all made under the new policy. However, the long-term awards granted under the 2015-17 plan were under our old policy and are based on measures in that policy. The committee scored the safety, operational and financial performance against targets set in 2015, before reviewing the result to see if discretion should be applied. Business performance over the period, and in particular for 2017, has been strong, reflected in the company’s first place ranking for TSR among our peer group of major oil and gas companies. However, while returns, which have been explicitly included in the new policy through a ROACE measure have more than doubled over the last two years, there is room for further improvement and the company has continued to incur costs from the Gulf of Mexico oil spill payments. Taking these factors into account, the committee chose to reduce the level of payment for these long-term performance shares by 26%. In applying this reduction, the committee acted in accordance with the messages we received from shareholders and the principles that govern our new policy. In 2015 Bob Dudley received a maximum performance award of 550% of salary for the period 2015-17. In the spirit of applying the new policy early, he requested a reduction in his maximum award to 500% in line with the 2017 policy. The committee appreciates this request which, together with the committee’s discretion, has reduced his payment by $4.2 million (24%) from the formulaic outcome. We believe that the outcome for executive directors, representing an increase on 2016 but moderated by discretion, fairly reflects management’s performance and the experience of shareholders over this longer period, and is consistent with the aims of the policy approved by shareholders last year. Business performance 2017 has been one of the strongest years of operational delivery for BP. This has been reflected in our financial results, with a doubling of our underlying replacement Contents 93 Summary of pay and performance 94 Summary of policy approach 95 Single figure table 96 Alignment with strategy 98 Pay and performance for 2017 102 Implementation of policy for 2018 105 Stewardship 107 Non-executive directors 108 Executive directors’ interests 110 Policy summary tables More information Key performance indicators For an overview of the group’s KPIs, with those featuring in the current and previous remuneration policies, see page 18. BP Annual Report and Form 20-F 201790 Key outcomes for 2017 Bob Dudley (GCE) – total pay $13.4m $19.4m 2015 $11.9m 2016 $17.6m 2017 Formulaic outcome -$0.8m GCE request for 2017 policy vesting (550% to 500%) -$3.4m Impact of committee discretion 2017 single figure outcome Discretion used to reduce outcome for performance. Total pay reduced by $4.2 million (24%) due to GCE request and committee discretion. First among peers for total shareholder return. Seven major projects delivered in the year.


 
Directors’ remuneration report cost profit over the year to $6.2 billion and an underlying operating cash flow of $24.1 billion, excluding post-tax oil spill related payments. Over the year BP distributed $7.9 billion in dividends. Following consistent strong progress and the board’s confidence in the growing organic free cash flow, we recommenced a share buyback programme in the fourth quarter to offset dilution from the scrip dividend paid to shareholders electing to receive shares rather than cash. Our TSR for the period 2015-17 was first among our peer group of major oil and gas companies. TSR on the UK shares has been 44% over the three-year period, significantly out-performing the UK market. Seventeen major projects have been delivered over the three-year period. This has contributed to a 10% increase in BP’s reported production since 2016 and places us in a strong position for further growth. We have had our most successful year of exploration since 2004. The downstream business had an excellent year in terms of replacement cost profit, driven by strong earnings growth in our marketing and manufacturing businesses. Our Alternative Energy business grew and BP re-entered solar but in a new way, partnering with Lightsource to combine our scale, relationships and expertise in major projects with Lightsource’s expertise in developing solar projects. Overall this has been a year of disciplined execution and growth across the business and BP has made a good start in delivering the company’s five-year strategy out to 2021. Committee process for 2017 In order to gain a comprehensive perspective on performance, the remuneration committee sought the views of the board, audit committee and safety, ethics and environment assurance committee (SEEAC) to evaluate the group’s performance against financial, operational and strategic measures for the purposes of executive remuneration. Incentive outcomes in 2017 2017 was a year of strong performance and achievements, where all targets were met or exceeded for the annual bonus, leading to a formulaic result of 1.54 out of 2. The audit committee and the SEEAC recommended an exercise of downward discretion. This resulted in the remuneration committee reducing the final bonus score to 1.43 out of 2. This results in a bonus of 71.5% of the maximum, half of which will be delivered as shares and held for three years. For the performance share award made in 2015, the measures are relative TSR, and various financial, safety and operational measures assessed over the three years from 2015 to 2017. The formulaic results led to an outcome of 96% of maximum, reflecting the fact that BP came in first place against the peer group on relative TSR and performed strongly against the other targets set. This outcome was considered by the committee and reviewed with the executive directors in the context of the overall levels of pay, the wider performance of the company, and the experience of shareholders over Performance assessed against safety, operational and financial measures. Determined outcomes against targets set. Sought input from the SEEAC and audit committee to ensure a holistic review of performance. Annual bonus scores reduced following the committees’ review. The remuneration committee considered outcomes in the context of BP’s group leaders and the broader comparator group of US and UK employees in professional and managerial roles. The committee used judgement to reflect the broader market environment and outcomes for shareholders. Downward discretion exercised for final outcomes. Assess performance Review outcomes with committees Alignment with employees Apply discretion 4321 How did we determine 2017 outcomes? Simplification • Reduction to two incentive plans – a short-term annual bonus and a long-term performance share plan – deferred shares no longer matched with additional shares. • Maximum bonus only earned where stretch performance is delivered on every measure. • Fewer measures. Eliminated duplication of measures between bonus and long-term incentives. Transparency • Total shareholder return (TSR) and return on average capital employed (ROACE) targets disclosed at the start of the three-year performance period. For awards granted in 2017 and 2018, these determine 80% of the available performance shares. • The group’s quarterly results announcements now include updates on all of the KPIs on which remuneration is based other than TSR, with commentary on progress on our strategic priorities which, for awards granted in 2017 and 2018, determine 20% of the available performance shares. Reduced package • The level of bonus paid for an ‘on-target’ score reduced by 25%, and the mandatory bonus deferral increased to 50% of bonus with no matching shares. Bonus scale for executive directors now aligned with the wider managerial population. • The maximum longer-term incentives for the group chief executive (GCE) reduced from seven times salary (previously made up of matching shares on the deferred annual bonus and performance shares) to a maximum of five times salary. Link to strategy and shareholder outcome • Straightforward use of TSR and ROACE as measures of longer- term performance. • Performance shares vest based in part on strategic priorities which include BP’s progress towards a lower carbon future. Stewardship • No change to the six-year period for performance shares (three-year holding period after three-year performance period), nor to the minimum shareholding requirement of 5x base salary. There is a new post-retirement holding expectation of 2.5x base salary. • Safety and the environment remain important considerations through bonus measures and the underpin on long-term incentives. • Remuneration committee has the responsibility of balancing the outcomes from quantitative results with discretion to adjust final results based on the broader environment and performance. For the full policy see bp.com/remuneration A summary of the 2017 policy is set out on page 110, including the following changes to the 2014 policy: BP Annual Report and Form 20-F 2017 91 C orporate governance


 
Directors’ remuneration report the three-year period of the plan. In addition, the committee decided to incorporate early application of some of the principles of the new 2017 policy, for example the more stringent vesting scales. In light of these factors and an overall assessment of pay relative to performance, the committee applied its discretion to reduce the 2015 performance share award vesting from 96% to 70% of maximum. The exercise of committee discretion on annual bonus and performance share outcomes reduced the amount of variable pay by $3.4 million for Bob Dudley and £1.2 million for Brian Gilvary. Consistent with the approach of applying certain aspects of the new policy early, Bob Dudley has requested that his performance share vesting should be based on an award level of 500% of salary (from the 2017 policy), rather than the 550% of salary that applied for the 2014 policy. Furthermore, demonstrating their commitment to delivering long-term sustainable value for BP shareholders, the executive directors have also voluntarily agreed to the extension of vesting periods for certain share awards under a discontinued plan as a transitional approach to the new policy. These share awards remain subject to continued application of a safety underpin. Following these decisions, the total reported single figure of pay for Bob Dudley and Brian Gilvary was $13.4 and £6.5 million. These are substantially below formulaic outcomes for 2017 but, because the business performance is much improved, are higher than the single figure outcomes for 2016. The committee believes that these outcomes appropriately reflect the strong operational and financial performance of BP this year and over the past three years whilst demonstrating a commitment to a considered approach. This year’s single figure for Brian Gilvary is substantially affected by the inclusion of deferred bonus shares from 2014 which have now vested, and the 2017 bonus shares that are being deferred but we now report in the year the shares are granted. Implementation of the policy for 2018 We plan to make two changes to the performance measures in 2018. For the annual bonus, the upstream measure for ‘reliable operations’ will be changed from ‘upstream operating efficiency’ to ‘BP-operated upstream plant reliability’, creating comparability between our upstream and downstream measures. For performance shares granted in 2017, the ROACE target was based on the final year of the performance period. In response to investor feedback, we are moving progressively towards a three-year evaluation period to encourage steady and sustainable growth. For the 2018 awards, we will average ROACE over the final two years (2019 and 2020) and then use a three-year average for 2019 awards onwards. We reviewed base salaries for the Bob Dudley and Brian Gilvary, noting the salary increases for UK and US-based employees across the group. The committee has decided there should be no increase in annual salary for Bob Dudley. Brian Gilvary’s salary will be increased by 2%, which was below the general increases for the UK and US based employees across the group. Alignment with strategy and the low carbon transition In 2017 BP announced details of our five-year strategy to 2021, focusing on strategic and investment choices that are resilient to a range of future outcomes whilst considering the dual challenge of meeting society’s need for more energy while working to reduce carbon emissions. To reinforce the importance of the strategy for the group’s long-term success, the 2017 policy introduced a balanced but stretching set of measures into the incentives to reflect BP’s strategy. During the year we have included updates on our strategic progress in our quarterly results announcements. We also introduced an underpin for performance shares which includes absolute TSR, safety performance and consideration of issues around carbon and climate change. This framework will allow the committee to monitor progress against the broader approach we outlined in February 2018 – reducing our emissions, improving our products and creating low carbon businesses. See ‘Advancing the energy transition’ on page 96. Wider workforce pay During the year the committee reviewed the group’s approach to reward below board level across job levels and geographies. This wider environment provided important context for the committee’s decisions on executive directors’ remuneration. Last year, we voluntarily disclosed the GCE-to-employee pay ratio, using the employee comparator group of the professional/managerial grade employees based in the UK and US (representing some 30% of the global employee population). We are aware that regulations will be introduced to require companies to calculate and disclose a ratio. As the regulatory methodology is not yet final, we have continued the practice we adopted in 2017. Work undertaken by the group in preparation for UK regulatory requirements on gender pay gap reporting was reviewed with the committee, who considered the distribution of employees by grade and gender. In that context the committee received assurance that there was equal pay for equal or like work. Committee changes There have been changes to the membership of the committee during the year: Andrew Shilston retired from the board at the AGM in May 2017, with Brendan Nelson and Paula Reynolds joining the committee during 2017. The chairs of both audit committee and SEEAC are now members of the remuneration committee which strengthens the committee’s ability to take a wider perspective on the group’s performance when discussing reward. I believe that we have a broad range of skills and experience amongst the membership upon which to draw on when looking at issues around remuneration. Following six years on this committee, the last three as chair, I have decided to step down from the committee following the AGM in May 2018. Paula Reynolds will take the chair. I want to take the opportunity to thank my fellow committee members for their support and welcome Paula to the role of chair. I would also like to thank the executive directors for their positive engagement in the policy changes and exercise of discretion over the last two years. Conclusion The board continues to place a high priority on building confidence in the operation of our remuneration policy. This requires the remuneration committee to exercise discretion to align pay outcomes to performance, particularly as we navigate the transition from the pre-2017 policy to our new policy for the future. We have sought to do this in a considered way that reflects shareholder expectations, the performance of BP, and the commitments made to executives. In putting this report forward for an advisory vote at the AGM, we seek your support for the balance we have struck. Professor Dame Ann Dowling Chair of the remuneration committee 29 March 2018 BP Annual Report and Form 20-F 201792


