$ 7.3 bn

dividends to BP shareholders

7.5 ^%

ordinary shareholders annual dividend yield  «

7.7 ^%

ADS shareholders annual dividend yield  «

Dear fellow shareholder,

2015 has been another challenging year: oil prices have remained low, falling by more than 50% and our industry finds itself in a position not seen for some 30 years. This sustained low price is a result, not of lack of demand, but of oversupply. However, our work in reconfiguring BP following the incident in the Gulf of Mexico has meant that we were prepared and well positioned to respond to this volatile environment as we move through 2016.

Shareholders and distributions

We have maintained our dividend during the year and remain committed to growing sustainable free cash flow and shareholder distributions over the long term. I believe that our current financial framework can support these commitments.

The board considers shareholder distributions in the context of how to achieve long-term growth and value creation. In the current weaker price environment, our aim is to rebalance our sources and uses of cash to ensure we cover capital expenditure and shareholder distributions with operating cash flow. ^a This will enable BP to continue to develop its business while maintaining safe and reliable operations. We anticipate that all the actions we are taking will capture more deflation and drive the point of rebalance to below $60 per barrel. The board will keep all of this under review and will make any adjustments to our financial framework as circumstances require.

Strategy

The proposed consent decree with the United States federal government and settlements with the US Gulf states are an important step. It has enabled us to look at the future with greater confidence. However the current price environment continues to be a cause for concern and so we have set a financial path for the next two years. This medium-term strategy is based on optimizing our deployment and allocation of capital and the continuing simplification of our business while maintaining our commitment to safety and reliability.

Our financial results over the year demonstrated the benefit from the integration of our upstream and downstream activities. We have a strong, refocused and rebalanced portfolio based on our distinctive capabilities which we believe will enable us to withstand lower prices. In the future, we will continue to invest in a balanced range of resources and geographies across the Upstream and Downstream to enable us to achieve long-term growth.

We have recently published our BP Energy Outlook. I believe this makes an important contribution to the discourse and debate in this area. As the world continues to develop economically then oil, and increasingly gas, will be needed for the foreseeable future. This is the core of our business. Overall we keep under review the broader strategic direction of the group as the market for our products evolves and the energy landscape starts to change.

2015 has seen increased focus on climate change. BP has consistently argued for a price on carbon and recognized the part we all must play in being part of the solution. However governments must take the lead in developing policies to reduce carbon emissions and we continue to engage in this debate. The UN conference on climate change has produced

94.7 ^%

2015 refining availability « .

95 ^%

Upstream BP-operated plant reliability « .

Dear fellow shareholder,

In 2015 we continued to adapt to the tough environment created by the dramatic drop in oil prices. We have seen prices crash before, but this fall has been particularly steep, from over $100 a barrel in mid-2014 to below $30 by January 2016. The work we have done to reshape and strengthen BP after 2010 stood us in good stead to withstand these conditions and last year we took further action to make the business more resilient in the short term. We also continue to invest for long-term growth. Our safety record improved, along with operating reliability, while costs came down and capital discipline was maintained. The current environment has however impacted our financial results, as well as those of our competitors. So, while the oil price is beyond our control, we have performed strongly on the factors that we can control.

A safer, more reliable, more resilient BP

In terms of safety, our top priority, we achieved improvements year-on-year in all of our key safety measures – process safety events, leaks, spills and other releases, and recordable injuries. This performance is at a much better level than five years ago and in line with the best among our peers. Safety is also good business. When we operate safely, our operations are more reliable. When the assets run reliably, they operate more continuously. When our operations run efficiently, we have better financial results.

In the current business environment, competitiveness depends on minimizing our costs and being disciplined in our use of limited capital – as demonstrated by our organic capital expenditure in 2015 of $18.7 billion, down from nearly $23 billion in 2014. And we continue to focus our portfolio on the highest quality projects and operations, divesting $10 billion worth of assets in 2014 and 2015, in line with our target.

2015 was a challenging year for our Upstream business, with weaker oil and gas realizations leading to a significantly lower underlying pre-tax replacement cost profit of $1.2 billion. However, efficiency and reliability improved across the business in 2015. Upstream unit production costs were down 20% on 2013, and BP-operated plant reliability increased to 95% from 86% in 2011. We have made our base production more resilient by improving our reservoir management and increasing efficiencies in our drilling and operations – lowering the decline rate and reducing non-productive time in drilling to its lowest level since 2011. And the decision to manage our US Lower 48 business separately is starting to deliver improvements in performance and competitiveness.

