SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 6-K

Report of Foreign Issuer

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

for the period ended September 30, 2004

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


1 ST JAMES’S SQUARE, LONDON, SW1Y 4PD, ENGLAND
(Address of principal executive offices)

  Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F         X Form 40-F
__________ __________

  Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes No         X
__________ __________

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-9790) OF BP p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-65996) OF BP p.l.c., THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-83180) OF BP AUSTRALIA CAPITAL MARKETS LIMITED, BP CANADA FINANCE COMPANY, BP CAPITAL MARKETS p.l.c., BP CAPITAL MARKETS AMERICA INC. AND BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 33-21868) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-9020) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-9798) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-79399) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-34968) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-67206) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-74414) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-103924) OF BP p.l.c., THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-102583) OF BP p.l.c.. THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-103923) OF BP p.l.c., AND THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119934) OF BP p.l.c., AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.




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BP p.l.c. AND SUBSIDIARIES
FORM 6-K FOR THE PERIOD ENDED SEPTEMBER 30, 2004



Page

1. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the period January-September 2004.
3


2. Consolidated Financial Statements including Notes to Consolidated Financial Statements
for the period January-September 2004.
14

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

GROUP RESULTS JANUARY – SEPTEMBER 2004

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)
Turnover      70,885    58,250    207,578    174,707  




Profit for the period    4,483    2,344    13,197    8,148  
Exceptional items, net of tax    (18 )  (168 )  (1,219 )  (639 )




Profit before exceptional items    4,465    2,176    11,978    7,509  




Profit for the period per ordinary share – cents    20.67    10.62    60.28    36.71  
Dividends per ordinary share – cents    7.10    6.50    20.95    19.25  

The following discussion should be read in conjunction with the consolidated financial statements and the related notes provided elsewhere in this Form 6-K and with the information, including the consolidated financial statements and related notes, for the year ended December 31, 2003 in BP p.l.c.‘s Annual Report on Form 20-F for the year ended December 31, 2003.

The financial information for 2003 has been restated to reflect (a) the transfer of natural gas liquids (NGL) operations from Exploration and Production to Gas, Power and Renewables on January 1, 2004; (b) the adoption by the Group of Financial Reporting Standard No. 17 ‘Retirement Benefits’ (FRS 17) with effect from January 1, 2004; and (c) the adoption by the Group of Urgent Issues Task Force Abstract No. 38 ‘Accounting for ESOP Trusts’ with effect from January 1, 2004. For further information, see Note 2 of Notes to Consolidated Financial Statements.

TNK-BP operational and financial information has been estimated.

The third quarter and nine months trading environment was generally stronger than a year ago with higher oil and gas realizations and higher refining and chemicals margins. For the three months ended September 30, 2004 the Brent oil price increased $13.16 per barrel, the Henry Hub gas price was up $0.78 per mmbtu, the refining Global Indicator Margin increased $1.61 per barrel and the Chemicals Indicator Margin increased $30 per tonne compared with a year ago. For the nine months, the Brent oil price was $7.67 per barrel higher, the Henry Hub gas price was $0.16 per mmbtu higher, the refining Global Indicator Margin was up $2.13 per barrel and the Chemicals Indicator Margin was up $18 per tonne compared with a year ago.

Turnover for the three months and nine months ended September 30, 2004 was $70.9 billion and $207.6 billion respectively, compared with $58.3 billion and $174.7 billion for the equivalent periods in 2003. The increase in turnover for the third quarter reflects increases of around $17.4 billion from higher prices and around $2.0 billion from foreign exchange movements, partly offset by a net decrease of approximately $4.2 billion from lower sales volumes and a decrease of approximately $0.7 billion related to lower production volumes.

The increase in turnover for the nine months reflects $32.9 billion from higher sales prices and $7 billion from foreign exchange movements partly offset by a decrease of approximately $2.5 million from lower sales volumes and a decrease of around $2.3 billion related to lower production volumes.

Profit for the three months ended September 30, 2004 was $4,483 million, including inventory holding gains of $1,027 million. Profit for the three months ended September 30, 2003 was $2,344 million, including inventory holding gains of $84 million. Inventory holding gains or losses represent the difference between the cost of sales calculated using the average cost of supplies incurred during the period and the cost of sales calculated using the first-in first-out method. Profit for the nine months ended September 30, 2004 was $13,197 million, including inventory holding gains of $2,137 million. Profit for the nine months ended September 30, 2003 was $8,148 million, after inventory holding losses of $68 million.

Profit before exceptional items was $4,465 million for the three months ended September 30, 2004, compared with $2,176 million for the equivalent period of 2003. Exceptional items are gains and losses on the sale of fixed assets and businesses or termination of operations. Net exceptional gains in the third quarter of 2004 were $18 million (a loss of $15 million before tax) and include a charge arising from the sale of our Fabrics and Fibres business. Net exceptional gains in the third quarter of 2003 were $168 million ($172 million before tax) and principally relate to gains on disposal of certain upstream interests.

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

Profit before exceptional items was $11,978 million for the nine months ended September 30, 2004, compared with $7,509 million for the equivalent period of 2003. Net exceptional gains in the nine months of 2004 were $1,219 million ($1,088 million before tax) and principally relate to net gains from the sale of our interests in PetroChina and Sinopec, and the divestment of certain upstream interests, partially offset by net losses associated with the termination of operations. Net exceptional gains in the nine months of 2003 were $639 million ($846 million before tax) and principally relate to net gains from the sale of certain upstream interests partially offset by a provision for loss on disposal.

Profit before exceptional items for the three months ended September 30, 2004 is after impairment charges of $7 million related to the partner operated Temsah platform in Egypt following a blow-out and subsequent fire offset partly by revisions to impairment estimates made in the prior quarter and a charge of $35 million in respect of Alaskan tankers that are no longer required in Exploration and Production; charges of $206 million, $58 million and $225 million in relation to new, and revisions to existing, environmental and other provisions in Refining and Marketing, Petrochemicals and Other businesses and corporate, respectively, and a charge of $19 million in respect of the separation of the Olefins and Derivatives business in Other businesses and corporate.

Profit before exceptional items for the three months ended September 30, 2003 includes charges of $369 million resulting from new, and revisions to existing, environmental and other provisions and ongoing Veba integration costs of $72 million in Refining and Marketing; charges of $36 million relating to a provision to cover future rental payments on surplus property and charges of $20 million resulting from revisions to environmental and other provisions in Petrochemicals; and charges of $112 million resulting from new, and revisions to existing, environmental and other provisions in Other businesses and corporate.

Profit before exceptional items for the nine months ended September 30, 2004 is after impairment charges of $7 million related to the partner operated Temsah platform in Egypt following a blow-out offset partly by revisions to impairment estimates made in the prior quarter, a charge of $35 million in respect of Alaskan tankers no longer required, an impairment charge of $160 million related to a gas processing plant in the USA and a field in the Gulf of Mexico and an impairment charge of $186 million related to our interests in two fields in Venezuela, Desarrollo Zuli Occidental (DZO) and Boqueron, in Exploration and Production; charges of $206 million, $58 million and $225 million in relation to new, and revisions to existing, environmental and other provisions in Refining and Marketing, Petrochemicals and Other businesses and corporate, respectively, and a charge of $19 million in respect of the separation of the Olefins and Derivatives business in Other businesses and corporate.

Profit before exceptional items for the nine months ended September 30, 2003 is after an impairment charge of $108 million related to the Kepadong field in Indonesia, an impairment charge of $103 million related to the Yacheng field in China, charges of $102 million in respect of our restructuring activities in North America and the UK and a $49 million write-down of the Viscount asset in the North Sea in Exploration and Production; a charge of $369 million resulting from new, and revisions to existing environmental and other provisions and Veba integration costs of $131 million in Refining and Marketing; charges of $36 million relating to a provision to cover future rental payments on surplus property, a charge of $20 million resulting from revisions to environmental and other provisions and a credit of $5 million resulting from a reduction in the provision for costs associated with closure of polypropylene capacity in Petrochemicals; charges of $112 million resulting from new, and revisions to existing environmental and other provisions in Other businesses and corporate; and a $130 million credit related to tax restructuring benefits.

In addition to the factors above, the increase in profit before tax for the third quarter reflects higher liquids and gas realizations, higher refining margins with some offset from lower marketing margins, higher chemicals margins, higher contributions from the natural gas liquids and solar businesses with some offset from a lower marketing and trading result and the impact of higher volumes and the changing production composition primarily arising from the TNK-BP acquisition. These increases were partly offset by higher costs. These factors also contributed to the increase in profit before tax for the nine months.

Interest expense for the three months and nine months ended September 30, 2004 was $156 million and $453 million respectively, compared with $159 million and $484 million in the same periods of 2003. The decrease for the three months ended September 30, 2004 primarily reflects higher capitalized interest and lower debt buyback costs, almost fully offset by the inclusion of equity-accounted interest from the TNK-BP joint venture. The decrease for the nine months ended September 30, 2004 compared with the same period in 2003 primarily reflects lower average interest rates and an increase in capitalized interest partly offset by the inclusion of equity-accounted interest from the TNK-BP joint venture. Other finance expense for the three months and nine months ended September 30, 2004 was $79 million and $231 million respectively, compared with $139 million and $395 million in the same periods of 2003. The decreases in both periods primarily reflect a reduction in net pension and finance costs partly offset by the inclusion of the unwinding of the discount on the deferred consideration for acquisition of the investment in TNK-BP.

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

Net taxation, other than production taxes, charged for the three months and nine months ended September 30, 2004 was $2,109 million and $6,130 million respectively, compared with $1,428 million and $4,954 million in the equivalent periods last year. The tax on exceptional items was a credit of $33 million and $131 million for the third quarter and nine months of 2004 respectively, compared with a charge of $4 million and $207 million for the third quarter and nine months of 2003. The effective tax rate was 32% and 31% for the three months and nine months ended September 30, 2004, compared with 37% for both the equivalent periods of 2003. The reduction in the third quarter rate reflects the significant non-taxable inventory holding gain reported in 2004 compared with a much smaller gain in 2003 and the reduction in the nine months rate reflects the inventory holding gain in 2004 as well as the low tax charge on the exceptional gains reported in the first quarter of 2004.