 
Directors’ remuneration report Summary of our pay and performance for 2017 2017 2016 2015 $13.4m $11.9m $19.4m 2014 $16.4m Bob Dudley, group chief executive Total remuneration 2017 2016 2015 2014 Brian Gilvary, chief financial officer Total remuneration £6.5m £ 4.2 m £ 5 .1m £ 3 .6m 2017 We have made good progress, with strong cash flow and share price growth and the announcement of a number of major investments, all aimed at contributing to returns over the medium and long term. $24.1bn Operating cash flow, excluding Gulf of Mexico payments. 1st Among peers for total shareholder return for 2015-17. Bob Dudley, group chief executive Brian Gilvary, chief financial officer Business performance Remuneration outcomes Share ownership Key strategic highlights • Underlying replacement cost profit up 139%. • Organic cash flows back in balance. • Seven new major projects delivered. a The final outcome for part of this award is based on the company’s relative RRR ranking, presently forecast to be second amongst its peers: this will not be known until after the publication of our peers’ reports and will therefore be reported in the directors’ remuneration report for 2018. Salary and benefits Retirement benefits Annual bonus Performance shares Discontinued plans $7.9bn Dividends paid, including scrip. Policy requirement: minimum of five times salary 3,065,694 sharesb 10.71 times salary 11.17 times salary1,825,299 shares bHeld as ADSs. Shareholding is a key means by which the interests of executive directors are aligned with those of shareholders. As at 14 March 2018 both directors had holdings in BP which significantly exceeded their shareholding requirement. Further details are set out on page 105. Annual bonus Performance shares Nil NilPerformance measures (% weighting) Performance measures (% weighting) Maximum Maximum Performance outcomes 77% Formulaic outcome (% of maximum) -5.5% Committee discretion to reduce award 71.5% Final outcome after committee discretion (% of maximum) 96% Formulaic outcome (% of maximum) -26% Committee discretion to reduce award 70% Expected outcome after committee discretiona (% of maximum) Financial Relative TSR (33.3%) Cumulative operating cash flow (33.3%) Reserves replacement ratioa (11.1%) Major project delivery (11.1%) Safety and operational risk – Tier 1 process safety events – Recordable injury frequency Strategic imperatives (11.1%) Safety Tier 1 process safety events (10%) Recordable injury frequency (10%) Refining availability (15%) Upstream operating efficiency (15%) Financial Operating cash flow (excluding Gulf of Mexico oil spill payments) (20%) Underlying replacement cost profit (20%) Upstream unit production costs (10%) Reliability Reduction in total remuneration BP Annual Report and Form 20-F 2017 93 C orporate governance $3.4 million Reduction due to committee discretion $0.8 million Bob Dudley’s voluntary performance share reduction £1.2 million Reduction due to committee discretion


 
Summary of our remuneration policy and approach for 2018 Directors’ remuneration report 2018 Competitive salary and benefits to reflect role and home country norms • Continuing requirement for directors to maintain a holding of five times salary. • It is expected that Bob Dudley and Brian Gilvary will maintain a holding of at least 250% of salary for two years following retirement. • In addition the executive directors have voluntarily agreed to extend the vesting periods of certain discontinued share awards, subject to a continued safety underpin. Share ownership Long-term shareholding Bonus aligned with annual objectives Share award for meeting three-year targets Fixed pay policy is unchanged. Salary and benefits are set at a level which reflects the scale and complexity of the role while recognizing competitive practice in the relevant market. • From September 2016, Bob Dudley has no further service accrual under the defined benefit pension arrangements. The 401(k) benefits have been partially capped for future years. • Brian Gilvary receives a cash supplement on the same terms as other participants in the BP UK defined benefit scheme. He receives no further service accrual under the defined benefit pension arrangements. The bonus links variable pay to safety, reliable operations and financial performance for the year. Stewardship and alignment with shareholders • The salary for the group chief executive will remain at $1,854,000 for 2018. Bob Dudley has not received a salary increase since July 2014. • With effect from the AGM, the salary for the chief financial officer will be £775,000. • The increase to Brian Gilvary’s salary continues to reflect the changes to his role when he took on additional responsibilities for BP’s trading and shipping functions. This increase of 2% is within the range used by the company for other UK and US employees. • Benefits will remain unchanged – these include car-related benefits, security assistance, insurance and medical benefits. • Maximum bonus only payable for outperformance on every measure. • Bonus payable for delivery of bonus scorecard of 1.0 out of 2.0 is half of maximum. • 50% of any bonus earned will be paid in cash; there will be a mandatory deferral of 50% into shares for three years. • Awards will be subject to clawback and malus provisions. • The measures for the bonus are set annually to reflect annual priorities. • For 2018, performance judged on three key areas: – safety (20%) – reliable operations (30%) – financial performance (50%). • Overall discretion to review outcomes in the context of annual performance. Directly linked to long-term performance and represents the largest part of the package. • Three-year performance period, with further three-year holding period. • Measures aligned to long-term strategy and shareholders’ interests. • Awards will be subject to clawback and malus provisions. • For 2018 awards, performance judged on three key areas: – TSR relative to oil and gas majors over three years (50%) – ROACE based on the average of performance over 2019 and 2020 (30%) – strategic progress assessed over the performance period (20%). • Additional underpin – broader performance including absolute TSR performance and safety and environmental factors (including consideration of issues around carbon and climate change) to be considered before determining vesting outcomes. Elements of package BP’s policy approach Salary and benefits Retirement benefits Annual bonus Performance shares Share ownership Approach Salary and benefits Retirement benefits Annual bonus Up to 225% of salary Performance shares GCE – 500% CFO – 450% of salary ar rship Simplification. Reduced package versus previous policy. Link to strategy. Stewardship. ? Annual Report and Form 20-F 201794


 
Directors’ remuneration report Single figure table – executive directors’ (audited) Bob Dudley (thousand) Remuneration is reported in the currency in which the individual is paid Brian Gilvary (thousand) 2017 2016 2017 2016 Salary and benefits Salary $1,854 $1,854 £752 £732 Benefits $73 $74 £38 £67 Retirement benefits Pension and retirement savings – value increasea $746 $2,205 £186 – Cash in lieu of future accrual – – £263 £256 Annual bonus Cash bonus $1,491 $1,696 £611 £669 Shares – deferred for three years $1,491 – £611 – Performance shares Performance shares $7,787b $4,024c £2,981b £1,455c Total remuneration (excluding discontinued plans)d $13,443 $9,852 £5,440 £3,179 Discontinued plans Deferred share awards from prior-year bonusese –f $2,052 £1,040 £1,065 Total remunerationd $13,443 $11,904 £6,481 £4,244 a Represents (1) the annual increase net of inflation in accrued pension multiplied by 20 as prescribed by UK regulations, and (2) the aggregate value of the company match and investment gains on the accumulating unfunded BP Excess Compensation (Savings) Plan (ECSP) account under Bob Dudley’s US retirement savings arrangements. Full details are set out on page 101. b Represents the assumed vesting of shares in 2018 following the end of the relevant performance period, based on a preliminary assessment of performance achieved under the rules of the plan and includes reinvested dividends on shares vested. In accordance with UK regulations, the vesting price of the assumed vesting is the average market price for the fourth quarter of 2017 which was £5.01 for ordinary shares and $39.85 for ADSs. The final vesting will be confirmed by the committee in second quarter of 2018 and provided in the 2018 directors’ remuneration report. Bob Dudley has requested that the EDIP performance share vesting in respect of the performance period 2015-17 is based on the 500% maximum annual award level which applies under the 2017 directors’ remuneration policy, rather than the 550% maximum annual award level which applies under the 2014 directors’ remuneration policy. c In accordance with UK regulations, in the 2016 single figure table, the performance outcome value was based on an estimated vesting at an assumed share price of £4.73 for ordinary shares and $35.39 for ADSs. In May 2017, after the external data became available, the committee reviewed the relative reserves replacement ratio position. This resulted in no adjustment to the final vesting of 40%. On 19 May 2017, 108,923 ADSs for Bob Dudley and 308,286 shares for Dr Brian Gilvary vested at prices of $36.94 and £4.72 respectively. This total includes the additional accrual of notional dividends which vested on 2 August 2017. The 2016 values for the total vesting have increased by $310,709 for Bob Dudley and by £67,820 for Dr Brian Gilvary. d Due to rounding, the total does not agree exactly with the sum of its component parts. e Value of vested deferred bonus and matching shares. The amounts reported for 2017 relate to the 2014 annual bonus deferred over three years, which vested on 20 February 2018 at the market price of £4.75 for ordinary shares and include reinvested dividends on shares vested. There was an additional accrual of notional dividends on 29 March 2018 which will vest in 2018 and will be provided in the 2018 directors’ remuneration report. The amounts reported for 2016 relate to the 2013 annual bonus and have been adjusted from the number provided in the 2016 directors’ remuneration report to include the accrual and vesting of notional dividends. f As stated in the 2016 directors' remuneration report, Bob Dudley has voluntarily agreed to defer vesting of these awards until after retirement, therefore the performance period is expected to exceed the minimum term of three years. BP Annual Report and Form 20-F 2017 95 C orporate governance Key outcomes for 2017 Bob Dudley (GCE) – total pay $13.4m $19.4m 2015 $11.9m 2016 $17.6m 2017 Formulaic outcome -$0.8m GCE request for 2017 policy vesting (550% to 500%) -$3.4m Impact of committee discretion 2017 single figure outcome Discretion used to reduce outcome for performance. Total pay reduced by $4.2 million (24%) due to GCE request and committee discretion. First among peers for total shareholder return. Seven major projects delivered in the year.


