DocuSign Envelope ID: 4B06A07D-30F4-4666-9686-3BE576CD2E82 BP EXPLORATION OPERATING COMPANY LIMITED (Registered No.00305943) ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Board of Directors: N C Christie I C Emembolu G R Gordon K MacLennan P J Mather P W A Miller D F Reiter The directors present the strategic report, their report and the audited financial statements for the year ended 31 December 2019. STRATEGIC REPORT Results The profit for the year after taxation was $3,175,068,000 which, when added to the accumulated loss brought forward at 1 January 2019 (after making a transitional adjustment for IFRS 16 of $4,202,000) of $6,991,454,000, after a share capital reduction of $23,732,617,000 transferred to reserves, deducting total paid interim dividends to ordinary shareholders of $3,055,000,000, and a reserve transfer of $4,959,000 mostly against BP Exploration Company Limited following a restructuring of the company gives a total retained profit carried forward at 31 December 2019 of $16,866,190,000. This excludes exchange adjustments, other reserves and cash flow hedges movement taken directly to reserves. Principal activities and review of the business The company is engaged in the production and selling of petroleum products. It also provides services to other group undertakings within the BP group and holds investments in subsidiary undertakings and associated undertakings engaged in similar activities. The company also has branches in Ireland, Turkey, China, Trinidad and Tobago, Turkmenistan, Russian Federation and UAE where it is engaged in overseas exploration and production activities. The key financial and other performance indicators during the year were as follows: 2019 2018 Variance $000 $000 % Turnover 1,925,564 2,410,264 (20) Operating (loss) / profit (202,857) 761,311 (127) Profit for the year 3,175,068 2,547,191 25 Total equity 59,585,050 59,425,973 0 2019 2018 Variance % % % Quick ratio* 64 72 (8) Return on average capital employed** 5.66 4.47 1.19 *Quick ratio is defined as current assets (excluding stocks (crude oil, raw materials and consumables), debtors fall due after one year, derivatives and other financial instruments falling due after one year and deferred tax assets), divided by current liabilities. 1 DocuSign Envelope ID: 4B06A07D-30F4-4666-9686-3BE576CD2E82 STRATEGIC REPORT **Return on average capital employed is defined as profit for the year after adding back interest, divided by average capital employed. Capital employed is defined as total equity plus gross debt, excluding goodwill and cash. Turnover is generated mainly on Schiehallion field (Schiehallion, Loyal and Alligin, $675 million), ETAP field (Machar, Madoes, Marnock, Mirren, Monan, Mungo, $473 million), Andrew field (Andrew, Cyrus, Farragon, Kinnoull, $301 million), Clair field ($464 million) and other oil and gas fields ($13 million). Turnover decreased by $485 million during the year driven by the decrease of $179 million in oil and natural gas liquids (NGL) revenue, $340 million in gas revenue and $35 million in tariff income, partially offset by $69 million increase in other operating revenue. During the year, oil turnover decreased by $159 million due to a decrease in oil price partially offset by a slightly higher production. The average realized price in 2019 was $65.39/bbl (2018: $71.10/bbl) and production increased from 75.4 mb/d in 2018 to 77 mb/d in 2019. The above decrease includes a $38 million adjustment related to ETAP historical mismeasurement. The higher volumes in the year mainly relate to the ramp up of production from Clair Ridge, which commenced production in December 2018, offset by the divestment of Magnus also in December 2018. NGL revenue decreased by $20 million due to lower production partially offset by higher NGL prices. The average realized price in 2019 was $460 per tonne (2018: $339 per tonne). The decrease of $340 million in gas revenue was driven by lower volume ($193 million) and prices ($73 million). The average realized price decreased to $3.9/mmscf in 2019 from $6.8/mmscf in 2018. Production decreased to 68.02 mmscf/d in 2019 from 145.41 mmscf/d in 2018 primarily due to the divestment of Bruce, Keith, Rhum and Magnus fields in December 2018. Gas turnover includes a settlement for Scottish Power of $63 million. During the year, cost of sales has increased by $12 million. Petroleum Revenue Tax (PRT) impact has increased by $230 million. Relating to decommissioning obligation relief for divested assets, $267 million PRT asset was recognized in 2018, and an additional $37 million was recognized due to the increase in decommissioning provision in 2019. There was a smaller increase in depreciation by $22 million, impact of ramp up on Clair Ridge and strong production on ETAP has been offset by the charge associated with divested fields, Bruce, Keith, Rhum and Magnus. Change in over/underlift position resulted a further $70 million increase of