Capital expenditure in the third quarter and nine months of 2004 was $3.4 billion and $11.2 billion respectively. The amount for the nine months includes a $1.35 billion payment relating to the contribution of TNK’s interest in Slavneft within TNK-BP. Capital expenditure and acquisitions for the third quarter and nine months of 2003 was $9.2 billion and $15.4 billion. Excluding acquisitions, capital expenditure for the three months and nine months ended September 30, 2004 was $3.4 billion and $9.8 billion respectively, compared with $3.3 billion and $9.4 billion respectively. Disposal proceeds in the third quarter and nine months of 2004 were $0.6 billion and $4.1 billion respectively and in the third quarter and nine months of 2003 were $0.9 billion and $5.0 billion respectively.

Net cash inflow for the three months ended September 30, 2004 was $1.7 billion, compared with an outflow of $2.4 billion for the equivalent period of 2003, reflecting higher cash inflow from operating activities, higher dividends from joint ventures and lower acquisition spending partly offset by higher taxes paid, higher payments for fixed assets and lower proceeds from the sale of fixed assets. Net cash inflow for the nine months ended September 30, 2004 was $7.0 billion, compared with $3.2 billion for the equivalent period of 2003, reflecting higher cash inflow from operating activities, higher dividends from joint ventures, lower acquisition spending and lower interest paid partly offset by higher taxes paid, lower proceeds from the sale of fixed assets, higher payments for fixed assets and higher dividends paid. Net cash inflow from operating activities was $6.9 billion and $21.5 billion for the three months and nine months ended September 30, 2004 respectively, compared with $4.9 billion and $18.2 billion in the equivalent periods in 2003. The increase for the third quarter reflected higher profits, a higher net operating charge for pensions and other post-retirement obligations, less contributions, higher depreciation and higher losses on sale of fixed assets and businesses, partly offset by a higher share of profits of joint ventures and associated undertakings and higher working capital requirements. The increase for the nine months reflected higher profits, a higher net operating charge for pensions and other post-retirement obligations, less contributions, and higher depreciation, partly offset by a higher share of profits of joint ventures and associated undertakings, lower profits on sale of fixed assets and businesses and higher working capital requirements.

Net debt at September 30, 2004 was $18.6 billion compared with $20.2 billion at December 31, 2003. The ratio of net debt to net debt plus equity was 20% at Sepember 30, 2004 compared with 22% at December 31, 2003. This ratio shows the proportion of debt and equity used to finance our operations, and can also be used to measure borrowing capacity. In addition to reported debt, BP uses conventional off balance sheet sources of finance such as operating leases and joint venture and associated undertaking borrowings.

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

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

The return on average capital employed was 19.3% for the third quarter of 2004 compared with 11.4% for the same period in 2003. Return on average capital employed is the ratio of profit including minority shareholders’ interest and excluding post-tax interest on finance debt to average capital employed for the period. Capital employed is the total of BP shareholders’ interest, minority shareholders’ interest and finance debt. This performance measure is useful for shareholders and management as an indication of capital productivity over the long term. For the nine months ended September 30, 2004 the return on average capital employed was 19.0% compared with 13.1% in 2003. For further information on the return on average capital employed calculation see page 69 of this report.

BP announced a third quarterly dividend for 2004 of 7.10 cents per ordinary share. Holders of ordinary shares will receive 3.910 pence per share and holders of American Depositary Receipts (ADRs) $0.426 per ADS. The dividend is payable on December 6, 2004 to shareholders on the register on November 12, 2004. Participants in the Dividend Reinvestment Plan or the dividend reinvestment facility in the US Direct Access Plan will receive the dividend in the form of shares, also on December 6, 2004. During the third quarter, shares of $1.25 billion were issued to Alfa Group and Access Renova (AAR) as the first instalment of the deferred tax consideration. The Company also repurchased for cancellation 241.5 million of its own shares during the quarter, at a cost of $2.25 billion. During the nine months, 621 million shares were repurchased and cancelled at a cost of $5.5 billion.

– 5 –


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

DETAILED REVIEW OF BUSINESSES

EXPLORATION AND PRODUCTION

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004 2003 2004 2003

Turnover
    - $m      8,660    7,153    25,039    23,303  
Profit before interest and tax   - $m    4,888    3,666    13,440    11,821  
Exceptional (gains) losses   - $m    (23 )  (196 )  (120 )  (962 )




Total operating profit   - $m    4,865    3,470    13,320    10,859  




Results include:  
Exploration expense   - $m    135    136    379    349  
Of which: Exploration expenditure written off   - $m    34    75    123    168  
Key Statistics:  
Crude oil – Average prices realized  
                       by BP   - $/bbl    39.43    27.72    34.93    28.25  
                       Production   - mb/d    2,298    1,852    2,320    1,798  
Natural gas liquids – Average prices realized  
                       by BP   - $/bbl    28.77    19.39    25.13    18.96  
                       Production   - mb/d    181    202    190    211  
Total liquids(a) – Average prices realized  
                       by BP   - $/bbl    38.29    26.79    33.89    27.24  
                       Production   - mb/d    2,479    2,054    2,510    2,009  
Natural gas – Average prices realized  
                       by BP   - $/mcf    3.66    3.08    3.71    3.46  
                       Production   - mmcf/d    8,275    8,401    8,433    8,617  
Total hydrocarbons(b) – Average prices realized  
                       by BP   - $/bbl    30.08    22.58    28.03    23.88  
                       Production   - mboe/d    3,906    3,502    3,964    3,495  
Brent oil price   - $/bbl    41.54    28.38    36.31    28.64  
West Texas Intermediate oil price   - $/bbl    43.88    30.19    39.18    31.08  
Alaska North Slope US West Coast   - $/bbl    41.82    28.83    37.70    29.69  
Henry Hub gas price (c)   - $/mmbtu    5.75    4.97    5.81    5.65  
UK Gas – National Balancing Point   - p/therm    23.63    15.08    22.98    17.92  

(a)        Crude oil and natural gas liquids
(b)        Natural gas is converted to oil equivalent at 5.8 billion cubic feet = 1 million barrels
(c)        Henry Hub First of the Month Index

Turnover for the three months ended September 30, 2004 was $8.7 billion, compared with $7.2 billion in the corresponding period in 2003, reflecting an increase of around $2.2 billion related to higher liquids and gas realizations, partly offset by a decrease of around $0.7 billion due to lower production volumes (for the BP Group excluding equity-accounted entities) as a result of divestment activity in 2003.

Turnover for the nine months ended September 30, 2004 was $25.0 billion compared with $23.3 billion in the corresponding period of 2003, reflecting an increase of around $4.0 billion related to higher liquids and gas realizations, partly offset by a decrease of around $2.3 billion due to lower production volumes (for the BP Group excluding equity-accounted entities) as a result of divestment activity in 2003.

Profit before interest and tax for the three months and nine months ended September 30, 2004 was $4,888 million and $13,440 million respectively, compared with $3,666 million and $11,821 million for the equivalent periods in 2003. Profit for the third quarter of 2004 included net exceptional gains before tax of $23 million, compared with net gains of $196 million before tax for the equivalent period in 2003. Profit for the nine months of 2004 included net exceptional gains of $120 million before tax compared with net gains of $962 million before tax for the equivalent period in 2003.

– 6 –


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

EXPLORATION AND PRODUCTION (concluded)

Total operating profit for the three months ended September 30, 2004 was $4,865 million including inventory holding gains of $5 million and is after impairment charges of $7 million in respect of the partner operated Temsah platform in Egypt following a blow-out offset partly by revisions to impairment estimates made in the prior quarter, and a charge of $35 million in respect of Alaskan tankers that are no longer required. Total operating profit for the three months ended September 30, 2003 was $3,470 million.

In addition to the factors above, the primary reasons for the increase in operating profit for the third quarter of 2004 compared with the third quarter of 2003 are higher liquids and gas realizations of around $1,650 million combined with an increase of $130 million due to higher volumes and the changing production composition primarily arising from the TNK-BP acquisition. Operating profit for the third quarter 2004 includes a charge of $95 million, reflecting an increase in the provision for unrealized profit in inventory, which removes the upstream margin from downstream inventories. This compares with a credit of $15 million in the equivalent quarter last year.

Total operating profit for the nine months ended September 30, 2004 was $13,320 million including inventory holding gains of $13 million and is after impairment charges of $7 million in respect of the partner operated Temsah platform in Egypt following a blow-out offset partly by revisions to impairment estimates made in the prior quarter, a charge of $35 million in respect of Alaskan tankers that are no longer required, impairment charges of $160 million in respect of a gas processing plant in the USA and a field in the Gulf of Mexico Shelf and impairment charges of $186 million related to our interests in Desarrollo Zuli Occidental (DZO) and Boqueron in Venezuela. We previously reported an exceptional loss on disposal of $217 million in respect of these assets; however, the sales agreement has lapsed and we will retain our interests in the fields. As a result of the lapse of the agreement, the exceptional loss was reversed and an impairment charge was recognized in the first quarter of 2004.

Total operating profit for the nine months ended September 30, 2003 was $10,859 million including inventory holding gains of $3 million and is after an impairment charge of $108 million related to the Kepadong field in Indonesia, an impairment charge of $103 million related to the Yacheng field in China, charges of $102 million in respect of restructuring activities in North America and the UK and a $49 million write-down of the Viscount asset in the North Sea.

In addition to the factors above, the primary reasons for the increase in operating profit for the nine months ended September 30, 2004 compared with the nine months ended September 30, 2003 are higher liquids and gas realizations of around $2,850 million combined with an increase of $350 million due to higher volumes and the changing production composition primarily arising from the TNK-BP acquisition. Operating profit for the first nine months of 2004 includes a charge of $248 million, reflecting an increase in the provision for unrealized profit in inventory compared with a charge of $4 million in the nine months 2003.

Production for the quarter was up over 11% to 3,906 mboe/d compared with a year ago. This reflects the inclusion of TNK-BP (945 mboe/d compared with 695 mboe/d in the period from August 29 to September 30, 2003) and the continuing ramp-up of production in the New Profit Centres, partly offset by planned maintenance in the North Sea and Alaska, the operational impact of Hurricane Ivan in the Gulf of Mexico and the blow-out at partner operated Temsah in Egypt. We expect full year production to be up over 10% compared to 2003 at around 4 mmboe/d.

Projects in the New Profit Centres remain on track. In the quarter Kizomba A started up in Angola, and in Australia, the North West Shelf Train 4 LNG plant was brought on line and first liftings have taken place.