Our Downstream business had a record year, delivering $7.5 billion of underlying pre-tax replacement cost profit, demonstrating the benefit of being an integrated business. Our refining business is ranked among the top performers based on net cash margin in the most recent industry benchmark. We made improvements in safety, efficiency and operational performance, and continued to develop a portfolio of highly competitive assets and products. These include the launch in Spain of a new range of fuels with engine-cleaning and fuel-economy benefits, the unveiling of Nexcel from Castrol – a technology with the potential to revolutionize the oil changing process in vehicles, and the start-up of Zhuhai 3 in China – one of the most efficient purified terephthalic acid production units in the world.

 Our markets in 2015

See page 24 for information on oil and gas prices in 2015.

Global energy consumption by region

(billion tonnes of oil equivalent)

Source: BP Energy Outlook.

Near-term outlook

The global economy continues to experience weaker growth in the main developing economies and slower than expected recovery in the developed world. World gross domestic product (GDP) is expected to grow by 2.8% in 2016, led by the OECD, but with significant downside risks from emerging economies, particularly commodity exporters.

After around four years of averaging about $100 per barrel, oil prices fell by nearly 50% in 2015. Even as US production growth stalled and global oil demand rebounded, a large increase in OPEC production continued to push inventories higher. Price declines continued into early 2016, with daily prices reaching levels not seen since 2004.

Prices are expected to remain low at least through the near term. And while we anticipate supply chain deflation in 2016 and beyond, as industry costs follow oil prices with a lag, this will be a tough period of intense change for the industry as it adapts to this new reality.

Long-term outlook

The world economy is likely to more than double from 2014 to 2035, largely driven by rising incomes in the emerging economies and a projected population increase of 1.5 billion.

We expect world demand for energy to increase by as much as 34% between 2014 and 2035. This is after taking into account improvements in energy efficiency, a shift towards less energy-intensive activities in fast-growing economies, governmental policies that incentivize lower-carbon activity, and national pledges made at the 2015 UN climate conference in Paris.

There are more than enough energy resources to meet this growing demand, but there are a number of challenges.

Affordability

Fossil fuels are currently cheaper than renewables but their future costs are hard to predict. Some fossil fuels may become more costly as the difficulty to access and process them increases; others may be more affordable with technological progress, as seen with US shale gas. While many renewables remain expensive, innovation and wider deployment are likely to bring down their costs.

Supply security

Energy resources are often distant from the hubs of energy consumption and in places facing political uncertainties. More than half of the world’s known oil and natural gas reserves are located in just eight countries.

Sustainability

Fossil fuels – though plentiful and currently more affordable than other energy resources – emit carbon dioxide (CO ₂ ) and other greenhouse gases (GHG) through their production and use in homes, industry and vehicles. Renewables are lower carbon but can have other environmental or social impacts, such as high water consumption or visual intrusion.

Effective policy

BP believes that carbon pricing is the most comprehensive and economically efficient policy to limit GHG emissions. Putting a price on carbon – one that treats all carbon equally, whether it comes out of a smokestack or a car exhaust – would make energy efficiency more attractive and lower-carbon energy sources, such as natural gas and renewables, more cost competitive. A carbon price incentivizes both energy producers and consumers to reduce their GHG emissions. Governments can put a price on carbon via a well-constructed carbon tax or cap-and-trade system.

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The new semi-submersible Deepsea Aberdeen drilling vessel carries out ultra-deepwater drilling in the UK North Sea.

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An officer working in the under-deck pipe passageway on board BP’s LNG tanker British Trader .

  Illustrated business model

   For an at a glance overview of our

   business model see page 2.

  Our businesses

   For more information on our upstream

   and downstream business models,

   see pages 28 and 34 respectively.

Our business model

We believe the best way to achieve sustainable success as a group is to act in the long-term interests of our shareholders, our partners and society. By supplying energy, we support economic development and help to improve quality of life for millions of people. Our activities also generate jobs, investment, infrastructure and revenues for governments and local communities.

Our business model spans everything from exploration to marketing. We have a diverse integrated portfolio that is balanced across resource types, geographies and businesses, and adaptable to prevailing conditions. Our geographic diversity gives us access to growing markets and new resources and provides robustness to geopolitical events.

By having upstream and downstream businesses and well established trading capabilities, we have a cushion to oil price volatility as downward pressures in one part of the group can create opportunities in another. Integration also allows us to share functional excellence more efficiently across areas such as safety and operational risk, environmental and social practices, procurement, technology and treasury management.

Every stage of the hydrocarbon value chain offers opportunities for us to create value, through both the successful execution of activities that are core to our industry, and the application of our own distinctive strengths and capabilities in performing those activities.

