15.04.2004 – 16:02

BP plc

euro adhoc: BP PLC
ADDRESS TO SHAREHOLDERS AT THE ANNUAL GENERAL MEETING OF BP p.l.c. ON APRIL 15, 2004 BY PETER SUTHERLAND, SC, CHAIRMAN, AND LORD BROWNE, GROUP CHIEF EXECUTIVE (E)

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April 15, 2004

ADDRESS TO SHAREHOLDERS AT THE ANNUAL GENERAL MEETING OF BP p.l.c.
ON APRIL 15, 2004 BY PETER SUTHERLAND, SC, CHAIRMAN, AND LORD
BROWNE, GROUP CHIEF EXECUTIVE

Introduction by Peter Sutherland

Good morning ladies and gentlemen. Welcome to our 95th Annual
General Meeting. We appreciate your presence here today. I am Peter
Sutherland. Seated on the stage with me in the front row, on my
left, are John Browne, group chief executive; Byron Grote, chief
financial officer; and Walter Massey, chairman of the Ethics and
Environment Assurance Committee

To my right, in the front row, are David Jackson, our company
secretary; Ian Prosser who is deputy chairman, chairman of the
Audit Committee and our senior independent director; and Robin
Nicholson, chairman of the Remuneration Committee

Unfortunately, our newest director, Antony Burgmans, cannot be with
us today due to an engagement which was arranged prior to his
appointment as a director. Antony has asked me to send his
apologies to the meeting.

All the other members of the Board are on the stage with us.
Joining us for the last time are Floris Maljers and Dick Olver.
Floris will retire at the close of the meeting. Dick will stand
down on July 1, 2004 when he takes the chair at BAE Systems plc.
We are very sorry to lose Dick. He has had an excellent career with
BP over some 30 years. In the early part of his career, he worked
on a number of significant oil, gas and refining projects
worldwide. More recently, he has taken a number of senior roles in
the group, among them chief of staff and head of our Corporate
Strategy. He became chief executive of Exploration and Production
in 1988 and last year was appointed the Group's deputy chief
executive.
He has made a great contribution to our company and its development
both personally and professionally. I am pleased to say that he has
agreed to become a director on the Board of TNK-BP, our Russian
joint venture taking up the office of deputy chairman. I am
personally delighted that he will continue to work with us in that
role. I would ask you to join the Board and myself in wishing Dick
and Pam well.

I would also like to pay special tribute to Floris Maljers. Floris
joined the BP board in 1998 at the time of the merger with Amoco.
Over these years Floris has had a significant presence on the
Board, bringing a continental European focus which has enhanced our
discussions. His wisdom has been particularly beneficial to the
Ethics and Environmental Assurance Committee, whose role has
developed and widened over time. I am sure that you will join the
board and myself in thanking Floris and wishing him and his wife,
Henneke, all the very best for the future.

BP had a strong year last year. We are helped by consistently high
oil prices which to date have shown no indication of falling. John
Browne, our chief executive, will review the past year in more
detail when we consider the Annual Report and Accounts later in the
meeting.

There are a number of issues upon which I would like to comment
briefly before we move to the main business of the meeting.

Our goal, as a Board, is to maximise the value that we create for
you, the shareholders, over the long term. You are able to realise
that value through, we hope, an increase in our share price and
through dividends and other distributions that we make.

We report to you quarterly and have done so for over a decade.
Dividends are also declared quarterly and have been denominated in
dollars since 1998 when we merged with Amoco. The oil business is a
dollar business. As we report in dollars we believe that it is the
correct course for our dividends to reflect this.

As you know we announce a sterling equivalent to the dollar
dividend and I appreciate that the weakness of the US dollar over
the past year or so has lead to our UK shareholders not receiving
the full benefit of the increases that we have recently made to the
dividend.

However, in periods of a strong US dollar, which we experienced in
2000 and 2001, the sterling dividend growth was 12 per cent, well
over the 3 per cent and 7 per cent growth experienced by
shareholders who receive US dollar dividends. Over the past five
years, since moving to US dollar based accounts, our dividend has
grown an average 5 per cent a year in both Sterling and US dollar
terms.

In reviewing dividend policy and determining the dividend each
year, your Board is mindful of its current intentions, which,
subject to performance and market considerations, are to continue
to grow the dividend level. As was recently announced, we also
intend to distribute all cash flows in excess of operating
investment and dividend needs to shareholders using the mechanism
of share buybacks as long as the oil price remains above $20 per
barrel.