As a result of global Exploration & Production sector inflationary pressure in the market price of capital goods and the weaker US dollar we have revised our estimate of capital expenditure; we now expect this to be just over $9.5 billion for 2004.

In the third quarter, we had further exploration success with the Pela Lache-1 prospect offshore Sakhalin Island in Russia.

During the quarter, we completed our divestments of various properties in the Gulf of Mexico Shelf and of our interests in Offshore North Sinai in Egypt, resulting in total exceptional gains in the quarter of $23 million.

– 7 –


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

REFINING AND MARKETING

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
Turnover     - $m      45,359    38,205    132,520    112,574  
Profit before interest and tax   - $m    1,947    571    4,968    1,934  
Exceptional (gains) losses   - $m    17    21    175    122  




Total operating profit   - $m    1,964    592    5,143    2,056  




Total refined product sales   - kb/d    6,705    6,695    6,594    6,840  
Refinery throughputs   - kb/d    3,005    3,086    2,990    3,124  
Refining availability (a)   - %    94.9    96.2    95.0    95.7  
Global Indicator Refining Margin (b)   - $/bbl    6.20    4.59    6.26    4.13  


(a) Refining availability is the weighted average percentage of the period that refinery units are available for processing, after accounting for downtime such as turnarounds.

(b) The Global Indicator Refining Margin (GIM) is the average of six regional indicator margins weighted for BP’s crude refining capacity in each region. Each regional indicator margin is based on a single representative crude with product yields characteristic of the typical level of upgrading complexity. The regional indicator margin may not be representative of the margins achieved by BP in any period because of BP’s particular refinery configurations and crude and product slate.

Turnover for the three months and nine months ended September 30, 2004 was $45.4 billion and $132.5 billion respectively, compared with $38.2 billion and $112.6 billion for the same periods in the prior year. The increase in turnover in the third quarter of 2004 compared with 2003 was due principally to higher prices contributing approximately $12 billion and foreign exchange movements contributing approximately $2 billion, offset by lower trading and crude oil sales of around $7 billion. The increase in turnover in the nine months of 2004 compared with the nine months of 2003 was principally due to higher prices contributing approximately $25 billion and foreign exchange movements contributing approximately $7 billion, partly offset by lower trading and crude oil sales of around $12 billion.

Profit before interest and tax for the three months and nine months ended September 30, 2004 was $1,947 million and $4,968 million respectively, compared with $571 million and $1,934 million for the equivalent periods in 2003. Profit for the three months and nine months of 2004 was after net exceptional losses before tax of $17 million and $175 million respectively, which relate principally to the disposal of Singapore Refining Company Private Limited (SRC) and the closure of the lubricants operation of the Coryton Refinery in the UK. Profit in the three months and nine months of 2003 was after net exceptional losses before tax of $21 million and $122 million respectively.

Total operating profit for the three months and nine months ended September 30, 2004 was $1,964 million and $5,143 million respectively, including inventory holding gains of $866 million and $1,823 million respectively, and is after charging $206 million in both periods in relation to new, and revisions to existing, environmental and other provisions. Total operating profit for the three months and nine months ended September 30, 2003 was $592 million and $2,056 million respectively, including inventory holding gains of $89 million and after inventory holding losses of $64 million respectively, and is after charging Veba integration costs of $72 million and $131 million respectively, and charging $369 million in both periods in relation to new, and revisions to existing, environmental and other provisions.

In addition to the factors above, the primary reasons for the increase in operating profit for the three months ended September 30, 2004 compared with the three months ended September 30, 2003 are an increase of approximately $800 million from improved refining margins, offset partly by a decline in marketing margins of approximately $250 million, adverse foreign exchange movements of approximately $50 million and portfolio impacts as outlined above of approximately $100 million. The primary additional reasons for the increase in operating profit in the nine months ended September 30, 2004, compared with the nine months ended September 30, 2003 were improved refining margins of approximately $2 billion, coupled with the impact of industry-wide planned and unplanned refinery maintenance. This increase was partly offset by higher purchased energy costs of around $100 million and portfolio impacts of around $100 million. Marketing margins declined by approximately $550 million and adverse foreign exchange movements impacted operating profit by approximately $250 million.

– 8 –


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

REFINING AND MARKETING (concluded)

The refining result for the quarter was stronger than that suggested by the Global Indicator Margin (GIM) because of upgrading capacity in our refining portfolio and the benefits from supply optimization. Marketing margins decreased relative to the equivalent quarter a year ago because rises in crude and product prices more than offset the increase in selling prices.

During the quarter BP Japan and Petrolub International announced an agreement to merge their automotive lubricant businesses and create a new company called BP Castrol KK.

The disposal of BP’s Retail and LPG Business in the Singapore retail network and related assets was completed on September 30, 2004.

– 9 –


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

PETROCHEMICALS

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
Turnover     - $m      5,412    3,946    14,727    12,264  
Profit before interest and tax   - $m    317    86    661    572  
Exceptional (gains) losses   - $m    38    (13 )  186    (22 )




Total operating profit   - $m    355    73    847    550  




Production (a)   - kte    7,149    7,040    21,563    20,790  
Petrochemicals Indicator Margin (b)   - $/te    139 (c)    109    131 (c)    113  


(a) Includes BP share of joint ventures, associated undertakings and other interests in production.

(b) The Chemicals Indicator Margin (CIM) is a weighted average of externally-based product margins. It is based on market data collected by Nexant in their quarterly market analyses, then weighted based on BP’s product portfolio. It does not cover our entire portfolio of products, and consequently is only indicative of the margins achieved by BP in any particular period.

(c) Provisional. The data for the third quarter is based on two months’ actual and one month of provisional data.

Turnover for the three months and nine months ended September 30, 2004 was $5.4 billion and $14.7 billion respectively, compared with $3.9 billion and $12.3 billion for the equivalent periods in 2003. The increase in turnover for the third quarter compared with the equivalent period in 2003 reflects principally an increase of approximately $1.3 billion from higher prices and an increase of approximately $0.2 billion from higher volumes. The increase in turnover for the nine months of 2004 compared with the nine months of 2003 was attributable principally to an increase of around $1.8 billion from higher prices, and an increase of $0.7 billion from higher volumes, primarily in Asia.

Profit before interest and tax for the three months and nine months ended September 30, 2004 was $317 million and $661 million respectively, compared with $86 million and $572 million for the equivalent periods in 2003. Profit for the third quarter and nine months of 2004 was after net exceptional charges before tax of $38 million and $186 million respectively, which were associated largely with the sale of our Fabrics and Fibres business, the sale of our Speciality Intermediates Business and the exit of the Baglan Bay site in the UK. Profit for the third quarter and nine months of 2003 included net exceptional gains before tax of $13 million and $22 million.

Total operating profit for the three months and nine months ended September 30, 2004 was $355 million and $847 million respectively, including inventory holding gains of $129 million and $290 million respectively, and is after charging $58 million in each period in relation to revisions to environmental and other provisions. Total operating profit for the three months and nine months ended September 30, 2003 was $73 million and $550 million respectively, including inventory holding gains of $2 million and $45 million respectively, and is after charges of $36 million in each period in relation to a provision to cover future rental payments on surplus property, charges of $20 million in each period in relation to revisions to environmental and other provisions and a credit of $5 million in the nine months ended September 30, 2003 resulting from a reduction in the provision for costs associated with closure of polypropylene capacity.

In addition to the factors above, operating profit for the three months ended September 30, 2004 compared with the equivalent period in 2003 reflects principally higher margins across most product lines of around $300 million, partially offset by principally higher fixed costs and adverse foreign exchange impacts of around $140 million. In addition to the factors above, operating profit for the nine months ended September 30, 2004 compared with the equivalent period in 2003 reflects principally higher margins of around $300 million and higher sales volumes of around $150 million, partially offset by principally higher fixed costs and adverse foreign exchange impacts of around $380 million.

Petrochemicals production of 7,149 thousand tonnes in the third quarter of 2004 was 109 thousand tonnes above the third quarter of 2003 due primiarily to higher asset utilization. Nine months production was 773 thousand tonnes higher than a year ago due to new Asian PTA capacity and higher asset utilization.

During the quarter we have progressed with plans to consolidate the Olefins and Derivatives (O&D) business into a stand-alone entity able to operate separately from the BP Group. The plans to prepare the O&D business for disposal are on track. Shortly after the quarter we reached agreement to sell the Fabrics and Fibres business, for which completion is expected during the fourth quarter.

– 10 –


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

GAS, POWER AND RENEWABLES

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
Turnover     - $m      20,443    15,948    59,852    48,938  
Profit before interest and tax   - $m    157    120    555    432  
Exceptional (gains) losses   - $m    (16 )  2    (16 )  (4 )




Total operating profit   - $m    141    122    539    428  




Turnover for the three months and nine months ended September 30, 2004 was $20.4 billion and $59.9 billion respectively, compared with $15.9 billion and $48.9 billion for the same periods in 2003. The increase for the quarter reflects increases of $2.6 billion due to higher volumes and $1.9 billion due to higher prices. The increase for the nine months reflects increases of $8.8 billion due to higher volumes and $2.1 billion due to higher prices.

Profit before interest and tax for the three months and nine months ended September 30, 2004 was $157 million and $555 million respectively, compared with $120 million and $432 million for the equivalent periods in 2003. Profit for the third quarter and nine months of 2004 included net exceptional gains before tax of $16 million. Profit for the third quarter and nine months of 2003 was after net exceptional charges before tax of $2 million and included net exceptional gains before tax of $4 million, respectively.

Total operating profit for the three months and nine months ended September 30, 2004 was $141 million and $539 million respectively, including inventory holding gains of $27 million and $11 million respectively. Total operating profit for the three months and nine months ended September 30, 2003 was $122 million and $428 million respectively, after inventory holding losses of $7 million and $52 million respectively.

In addition to the factors above, higher operating profit in the three months ended September 30, 2004 compared with the equivalent period in 2003 reflected principally a higher contribution from the natural gas liquids business of around $50 million, and a higher contribution from the Solar business of around $60 million, partially offset by a lower marketing and trading result of around $90 million. The additional factors contributing to the increase in operating profit in the nine months ended September 30, 2004 compared with the equivalent period in 2003 were principally a higher contribution from the natural gas liquids business of around $140 million and a higher contribution from the Solar business of around $90 million, partially offset by a lower marketing and trading result of around $140 million.