cost of sales. Other operating expenditures overall increased by $16 million as the company received higher centralised charges from other BP group companies. The following decrease is offsetting the above increase. Lifting costs decreased by $215 million due to asset divestments in the end of 2018. As a result of the cessation of BP Gas Marketing contract and the divestment of Magnus field, third party and gas purchases decreased by $97 million. Movement in foreign exchange currency translation decreased cost of sales by $14 million. As a result of changes in the decommissioning provision, an impairment loss of $93 million was recognized related to the immediate write-off and divested assets (Magnus, Bruce, Keith, Rhum, Miller and Viking) (2018: $84 million impairment loss and $240 million of reversal of impairment). The company received $3,621 million income from group undertakings, mainly from BP Exploration (Angola) Limited ($1,430 million), BP Exploration (Azerbaijan) Limited ($1,375 million), BP Iraq N.V. (Branch) ($330 million), Aker BP ASA ($225 million), BP Amoco Exploration (In Amenas) Limited ($100 million), BP Exploration (Caspian Sea) Limited ($100 million), Atlantic 2/3 Holdings Limited ($50 million) and BP Exploration (Canada) Limited ($2 million) in 2019 compared to $1,977 million income from group undertakings, mainly from BP Exploration Angola (Kwanza Benguela) Limited ($700 million), BP Netherlands Upstream B.V. ($570 million), BP Iraq N.V. (Branch) ($300 million), BP Exploration (Caspian Sea) Limited ($150 million) and Aker BP ASA ($101 million), BP Atlantic 2/3 Holdings Limited ($60 million) and BP Amoco Exploration (In Amenas) Limited ($50 million) in 2018. The profit for the year was increased by a tax credit of $2.8 million. This comprises a current tax credit of $20 million and a deferred tax charge of $17 million. The current tax credit mainly relates to a reduction in the provision for additional current tax liabilities resulting from HRCP (High Risk Corporate Programme) discussions with HMRC, of $27 million. 2 DocuSign Envelope ID: 4B06A07D-30F4-4666-9686-3BE576CD2E82 STRATEGIC REPORT The deferred tax charge of $17 million arises as a consequence of an increase in the deferred tax liability position from $1,004 million at 31 December 2018 to $1,021 million at 31 December 2019. This increase has been caused mainly by a reduction in the deferred tax recognized on deductible temporary differences in relation to tax losses. This increase is largely offset by an increase in deferred tax recognized on deductible temporary differences in relation to decommissioning and other provisions and a decrease in deferred tax recognized on taxable temporary differences in relation to deferred PRT. The decrease in shareholders’ equity during the year was due to $3,055 million dividend paid to the Company's immediate parent undertaking, partially offset by a reserve transfer related to consolidation unit restructure of $5 million, share-based payment contribution from the parent company of $3 million, currency translation differences of $30 million, profit on cash flow hedges of $5 million and profit for the year of $3,175 million. Section 172 (1) statement In governing the company on behalf of its shareholders and discharging their duties under section 172, the board has had regard to the factors set out in section 172 (see below) and other factors which the board considers appropriate. Section 172 factors Section 172 requires directors to have regard to the following in performing their duties, and as part of the process are required to consider, where relevant: a. The likely long-term consequences of the decision. b. The interests of the company’s employees. c. The need to foster the company’s business relationships with suppliers, customers and others. d. The impact of the company’s operations on the community and the environment. e. The desire to maintain the company’s reputation for high standards of business conduct. f. The need to act fairly between members of the company. For details on how directors' have performed their duties please refer to Stakeholder statement section in Directors' Report. To support the directors in the discharge of their duties, and whilst making a decision on behalf of the company, the directors have access to functional assurance support to identify matters which may have an impact on the proposed decision including, where relevant, section 172 factors as outlined above. As a result of the redenomination of the company's share capital on 12 December 2019, the principal decisions taken by the directors during the year included a proposal that a dividend in the aggregate amount of $3,055 million be declared payable to the shareholder, BP Exploration Company Limited. The relevant factors taken into account during the decision making process, in furtherance of the company's purpose, were the likely long-term consequences of the decision.