When I spoke to you last, I reflected on a number of the events
that were taking place in the world stage. Two thousand and three
proved to be a turbulent year; but a year when BP emerged as a
truly global enterprise. This represented the culmination of the
integration of all of these businesses that had been acquired over
the previous four or so years.

It was a year in which we consolidated our portfolio of assets.
These assets, in which we are making a substantial investment,
allow the Company to look forward with some confidence.

The challenge for the Group in the coming years is to exploit the
advantages open to it from this excellent asset portfolio, and to
make the most of the strategic positions that it has established in
many markets. In doing so, we believe the scale of our operations
worldwide form a solid base from which we can not only sustain but
enhance shareholder value.

The TNK-BP joint venture is the prime example of the type of
transaction in which the Group must be involved in the future if it
is to continue to gain first mover advantage.

In this new phase of the Company's strategy, the monitoring role of
the Board and its Committees is vital - assessing the opportunities
and risks confronting the Group and the internal controls being
applied to manage and exploit them. However, in ensuring meaningful
oversight, we must recognise the need for the executive team to be
free to exercise judgement and display an entrepreneurial fleetness
of foot - so essential to the business of a company of our scale.

The Group's business brings it into contact with many different
societies and peoples in many parts of the world. There is also
oversight from numerous regulatory authorities and those who
represent the interests of the people who are affected by our
operations. We recognise that it is essential for us to be
responsive to those with whom we come into contact, in discharging
our overall responsibility to you, our owners, to protect and
enhance the long-term value of the Company.

This past year has seen the implementation of a number of
initiatives on both sides of the Atlantic influencing the way in
which companies are governed. Some years ago, BP adopted a
principled approach in implementing a series of governance policies
to delineate the role, authority and accountability of the Board
and the executive management of the Group. We have reported to you
annually on this topic. These governance policies are well embedded
into our culture and ensure ready compliance with many new
regulatory developments in this area.

The work of the Board has been particularly challenging over the
past year. Recently there has been considerable focus upon the
manner in which companies in our industry report on their reserves.

This is a complex topic, but one over which you as shareholders
may, in the light of press comment, have concerns.

Your Board, principally through the Audit Committee, has kept this
matter under review and has reviewed with the Executive Management,
BP's approach to this issue.

On the basis of that review, we are satisfied that there are
appropriate processes in place within the Group to estimate the
proved reserves that we report to you, our shareholders.

More broadly, in the area of Corporate Governance we have seen the
introduction of the revised Combined Code in the UK and the
implementation of Sarbanes-Oxley in the US. These are important
initiatives and we have responded appropriately.

In our governance report we have set out not only how we will
approach compliance with the requirements of the Combined Code but
also our succession plan for the non-executives on the Board. We
have to balance the need to refresh Board membership with the
requirement that we have directors of sufficient experience who can
man and attend our various committees.

BP is in a business with a long-term project development cycle with
investments coming to fruition over an extended period. In these
circumstances, the Board believes that it is strongly in the
interests of shareholders that a number of non-executive directors
have long-term experience of the business.

Much of the work of the Board takes place in the committees, which
have an increasingly heavy workload. We have, in our governance
report, given an insight into the work of these committees. We
intend to build on this in the coming year.

Annual re-election is now proposed in the Combined Code for
directors who have served on a Board in excess of a particular
period. We have decided that our optimal approach is for all of the
Board to offer itself for re-election annually. This will enable
our shareholders to be given an opportunity for them to show their
support for the Board each year. We have a resolution today which
amends our Articles to facilitate this.

We will continue to keep developments in this area under careful
review and respond as practice develops.

Remarks by John Browne

Ladies and Gentlemen, good morning. It is a very great pleasure to
see so many of you here, in particular former employees and members
of our various Pension Funds.

This morning, I am going to talk about only four things:

• Firstly, about what we did in 2003;
• Secondly, looking ahead and talking about our unchanged strategy to create long-term shareholder value for this decade and beyond;
• Thirdly, explaining our thinking behind dividends and the distribution of excess free cash flow to shareholders, by way of share buybacks;
• And finally, reviewing our approach to building a sustainable Group, a crucial underpinning to the generation of long-term shareholder value. This is covered in much more detail in our Sustainability Report, copies of which are available to you here. So first let's look at the year 2003. For us, it was another good year, despite the challenges presented by a weak global economy, the war in Iraq, the security implications of terrorism and increasingly complex regulations, particularly coming from the US. BP rose convincingly to all these challenges and achieved one of the strongest performances in our history.

Our financial result was up by over 40 per cent to $12.4 billion.
Our pro-forma return on average capital employed rose from 13 per
cent to 16 per cent, reflecting improved margins and very
disciplined management.