During the quarter, the Tangguh LNG project (BP share 37.16%) signed a sale and purchase agreement with K Power of South Korea to supply up to 0.8 million tonnes of LNG per annum for 20 years starting in 2006. BP Shipping announced an order for four new LNG carriers from Hyundai Heavy Industries of South Korea for delivery in 2007 and 2008. Since the end of the third quarter, the Tangguh LNG project has signed a sale and purchase agreement with Sempra Energy LNG to supply up to 3.7 million tonnes of LNG per annum from Indonesia to markets in Mexico and the US for 20 years, beginning in 2008.

– 11 –


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

OTHER BUSINESSES AND CORPORATE

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
Turnover     - $m      137    138    390    378  
Profit (loss) before interest and tax   - $m    (424 )  (330 )  541    (649 )
Exceptional (gains) losses   - $m    (1 )  14    (1,313 )  20  




Total operating profit (loss)   - $m    (425 )  (316 )  (772 )  (629 )




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

Profit before interest and tax for the three months and nine months ended September 30, 2004 was a loss of $424 million and a profit of $541 million respectively, compared with losses of $330 million and $649 million for the equivalent periods in 2003. The third quarter of 2004 included net exceptional gains before tax of $1 million, compared with net exceptional losses before tax of $14 million for the equivalent period in 2003. The nine months of 2004 included net exceptional gains before tax of $1,313 million, which were associated with the sale of our interest in PetroChina for $1.65 billion and our interest in Sinopec for $0.7 billion. The nine months of 2003 was after net exceptional losses before tax of $20 million.

Total operating profit for the three months and nine months ended September 30, 2004 was a loss of $425 million and $772 million respectively, and is after charges of $225 million relating to new, and revisions to existing, environmental and other provisions and charges of $19 million in respect of the separation of the Olefins and Derivatives business in both periods.

Total operating profit for the three months and nine months ended September 30, 2003 was a loss of $316 million and $629 million respectively and is after charges of $112 million in both periods relating to new, and revisions to existing, environmental and other provisions.

OUTLOOK STATEMENT

The world economy’s expansion has continued, despite patches of softer growth in the US and Europe. Activity in the US appears to have strengthened in the third quarter although the recovery across the major European economies remains below trend on average and growth in parts of Asia, including China, appears to have moderated. Continued growth is expected across the world economy at around trend rates.

Oil prices averaged $41.54 per barrel (Dated Brent) in the third quarter — over $6 per barrel higher than second quarter prices. Loss of US production following Hurricane Ivan, along with low inventories and limited spare capacity, propelled prices to record nominal highs in October, averaging almost $50 per barrel to date. Price spreads between light, sweet and heavier, sourer crudes also touched record highs recently. The outlook for the rest of 2004 will depend upon the rate of US production recovery after Hurricane Ivan and the strength of oil demand growth. Medium term oil price prospects will principally depend on the future strength of supply, demand growth, OPEC politics and perceptions of risks to political stability in certain of those nations. Oil prices are considered to have an approximate support level of $30 per barrel for at least the medium term, with chances of spiking above this level.

US natural gas prices averaged $5.75/mmbtu (Henry Hub first of month index) in the third quarter, despite the oil price surge, down around $0.25/mmbtu versus the second quarter. Following a cool summer, working gas inventories are at record highs going into the winter heating season. However, the 12-month futures strip (NYMEX Henry Hub) is trading currently at almost $8/mmbtu, reflecting oil price strength.

Refining margins in the third quarter slipped from the second quarter’s record levels but remained high by historical standards. Strong demand growth, record refinery throughputs and low aggregate OECD product inventories continued to underpin the refining environment. Margins began the fourth quarter strongly amid concerns over winter heating oil supplies in Europe and lost refinery production due to Hurricane Ivan. The premium for light crude over heavy crude has been driven to exceptional levels, favouring upgraded refineries over less complex sites. The refining system should adjust, but this will take time. Marketing margins compressed in the third quarter due to increasing crude prices, product cost volatility and competitive pressure.

Petrochemical margins held during the third quarter as product prices continued to strengthen, enabling the businesses to offset rapidly rising feedstock and energy costs. Current margins appear sustainable, although energy price volatility and foreign exchange rates are expected to influence future margins. Demand remained robust during the quarter, with sales volumes stable compared with the previous quarter.

– 12 –


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

Capital expenditure, excluding acquisitions, for the nine months was $9.8 billion, and is expected to be slightly above $14 billion for the year. 2005 capital spending is expected to be around $14 billion, above our previous forecast primarily due to the weak US dollar and the assumption that recent sector specific inflationary pressure in the market price of capital goods is sustained through 2005. The share buyback programme is continuing, reducing the number of shares outstanding thus increasing our ability to accelerate per share dividend growth.

SUBSEQUENT EVENT

On November 3, 2004 BP announced that it has reached agreement to purchase Solvay’s share of BP Solvay Polyethylene Europe (BP share 50%) and BP Solvay Polyethylene North America (BP share 49%), formed in 2001 when the two companies combined their European and US high density polyethylene (HDPE) businesses. These businesses have a total capacity of 2.6 million tonnes in Europe and the US. HDPE is part of the O&D business. We expect the transaction to complete in early 2005, subject to regulatory approvals.

FORWARD-LOOKING STATEMENTS

In order to utilize the ‘Safe Harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995, BP is providing the following cautionary statement. The foregoing discussion, in particular, although not limited to, the statements under ‘Group Results’ and the statements under ‘Outlook’, with regard to BP’s asset portfolio and changes in it, capital expenditure costs, demand, future performance, growth, inflation and other trend projections, impact of foreign exchange rates, maintenance, margins, prices, production, share repurchases, working capital, fulfillment of contract obligations, the timing of acquisitions and divestments and the timing of new projects and pending transactions are all forward-looking in nature. Forward-looking statements are also identified by such phrases as ‘will’, ‘expects’, ‘is expected to’, ‘should’, ‘may’, ‘is likely to’, ‘intends’, ‘plans’, ‘appears’ and ‘believes’. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may occur in the future and are outside the control of BP. Actual results may differ materially from those expressed in such statements, depending on a variety of factors, including the specific factors identified in the discussions accompanying such forward-looking statements; future levels of industry product supply, demand and pricing; the timing of bringing new fields onstream; exchange rate fluctuations; operational problems; general economic conditions, including inflationary pressure, political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; development and use of new technology; successful partnering; the actions of competitors; the actions of competitors and third party suppliers of facilities and services; natural disasters and prolonged adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism or sabotage; and other factors discussed elsewhere in this report. These and other factors may cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Additional information, including information on factors which may affect BP’s business, is contained in BP’s Annual Report and Annual Accounts for 2003 and the Annual Report on Form 20-F for 2003 filed with the US Securities and Exchange Commission.

2004 DIVIDENDS

On October 26, 2004, BP p.l.c. announced a third quarterly dividend for 2004 of 7.10 cents per ordinary share of 25 cents (ordinary shares), representing $0.426 per American Depositary Share (ADS) amounting to $1,530 million in total. The record date for qualifying US resident holders of American Depositary Shares as well as holders of ordinary shares is November 12, 2004, and payment will be made on December 6, 2004.

A dividend reinvestment facility is available for holders of ADSs through JPMorgan Chase Bank (formerly known as Morgan Guaranty Trust Company). Participants in the dividend reinvestment facility included in the US Direct Access Plan will receive the dividend in the form of shares on December 6, 2004.

– 13 –


BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million, except per share amounts)

Turnover - Note 3      73,852    59,164    214,486    176,383  
Less: joint ventures    2,967    914    6,908    1,676  




Group turnover    70,885    58,250    207,578    174,707  
Cost of sales    60,557    50,430    179,001    150,654  
Production taxes - Note 4    553    416    1,502    1,302  




Gross profit    9,775    7,404    27,075    22,751  
Distribution and administration expenses    4,035    3,908    10,674    10,558  
Exploration expense - Note 5    135    136    379    349  




     5,605    3,360    16,022    11,844  
Other income    178    148    429    476  




Group operating profit    5,783    3,508    16,451    12,320  
Share of profits of joint ventures    943    300    2,168    522  
Share of profits of associated undertakings    174    133    458    422  




Total operating profit    6,900    3,941    19,077    13,264  
Profit (loss) on sale of fixed assets and  
businesses    (15 )  172    1,088    846  
or termination of operations - Note 6  




Profit before interest and tax    6,885    4,113    20,165    14,110  
Interest expense - Note 7    156    159    453    484  
Other finance expense - Note 8    79    139    231    395  




Profit before taxation    6,650    3,815    19,481    13,231  
Taxation - Note 9    2,109    1,428    6,130    4,954  




Profit after taxation    4,541    2,387    13,351    8,277  
Minority shareholders' interest    58    43    154    129  




Profit for the period (a)    4,483    2,344    13,197    8,148  




Earnings per ordinary share - cents (a)  
  Basic    20.67    10.62    60.28    36.71  
  Diluted    20.41    10.51    59.18    36.51  




Earnings per American Depositary Share - cents (a)  
  Basic    124.02    63.72    361.68    220.26  
  Diluted    122.46    63.06    355.08    219.06  




Average number of outstanding ordinary  
shares (thousand)    21,683,963    22,092,365    21,891,936    22,193,403  






(a) A summary of the material adjustments to profit for the period which would be required if generally accepted accounting principles in the United States had been applied instead of those generally accepted in the United Kingdom is given in Note 16.

– 14 –


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

September 30, 2004
(Unaudited)

December 31, 2003
($ million)
 Fixed assets                    
    Intangible assets         12,741         13,642  
    Tangible assets         91,917         91,911  
    Investments         18,829         17,458  


          123,487         123,011  
 Current assets  
    Inventories    15,087         11,617       
    Receivables    39,703         33,902       
    Investments    245         185       
    Cash at bank and in hand    1,576         1,947       


     56,611         47,651       


 Current liabilities - falling due within one year  
    Finance debt    7,665         9,456       
    Accounts payable and accrued liabilities    48,324         41,128       


     55,989         50,584       


 Net current assets (liabilities)         622         (2,933 )


 Total assets less current liabilities         124,109         120,078  
 Noncurrent liabilities  
    Finance debt    12,780         12,869       
    Accounts payable and accrued liabilities    4,475         6,090       
    Provisions for liabilities and charges  
       Deferred tax    14,970         14,371       
       Other    9,270         8,815       


          41,495         42,145  


 Net assets excluding pension and other  
 postretirement benefit balances         82,614         77,933  
 Defined benefit pension plan surplus    1,292         1,021       
 Defined benefit pension plan and other  
 postretirement benefit plan deficits    (7,682 )       (7,510 )     


          (6,390 )       (6,489 )


          76,224         71,444  
 Net assets  
 Minority shareholders' interest - equity         1,283         1,125  


 BP shareholders' interest (a) - Note 12         74,941         70,319  


 Represented by:  
 Capital shares  
    Preference         21         21  
    Ordinary         5,429         5,531  
 Paid-in surplus         6,211         4,480  
 Merger reserve         27,150         27,077  
 Retained earnings         36,175         33,177  
 Shares held by ESOP trusts         (101 )       (96 )
 Other reserves         56         129  


          74,941         70,319  



(a) A summary of the material adjustments to BP shareholders’ interest which would be required if generally accepted accounting principles in the United States had been applied instead of those generally accepted in the United Kingdom is given in Note 16.