 
Alignment with strategy Directors’ remuneration report How we align our strategy and remuneration measures Safe, reliable and efficient execution A distinctive portfolio fit for a changing world Value based, disciplined investment and cost focus Growing sustainable free cash flow and distributions to shareholders over the long term Safer Fit for future Focused on returns Element of remuneration BP set out an update of its strategy in 2017, which was reinforced in the results announcement in February 2018. The foundations for strong performance are safe and reliable operations, a balanced portfolio, and a focus on returns. Annual bonus Safety Reliable operations Financial performance Performance shares Total shareholder return Return on average capital employed Strategic priorities Underpin: absolute TSR and safety/environmental factors Low carbon transition BP’s ambition is to provide more energy while advancing the energy transition. The focus on lower carbon has three main elements: Strategic priorities The strategic priorities component of the performance shares covers measurement across a range of objectives including: growing gas and advantaged oil in the upstream; market-led growth in the downstream; venturing and low carbon across multiple fronts; and gas, power and renewables trading growth. These priorities are aimed at growing sustainable value for our shareholders and increasing the proportion of lower carbon activities in our portfolio over time. The seven major project start-ups in 2017 (see page 14) have enabled a significant shift in the proportion of gas in our portfolio, laying a strong foundation for our gas business moving forwards. Progress against each of the strategic priorities is being monitored against a balanced set of measures that will be viewed in the round relative to strategy. For example, ‘growing gas and advantaged oil in the upstream’ will be assessed against a range of measures including the proportion of gas in the portfolio and the movement of unit production costs per barrel (which reflect how ‘advantaged’ the barrels are). Reducing our emissions in our operations Creating low carbon businesses More information Advancing the energy transition In this report, we examine how the energy world is rapidly changing, set out our low carbon ambitions and the changes we are making across our entire business to help advance the energy transition. Publishes April, see bp.com/energytransition Improving our products Reducing our emissions through operational emission reduction activities. Improving our products to enable customers to lower their emissions. Creating low carbon businesses to grow value and complement our existing portfolio. BP Annual Report and Form 20-F 201796


 
Directors’ remuneration report The committee believes that BP’s strategic priorities can help advance the energy transition. The measures related to our lower carbon activities – gas, venturing, renewables trading and renewable energy – underscore this commitment. These activities should grow over time. Our performance share plan features an underpin which will be applied after the formulaic outcome but before the final vesting outcome has been determined. This underpin takes into account absolute TSR, safety and environmental factors (including consideration of issues around carbon and climate change). In this regard, the committee will consider progress on matters such as reducing emissions, improving our products and creating low carbon businesses. Remuneration in the wider group During the year the committee has received detailed information on pay below the board by region and job level, including the cascade of pay mix and incentive structures, typical salary budgets, and approaches across different sectors of the group’s business. This context has informed decision making on executive director pay, for example in relation to bonus outcomes, which are largely aligned across the group, and salary increases. UK gender pay gap The committee reviewed the data and methodology for the group’s reporting against the UK gender pay gap regulations. These require the company to publish the difference in mean and median pay, mean and median bonus pay, proportion of male and female employees who received bonus pay and the number of male and female employees in quartile pay bands. The committee also looked at factors such as: • The uneven gender distribution of employees within BP job grades. • How certain roles with specific pay practices such as allowances (e.g. offshore/rotator allowances) and bonus structures (e.g. trading bonuses) have a disproportionally higher number of men and contribute to the pay and bonus gap. • How the gender pay gap analysis does not take grades and roles into consideration (as when analysing by internal grade, BP’s pay gap falls significantly). The committee was assured that the group provides equal pay for equal or like work. Finally the committee and the board considered BP’s initiatives to support long-term growth in female talent, including developing the technical talent pool, hiring, retention and progression. BP’s gender pay gap in 2017 report was published on 21 February 2018 and can be found at bp.com/ukgenderpaygap. a Total remuneration reflects the reduction in number of employees and the total overall employee costs. See Financial statements – Note 33 for further information. b Capital investment is illustrated to reflect the overall scale of BP investment decisions. BP changed its reporting of organic capital expenditure to a cash basis in 2017; the 2016 number has been restated to be reported on a cash basis. GCE-to-employee pay ratio The committee commenced reporting on the GCE-to-employee pay ratio in 2017. The committee notes that regulations will be published during 2018, setting out a methodology for the calculation of such a ratio. As the regulatory methodology to be used is not yet final, the committee has continued with the approach we used in 2017 and the comparator group which it believes is the most relevant for BP. This group is the professional/managerial grade employees based in the UK and US which represent some 30% of the global employee population and is used elsewhere in this report. The GCE-to-median worker pay ratio for this group was 92 to 1 in 2017 (71 to 1 in 2016). The ratio is based on a comparison of total compensation (base salary, actual annual bonus and vested equity awards) in the year. Percentage change in GCE remuneration Comparing 2017 to 2016 Salary Benefits Bonus % change in GCE remuneration 0% -0.6% 75.8% % change in comparator group remuneration 4.3% 0% 22.9% The comparator group used here is the same as that used in the pay ratio calculation above, and comprises some 30% of BP’s global employee population being professional/managerial grades of employees based in the UK and US and employed on more readily comparable terms. Relative importance of spend on pay ($ million) Distributions to shareholders Remuneration paid to all employeesa Capital investmentb 2017 2017 20172016 7,469 11,233 16,501 16,675 7,867 10,204 2016 2016 BP Annual Report and Form 20-F 2017 97 C orporate governance


 
Pay and performance for 2017 Directors’ remuneration report Base salary No salary increase was awarded to Bob Dudley for 2017 and his salary remained at $1,854,000. Bob Dudley has not received a salary increase since 2014. As was disclosed in the 2017 report to shareholders, Brian Gilvary’s salary was increased with effect from May 2017 to £759,000 reflecting his additional responsibilities for BP’s trading and shipping functions. Benefits Executive directors received car-related benefits, security assistance, insurance and medical benefits. Salary and benefits The targets for the 2017 annual bonus were set at the start of the year based on a combination of safety, reliability and financial performance. Targets were set in the context of the group’s strategy and the annual plan. During 2017 BP’s share price performed strongly. The group distributed $7.9 billion to shareholders in cash and scrip dividends. In the fourth quarter, the group commenced a share buyback programme to mitigate the dilutive effects of issuing shares under the scrip dividend programme. Overall it was one of the strongest years in BP’s recent history. There was delivery of the group’s strategy, particularly the delivery of seven major projects within the year and below the total budget. There were strong earnings in the downstream and a 10% year-on-year increase in production for the BP group as a whole. The group’s operating cash flow was strong and well above plan. Underlying replacement cost profit was $6.2 billion, an increase of 139% on 2016. Goals for reduction in controllable costs were delivered, together with good discipline on capital expenditure. Operational reliability was high and safety outcomes were above target. When reviewing performance over the period, the committee sought input from the chairs of the audit committee and the SEEAC to ensure a comprehensive review of performance. Following input from the audit committee on the treatment of certain accounting items for which it would not be appropriate for participants to benefit, for example a gain from a legal settlement, the formulaic score under the bonus was reduced from 1.54 to 1.49. In addition, the SEEAC recommended an exercise of downward discretion to the safety element for executive directors after taking a longer term view of safety performance to date. Following SEEAC’s recommendation on the safety component of the scorecard, the remuneration committee exercised its discretion to reduce the score by 0.06, resulting in a final annual bonus scorecard outcome of 1.43 out of 2, a payout of 71.5% of maximum. Overall, the committee believes that the bonuses for 2017 fairly reflect performance over the period. Outcome Name Adjusted outcome after committee discretion (thousand) Paid in cash (thousand) Deferred into BP shares (thousand) Bob Dudley $2,983a $1,491 $1,491 Brian Gilvary £1,221a £611 £611 a Due to rounding, the total does not agree exactly with the sum of its component parts. Under the terms of the 2017 policy, half of the bonus earned is deferred into shares that will vest after three years. Deferred bonus shares are now reported in the single figure for the bonus year to which they relate. This is different from the 2014 policy, when the shares were only reported on vesting at the end of the three-year period. For Brian Gilvary, the 2017 single figure includes both the 2017 bonus deferred to future years, and the deferred shares from the 2014 bonus vesting in the current period. Annual bonus BP Annual Report and Form 20-F 201798


 
2017 annual bonus Measures Weighting Threshold (0) Target (1) Maximum (2) Performance and outcome Tier 1 process safety event (defined by API) 10% 24 events 0 20 events 0.1 14 events 0.2 18 events 0.13 Recordable injury frequency 10% 0.249/200k hrs 0 0.228/200k hrs 0.1 0.188/200k hrs 0.2 0.218/200k hrs 0.12 Safety outcome 0.25 Downstream refining availability (Solomon Associates’ operational availability) 15% 94.6% 0 95.1% 0.15 95.6% 0.3 95.3% 0.21 Upstream operating efficiency 15% 77.3% 0 79.3% 0.15 81.3% 0.3 80.5% 0.24 Reliable operations outcome 0.45 Operating cash flow (excluding Gulf of Mexico oil spill payments) 20% $19.9bn 0 $21.4bn 0.2 $22.9bn 0.4 $24.1bn 0.4 Underlying replacement cost profit 20% $5.0bn 0 $5.8bn 0.2 $6.6bn 0.4 $6.2bn 0.29 Upstream unit production costs 10% $7.7/bbl 0 $7.3/bbl 0.1 $6.9/bbl 0.2 $7.11/bbl 0.15 Financial performance outcome 0.84 1.54 out of 2.0 Directors’ remuneration report 41 Safety 0.25 Reliable operations 0.45 Financial performance 0.84 Formulaic score 1.54 out of 2.0 2 3 Scorecard Annual bonus – continued More information Key performance indicators page 18REM Measures used for the 2017 remuneration policy. Safety (20% weight)1 Financial performance (50% weight)3 Reliable operations (30% weight)2 Formulaic score4 71.5% outcome of maximum bonus Formulaic scorecard outcome 1.54 out of 2 Audit committee Discretion - 0.05 SEEAC Discretion - 0.06 1.43 out of 2 Final scorecard outcome For performance shares awarded in 2015, vesting was determined under the terms of the 2014 policy, by a combination of relative TSR, safety, financial and operational performance assessed over the three years from 2015 to 2017. The results are summarized in the table on page 100. TSR – the company’s TSR over the three-year period was in first place. The TSR element is measured on a relative basis in common currency against the oil majors: Chevron, ExxonMobil, Shell and Total. Cumulative operating cash flow – under the 2014 policy, the outcome was measured by taking the cumulative operating cash flow for the three years. This measure was assessed by adjusting the target to the actual oil price as has been the case in previous years. Against this adjusted target, this element of the performance shares achieved maximum score of 33.3%. Without adjustment, the score would reduce from 33.3% to 32.4%, a reduction of 0.9%. Safety and operational risk – assessed through a look-back over tier 1 process safety events and recordable injury frequency (RIF) over the three-year period. The committee sought input from the SEEAC in making this subjective assessment. The SEEAC noted the reduction in tier 1 events, the trend in RIF and the high annual scores for both safety measures throughout the three-year period and recommended a score of 85% of maximum for this element of the performance shares. Performance shares BP Annual Report and Form 20-F 2017 99 C orporate governance