This was achieved against a backdrop of strong oil and gas prices.
Underlying oil demand increased as the world moved out of recession
and as China's strong economic growth continued.

Let me now pull out some highlights of the year:

• We closed our TNK-BP deal, giving us 50 per cent of the third largest oil producer in Russia - a country that is the world's most significant producer of hydrocarbons, both today and for tomorrow;
• We more than replaced our production with new proved reserves. Overall, we replaced over 120 per cent of the oil and gas we produced. We made new discoveries in Egypt, Angola and the deepwater of the Gulf of Mexico;
• We produced around 3.6 million barrels a day of oil and gas, in line with our expectations;
• We continued to expand our presence in the important LNG market by producing over 40 per cent more LNG from our equity gas than in 2002;
• We completed the steps to integrate Veba into the BP Group achieving synergies and cost savings well in excess of those we had originally expected. Veba gives us a leading market share in oil products in Europe's largest economy;
• Globally, our oil products and convenience sales grew significantly and profitably;
• And in North America, we were the leading wholesale gas marketer. Our improved result was founded on cash flow from operations which rose by 25 per cent to over $24 billion pre-tax. In addition, we generated over $6 billion pre-tax from divestments.

How did we use this cash flow? We set aside around $2.5 billion to
strengthen our various Pension Funds. Some $14 billion was devoted
to organic capital expenditure; 70 per cent in the upstream and 30
per cent in our customer-facing businesses. We spent $2.6 billion
on acquisitions, chiefly the cash part of the payment for our share
of TNK-BP. We paid $5.7 billion in dividends - which rose in dollar
terms by $0.4 billion or 8 per cent. And we devoted $2 billion to
buy back our shares. Those are the headlines.

The story of 2003 was about maintaining the strength of the assets
we have presently in service - while laying in the investment, and
the human and organisational capability for the future.

And that brings me to our future. The strategy we have established
over a number of years is proving to be very effective. It is
delivering results, and positioning us well for sustainable growth.

We believe that the strategy gives us the strength to manage
through the inevitable volatility of energy markets and the
capacity to deliver progressively improving returns.

Our strategy in the E&P segment is to build production with
steadily improving underlying cash returns by investing in the
largest, lowest cost, new hydrocarbons developments and managing
the decline of our more mature producing fields. In the customer
facing businesses our aim is to increase the flow of cash by
building on the relationships we have with our customers and
maintaining cash returns despite intensive competition. In both
cases we are on track.

Over the last few years, we have invested heavily in the customer
facing businesses. The mergers and acquisitions of the last five
years have brought us a set of great market positions, brands,
people and skills which enabled us, for the first time, to consider
developing the full potential of the customer facing side of the
Group. During that period we re-invested all the cash flow
generated by these businesses. That phase is now largely complete
and we can now focus on the generation of free cash flow by
capturing margins and controlling costs.

Then on the E&P side, including TNK-BP in Russia, our production of
oil and gas is set to grow quite strongly to the end of the decade.
Production in some of the mature areas such as the North Sea will
inevitably decline but the developments in our five new profit
centres, including Trinidad, Angola, the Caspian and the deep water
of the Gulf of Mexico are all on schedule, with new fields due on
stream in 2004 and 2005.

As a result of these projects, the capital we are investing now
will start to produce a growing stream of revenue, the requirement
for new capital will be reduced to a more stable level and cash
returns will be growing.

The result is that there will be significantly more cash available
for distribution.

We want to continue with the progressive dividend policy to which
Peter referred. In establishing the level of dividend we use
discretion but are guided by several considerations, including:

• Firstly, the actual prevailing circumstances of the Group, including its cash flow, indebtedness and results;
• Secondly, the future expected results for the Group, at underlying conditions;
• Thirdly, the effect of circumstances which may require our view of the world to be modified;
• And lastly, our track record of dividend growth which has been 6.8 per cent per annum since 1999, the year in which we started to announce our dividends in dollars. Importantly, these considerations are examined within a broader context of our approach to long-term shareholder value creation based on cash returns.

In periods of high oil prices such as the one we find ourselves in
today, the Group generates significant 'excess free cash flow'
after capital expenditure and dividends. Rather than using this
cash to reduce debt below our long standing target gearing levels,
we are committed to the return of 100 per cent of this excess free
cash flow to our investors, for as long as oil prices remain above
$20 a barrel, all other things being appropriate. While it is
possible that some of the 'excess' might be used, for example, for
material acquisitions if we saw opportunities which fitted our
strategy, we see no such opportunities at present.