– 15 –


BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)

Net cash inflow from operating activities      6,919    4,891    21,510    18,198  




Dividends from joint ventures    1,061    39    1,246    80  




Dividends from associated undertakings    69    65    197    297  




Servicing of finance and returns on investments  
Interest received    50    41    136    124  
Interest paid    (152 )  (163 )  (471 )  (816 )
Dividends received    6    26    36    74  
Dividends paid to minority shareholders    (15 )  (4 )  (25 )  (17 )




Net cash outflow from servicing of finance  
and returns on investments    (111 )  (100 )  (324 )  (635 )




Taxation  
UK corporation tax    (299 )  (264 )  (1,009 )  (856 )
Overseas tax    (1,489 )  (539 )  (2,978 )  (2,432 )




Tax paid    (1,788 )  (803 )  (3,987 )  (3,288 )




Capital expenditure and financial investment  
Payments for fixed assets    (3,251 )  (3,063 )  (8,956 )  (8,694 )
Proceeds from the sale of fixed assets    537    874    3,728    4,843  




Net cash outflow for capital expenditure and  
financial investment    (2,714 )  (2,189 )  (5,228 )  (3,851 )




Acquisitions and disposals  
Acquisitions, net of cash acquired        (28 )  (14 )  (178 )
Proceeds from the sale of businesses    37        342    179  
Net investment in TNK-BP joint venture    23    (2,625 )  (1,250 )  (2,625 )
Net investment in other joint ventures    (75 )      (188 )  (16 )
Investments in associated undertakings    (171 )  (243 )  (752 )  (760 )




Net cash (outflow) inflow for acquisitions  
and disposals    (186 )  (2,896 )  (1,862 )  (3,400 )




Equity dividends paid    (1,536 )  (1,433 )  (4,506 )  (4,216 )




Net cash inflow (outflow)    1,714    (2,426 )  7,046    3,185  




Financing    1,617    (1,471 )  7,370    3,483  
Management of liquid resources    73    76    58    182  
Increase (decrease) in cash    24    (1,031 )  (382 )  (480 )




     1,714    (2,426 )  7,046    3,185  






(a) This cash flow statement has been prepared in accordance with UK GAAP. A cash flow statement presented on a SFAS 95 format is included in Note 16.

– 16 –


BP p.l.c. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS – concluded

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)
Reconciliation of profit before interest and tax                    
to net cash inflow from operating activities  
Profit before interest and tax    6,885    4,113    20,165    14,110  
Depreciation and amounts provided    2,648    2,485    8,200    7,847  
Exploration expenditure written off    34    75    123    168  
Net operating charge for pensions and other  
postretirement benefits, less contributions    39    (525 )  (18 )  (723 )
Share of profits of joint ventures and associated  
undertakings    (1,117 )  (433 )  (2,626 )  (944 )
Interest and other income    (49 )  (72 )  (187 )  (220 )
(Profit) loss on sale of fixed assets and businesses    15    (172 )  (1,088 )  (846 )
Charge for provisions    630    583    747    641  
Utilization of provisions    (168 )  (187 )  (418 )  (512 )
(Increase) decrease in inventories    (2,573 )  (1,048 )  (3,738 )  (479 )
(Increase) decrease in debtors    (3,395 )  (35 )  (6,381 )  (3,417 )
Increase (decrease) in creditors    3,970    107    6,731    2,573  




Net cash inflow from operating activities    6,919    4,891    21,510    18,198  






Financing
  
Long-term borrowing    (717 )  (1,433 )  (1,775 )  (2,656 )
Repayments of long-term borrowing    13    1,774    1,283    2,784  
Short-term borrowing    (338 )  (1,924 )  (605 )  (2,968 )
Repayments of short-term borrowing    479    143    3,201    4,430  




     (563 )  (1,440 )  2,104    1,590  


Issue of ordinary share capital for employee share schemes
    (157 )  (31 )  (379 )  (112 )
Purchase of shares by ESOP trusts    87        146    6  
Repurchase of ordinary share capital    2,250        5,499    1,999  




Net cash outflow from financing    1,617    (1,471 )  7,370    3,483  






(a) This cash flow statement has been prepared in accordance with UK GAAP. A cash flow statement presented on a SFAS 95 format is included in Note 16.



– 17 –


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

1. The results for the interim periods are unaudited and in the opinion of management include all adjustments necessary for a fair presentation of the results for the periods presented. The interim financial statements and notes included in this Report should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2003 included in BP’s Annual Report on Form 20-F filed with the Securities and Exchange Commission.

2. Restatement of comparative information

            Comparative information for 2003 has been restated to reflect the changes described below.

(a) Transfer of Natural Gas Liquids activities
With effect from January 1, 2004 natural gas liquids (NGL) activities have been transferred from Exploration and Production to Gas, Power and Renewables.

(b) New accounting standard for pensions and other postretirement benefits
With effect from January 1, 2004 BP has adopted Financial Reporting Standard No. 17 ‘Retirement Benefits’ (FRS 17). FRS 17 requires that financial statements reflect at fair value the assets and liabilities arising from an employer’s retirement benefit obligations and any related funding. The operating costs of providing retirement benefits are recognized in the period in which they are earned together with any related finance costs and changes in the value of related assets and liabilities. This contrasts with Statement of Standard Accounting Practice No. 24 ‘Accounting for Pension Costs’, which requires the cost of providing pensions to be recognized on a systematic and rational basis over the period during which the employer benefits from the employee’s services. The difference between the amount charged in the income statement and the amount paid as contributions into the pension fund is shown as a prepayment or provision on the balance sheet.

(c) Accounting for Employee Share Ownership Plans
With effect from January 1, 2004 BP has adopted Urgent Issues Task Force Abstract No. 38 ‘Accounting for ESOP Trusts’. This abstract requires that BP shares held by the Group for the purposes of Employee Share Ownership Plans (ESOPs) are deducted from equity on the balance sheet. Such shares were previously classified as fixed asset investments.

Balance sheet at 31 December 2003 Restated
Reported
($ million)
      Fixed assets            
    Intangible assets    13,642    13,642  
    Tangible assets    91,911    91,911  
    Investments    17,458    17,554  


         123,011    123,107  


    Current assets    47,651    54,465  
    Creditors - amounts falling due within one year    50,584    50,584  


    Net current assets (liabilities)    (2,933 )  3,881  


    Total assets less current liabilities    120,078    126,988  
    Creditors - amounts falling due after more than one year    18,959    18,959  
    Provisions for liabilities and charges  
    Deferred taxation    14,371    15,273  
    Other provisions    8,815    15,693  


    Net assets excluding pension and other  
    postretirement benefit balances    77,933    77,063  
    Defined benefit pension plan surplus    1,021      
    Defined benefit pension plan and other postretirement  
    benefit plan deficits    (7,510 )    


    Net assets    71,444    77,063  
    Minority shareholders' interest    1,125    1,125  


    BP shareholders' interest    70,319    75,938  




– 18 –


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

Income Statements Three months ended
September 30 2003
(Unaudited)
Nine months ended
September 30 2003
(Unaudited)
Restated
Reported
Restated
Reported
($ million except per share amounts)

      Exploration and Production      3,666    3,716    11,821    11,964  
    Refining and Marketing    571    523    1,934    1,789  
    Petrochemicals    86    96    572    600  
    Gas, Power and Renewables    120    89    432    347  
    Other businesses and corporate    (330 )  (324 )  (649 )  (629 )




    Profit before interest and tax    4,113    4,100    14,110    14,071  
    Interest expense    159    213    484    624  
    Other finance expense    139        395      




    Profit before taxation    3,815    3,887    13,231    13,447  
    Taxation    1,428    1,450    4,954    5,023  




    Profit after taxation    2,387    2,437    8,277    8,424  
    Minority shareholders' interest    43    43    129    129  




    Profit for the period    2,344    2,394    8,148    8,295  




    Distribution to shareholders    1,438    1,438    4,258    4,258  




    Profit per ordinary share - cents  
    Basic    10.62    10.85    36.71    37.37  
    Diluted    10.51    10.74    36.51    37.18  






– 19 –


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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)
3.     Turnover                    
    By business  
    Exploration and Production    8,660    7,153    25,039    23,303  
    Refining and Marketing    45,359    38,205    132,520    112,574  
    Petrochemicals    5,412    3,946    14,727    12,264  
    Gas, Power and Renewables    20,443    15,948    59,852    48,938  
    Other businesses and corporate    137    138    390    378  




         80,011    65,390    232,528    197,457  
    Less: sales between businesses    9,126    7,140    24,950    22,750  




    Group excluding joint ventures    70,885    58,250    207,578    174,707  
    Share of sales of joint ventures    2,967    914    6,908    1,676  




         73,852    59,164    214,486    176,383  




    By geographical area  
    Group excluding joint ventures  
    UK    21,848    12,561    56,499    40,854  
    Rest of Europe    13,876    12,476    39,249    38,294  
    USA    31,435    29,119    96,779    82,563  
    Rest of World    16,731    12,766    48,335    38,604  




         83,890    66,922    240,862    200,315  
    Less: sales between areas    13,005    8,672    33,284    25,608  




         70,885    58,250    207,578    174,707  




4.   Production taxes  
    UK petroleum revenue tax    51    65    223    256  
    Overseas production taxes    502    351    1,279    1,046  




         553    416    1,502    1,302  




5.   Exploration expense  
    Exploration and Production  
    UK    4    11    9    16  
    Rest of Europe    7    23    15    32  
    USA    58    60    218    144  
    Rest of World    66    42    137    157  