 
The committee’s discretion and Bob Dudley’s request together reduced the vesting value of his performance shares by $4.0 million Directors’ remuneration report Project delivery – the vesting outcome reflects the strong progress over the three-year period with 17 projects delivered, seven within 2017. Further details of these projects are set out on page 14. Relative reserves replacement ratio – preliminary assessment indicates vesting for this measure. For the purpose of this report, a forecast of second place has been used. The final outcome for this measure will be confirmed later in the year, once competitor data is published in full. Contextual review The committee undertook a wider review of performance over the three-year performance period, in the context of the overall levels of pay, the wider performance of the company, and the experience of shareholders over the three-year period of the plan. While performance over the period, and in particular in 2017, has been strong, we also recognize that although returns have doubled over the past year, there is still room for further improvement and that the company has continued to Scorecard 1 Financial 66.6% 2 3 Strategic imperatives 29.4% Formulaic vesting 96.0% More information Key performance indicators page XX More information page 18These measures were used under the terms of our previous policy. 1 Financial Strategic imperatives2 Total formulaic vesting3 Performance shares – continued REM incur costs associated with Gulf of Mexico oil spill payments. The committee also sought where appropriate to apply principles of the new policy early to awards vesting in respect of 2017 performance. This included, for example, consideration of the more stringent vesting scales adopted in the 2017 policy. In light of these factors and an overall assessment of pay relative to performance, the committee determined that it would be appropriate to exercise downward discretion on this part of the award. It also determined that the vesting for the 2017 award should be reduced from the formulaic outcome of 96% of maximum to 70% of maximum. In addition, consistent with the approach of applying the principles of the 2017 policy to awards vesting in the year, Bob Dudley asked the committee to base his performance shares award on 500% of salary that applies under the terms of the 2017 policy, rather than the 550% of salary that was actually granted in 2015. The committee’s discretion and Bob Dudley’s request together reduced his performance shares by $4.0 million (34%). BP Annual Report and Form 20-F 2017100 2015-17 performance shares Measures Weighting at maximum Threshold performance Maximum performance Performance and outcome Relative total shareholder return 33.3% Third First First 33.3% Cumulative operating cash flow 33.3% $45.6bn $61.6bn $61.9bn 33.3% 66.6% Relative reserves replacement ratio 11.1% Third First Second 8.9% Major project delivery 11.1% 10 14 17 11.1% Safety and operational risk: – Process safety tier 1 events – Recordable injury frequency 11.1% Continuous improvement look back 85% of maximum 9.4% 29.4% 96.0% Formulaic vesting: 96% Committee review of context and shareholder experience over three-year period of plan 70% final vesting after committee discretion


 
Directors’ remuneration report Both Bob Dudley and Brian Gilvary deferred two thirds of their 2014 annual bonus in accordance with the prevailing terms of the deferred bonus plan. The original three-year performance period for this deferred award ended on 31 December 2017. As required by the terms of the discontinued plan, the committee reviewed safety and environmental sustainability performance over this period and sought the input of the safety, ethics and environment assurance committee. This included an assessment of both actual outcomes under safety and sustainability measures and consideration of the long-term performance trend. Over the three-year period 2015-17 safety performance continued to demonstrate progress and improvement overall. The committee also noted the extent to which safety performance had become embedded into the culture of the organization and the degree to which this has supported stronger operational and financial performance. As a sign of their commitment to the long-term interests of the company, and to further align with the shareholder experience, both Bob Dudley and Brian Gilvary have requested that the committee delay the vesting of some of the awards under discontinued plans. In light of this request, the committee has approved the deferral of Bob Dudley’s 2014 deferred and matching awards until after his retirement from the group. The vesting of Brian Gilvary’s 2014 matching award will also be deferred for a period of two years. The committee will extend the original safety and environmental sustainability performance condition for the same period. Following the committee’s review, full vesting of Brian Gilvary’s deferred shares in respect of the 2014 deferred bonus was approved. No further matching awards will be granted under the deferred bonus plan following approval of the 2017 remuneration policy by shareholders at the 2017 AGM. 2014 deferred bonus vesting – outcome Name Shares deferred Vesting agreed Total shares including dividends Total value at vesting Bob Dudleya 588,216 – – – Brian Gilvary 353,152 100% 219,004 £1,040,269 a Bob Dudley has voluntarily agreed to defer vesting of these awards until after retirement, therefore the performance period is expected to exceed the minimum term of three years. Discontinued plans: deferred bonus and matching shares 2017 outcomes Bob Dudley participates in the US pension and retirement savings plans described on page 104. In 2017, Bob Dudley’s accrued defined benefit pension did not increase. In accordance with the requirements of the UK regulations, the value attributed to this accrued pension in the single figure table on page 95 is therefore zero. In relation to the retirement savings plans, Bob Dudley made contributions in 2017 to the ESP totalling $27,000. For 2017 the total value of BP matching contributions in respect of Bob Dudley to the ESP and notional matching contributions to the ECSP was $129,800, 7% of eligible pay. After adding the investment gains within his accumulating unfunded ECSP account (aggregating the unfunded arrangements relating to his overall service with BP and TNK-BP), the amount included in the single figure table on page 95 is $746,200. Brian Gilvary participates in the UK pension arrangements described on page 104 in common with over 4,500 UK employees employed prior to 2010. In 2017 as a result of his salary increase Brian Gilvary’s accrued pension increased, net of inflation, by £9,280. This increase has been reflected in the single figure table on page 95 by multiplying it by a factor of 20 in accordance with the requirements of the UK regulations (giving £185,600). He has exceeded the lifetime allowance under UK pensions legislation and, in accordance with the policy, receives a cash supplement of 35% of base salary, which has been separately identified in the single figure table on page 95. The committee continues to keep under review the increase in the value of pension benefits for individual directors and its alignment to the broader workforce. • The BP defined benefit (DB) plan remains open for employees in the UK who were employed before 2010 (or before 2014 in the North Sea). The plan provides an inflation linked pension of 1/60th of final salary for each year of service. As of October 2017 over 4,500 active employees were members of the plan. • Currently over 800 employees have, like Brian Gilvary, elected to stop future service accrual under the DB plan and instead receive a cash allowance of 35% of base pay, reducing to 15% by April 2024. Brian Gilvary receives the same cash allowance as those 800 other employees. Retirement benefits No systemic issues identified No major incidents Safety culture and values embedded within the global organization Strong safety performance supports efficiency and financial results across the group Conclusions of the safety and sustainability assessment Performance shares – continued Preliminary outcome – 2015-17 performance shares Name Shares awarded Shares vesting including dividends Value of vested shares Bob Dudley 1,501,770 1,172,484 $7,787,248 Brian Gilvary 685,246 594,932 £2,980,609 These values are based on estimated vesting levels. As noted above, final vesting will be determined once competitor data is published in respect of relative reserves replacement (RRR). 2014-16 performance shares – final outcome Last year the committee made a preliminary assessment of third place for the relative RRR in the 2014-16 performance shares element. In April 2017 the committee reviewed the results for all comparator companies as published in their annual reports and assessed that BP was in third place relative to other oil majors and that no further adjustment was required. BP Annual Report and Form 20-F 2017 C orporate governance 101


 
2018 2017 2016 2015 2014 2018 2017 2016 2015 2014 Bob Dudley Salary increases over the last five years Brian Gilvary 3.0%3.0% Nil Nil Nil Nil Nil Nil 3.75% 2.0% Directors’ remuneration report Salary with effect from AGM Increase Bob Dudley $1,854,000 Nil Brian Gilvary £775,000 2% The committee noted that salary increases for UK and US based employees across the group were generally around 3%. The committee has considered the salaries for Bob Dudley and Brian Gilvary and has decided that there will be no increase for 2018 for Bob Dudley. Brian Gilvary’s salary will be increased by 2% to £775,000. Benefits for 2018 will remain broadly unchanged from prior years. Salary and benefits For 2018, the bonus measures will again focus on three areas: safety and operational risk, reliable operations and financial performance. This approach is intended to provide a balanced assessment of how the business has performed over the course of the year against stated objectives. Targets are aligned with the annual plan and strategic and operational priorities for the year. The safety element continues to focus on measures that are robust and externally comparable. In addition, the measures linked to reliable operations also require execution of good safety practices. The committee has agreed that the upstream measure for ‘reliable operations’ be amended from ‘upstream operating efficiency’ to ‘BP-operated upstream plant reliability’. This latter measure is more comparable with the equivalent metric disclosed for the downstream. Although the detail of the targets is currently commercially sensitive, the committee intends to continue to provide retrospective disclosure following the year end. The targets have been agreed by the committee after consultation on the safety targets with the SEEAC and on the financial targets with the audit committee. One of the challenges faced in a commodity industry is to provide a fair assessment of underlying performance, and therefore changes in plan conditions (including oil and gas prices and refining margins) are considered when reviewing financial outcomes. The committee retains discretion to review outcomes in the context of overall performance. Awards will be subject to malus and clawback provisions as described in the 2017 policy. The maximum bonus opportunity is 225% of salary for a maximum bonus score of 2.0. In accordance with the 2017 policy, the bonus payable for performance which meets the annual plan (i.e. a bonus scorecard of 1.0 out of a maximum of 2.0) is half of maximum. For any bonus earned, 50% will be delivered in cash and 50% must be deferred into shares that will vest after three years. Annual bonus Recordable injury 10% frequency Tier 1 process safety events 10% Operating cash flow (excluding 20% Gulf of Mexico oil spill payments) Underlying replacement 20% cost profit Upstream unit production costs 10% Safety 20% 1 Reliable operations 30% 2 Financial performance 50% 3 Element Measures for 2018 annual bonus Measures include Measures include Measures include Weighting for 2018 Weighting for 2018 Weighting for 2018 BP-operated upstream 15% plant reliability Downstream refining 15% availability (Solomon Associates’ operational availability) Implementation of the policy for 2018 BP Annual Report and Form 20-F 2017102


 
Directors’ remuneration report Under the 2017 policy the measures for the performance shares focus on shareholder value, capital discipline and future growth. Shareholder value The TSR element is measured on a relative basis in common currency against the oil majors: Chevron, ExxonMobil, Shell and Total. The committee continues to believe that the current comparator group remains appropriate as it is used for benchmarking across a range of activities in other parts of the group. There will be no vesting of this element if BP’s TSR is positioned below third place in the group. Capital discipline ROACE is calculated by dividing the underlying replacement cost profit (after adding back net interest) by average capital employed excluding cash and goodwill (for full definition, see the Glossary on page 289). ROACE is measured based on the actual price environment for each of the years in question; there will be no adjustments for changes to plan conditions. For the 2017-19 performance shares, this assessment will be based on the final year of the three-year period. The committee has reviewed this methodology in the light of engagement with shareholders and broader FTSE practice and has decided to move progressively to a determination of ROACE on a three-year average rather than being based on the final year. For the 2018-20 performance shares, the calculation of ROACE will be averaged over the last two years and for 2019-21 performance shares, the intention is that it will be averaged over the full three-year period. Targets for TSR and ROACE measures for 2018 – determining 80% of the performance shares available – are set out below at the start of the assessment period. Future growth Measures for the strategic element are directly focused on delivery of the company’s long-term strategy, positioning the portfolio for resilience and future growth. We will be following the implementation of our strategy through the four measures relating to the strategic priorities set out below. The committee has also sought input from the board regarding the specific measures. Details of the strategic priorities targets – determining 20% of the performance shares available – are commercially sensitive and are not included in this report. However, the committee intends to provide detailed retrospective disclosure after the end of the performance period so that shareholders can understand the basis of payment. The board regularly reviews progress on the strategic priorities throughout the year and BP’s quarterly results announcement includes updates on the group’s strategic progress. Performance shares 25% of element Third out of five 100% of element 11.5% return on average capital employed 0% of element 6% return on average capital employed 100% of element First place Relative TSR versus oil majorsa 50% 1 Return on average capital employedb 30% 2 Strategic progress 20% 3 Element Measures for 2018 performance shares Threshold vesting Maximum vesting • Growing gas and advantaged oil in the upstream • Market led growth in the downstream • Venturing and low carbon across multiple fronts • Gas, power and renewables trading and marketing growth a Nil vesting for fourth and fifth place. Vesting of 80% for second place. b Based on the average of performance over 2019 and 2020. There will be straight-line vesting for performance between the threshold and maximum vesting level. Adjustments may be required in certain circumstances (e.g. to reflect changes in accounting standards). Operation of the performance share plan and the underpin Prior to approving vesting outcomes, the committee will additionally consider the broader performance of the business including absolute TSR performance, together with safety and environmental factors (including consideration of issues around carbon and climate change) over the three-year period as part of an underpin. The underpin will be applied after the formulaic outcome for the performance shares but before the final vesting outcome has been determined. In looking at environmental factors, the committee will consider the group’s progress on issues such as reducing emissions, improving our products and creating low carbon businesses. In line with our new policy, share awards will be made at the level of 500% of salary for Bob Dudley and 450% of salary for Brian Gilvary. Performance will be measured over three years, with any vested shares being subject to a mandatory holding period for a further three years. Awards will be subject to malus and clawback provisions as set out in the policy. BP Annual Report and Form 20-F 2017 103 C orporate governance