Our plan is to continue, subject to your approval and to market
conditions, our programme of share buybacks. Since the completion
of the Arco acquisition in 2000 until the end of 2003 we had bought
back some 775 million shares for $6 billion, reducing the number of
shares in issue by 2.5 per cent.

In February, we restarted our share buyback programme and as of
yesterday we had bought back $1.3 billion of shares - nearly 161
million shares - this year.

The amount which we will distribute in the future will depend on,
amongst other things, the Brent oil price. Our current expectation
is that oil prices will be somewhat higher than $20 a barrel and,
if this turns out to be the case, we intend to make additional
share buybacks this year.

I want to give you an illustration of the potential amounts of cash
which could be distributed by way of dividends and buybacks by
looking at what we actually distributed over the three years since
the start of 2001, and what might be possible in the three years to
the end of 2006, at different oil prices.

The average oil price over 2001 to 2003 was similar to that used in
a $25 a barrel case. However, in this case the cash available for
distribution is expected to be higher than over 2001 to 2003 since
capital expenditure is reduced and the capital which has been
invested starts to produce revenue. I stress that these are
calculations of potential, all other things being appropriate.

I want to repeat our intent, which is to distribute one hundred per
cent of all excess free cash flows to shareholders. All of this is
part of our determination to provide shareholders with additional
returns through disciplined cash flow management.

Finally, let me talk about some other dimensions of making your
company sustainable for the future.

BP is of course a long-term company. The investments we are making
today are not just for this decade but for the longer term.

In addition to our proven reserves of around 18 billion barrels of
oil equivalent, we have access to over double that amount in
non-proven reserves. We continue to make discoveries and to add new
oil and gas developments to our portfolio.

And it is not only oil and gas production which forms the
foundation for the future. Our mergers and investments over the
last five years have positioned us well in the customer facing
businesses and we see the capture and retention of customers as a
source of enduring value.

So we are a long-term enterprise and that means that we have a
direct interest in the long-term issues which could affect our
business, and in the health and prosperity of the countries in
which we work.

That is why we believe in safety and in the protection of the
environment. Our track record on safety has improved over the
years, though there is always more to do. On the environment, we
have progressively improved the quality of our products and reduced
the environmental impact of our operations and activities.

And as well as those immediate improvements, we continue to focus
on the long-term challenge of climate change - identifying the
numerous ways in which action can be taken to mitigate the risk and
to keep emissions of greenhouse gases below the level at which
sustainability would be under threat.

In everything we do, we are committed to the development of people.

Our guiding principle is merit and inclusion so that everyone can
fulfil their potential. BP has some of the best technology in the
world, some excellent brands and a very strong resource base.

All of those things, however, are only made valuable by our people.
The results I have described are the product of the work of 104,000
people around the world. They form a great team. It is a great
privilege for me to lead this team. We are determined to sustain
its quality, drawing on talent from all the countries in which we
operate.

Companies like BP are clearly beneficiaries of open global markets.
But we cannot take them for granted. I believe we have a direct
interest in ensuring that the process of globalisation benefits as
many people as possible - by bringing them opportunities which
would not otherwise have been available.

We also want to ensure that the benefits of the wealth we create
reach as many people as possible. That is why we are committed to
transparency in everything we do - declaring what we pay, and
eliminating facilitation payments. Corruption is an enemy of
genuine business development because wealth is diverted. It isn't a
problem we can solve on our own - but we are determined to do what
we can in the interests of the countries in which we work.

We also recognise that the products we supply are vital to the
world. They provide essential income to producing countries as well
as a crucial source of energy to consumers. The world is going to
need more oil and gas over the next two decades. As the second
largest private company in the sector we recognise that we have a
significant role to play in maintaining energy security - investing
in a diverse range of supplies which will help to enable consumers
to avoid a degree of dependence on a single region or country.

Energy security will only be maintained if investment flows and
infrastructure are in place, and that in turn depends on open
markets. Trade has sustained the development of the global economy
over the last half century and we believe that an open trading
regime is not only good for our business, but essential if the
energy needs of the world's growing population are to be met.

So, in summary - a good year, with the prospect of more good years
ahead. BP's performance continues to improve and we believe we have
the assets, markets, technology and the people necessary to sustain
that improvement for many years to come. The world's expectations
of BP are high and we are determined to fulfil those expectations.

- ENDS -

This information is provided by RNS
      The company news service from the London Stock Exchange

end of announcement        euro adhoc 15.04.2004

Further inquiry note:

Jude Tomalin - 020 7496 4062

Branche: Energy
ISIN: GB0007980591
WKN: 850517
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