         135    136    379    349  





– 20 –


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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)
6.     Analysis of exceptional items                    
    Profit (loss) on sale of fixed assets and  
    businesses or termination of operations  
    Exploration and Production    23    196    120    962  
    Refining and Marketing    (17 )  (21 )  (175 )  (122 )
    Petrochemicals    (38 )  13    (186 )  22  
    Gas, Power and Renewables    16    (2 )  16    4  
    Other businesses and corporate    1    (14 )  1,313    (20 )




    Exceptional items before taxation    (15 )  172    1,088    846  
    Taxation credit (charge)    33    (4 )  131    (207 )




    Exceptional items after taxation    18    168    1,219    639  




7.   Interest expense  
    Group interest payable    160    178    456    528  
    Capitalized    (57 )  (53 )  (159 )  (130 )




         103    125    297    398  
    Joint ventures    41    23    121    53  
    Associated undertakings    12    11    35    33  




         156    159    453    484  




8.   Other finance expense  
    Interest on pension and other postretirement  
    benefit plan liabilities    502    460    1,493    1,380  
    Expected return on pension and other  
    postretirement benefit plan assets    (493 )  (375 )  (1,482 )  (1,125 )




    Interest net of expected return on plan assets    9    85    11    255  
    Unwinding of discount on provisions    48    45    146    131  
    Unwinding of discount on deferred consideration  
    for acquisition of investment in TNK-BP    22    9    74    9  




         79    139    231    395  




9.   Charge for taxation  
    Current    1,672    1,528    5,543    4,515  
    Deferred    437    (100 )  587    439  




         2,109    1,428    6,130    4,954  




    UK    601    245    1,312    1,075  
    Overseas    1,508    1,183    4,818    3,879  




         2,109    1,428    6,130    4,954  




– 21 –


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

10.     Business and geographical analysis

By business Exploration
and
Production

Refining
and
Marketing

Petro-chemicals
Gas,
Power
and
Renewables

Other
businesses
and
corporate

Eliminations
Total
($ million)
Three months                                
ended September 30, 2004  
Group turnover  
- third parties    2,266    43,469    5,196    19,817    137        70,885  
- sales between businesses    6,394    1,890    216    626        (9,126 )    







     8,660    45,359    5,412    20,443    137    (9,126 )  70,885  







Share of sales by joint ventures    2,642    194    131                2,967  







Equity accounted income    970    56    86    5            1,117  







Total operating profit (loss)    4,865    1,964    355    141    (425 )      6,900  
Exceptional items    23    (17 )  (38 )  16    1        (15 )







Profit (loss) before interest  
and tax    4,888    1,947    317    157    (424 )      6,885  







Capital expenditure and  
acquisitions    2,444    609    232    65    62        3,412  


Three months
  
ended September 30, 2003  
Group turnover  
- third parties    1,692    37,098    3,826    15,496    138        58,250  
- sales between businesses    5,461    1,107    120    452        (7,140 )    







     7,153    38,205    3,946    15,948    138    (7,140 )  58,250  







Share of sales by joint ventures    675    129    110                914  







Equity accounted income    348    51    29    (1 )  6        433  







Total operating profit (loss)    3,470    592    73    122    (316 )      3,941  
Exceptional items    196    (21 )  13    (2 )  (14 )      172  







Profit (loss) before interest  
and tax    3,666    571    86    120    (330 )      4,113  







Capital expenditure and  
acquisitions    8,223    659    182    85    59        9,208  


– 22 –


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

10.     Business and geographical analysis – continued

By geographical area UK
Rest of
Europe

USA
Rest of
World

Eliminations
Total
($ million)
Three months ended September 30, 2004                            
Group turnover - third parties    14,236    12,295    30,509    13,845        70,885  
                         - sales between areas    7,612    1,581    926    2,886    (13,005 )    






     21,848    13,876    31,435    16,731    (13,005 )  70,885  






Share of sales by joint ventures    45    86    61    2,775        2,967  






Equity accounted income        17    44    1,056        1,117  






Total operating profit (loss)    393    1,387    2,423    2,697        6,900  
Exceptional items    (8 )  (81 )  25    49        (15 )






Profit (loss) before interest and tax    385    1,306    2,448    2,746        6,885  






Capital expenditure and acquisitions    414    298    1,423    1,277        3,412  


Three months ended September 30, 2003
  
Group turnover - third parties    8,798    10,272    28,506    10,674        58,250  
                         - sales between areas    3,763    2,204    613    2,092    (8,672 )    






     12,561    12,476    29,119    12,766    (8,672 )  58,250  






Share of sales by joint ventures    40    70    57    747        914  






Equity accounted income    (2 )  2    35    398        433  






Total operating profit (loss)    120    618    1,434    1,769        3,941  
Exceptional items    168    (65 )  (38 )  107        172  






Profit (loss) before interest and tax    288    553    1,396    1,876        4,113  






Capital expenditure and acquisitions    377    271    1,403    7,157        9,208  

– 23 –


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

10.     Business and geographical analysis – continued

By business Exploration
and
Production

Refining
and
Marketing

Petro-chemicals
Gas,
Power
and
Renewables

Other
businesses
and
corporate

Eliminations
Total
($ million)
Nine months                                
ended September 30, 2004  
Group turnover  
- third parties    7,040    127,845    14,186    58,117    390        207,578  
- sales between businesses    17,999    4,675    541    1,735        (24,950 )    







     25,039    132,520    14,727    59,852    390    (24,950 )  207,578  







Share of sales by joint ventures    6,098    421    389                6,908  







Equity accounted income    2,302    133    184    7            2,626  







Total operating profit (loss)    13,320    5,143    847    539    (772 )      19,077  
Exceptional items    120    (175 )  (186 )  16    1,313        1,088  







Profit (loss) before interest  
and tax    13,440    4,968    661    555    541        20,165  







Capital expenditure and  
acquisitions    8,572    1,713    579    208    99        11,171  


Nine months
                               
ended September 30, 2003  
Group turnover  
- third parties    5,731    109,248    11,868    47,482    378        174,707  
- sales between businesses    17,572    3,326    396    1,456        (22,750 )    







     23,303    112,574    12,264    48,938    378    (22,750 )  174,707  







Share of sales by joint ventures    1,024    341    311                1,676  







Equity accounted income    743    125    56    (4 )  24        944  







Total operating profit (loss)    10,859    2,056    550    428    (629 )      13,264  
Exceptional items    962    (122 )  22    4    (20 )      846  







Profit (loss) before interest  
and tax    11,821    1,934    572    432    (649 )      14,110  







Capital expenditure and  
acquisitions    12,775    1,581    476    298    272        15,402  

– 24 –


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

10.     Business and geographical analysis – concluded

By geographical area UK
Rest of
Europe

USA
Rest of
World

Eliminations
Total
($ million)
Nine months ended September 30, 2004                            
Group turnover - third parties    37,244    35,041    94,218    41,075        207,578  
                          - sales between areas    19,255    4,208    2,561    7,260    (33,284 )    






     56,499    39,249    96,779    48,335    (33,284 )  207,578  






Share of sales by joint ventures    129    260    152    6,367        6,908  






Equity accounted income    2    19    88    2,517        2,626  






Total operating profit (loss)    1,413    3,041    7,431    7,192        19,077  
Exceptional items    (109 )  (45 )  (145 )  1,387        1,088  






Profit (loss) before interest and tax    1,304    2,996    7,286    8,579        20,165  






Capital expenditure and acquisitions    1,000    752    4,132    5,287        11,171  


Nine months ended September 30, 2003
  
Group turnover - third parties    29,413    31,558    81,000    32,736        174,707  
                          - sales between areas    11,441    6,736    1,563    5,868    (25,608 )    






     40,854    38,294    82,563    38,604    (25,608 )  174,707  






Share of sales by joint ventures    86    225    144    1,221        1,676  






Equity accounted income    1    4    82    857        944  






Total operating profit (loss)    1,145    1,932    5,611    4,576        13,264  
Exceptional items    692    (95 )  (275 )  524        846  






Profit (loss) before interest and tax    1,837    1,837    5,336    5,100        14,110  






Capital expenditure and acquisitions    1,033    640    4,306    9,423        15,402  

– 25 –


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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)
11.     Analysis of changes in net debt                    
    Opening balance  
    Finance debt    19,858    18,594    22,325    22,008  
    Less: Cash    1,531    2,115    1,947    1,520  
              Current asset investments    172    329    185    215  




    Opening net debt    18,155    16,150    20,193    20,273  




    Closing balance  
    Finance debt    20,445    19,970    20,445    19,970  
    Less: Cash    1,576    1,091    1,576    1,091  
              Current asset investments    245    404    245    404  




    Closing net debt    18,624    18,475    18,624    18,475  




    Decrease (increase) in net debt    (469 )  (2,325 )  1,569    1,798  




    Movement in cash/bank overdrafts    24    (1,031 )  (382 )  (480 )
    (Decrease) increase in current asset investments    73    76    58    182  
    Net cash outflow (inflow) from financing  
    (excluding share capital)    (563 )  (1,440 )  2,104    1,590  
    Debt transferred to TNK-BP        93        93  
    Exchange of Exchangeable Bonds for  
    Lukoil American Depositary Shares                420  
    Other movements    10    (31 )  31    139  
    Debt acquired        (12 )      (12 )




    Movement in net debt before exchange effects    (456 )  (2,345 )  1,811    1,932  
    Exchange adjustments    (13 )  20    (242 )  (134 )




    Decrease (increase) in net debt    (469 )  (2,325 )  1,569    1,798  






12.  
Movement in BP shareholders' interest
     ($ million)  
   
Balance at December 31, 2003
     75,938  
   Prior year adjustment - change in accounting policy (see Note 2)    (5,619 )

   As restated    70,319  
   Profit for the period    13,197  
   Distribution to shareholders    (4,549 )
   Currency translation differences (net of tax)    (152 )
   Issue of ordinary share capital for employee share schemes    379  
   Issue of ordinary share capital for TNK-BP acquisition    1,250  
   Net purchase of shares by ESOP trusts    (4 )
   Repurchase of ordinary share capital    (5,499 )

   Balance at September 30, 2004    74,941  

– 26 –


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

13. Earnings per share

  The calculation of basic earnings per ordinary share is based on the profit attributable to ordinary shareholders, i.e., profit for the period less preference dividends, related to the weighted average number of ordinary shares outstanding during the period. The average number of shares outstanding excludes the shares held by the Employee Share Ownership Plans.