 
Both executive directors exceed the share ownership requirements of five times salary. It is expected that Bob Dudley and Brian Gilvary will maintain a shareholding of at least 250% of salary for two years following retirement. Shareholding requirements Bob Dudley Bob Dudley is provided with pension benefits and retirement savings through a combination of tax-qualified and non-qualified benefit plans, consistent with applicable US tax regulations. The BP supplemental executive retirement benefit plan (SERB) is a non-qualified pension plan which provides a pension of 1.3% of final average earnings (as defined in plan rules) for each year of service, less benefits paid under all other BP (US) tax-qualified and non-qualified pension plans. Final average earnings include base salary and annual bonus. Service, including service with TNK-BP, is limited to 37 years. Bob Dudley completed 37 years of service in September 2016 and therefore will not receive any further service accrual under these arrangements. There will be no additional payment in lieu of any further service accrual. The benefit payable under the SERB is unreduced at age 60 or above. Bob Dudley is also a member of other tax-qualified and non-qualified pension plans. However, the benefits from those plans are offset against the SERB benefit and so his benefit entitlement is determined by his participation in the SERB. The BP Employee Savings Plan (ESP) is a US tax-qualified section 401(k) plan to which both Bob Dudley and BP contribute. BP matches contributions by Bob Dudley 1:1 up to 7% of eligible pay up to an IRS limit. The BP Excess Compensation (Savings) Plan (ECSP) is a non- qualified retirement savings plan under which BP provides a notional match in respect of eligible pay that exceeds the IRS limit. In common with other participants, Bob Dudley does not contribute to the ESCP. From 2017 onwards, for the purposes of both plans, eligible pay for Bob Dudley is base salary only. Under both tax-qualified and non-qualified savings plans, Bob Dudley is entitled to make investment elections, involving an investment in the relevant fund in the case of the ESP and a notional investment (the return on which would be delivered by BP under its unfunded commitment) in the case of the ECSP. Although investment returns on the ECSP relate to contributions made in previous years, UK disclosure rules for the single figure require these returns to be included in the single figure for the year. As Bob Dudley has a significant proportion of his notional ECSP investment in BP shares, an increase in the BP share price results in a contribution to the single figure through this component. Benefits payable under the ECSP are unfunded and therefore paid from corporate assets. Benefits are generally paid as a lump sum, with any pension benefit being converted to a lump sum equivalent. Retirement benefits Brian Gilvary Brian Gilvary participates in a UK final salary pension plan, the BP Pension Scheme (BPPS), along with over 4,500 other employees in service prior to 1 April 2011. The BPPS is closed to new hires but for existing participants the plan continues to provide a pension of one sixtieth of final base salary for each year of service, up to a maximum of two thirds of final base salary, and a dependant’s benefit of two thirds of the member’s pension. BPPS participants can elect to stop future service pension accrual and instead receive a cash allowance. On 1 April 2011 Brian Gilvary elected to stop future service pension accrual and receive the cash allowance of 35% of base salary. It has been agreed for all participants who have elected to receive the cash allowance, including Brian Gilvary, that a transition will take effect from April 2021 when the level of cash allowance will progressively reduce to 15% of base salary by 2024. Pension benefits in excess of the individual lifetime allowance set by legislation are provided to Brian Gilvary via an unapproved, unfunded pension arrangement provided directly by the company. The rules of the BPPS were amended in 2006 to introduce a normal retirement age of 65, but in common with other BPPS participants in service on 30 November 2006, Brian Gilvary has a normal retirement age of 60. If Brian Gilvary were to retire between age 55 and 60, then subject to the consent of the committee, he would be entitled to an immediate pension, with a reduction (currently 3%) for each year before normal retirement age in respect of the benefit that relates to service since 1 December 2006 and no reduction in respect of the remainder of his benefit. Irrespective of this, on leaving in circumstances of total incapacity, an immediate unreduced pension would be payable as from his leaving date. Directors’ remuneration report BP Annual Report and Form 20-F 2017104


 
Stewardship The committee places significant emphasis on executive directors having material interests in the shares of the company. Such shareholding not only provides direct alignment with the experience of shareholders, but also encourages a longer-term focus when considering the performance of BP. Executive directors are required to build a personal shareholding of five times salary within five years of their appointment. Both executive directors significantly exceed the minimum holding required. This ensures they are subject to any fluctuation in the share price and the wider shareholder experience. Post-retirement share ownership interests Given the long-term nature of the group’s operations, the committee sees the merits of ensuring that executives have performance alignment beyond the timeframe of existing incentive plans. The executive directors have taken a number of steps in this respect. As reported last year, the current executive directors have indicated to the committee that they expect to maintain a shareholding of at least 250% of salary for two years following retirement. As a sign of their commitment to the long-term interests of the company, and to further align with the shareholder experience, both executive directors have requested that the committee delay the vesting of some of the awards under discontinued plans. Bob Dudley has voluntarily opted to delay the vesting of all outstanding deferred bonus and matching shares in respect of his 2014 and 2015 bonus (representing a total interest over 1,691,784 ordinary shares), which were originally due to vest in 2018 and 2019 respectively, so that vesting is delayed until after retirement. In a similar way, the vesting of Brian Gilvary’s 2014 matching award will also be deferred for a period of two years. As per the original terms, the committee will extend the safety and environmental sustainability performance condition for the same period. These factors significantly extend the time horizons for both executive directors. The committee fully endorses the steps taken by both executive directors as they clearly demonstrate a continued commitment to the long-term stewardship of the group. Directors’ shareholdings The table below shows the status of each of the executive directors in developing the required level of share ownership. These figures include the value as at 14 March 2018 of the directors’ interests shown below excluding the assumed vesting of the 2015-17 performance shares. Current directors Appointment date Value of current shareholding % of policy achieved Bob Dudley October 2010 $19,860,588 214 Brian Gilvary January 2012 £8,483,077 223 The figures below indicate and include all beneficial and non-beneficial interests of each executive director of the company in shares of BP (or calculated equivalents) that have been disclosed to the company. Current directors Ordinary shares or equivalents at 1 Jan 2017 Ordinary shares or equivalents at 31 Dec 2017 Changes from 31 Dec 2017 to 14 Mar 2018 Ordinary shares or equivalents total at 14 Mar 2018 Bob Dudleya 2,509,500 3,065,520 174 3,065,694 Brian Gilvary 1,419,263 1,709,243 116,056 1,825,299 a Held as ADSs. The following table shows both the performance shares and the deferred bonus element awarded under the executive directors’ incentive plan (EDIP) and yet to vest. These figures represent the maximum possible vesting levels. The actual number of shares/ADSs that vest will depend on the extent to which applicable performance conditions have been satisfied. Current directors Ordinary shares or equivalents at 1 Jan 2017 Ordinary shares or equivalents at 31 Dec 2017 Changes from 31 Dec 2017 to 14 Mar 2018 Ordinary shares or equivalents total at 14 Mar 2018 Bob Dudleya 6,607,314 6,870,048 0 6,870,048 Brian Gilvary 3,259,891 3,329,274 (176,576) 3,152,698 a Held as ADSs. At 14 March 2018, the following directors held options under the BP group share plan schemes over ordinary shares or their calculated equivalent set out below. None of these are subject to performance conditions. Additional details regarding these plans can be found on page 109. Current director Share options Brian Gilvary 503,103 No director has any interest in the preference shares or debentures of the company or in the shares or loan stock of any subsidiary company. There are no directors or other members of senior management who own more than 1% of the ordinary shares in issue. At 14 March 2018, all directors and other members of senior management as a group held interests of 15,896,179 ordinary shares or their calculated equivalents, 6,757,019 restricted share units (with or without conditions) or their calculated equivalents, 10,022,746 performance shares or their calculated equivalents and 5,012,307 options over ordinary shares or their calculated equivalents under the BP group share option schemes. Senior management comprises members of the executive team. See page 66 for further information. History of CEO remuneration Year CEO Total remuneration thousanda Annual bonus % of maximum Performance shares vesting % of maximum 2009 Hayward £6,753 89b 17.5 2010c Hayward £3,890 0 0 Dudley $8,057 0 0 2011 Dudley $8,439 67 16.7 2012 Dudley $9,609 65 0 2013 Dudley $15,086 88 45.5 2014 Dudley $16,390 73 63.8 2015 Dudley $19,376 100 74.3 2016 Dudley $11,904 61 40 2017 Dudley $13,443 71.5 70 a Total remuneration figures include pension. The total figure is also affected by share vesting outcomes and these amounts represent the actual outcome for the periods up to 2011 or the adjusted outcome in subsequent years where a preliminary assessment of the performance for EDIP was made. For 2017, the preliminary assessment has been reflected. b 2009 annual bonus did not have an absolute maximum and so is shown as a percentage of the maximum established in 2010. c 2010 figures show full year total remuneration for both Tony Hayward and Bob Dudley, although Bob Dudley did not become CEO until October 2010. Directors’ remuneration report BP Annual Report and Form 20-F 2017 105 C orporate governance


 
Directors’ remuneration report 20092008 2010 2011 2012 2013 2014 2015 2016 2017 Va lu e of h yp ot he tic al £ 10 0 ho ld in g FTSE 100 BPHistorical TSR performance £50 £100 £150 £200 £250 This graph shows the growth in value of a hypothetical £100 holding in BP p.l.c. ordinary shares over nine years, relative to a hypothetical £100 holding in the FTSE 100 Index of which the company is a constituent. Further information Independence and advice The board considers all committee members to be independent with no personal financial interest, other than as shareholders, in the committee’s decisions. Further detail on the activities of the committee, including activities during the year, advice received and shareholder engagement is set out in the remuneration committee report on page 86. During 2017 David Jackson, the company secretary, who is employed by the company and reports to the chairman of the board, acted as secretary to the remuneration committee. Deloitte LLP acted as independent adviser to the committee during the year until September 2017, when it stepped down as part of the transition process for its role as BP’s statutory auditor for the financial year 2018. Following a competitive tender process, the committee appointed PwC as its independent adviser from September 2017. PwC is a member of the Remuneration Consulting Group and, as such, operates under the code of conduct in relation to executive remuneration consulting in the UK. The committee is satisfied that the advice received is objective and independent. Freshfields Bruckhaus Deringer LLP provided legal advice on specific compliance matters to the committee. Deloitte, PwC and Freshfields provide other advice in their respective areas to the group. During the year, Deloitte also provided BP with services including consulting on HR and upstream matters and PwC provided BP with services including subsidiary company secretarial support. Total fees or other charges (based on an hourly rate) for the provision of remuneration advice to the committee in 2017 (save in respect of legal advice) are as follows: Deloitte £164,280 PwC £62,213 Shareholder engagement As set out in last year’s report, during 2017 we had extensive dialogue with many of our largest shareholders as well as representative bodies on remuneration matters, particularly in the run-up to the AGM. The table below shows the votes on the report for the last three years. AGM directors’ remuneration report vote results Year % vote ‘for’ % vote ‘against’ Votes withheld 2017 97.05% 2.95% 63,453,383 2016 40.7% 59.3% 464,259,340 2015 88.8% 11.2% 305,297,190 The remuneration policy was approved by shareholders at the 2017 AGM on 17 May 2017. The votes on the policy are shown below. 2017 AGM directors’ remuneration policy vote results Year % vote ‘for’ % vote ‘against’ Votes withheld 2017 97.28% 2.72% 36,563,886 External appointments The board supports executive directors taking up appointments outside the company to broaden their knowledge and experience. Each executive director is permitted to accept one non-executive appointment, from which they may retain any fee. External appointments are subject to agreement by the chairman and reported to the board. Any external appointment must not conflict with a director’s duties and commitments to BP. Details of appointments as non-executive directors during 2017 are shown below. Director Appointee company Additional position held at appointee company Total fees Bob Dudley Rosnefta Director 0 Brian Gilvary L’Air Liquide Director Euros 64,310 a Bob Dudley holds this appointment as a result of the company’s shareholding in Rosneft. BP Annual Report and Form 20-F 2017106