  The calculation of diluted earnings per share is based on profit attributable to ordinary shareholders, adjusted for the unwinding of the discount on the deferred consideration for the acquisition of our interest in TNK-BP. The number of shares outstanding is adjusted to show the potential dilution if employee share options are converted into ordinary shares, and for the ordinary shares issuable, in three annual tranches, in respect of the TNK-BP joint venture. The first of the three tranches in respect of TNK-BP was issued during the third quarter of 2004. The number of ordinary shares outstanding for basic and diluted earnings per share may be reconciled as follows:

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
(shares thousand)
    Weighted average number of ordinary shares      21,683,963    22,092,365    21,891,936    22,193,403  
   Ordinary shares issuable under employee  
   share schemes    105,761    57,239    72,491    73,011  
   Ordinary shares issuable as consideration for  
   BP's interest in the TNK-BP joint venture    350,023    190,177    419,652    65,788  




        22,139,747    22,339,781    22,384,079    22,332,202  




14. Share-based compensation

  BP accounts for share options granted to employees using the intrinsic-value method. If the fair value of options granted in any particular year is estimated and this value amortized over the vesting period of the options, an indication of the cost of granting options to employees can be made. The fair value of each share option granted has been estimated using a Black-Scholes option pricing model.

  The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, ‘Accounting for Stock-Based Compensation’, to share-based employee compensation.

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
2004
2003
2004
2003
($ million)
    Profit for the period applicable to ordinary                    
   shares, as reported    4,483    2,344    13,196    8,147  
   Deduct: Total stock-based employee  
   compensation expense determined under fair  
   value based method for all awards, net of  
   related tax effects    (18 )  (23 )  (57 )  (70 )




   Pro forma net income    4,465    2,321    13,139    8,077  




(cents)
   Earnings per share  
       Basic - as reported    20.67    10.62    60.28    36.71  
       Basic - pro forma    20.59    10.51    60.02    36.39  
       Diluted - as reported    20.41    10.51    59.18    36.51  
       Diluted - pro forma    20.33    10.41    58.93    36.20  

– 27 –


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

15. Pension and other postretirement benefits

Three months ended September 30, 2004
UK
US
Other
Total
($ million)

    Current service cost      88    72    31    191  
   Past service cost            (13 )  (13 )
   Settlement, curtailment and special termination  
   benefits    6        18    24  
   Payments to defined contribution plans        28    7    35  




   Total operating charge    94    100    43    237  




   Expected return on plan assets    (335 )  (128 )  (30 )  (493 )
   Interest on plan liabilities    244    165    93    502  




   Other finance income (expense)    (91 )  37    63    9  






Three months ended September 30, 2003
UK
US
Other
Total
($ million)

    Current service cost      73    58    29    160  
   Past service cost        7        7  
   Settlement, curtailment and special termination  
   benefits        (9 )  22    13  
   Payments to defined contribution plans        34    9    43  




   Total operating charge    73    90    60    223  




   Expected return on plan assets    (263 )  (88 )  (24 )  (375 )
   Interest on plan liabilities    212    173    75    460  




   Other finance income (expense)    (51 )  85    51    85  






– 28 –


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

15. Pension and other postretirement benefits - concluded

Nine months ended September 30, 2004
UK
US
Other
Total
($ million)

    Current service cost      271    206    82    559  
   Past service cost            7    7  
   Settlement, curtailment and special termination  
   benefits    21        17    38  
   Payments to defined contribution plans        104    10    114  




   Total operating charge    292    310    116    718  




   Expected return on plan assets    (1,008 )  (392 )  (82 )  (1,482 )
   Interest on plan liabilities    732    508    253    1,493  




   Other finance income (expense)    (276 )  116    171    11  






Nine months ended September 30, 2003
UK
US
Other
Total
($ million)

    Current service cost      218    173    87    478  
   Past service cost        21        21  
   Settlement, curtailment and special termination  
   benefits        (24 )  66    42  
   Payments to defined contribution plans        101    27    128  




   Total operating charge    218    271    180    669  




   Expected return on plan assets    (790 )  (263 )  (72 )  (1,125 )
   Interest on plan liabilities    636    518    226    1,380  




   Other finance income (expense)    (154 )  255    154    255  





  In May 2004, the FASB issued Staff Position No. 106-2 ‘Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003’ (FSP 106-2). The provisions of the Act provide for a federal subsidy for plans that provide prescription drug benefits to Medicare-eligible retired employees and meet certain qualifications. Alternatively, the Act allows prescription drug plan sponsors to co-ordinate with the Medicare benefit.

  BP’s postretirement medical plans provide prescription drug coverage for Medicare-eligible retired employees. The effects of the Act will be incorporated in the next regularly scheduled remeasurement of the plans assets and obligations at December 31, 2004. While the Company continues to evaluate the impact of the Act on its benefit plan design and accounting, it is currently estimated that the Act will result in a decrease of approximately $550 million in the plans postretirement benefit obligations. For the Group’s UK GAAP reporting, this decrease will be recognized as an experience gain arising on the plan liabilities that will be included in the statement of total recognized gains and losses for 2004. For the Group’s US GAAP reporting, the decrease will be amortized over the average remaining service period of active plan participants.

– 29 –


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

16. US generally accepted accounting principles

  The consolidated financial statements of the BP Group are prepared in accordance with UK GAAP which differs in certain respects from US GAAP. The principal differences between US GAAP and UK GAAP for BP Group reporting relate to the following:

  (i) Group consolidation

  Where the Group conducts activities through a joint arrangement that is not carrying on a trade or business in its own right, the Group accounts for its own assets, liabilities and cash flows of the activity measured according to the terms of the arrangement. For the Group this method of accounting applies to undivided interests in pipelines from production facilities to terminals for shipping or onward transmission (such as the Trans Alaska Pipeline System and UK Central Area Transmission System) and oil and natural gas exploration and production activities where the Group has a direct interest in the field or a contractual right to a share of production. The operations of the pipeline or field may be undertaken by one participant on behalf of all other participants or by a company specifically created for this purpose. In either case contractual arrangements specify the allocation of costs between participants. US GAAP permits such arrangements to be accounted for by proportional consolidation, which is equivalent to UK GAAP.

  Joint ventures and associated undertakings are accounted for by the equity method. UK GAAP requires the consolidated financial statements to show separately the Group proportion of operating profit or loss, exceptional items, interest expense and taxation of joint ventures and associated undertakings. In addition the Group’s share of turnover of joint ventures should be disclosed. For US GAAP the after tax profits or losses (i.e. operating results after exceptional items, interest expense and taxation) are included in the income statement as a single line item.

  UK GAAP requires the Group’s share of the gross assets and gross liabilities of joint ventures to be shown on the face of the balance sheet whereas under US GAAP the net investment is included as a single line item.

  The following summarizes the reclassifications for joint ventures and associated undertakings necessary to accord with US GAAP.

Increase (decrease) in caption heading Three months ended September 30, 2004
(Unaudited)

As
Reported

Reclassification
US GAAP
Presentation

($ million)
    Consolidated statement of income                
   Other income    178    738    916  
   Share of profits of JVs and associated undertakings    1,117    (1,117 )    
   Exceptional items before taxation    (15 )      (15 )
   Interest expense    156    (53 )  103  
   Taxation    2,109    (326 )  1,783  
   Profit for the period    4,483        4,483  


Increase (decrease) in caption heading Nine months ended September 30, 2004
(Unaudited)

As
Reported

Reclassification
US GAAP
Presentation

($ million)
    Consolidated statement of income                
   Other income    429    1,721    2,150  
   Share of profits of JVs and associated undertakings    2,626    (2,626 )    
   Exceptional items before taxation    1,088        1,088  
   Interest expense    453    (156 )  297  
   Taxation    6,130    (749 )  5,381  
   Profit for the period    13,197        13,197  


– 30 –


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

16. US generally accepted accounting principles – continued

(i) Group consolidation – concluded


Increase (decrease) in caption heading Three months ended September 30, 2003
(Unaudited)

As
Reported

Reclassification
US GAAP
Presentation

($ million)

    Consolidated statement of income                
   Other income    148    301    449  
   Share of profits of JVs and associated undertakings    433    (433 )    
   Exceptional items before taxation    172        172  
   Interest expense    159    (34 )  125  
   Taxation    1,428    (98 )  1,330  
   Profit for the period    2,344        2,344  


Increase (decrease) in caption heading Nine months ended September 30, 2003
(Unaudited)

As
Reported

Reclassification
US GAAP
Presentation

($ million)

    Consolidated statement of income                
   Other income    476    692    1,168  
   Share of profits of JVs and associated undertakings    944    (944 )    
   Exceptional items before taxation    846        846  
   Interest expense    484    (86 )  398  
   Taxation    4,954    (166 )  4,788  
   Profit for the period    8,148        8,148  

(ii) Exceptional items


  Under UK GAAP certain exceptional items are shown separately on the face of the income statement after operating profit. These items are profits or losses on the sale of fixed assets and businesses or termination of operations and fundamental restructuring charges. Under US GAAP these items are classified as operating income or expenses.

– 31 –


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


16. US generally accepted accounting principles - continued

(iii) Deferred taxation/business combinations

US GAAP requires the recognition of a deferred tax asset or liability for the tax effects of differences between the assigned values and the tax bases of assets acquired and liabilities assumed in a purchase business combination, whereas under UK GAAP no such deferred tax asset or liability is recognized. Under US GAAP the deferred tax asset or liability is amortized over the same period as the assets and liabilities to which it relates.

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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
      Increase (decrease) in caption heading      2004    2003    2004    2003  




($ million)

    Cost of sales      226    (218 )  478    931  
   Taxation    (258 )  219    (549 )  (964 )
   Profit for the period    32    (1 )  71    33  






At
September 30,
2004
(Unaudited)

At
December 31,
2003
 

($ million)

      Tangible assets      5,585    6,084  
    Deferred taxation    5,584    6,149  
    BP shareholders' interest    1    (65)  


(iv) Provisions

UK GAAP requires provisions for decommissioning, environmental liabilities and onerous contracts to be determined on a discounted basis if the effect of the time value of money is material. The provisions for decommissioning and environmental liabilities are estimated using costs based on current prices and discounted using real discount rates. Unwinding of the discount and the effect of a change in the discount rate is included in interest expense in the period. When a decommissioning provision is set up, a tangible fixed asset of the same amount is also recognized and is subsequently depreciated as part of the capital costs of the facilities.

On January 1, 2003 the Group adopted Statement of Financial Accounting Standards No. 143 ‘Accounting for Asset Retirement Obligations’ (SFAS 143). SFAS 143 requires companies to record liabilities equal to the fair value of their asset retirement obligations when they are incurred (typically when the asset is installed at the production location). When the liability is initially recorded, companies capitalize an equivalent amount as part of the cost of the asset. Over time the liability is accreted for the change in its present value each period, and the initial capitalized cost is depreciated over the useful life of the related asset. Unwinding of the discount is included in operating profit for the period.

The provisions for decommissioning under SFAS 143 are set up on a similar basis to UK GAAP except that estimated future cash outflows are discounted using a credit-adjusted risk-free rate rather than a real discount rate.

– 32 –


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

16. US generally accepted accounting principles – continued

(iv) Provisions – concluded

  The cumulative effect of adopting SFAS 143 at January 1, 2003 resulted in an after tax credit to income, as adjusted to accord with US GAAP, of $1,002 million. The effect of adoption also included an increase in total assets, as adjusted to accord with US GAAP, of $687 million and a reduction in total liabilities, as adjusted to accord with US GAAP, of $315 million. The effect of adoption on the three months and nine months ended September 30, 2003 was to increase profit for the three month period by $10 million and decrease profit for the nine months prior by $97 million before cumulative effect of accounting changes as adjusted to accord with US GAAP.

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

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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
      Increase (decrease) in caption heading      2004    2003    2004    2003  




($ million)

    Cost of sales      206    68    291    129  
   Interest expense    (48 )  (45 )  (146 )  (131 )
   Taxation    (36 )  (51 )  (43 )  (51 )
   Profit for the period before cumulative  
   effect of accounting change    (122 )  28    (102 )  53  
   Cumulative effect of accounting change,  
   net of taxation                1,002  
   Profit for the period    (122 )  28    (102 )  1,055  




At
September 30,
2004
(Unaudited)

At
December 31,
2003
 

($ million)

    Tangible assets      (810 )  (835 )
   Provisions    (492 )  (636 )
   Deferred taxation    (114 )  (71 )
   BP shareholders' interest    (204 )  (128 )



  The following data summarizes the movements in the asset retirement obligation, as adjusted to accord with US GAAP, for the nine months ended September 30, 2004.

($ million)

    At January 1, 2004      3,872  
   Exchange adjustments    17  
   New provisions    226  
   Unwinding of discount    158  
   Utilized/deleted    (231 )

   At September 30, 2004    4,402  

– 33 –


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

16. US generally accepted accounting principles – continued

(v) Sale and leaseback


  The sale and leaseback of an office building in Chicago, Illinois in 1998 was treated as a sale for UK GAAP whereas for US GAAP it was treated as a financing transaction. The remaining interest in this building was sold in January 2003.

Provisions were recognized under UK GAAP in 1999 and 2002 to cover the likely shortfall on rental income from subletting the Chicago office building. As the original sale and leaseback was not treated as a sale for US GAAP the provision was reversed for US GAAP. Following the disposal of the building a provision has now been recognized for US GAAP.

Under UK GAAP the profit arising on the sale and operating leaseback of certain railcars in 1999 was taken to income in the period in which the transaction occurred. Under US GAAP this profit is being amortized over the term of the operating lease.

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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
      Increase (decrease) in caption heading      2004    2003    2004    2003  




($ million)

    Cost of sales      (3 )  (23 )  (8 )  (135 )
   Taxation        7    2    46  
   Profit for the period    3    16    6    89  





At
September 30,
2004
(Unaudited)

At
December 31,
2003
 

($ million)

    Other accounts payable and accrued liabilities      22    24  
   Provisions    26    32  
   Deferred taxation    (17 )  (19 )
   BP shareholders' interest    (31 )  (37 )




– 34 –


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

16. US generally accepted accounting principles – continued

(vi) Goodwill and intangible assets

  There are two main differences in the basis for determining goodwill between UK and US GAAP which result in the amount of goodwill for US GAAP reporting differing from the amount recognized under UK GAAP.

Goodwill represents the difference between the consideration paid in an acquisition and the fair value of the assets and liabilities acquired. Where shares are issued in connection with an acquisition UK GAAP requires that the shares issued be valued at the time the public offer becomes unconditional. For US GAAP the consideration is determined at the date the offer is made.

US GAAP requires the recognition of a deferred tax asset or liability for the tax effects of differences between the assigned values and the tax bases of the assets acquired and liabilities assumed in an acquisition, whereas under UK GAAP no such deferred tax liability or asset or liability is recognized. Under US GAAP the deferred tax asset or liability is amortized over the same period as the assets and liabilities to which it relates.

During the second quarter of 2004 the Group completed a goodwill impairment review using the two-step process prescribed in SFAS 142. The first step includes a comparison of the fair value of a reporting unit to its carrying value, including goodwill. Where the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and the second step is then completed in order to measure the impairment loss, if any. No impairment charge resulted from this review. For the purposes of this impairment review the reporting unit is one level below an operating segment.

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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
      Increase (decrease) in caption heading      2004    2003    2004    2003  




($ million)

      Cost of sales      (360 )  (342 )  (1,076 )  (1,027 )
    Profit for the period    360    342    1,076    1,027  





At
September 30,
2004
(Unaudited)

At
December 31,
2003
 

($ million)

       Intangible assets      2,751    1,669  
    BP shareholders' interest    2,751    1,669  



  In accordance with Group accounting practice, exploration licence acquisition costs are initially capitalized as an intangible fixed asset and are amortized over the estimated period of exploration. Where proved reserves of oil or natural gas are determined and development is sanctioned, the unamortized cost is transferred to tangible production assets. Where exploration is unsuccessful, the unamortized cost is charged against income. At September 30, 2004 and December 31, 2003, exploration licence acquisition costs included in the Group’s tangible fixed assets and intangible fixed assets, net of accumulated amortization, were as follows.

At
September 30,
2004
(Unaudited)

At
December 31,
2003
 

($ million)

      Exploration licence acquisition cost included            
    in fixed assets (net of accumulated amortization)  
    Tangible fixed assets    1,900    1,300  
    Intangible fixed assets    575    600  



– 35 –


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

16. US generally accepted accounting principles – continued

(vi) Goodwill and intangible assets – concluded

  Changes to exploration expenditure, goodwill and other intangible assets, as adjusted to accord with US GAAP, during the nine months ended September 30, 2004 are shown below.

Exploration
expenditure

Goodwill
Gain on
asset
exchange
(see (viii))

Additional
minimum
pension
liability
(see (xiii))

Other
intangibles

Total
($ million)
      Net book amount                            
    Amortization expense    4,236    10,838    148    43    237    15,502  
    Amortization expense    (123 )      (14 )      (39 )  (176 )
    Other movements    226    34            84    344






    At September 30, 2004    4,339    10,872    134    43    282    15,670  







  Amortization expense relating to other intangibles is expected to be in the range $50-$75 million in each of the succeeding five years.

(vii) Derivative financial instruments and hedging activities

  Statement of Financial Accounting Standards No. 133, ‘Accounting for Derivative Instruments and Hedging Activities’ (SFAS 133) requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. To the extent that certain criteria are met, SFAS 133 permits, but does not require, hedge accounting.

  In the normal course of business the Group is a party to derivative financial instruments with off-balance sheet risk, primarily to manage its exposure to fluctuations in foreign currency exchange rates and interest rates, including management of the balance between floating rate and fixed rate debt. The Group also manages certain of its exposures to movements in oil and natural gas prices. In addition, the Group trades derivatives in conjunction with these risk management activities.

  All oil price derivatives and all derivatives held for trading are carried on the Group’s balance sheet at fair value with changes in that value recognized in earnings of the period for both UK and US GAAP. Certain financial derivatives used to manage foreign currency and interest rate risk that qualify for hedge accounting under UK GAAP are marked to market under SFAS 133. Under US GAAP the fair values of derivative financial instruments are shown as current assets and liabilities as appropriate.

  The Group has a number of long-term natural gas contracts which have been in place for many years. The pricing structure for certain of these contracts is not directly related to the market price of natural gas but to the price of other commodities or indices, such as fuel oil or consumer price indices. Under SFAS 133, these contracts are marked-to-market.

  In October 2002, the FASB Emerging Issues Task Force (EITF) reached a consensus with regards to EITF Issue No. 02-3, ‘Issues Involved in Accounting for Contracts Under EITF Issue No. 98-10 “Accounting for Contracts Involved in Energy Trading and Risk Management Activities”’ (EITF 02-3). This consensus, which rescinded EITF Issue No. 98-10 ‘Accounting for Contracts Involved in Energy Trading and Risk Management Activities’ (EITF 98-10), requires all energy-related, non-derivative contracts (such as transportation, storage, tolling, and requirements contracts that do not meet the definition of a derivative) to be accounted for as executory contracts on an accrual basis. Under EITF 98-10, such contracts were accounted for at fair value.

– 36 –


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

16. US generally accepted accounting principles – continued

(vii) Derivative financial instruments and hedging activities – concluded

  The consensus is applicable for all contracts executed after October 25, 2002. Application of the consensus to contracts existing prior to October 26, 2002 is required to be accounted for as a cumulative effect of a change in accounting principle effective for periods beginning after December 15, 2002.

  For BP’s reporting under UK GAAP, energy-related non-derivative contracts associated with trading activities are marked to market with gains and losses recognized in the income statement.

  The cumulative effect of adopting the consensus at January 1, 2003 resulted in an after tax credit to income, as adjusted to accord with US GAAP, of $50 million.

  EITF 02-3 also requires trading inventories to be accounted for at historical cost. The Group marks trading inventories to market at the balance sheet date. As such, a UK/US GAAP difference arises which impacts both profit for the year and BP shareholders’ interest due to the difference in inventory valuations.

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

Three months ended
September 30
(Unaudited)
Nine months ended
September 30
(Unaudited)
      Increase (decrease) in caption heading      2004    2003    2004    2003  




($ million)

      Cost of sales      10    17    123    (418 )
    Taxation    23    (7 )  (8 )  145  
    Profit for the period before cumulative  
    effect    (33 )  (10 )  (115 )  273  
    of accounting change  
    Cumulative effect of accounting change,  
    net of taxation