 
This section of the directors’ remuneration report completes the directors’ annual report on remuneration with details for the chairman and non-executive directors (NEDs). The board’s remuneration policy for the NEDs was approved at the 2017 AGM. This policy was implemented during 2017. There has been no variance of the fees or allowances for the chairman and the NEDs during 2017. Chairman The fee structure for the chairman, which has been in place since 1 May 2013, is £785,000 per year. He is not eligible for committee chairmanship and membership fees or intercontinental travel allowance. He has the use of a fully maintained office for company business, a car and driver, and security advice in London. He receives a contribution to an office and secretarial support as appropriate to his needs in Sweden. The table below shows the fees paid for the chairman for the year ended 31 December 2017. 2017 remuneration (audited) £ thousand Fees Benefitsa Total 2017 2016 2017 2016 2017 2016 Carl-Henric Svanberg 785 785 35 58 820 843 a Benefits include travel and other expenses relating to attendance at board and other meetings. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant, as an estimation of tax due. Chairman’s interests The figures below include all the beneficial and non-beneficial interests of the chairman in shares of BP (or calculated equivalents) that have been disclosed under the DTRs as at the applicable dates. The chairman’s holdings represented as a percentage against policy achieved are 1,229%. Chairman Ordinary shares or equivalents at 1 Jan 2017 Ordinary shares or equivalents at 31 Dec 2017 Change from 31 Dec 2017 to 14 Mar 2018 Ordinary shares or equivalents total at 14 Mar 2018 Carl-Henric Svanberg 2,076,695 2,076,695 – 2,076,695 Non-executive directors Directors’ remuneration report Non-executive director interests The figures below indicate and include all the beneficial and non-beneficial interests of each non-executive director of the company in shares of BP (or calculated equivalents) that have been disclosed to the company under the DTRs as at the applicable dates. Ordinary shares or equivalents at 1 Jan 2017 Ordinary shares or equivalents at 31 Dec 2017 Change from 31 Dec 2017 to 14 Mar 2018 Ordinary shares or equivalents total at 14 Mar 2018 Value of current shareholding % of policy achieved Nils Andersen 47,855 125,000 – 125,000 £580,938 645 Paul Anderson 30,000b 30,000b – 30,000b $194,350 168 Alan Boeckmann 44,772b 44,772b – 44,772b $290,048 250 Admiral Frank Bowman 24,864b 24,864b – 24,864b $161,077 139 Cynthia Carrolla 10,500b – – – – – Ian Davis 25,735 47,500 – 47,500 £220,756 184 Professor Dame Ann Dowling 22,320 22,320 – 22,320 £103,732 115 Melody Meyerc – 20,646b – 20,646b $133,752 115 Brendan Nelson 11,040 11,040 – 11,040 £51,308 57 Paula Rosput Reynolds 52,200b 58,200b 15,000 73,200b $474,214 409 Sir John Sawers 13,528 14,198 – 14,198 £65,985 73 Andrew Shilstona 15,000 – – – – – a Resigned on 17 May 2017. b Held as ADSs. c Appointed on 17 May 2017. Past directors Sir Ian Prosser (who retired as a non-executive director of BP in April 2010) was appointed as a director and non-executive chairman of BP Pension Trustees Limited on 1 October 2010. During 2017, he received £100,000 for this role. Non-executive directors Fee structure The table below shows the fee structure for non-executive directors: Fees £ thousand Senior independent directora 120 Board member 90 Audit, geopolitical, remuneration and SEEA committees chairmanship feesb 30 Committee membership feec 20 Intercontinental travel allowance 5 a The senior independent director is eligible for committee chairmanship fees and intercontinental travel allowance plus any committee membership fees. b Committee chairmen do not receive an additional membership fee for the committee they chair. c For members of the audit, geopolitical, SEEA and remuneration committees. 2017 remuneration (audited) £ thousand Fees Benefitsa Total 2017 2016 2017 2016 2017 2016 Nils Andersen 115 23 17 6 132 29 Paul Anderson 155 165 27 32 182 197 Alan Boeckmann 165 168 11 17 176 185 Admiral Frank Bowman 155 162 15 14 170 176 Cynthia Carrollb 54 140 36 28 90 168 Ian Davis 154 136 2 2 156 138 Professor Dame Ann Dowlingc 145 150 5 2 150 152 Melody Meyerd 86 – 23 – 109 – Brendan Nelson 138 130 14 30 152 160 Paula Rosput Reynolds 140 140 8 17 148 157 Sir John Sawers 145 148 5 19 150 167 Andrew Shilstonb 75 190 1 5 76 195 a Benefits include travel and other expenses relating to the attendance at board and other meetings. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant, as an estimation of tax due. b Resigned on 17 May 2017. c In addition, Professor Dame Ann Dowling received £25,000 for chairing and being a member of the BP technology advisory council. d Appointed on 17 May 2017. BP Annual Report and Form 20-F 2017 107 C orporate governance


 
Directors’ remuneration report Executive directors interests Deferred shares (audited)a Deferred share element interests Interests vested in 2017 and 2018 Bonus year Type Performance period Date of award of deferred shares Potential maximum deferred shares Number of ordinary shares vested Vesting date £ Face value of the award At 1 Jan 2017 Awarded 2017 At 31 Dec 2017 Bob Dudleyb 2013 Comp 2014-2016 12 Feb 2014 149,628 – – 183,732c 24 Feb 2017 – Mat 2014-2016 12 Feb 2014 149,628 – – 183,732c 24 Feb 2017 – 2014 Comp 2015-2017d 11 Feb 2015 147,054 – 147,054 – – 655,861 Vol 2015-2017d 11 Feb 2015 147,054 – 147,054 – – 655,861 Mat 2015-2017d 11 Feb 2015 294,108 – 294,108 – – 1,311,722 2015f Comp 2016-2018d 4 Mar 2016 275,892 – 275,892 – – 1,015,283 Vol 2016-2018d 4 Mar 2016 275,892 – 275,892 – – 1,015,283 Mat 2016-2018d 4 Mar 2016 551,784 – 551,784 – – 2,030,565 2016g Comp 2017-2019 19 May 2017 – 147,642 147,642 – – 697,092 Mat 2017-2019d 19 May 2017 – 147,642 147,642 – – 697,092 Brian Gilvary 2013 Comp 2014-2016 12 Feb 2014 96,653 – – 119,157c 24 Feb 2017 – Mat 2014-2016 12 Feb 2014 96,653 – – 119,157c 24 Feb 2017 – 2014 Comp 2015-2017 11 Feb 2015 88,288 – 88,288 109,502c 20 Feb 2018 – Vol 2015-2017 11 Feb 2015 88,288 – 88,288 109,502c 20 Feb 2018 – Mat 2015-2017e 11 Feb 2015 176,576 – 176,576 – – 787,529 2015f Comp 2016-2018 4 Mar 2016 159,021 – 159,021 – – 585,197 Vol 2016-2018 4 Mar 2016 159,021 – 159,021 – – 585,197 Mat 2016-2018 4 Mar 2016 318,042 – 318,042 – – 1,170,395 2016g Comp 2017-2019 19 May 2017 – 73,070 73,070 – – 345,000 Mat 2017-2019h 19 May 2017 – 73,070 73,070 – – 345,000 Former executive directors Iain Conn 2013 Comp 2014-2016 12 Feb 2014 100,563 – – 123,977c 24 Feb 2017 – Mat 2014-2016 12 Feb 2014 33,521i – – 41,325c 24 Feb 2017 – Comp = Compulsory. Vol = Voluntary. Mat = Matching. a Since 2010, vesting of the deferred shares has been subject to a safety and environmental sustainability hurdle, and this will continue. If the committee assesses that there has been a material deterioration in safety and environmental performance, or there have been major incidents, either of which reveal underlying weaknesses in safety and environmental management, then it may conclude that shares should vest only in part, or not at all. In reaching its conclusion, the committee will obtain advice from the SEEAC. There is no identified minimum vesting threshold level. b Bob Dudley received awards in the form of ADSs. The above numbers reflect calculated equivalents in ordinary shares. One ADS is equivalent to six ordinary shares. c Represents vestings of shares made at the end of the relevant performance period based on performance achieved under rules of the plan and includes reinvested dividends on the shares vested. The market price of each share used to determine the total value at vesting on the vesting dates of 24 February 2017 and 20 February 2018 were £4.47 and £4.75 respectively and for ADSs on 24 February 2017 was $33.50. These totals include the additional accrual of dividends which vested on 19 May 2017 and 2 August 2017. d Bob Dudley has voluntarily agreed to defer vesting of these awards until after retirement, therefore the performance period is expected to exceed the minimum term of three years. The market price of ordinary shares used to determine the total value at vesting on 11 February 2015 was £4.46. e Brian Gilvary has voluntarily agreed to defer vesting of these awards for five years with a further one year retention period. f The face value has been calculated using the market price of ordinary shares on 4 March 2016 of £3.68. g The market price at closing of ordinary shares on 19 May 2017 was £4.72 and for ADSs was $36.94. The sterling value has been used to calculate the face value. h Brian Gilvary has voluntarily agreed to defer vesting of these awards until the later of three years post award or one year post retirement, therefore the performance period is expected to exceed the minimum term of three years. i All matching shares have been pro-rated to reflect actual service during the performance period and these figures have been used to calculate the face value. 108 BP Annual Report and Form 20-F 2017


 
Directors’ remuneration report Performance shares (audited) Share element interests Interests vested in 2017 and 2018 Performance period Date of award of performance shares Potential maximum performance sharesa Number of ordinary shares vested Vesting date £ Face value of the award At 1 Jan 2017 Awarded 2017 At 31 Dec 2017 Bob Dudleyb 2014-2016 12 Feb 2014 1,304,922 – – 653,538c 19 May 2017d – 2015-2017 11 Feb 2015 1,501,770 – 1,365,240e 1,172,484 May 2018 – 2016-2018f 4 Mar 2016 1,809,582 – 1,645,074e – – 6,053,872 2017-2019f 19 May 2017 – 1,571,628 1,428,750e – – 6,743,700 Brian Gilvary 2014-2016 12 Feb 2014 605,544 – – 308,286c 19 May 2017d – 2015-2017 11 Feb 2015 685,246 – 685,246 594,932 May 2018 – 2016-2018f 4 Mar 2016 786,559 – 786,559 – – 2,894,537 2017-2019f 19 May 2017 – 722,093 722,093 – – 3,409,362 Former executive directors Iain Conn 2014-2016 12 Feb 2014 220,043 – – 112,025c g 19 May 2017d – a For awards under the 2014-2016, 2015-2017 and 2016-2018 plans, performance conditions are measured one third on TSR relative to ExxonMobil, Shell, Total and Chevron; one third on operating cash flow; and one third on a balanced scorecard of strategic imperatives. There is no identified overall minimum vesting threshold level but to comply with UK regulations a value of 44.4%, which is conditional on the TSR, operating cash flow, each of the strategic imperatives and strategic progress reaching the minimum threshold, has been calculated. For awards under the 2017-2019 plan, performance conditions are measured 50% on TSR relative to ExxonMobil, Shell, Total and Chevron over three years; 30% on ROACE based on performance in 2019 and 20% on strategic progress assessed over the performance period. Each performance period ends on 31 December of the third year. b Bob Dudley received awards in the form of ADSs. The above numbers reflect calculated equivalents in ordinary shares. One ADS is equivalent to six ordinary shares. c Represents vestings of shares made at the end of the relevant performance period based on performance achieved under rules of the plan and includes reinvested dividends on the shares vested. The market price of each share at the vesting date of 19 May 2017 was £4.72 and for ADSs was $36.94. For the assumed vestings dated May 2018 a price of £5.01 per ordinary share and $39.85 per ADS has been used. These are the average prices from the fourth quarter of 2017. These totals include the additional accrual of dividends which vested on 2 August 2017. d The 2014-2016 award vested on 19 May 2017, which resulted in an increase in value at vesting of £24,644 for Iain Conn. Details for Bob Dudley and Brian Gilvary can be found in the single figure table on page 95. e Bob Dudley has requested that the EDIP performance shares vestings in respect of the performance periods 2015-2017 and 2016-2018 are based on the 500% maximum annual award level which applies under the 2017 directors’ remuneration policy, rather than the 550% maximum annual award level which applies under the 2014 directors’ remuneration policy. f The market price at closing of ordinary shares on 4 March 2016 was £3.68 and for ADSs was $31.15 and on 19 May 2017 was £4.72 and for ADSs was $36.94. g Potential maximum of performance shares element has been pro-rated to reflect actual service during the performance period. Share interests in share options plans (audited) Option type At 1 Jan 2017 Granted Exercised At 31 Dec 2017 Option price Market price at date of exercise Date from which first exercisable Expiry date Brian Gilvary BP 2011 500,000 – – 500,000 £3.72 – 07 Sep 2014 07 Sep 2021 SAYE 3,103 – – 3,103 £2.90 – 01 Sep 2019 28 Feb 2020 The closing market prices of an ordinary share and of an ADS on 29 December 2017 were £5.227 and $42.03 respectively. During 2017 the highest market prices were £5.247 and $42.03 respectively and the lowest market prices were £4.3975 and $33.31 respectively. BP 2011 = BP 2011 plan. These options were granted to Brian Gilvary prior to his appointment as a director and are not subject to performance conditions. BP Annual Report and Form 20-F 2017 109 C orporate governance


 
Directors’ remuneration report Remuneration policy table – executive directors A summary of the remuneration policy approved by shareholders at the 2017 AGM is set out below. For the full remuneration policy, please refer to the 2016 Directors' remuneration report at bp.com/remuneration. Salary and benefits To provide fixed remuneration to reflect the scale and complexity of both the business and the role, and to be competitive with the external market. Salary • Salary levels take into account the nature of the role, performance of the business and the individual, market positioning and pay conditions in the wider BP group. When setting salaries, the committee considers practice in other oil and gas majors as well as European and US companies of a similar size, geographic spread and business dynamic to BP. • Salaries are normally set in the home currency of the executive director and are reviewed annually. They may be reviewed at other times where appropriate, for example following a major role change. • Salary levels are specific to the role and individual and therefore there is no maximum salary under the policy. However, when reviewing salaries for executive directors, the committee will consider salary increases for the most senior management and for employees in relevant countries. Percentage increases for executive directors will not exceed that of the broader employee population, other than in specific circumstances identified by the committee (e.g. in response to a substantial change in responsibilities). • Following the 2018 AGM, the annual salaries for the executive directors will be: – Group chief executive – Bob Dudley: $1,854,000. – Chief financial officer – Brian Gilvary: £775,000. Benefits • The committee expects to maintain benefits at the current level. • Executive directors are entitled to receive those benefits available to all BP employees generally, such as participation in all-employee share plans, sickness pay, relocation assistance and maternity pay. Benefits are not pensionable. • Executive directors may receive other benefits that are judged to be cost effective and appropriate in terms of the individual’s role, time and/or security. These include car-related benefits or cash in lieu, driver, security, assistance with tax return preparation, insurance and medical benefits. The company may meet any tax charges arising on business-related benefits provided to directors, for example security. • The taxable value of benefits provided may fluctuate during the period of this policy, depending on the cost of provision and a director’s personal circumstances. Performance framework • Not applicable Annual bonus To provide variable remuneration dependent on performance against annual financial, operational and safety measures. 50% of the bonus is paid in cash and 50% is mandatorily deferred and held in BP shares for three years to reinforce the long-term nature of the business and the importance of sustainability. • The bonus is based on performance against annual measures and targets set at the start of the year, evaluated over the financial year and assessed following the year end. • Typically the annual bonus earned would be 50% of the maximum available for delivery of performance in line with the annual plan. The level of bonus payable may vary depending on the nature of the performance measure and level of target set. • Executive directors may earn a maximum annual bonus (including any deferral) of up to 225% of salary for stretching performance against the objectives set for the year. The committee intends to set demanding requirements for maximum payment. • 50% of the bonus earned is required to be deferred into BP shares for three years. Dividends (or equivalents, including the value of any reinvestment) may accrue in respect of any deferred shares. • Awards are subject to malus and clawback provisions as described in policy, see bp.com/remuneration. Performance framework • The committee determines specific measures, weightings and targets each year to reflect the priorities in the annual plan, which is designed to deliver the group’s strategy and is approved by the board. • Measures will typically include a balance of financial, operational and safety measures. Details of the measures will be reported in advance each year in the annual report on remuneration. The committee intends to disclose targets for the annual bonus retrospectively. Purpose Operation and opportunity Purpose Operation and opportunity BP Annual Report and Form 20-F 2017110


 
Directors’ remuneration report Performance shares Purpose To link the largest part of remuneration opportunity with the long-term performance of the business. The outcome varies with performance against measures linked directly to strategic priorities. Operation and opportunity • Annual awards of shares will vest based on performance relative to measures and targets that reflect the delivery of BP’s strategy. Performance will normally be measured over a period of at least three years. • The maximum annual award level for the group chief executive will be 500% of salary and 450% of salary for the chief financial officer. • Performance shares will only vest to the extent that performance targets are met. The level of vesting for performance will depend on the stretch of the objective set, but the threshold level would normally not be expected to exceed 25% of the maximum opportunity for the relevant element. • Once performance has been measured, a proportion of the shares that will vest are subject to a holding period. The combined length of the performance and holding periods will be normally six years. • Dividends (or equivalents, including the value of reinvestment) may accrue in respect of vested shares. • Awards are subject to malus and clawback provisions, See bp.com/remuneration. Performance framework • Performance shares may vest based on a combination of total shareholder return, financial and strategic measures. • For 2018 awards, the measures and weightings will be: – total shareholder return relative to oil and gas majors (50%) – return on average capital employed (30%) – strategic progress (20%) • Details of 2018 targets relating to the total shareholder return and return on average capital employed measures are outlined in the remuneration report. Details relating to strategic progress will be disclosed retrospectively. • Prior to granting each award the committee will review the measures, weightings and targets to ensure they remain focused on delivering the strategy and are in the interests of shareholders. • At least 40% of any award will be subject to measures linked to shareholder returns and the proportion linked to strategic progress will not exceed 30%. The committee would consult appropriately with major shareholders regarding any material changes to the measures. Retirement benefits To recognize competitive practice in home country. Operation and opportunity • Executive directors normally participate in the company retirement plans that operate in their home country. • Senior executives in BP have generally been employees of the group for a number of years. They often remain participants in long-standing arrangements in which other group employees continue to participate, but which are no longer offered to new employees. The maximum opportunity will vary depending on the terms of these arrangements. • UK participants may remain members of the company’s defined benefit plan. In common with other employees in this plan, they may choose to receive up to 35% of salary in lieu as a cash supplement but do not receive further service accrual under this plan. The level of this allowance is expected to reduce in future, in line with the proposed reduction for other UK employees who participate in this arrangement. • US executive directors participate in long-standing plans of Amoco and Arco and other BP defined benefit and retirement savings plans for US employees. • For future appointments, the committee will carefully review any retirement benefits to be granted to a new director. This will take account of retirement policies across the wider group, any arrangements currently in place, local market practice and individual circumstances. The committee will consider retirement benefits in the context of the overall approach to remuneration. Performance framework • Retirement benefits in the UK are not directly linked to performance. Reflecting local market practice, legacy arrangements in the US may reference bonuses when determining the benefit level. Shareholding requirements To provide alignment between the interests of executive directors and our other shareholders. Operation and opportunity • An executive director is expected to build up and maintain a minimum shareholding of five times their base salary within five years of their appointment. Performance framework • Not applicable. Purpose Purpose BP Annual Report and Form 20-F 2017 111 C orporate governance


 
Directors’ remuneration report Remuneration policy table – non-executive directors The maximum fees for non-executive directors are set in accordance with the Articles of Association. Non-executive chairman Fees Approach Remuneration is in the form of cash fees, payable monthly. The level and structure of the chairman’s remuneration will primarily be compared against UK best practice. Operation and opportunity The quantum and structure of the non-executive chairman’s remuneration is reviewed annually by the remuneration committee, which makes a recommendation to the board. Benefits and expenses Approach The chairman is provided with support and reasonable travelling expenses. Operation and opportunity The chairman is provided with an office and full time secretarial and administrative support in London and a contribution to an office and secretarial support in his home country as appropriate. A car and the use of a driver is provided in London, together with security assistance. All reasonable travelling and other expenses (including any relevant tax) incurred in carrying out his duties is reimbursed. Non-executive directors Fees Approach Remuneration is in the form of cash fees, payable monthly. Remuneration practice is consistent with recognized best practice standards for non-executive directors’ remuneration and, as a UK-listed company, the level and structure of non-executive directors’ remuneration will primarily be compared against UK best practice. Additional fees may be payable to reflect additional board responsibilities, for example, committee chairmanship and membership and for the role of senior independent director. Operation and opportunity The level and structure of non-executive directors’ remuneration is reviewed by the chairman, the GCE and the company secretary who make a recommendation to the board. Non-executive directors do not vote on their own remuneration. Remuneration for non-executive directors is reviewed annually. Other fees and benefits Intercontinental allowance Approach Non-executive directors receive an allowance to reflect the global nature of the company’s business. The intercontinental travel allowance is payable for the purpose of attending board or committee meetings or site visits. Operation and opportunity The allowance is paid in cash following each event of intercontinental travel. Benefits and expenses Approach Non-executive directors are provided with administrative support and reasonable travelling expenses. Professional fees are reimbursed in the form of cash, payable following the provision of advice and assistance. Operation and opportunity Non-executive directors are reimbursed for all reasonable travelling and subsistence expenses (including any relevant tax) incurred in carrying out their duties. The reimbursement of professional fees incurred by non-executive directors based outside the UK in connection with advice and assistance on UK tax compliance matters. BP Annual Report and Form 20-F 2017112 This directors’ remuneration report was approved by the board and signed on its behalf by David J Jackson, company secretary on 29 March 2018.


 
Pages 113-114 have been removed as they do not form part of BP’s Annual Report on Form 20-F as filed with the SEC. C orporate governance


 

 
 
 
 
 
 
 
 
Financial
statements
 
 
 
Independent auditor’s
 
 
 
Group statement of
 
 
 
reports
 
 
changes in equity
 
 
 
 
 
 
Group statement of
 
 
 
 
 
 
comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.
Significant accounting
 
 
21.
 
 
 
 
policies
 
22.
Pensions and other post-
 
 
 
 
2.
Significant event - Gulf
 
 
 
retirement benefits
 
 
 
 
of Mexico oil spill
 
23.
 
 
 
3.
Disposals and
 
 
24.
 
 
 
 
impairment
 
25.
Capital disclosures and
 
 
 
 
4.
 
 
analysis of changes in net
 
 
 
 
5.
Income statement
 
 
 
debt
 
 
 
 
analysis
 
26.
 
 
 
6.
 
27.
Financial instruments and
 
 
 
 
7.
 
 
financial risk factors
 
 
 
8.
 
28.
Derivative financial
 
 
 
 
9.
Earnings per share
 
 
instruments
 
 
 
10.
Property, plant and
 
 
29.
 
 
 
 
equipment
 
30.
 
 
 
11.
 
31.
 
 
 
12.
 
32.
Remuneration of senior
 
 
 
 
13.
 
 
management and non-
 
 
 
 
14.
Investments in joint
 
 
 
executive directors
 
 
 
 
ventures
 
33.
Employee costs and
 
 
 
 
15.
Investments in
 
 
 
numbers
 
 
 
 
associates
 
34.
 
 
 
16.
 
35.
Subsidiaries, joint
 
 
 
 
17.
 
 
arrangements and
 
 
 
 
18.
Trade and other
 
 
 
associates
 
 
 
 
receivables
 
36.
Condensed consolidating
 
 
 
 
19.
Valuation and qualifying
 
 
 
information on certain US
 
 
 
 
 
accounts
 
 
subsidiaries
 
 
 
 
20.
Trade and other
 
 
 
 
 
 
 
 
 
 
payables
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplementary information on oil and natural gas (unaudited)
 
 
 
Oil and natural gas
 
 
 
Standardized measure of
 
 
 
 
exploration and production
 
 
 
discounted future net cash
 
 
 
 
activities
 
 
flows and changes therein
 
 
 
 
Movements in estimated net
 
 
 
relating to proved oil and
 
 
 
 
proved reserves
 
 
gas reserves
 
 
 
 
 
 
 
Operational and statistical
 
 
 
 
 
 
 
 
 
information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
BP Annual Report and Form 20-F 2017
 
115


Consolidated financial statements of the BP group
























Pages 116-122 have been removed as they do not form part of BP's Annual Report on Form 20-F as filed with the SEC.


























This page does not form part of BP's Annual Report on Form 20-F as filed with the SEC.

116
 
BP Annual Report and Form 20-F 2017
 


Consolidated financial statements of the BP group
Report of Independent Registered Public Accounting Firm
To the shareholders and board of directors of BP p.l.c.

Opinion on the financial statements
We have audited the accompanying group balance sheets of BP p.l.c. (the Company) as of 31 December 2017 and 2016, and the related group income statement, group statement of comprehensive income, group statement of changes in equity and group cash flow statement for each of the three years in the period ended 31 December 2017, and the related notes (collectively referred to as the "group financial statements"). In our opinion, the group financial statements present fairly, in all material respects, the financial position of BP p.l.c. at 31 December 2017 and 2016 and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2017, in conformity with International Financial Reporting Standards ("IFRS") as adopted by the European Union and IFRS as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), BP p.l.c.’s internal control over financial reporting as of 31 December 2017, based on criteria established in the UK Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting and our report dated 29 March 2018 expressed an unqualified opinion thereon.
Basis for opinion
These financial statements are the responsibility of BP p.l.c.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to BP p.l.c. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ Ernst & Young LLP
We have served as the Company's auditor since 1909.
London, United Kingdom
29 March 2018




























 
BP Annual Report and Form 20-F 2017
 
123


Consolidated financial statements of the BP group
Report of Independent Registered Public Accounting Firm
To the shareholders and board of directors of BP p.l.c.

Opinion on internal control over financial reporting
We have audited BP p.l.c.’s internal control over financial reporting as of 31 December 2017, based on criteria established in the UK Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. In our opinion, BP p.l.c. maintained, in all material respects, effective internal control over financial reporting as of 31 December 2017, based on the UK Financial Reporting Council’s Guidance.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the group balance sheets of BP p.l.c. as of 31 December 2017 and 2016, the related group income statement, group statement of comprehensive income, group statement of changes in equity and group cash flow statement for each of the three years in the period ended 31 December 2017, and our report dated 29 March 2018 expressed an unqualified opinion thereon.
Basis for opinion
BP p.l.c.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s report on internal control over financial reporting on page 275. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Ernst & Young LLP
London, United Kingdom
29 March 2018

Consent of independent registered public accounting firm
We consent to the incorporation by reference of our reports dated 29 March 2018, with respect to the group financial statements of BP p.l.c., and the effectiveness of internal control over financial reporting of BP p.l.c., included in this Annual Report and Form 20-F for the year ended 31 December 2017 in the following Registration Statements:
Registration Statements on Form F-3 (File Nos. 333-208478 and 333-208478-01) of BP p.l.c. and BP Capital Markets p.l.c.; and Registration Statements on Form S-8 (File Nos. 333-67206, 333-79399, 333-103924, 333-123482, 333-123483, 333-131583, 333-131584, 333-132619, 333-146868, 333-146870, 333-146873, 333-173136, 333-177423, 333-179406, 333-186462, 333-186463, 333-199015, 333-200794, 333-200795, 333-207188, 333-207189, 333-210316 and 333-210318) of BP p.l.c.
/s/ Ernst & Young LLP
London, United Kingdom
29 March 2018







124
 
BP Annual Report and Form 20-F 2017
 


Group income statement
For the year ended 31 December
 
 
 
 
$ million

 
 
Note

2017

2016

2015

Sales and other operating revenues
 
4

240,208

183,008

222,894

Earnings from joint ventures – after interest and tax
 
14

1,177

966

(28
)
Earnings from associates – after interest and tax
 
15

1,330

994

1,839

Interest and other income
 
5

657

506

611

Gains on sale of businesses and fixed assets
 
3

1,210

1,132

666

Total revenues and other income
 
 
244,582

186,606

225,982

Purchases
 
17

179,716

132,219

164,790

Production and manufacturing expensesa
 
 
24,229

29,077

37,040

Production and similar taxes
 
4

1,775

683

1,036

Depreciation, depletion and amortization
 
4

15,584

14,505

15,219

Impairment and losses on sale of businesses and fixed assets
 
3

1,216

(1,664
)
1,909

Exploration expense
 
6

2,080

1,721

2,353

Distribution and administration expenses
 
 
10,508

10,495

11,553

Profit (loss) before interest and taxation
 
 
9,474

(430
)
(7,918
)
Finance costsa
 
5

2,074

1,675

1,347

Net finance expense relating to pensions and other post-retirement benefits
 
22

220

190

306

Profit (loss) before taxation
 
 
7,180

(2,295
)
(9,571
)
Taxationa
 
7

3,712

(2,467
)
(3,171
)
Profit (loss) for the year
 
 
3,468

172

(6,400
)
Attributable to
 
 
 
 
 
   BP shareholders
 
 
3,389

115

(6,482
)
   Non-controlling interests
 
 
79

57

82

 
 
 
3,468

172

(6,400
)
Earnings per share
 
 
 
 
 
Profit (loss) for the year attributable to BP shareholders
 
 
 
 
 
Per ordinary share (cents)
 
 
 
 
 
   Basic
 
9

17.20

0.61

(35.39
)
   Diluted
 
9

17.10

0.60

(35.39
)
Per ADS (dollars)
 
 
 
 
 
Basic
 
9

1.03

0.04

(2.12
)
Diluted
 
9

1.03

0.04

(2.12
)
a 
See Note 2 for information on the impact of the Gulf of Mexico oil spill on these income statement line items.


 
BP Annual Report and Form 20-F 2017
 
125


Group statement of comprehensive incomea 
For the year ended 31 December
 
 
 
 
 $ million

 
 
Note

2017

2016

2015

Profit (loss) for the year
 
 
3,468

172

(6,400
)
Other comprehensive income
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss
 
 
 
 
 
Currency translation differences
 
 
1,986

254

(4,119
)
Exchange (gains) losses on translation of foreign operations reclassified to gain or loss on sale of businesses and fixed assets
 
 
(120
)
30

23

Available-for-sale investments
 
 
14

1

1

Cash flow hedges marked to market
 
28

197

(639
)
(178
)
Cash flow hedges reclassified to the income statement
 
28

116

196

249

Cash flow hedges reclassified to the balance sheet
 
28

112

81

22

Share of items relating to equity-accounted entities, net of tax
 
14, 15

564

833

(814
)
Income tax relating to items that may be reclassified
 
7

(196
)
13

257

 
 
 
2,673

769

(4,559
)
Items that will not be reclassified to profit or loss
 
 
 
 
 
Remeasurements of the net pension and other post-retirement benefit liability or asset
 
22

3,646

(2,496
)
4,139

Share of items relating to equity-accounted entities, net of tax
 
14, 15



(1
)
Income tax relating to items that will not be reclassified
 
7

(1,303
)
739

(1,397
)
 
 
 
2,343

(1,757
)
2,741

Other comprehensive income
 
 
5,016

(988
)
(1,818
)
Total comprehensive income
 
 
8,484

(816
)
(8,218
)
Attributable to
 
 
 
 
 
BP shareholders
 
 
8,353

(846
)
(8,259
)
Non-controlling interests
 
 
131

30

41

 
 
 
8,484

(816
)
(8,218
)
a
See Note 30 for further information.


126
 
BP Annual Report and Form 20-F 2017
 


Group statement of changes in equitya 
 
 
 
 
 
 
 
 
 
$ million

 
 
Share capital and capital reserves

Treasury shares

Foreign currency translation reserve

Fair value reserves

Profit and loss account

BP shareholders' equity

Non-controlling interests

Total equity

At 1 January 2017
 
46,122

(18,443
)
(6,878
)
(1,153
)
75,638

95,286

1,557

96,843

Profit (loss) for the year
 




3,389

3,389

79

3,468

Other comprehensive income
 


1,722

410

2,832

4,964

52

5,016

Total comprehensive income
 


1,722

410

6,221

8,353

131

8,484

Dividendsb
 




(6,153
)
(6,153
)
(141
)
(6,294
)
Repurchase of ordinary share capital
 




(343
)
(343
)

(343
)
Share-based payments, net of tax
 

1,485



(798
)
687


687

Share of equity-accounted entities’ changes in equity, net of tax
 




215

215


215