Since 2010, we have been working to create a stronger, simpler and more focused business. This has positioned us well to respond to the lower oil and gas price environment. We are reducing capital expenditure by paring back and rephasing activities as necessary, as well as capturing the benefits of deflation of industry costs. We are driving down cash costs « through a reduction in third-party costs, and through efficiency and simplification across the organization. As always, safe and reliable operations are our first priority.

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Remodelling Mad Dog Phase 2 reduced our project cost estimate by more than half.

Between 2010 to mid-2014 oil prices were relatively stable, averaging around $100 per barrel. In 2014, strong supply growth, largely as a result of growth in US shale, caused oil prices to fall sharply. Prices fell further in 2015 as OPEC production increased and supply continued to outstrip demand. There are, however, increasing signs that the market is adjusting to the current low level of prices, with strong demand growth and weakening supply. The high level of inventories suggests that this adjustment process is likely to take some time, but it does appear to be underway. This underpins our belief that prices will stay lower for longer, but not forever.

Gas prices also fell, albeit on a more regional and less dramatic scale. In markets such as the US, gas prices are at historically low levels, with increases in production from shale being a key factor.

Low prices are having a significant effect on our industry, including BP. With falling revenues, companies need to re-base costs and activity – a process that could take several years. We expect 2016 to be a period of intense change, with ongoing restructuring and further deflation in the supply chain. That said, periods of low prices are not uncommon in our industry and BP has gone through such cycles in the past.

For BP, the lower prices significantly impacted our 2015 financial results. The result for the year was a loss of $6.5 billion. Underlying replacement cost profit « was $5.9 billion (2014 $12.1 billion) and operating cash flow « was $19.1 billion (2014: $32.8 billion).

We assess our performance across a wide range of measures and indicators. Our key performance indicators (KPIs) help the board and executive management measure performance against our strategic priorities and business plans. We periodically review our metrics and test their relevance to our strategy. We believe non-financial measures – such as safety and an engaged and diverse workforce – have a useful role to play as leading indicators of future performance.

Remuneration

To help align the focus of our board and executive management with the interests of our shareholders, certain measures are reflected in the variable elements of executive remuneration.

Overall annual bonuses, deferred bonuses and performance shares are all based on performance against measures and targets linked directly to strategy and KPIs.

  Directors’ remuneration

          See how our performance

          impacted 2015 pay on

          page 76.

Key

KPIs used to measure progress

        against our strategy.

KPIs used to determine 2015

        and 2016 remuneration.

Underlying RC profit « per ordinary share (cents)

Underlying RC profit is a useful measure for investors because it is one of the profitability measures BP management uses to assess performance. It assists management in understanding the underlying trends in operational performance on a comparable year-on-year basis.

It reflects the replacement cost of inventories sold in the period and is arrived at by excluding inventory holding gains and losses « from profit or loss. Adjustments are also made for non-operating items « and fair value accounting effects « . The IFRS equivalent can be found on page 216.

2015 performance The significant reduction in underlying RC profit per ordinary share for the year compared with 2014 was mainly due to lower profit in Upstream.

Operating cash flow ($ billion)

Operating cash flow is net cash flow provided by operating activities, as reported in the group cash flow statement. Operating activities are the principal revenue-generating activities of the group and other activities that are not investing or financing activities.

2015 performance Operating cash flow was lower in 2015, largely reflecting the impact of the lower oil price environment.

Gearing (net debt ratio) « (%)

Our gearing (net debt ratio) shows investors how significant net debt is relative to equity from shareholders in funding BP’s operations.

We aim to keep our gearing around 20% to give us the flexibility to deal with an uncertain environment.

Gearing is calculated by dividing net debt by total equity plus net debt. Net debt is equal to gross finance debt, plus associated derivative financial instruments, less cash and cash equivalents. For the nearest equivalent measure on an IFRS basis and for further information see Financial statements – Note 26.

2015 performance Gearing at the end of 2015 was 21.6%, up 4.9% on 2014.

Refining availability represents Solomon Associates’ operational availability. The measure shows the percentage of the year that a unit is available for processing after deducting the time spent on turnaround activity and all mechanical, process and regulatory downtime.

Refining availability is an important indicator of the operational performance of our Downstream businesses.

2015 performance Refining availability was similar to 2014.

Reported recordable injury frequency (RIF) measures the number of reported work-related employee and contractor incidents that result in a fatality or injury (apart from minor first aid cases) per 200,000 hours worked.

The measure gives an indication of the personal safety of our workforce.

2015 performance Our workforce RIF, which includes employees and contractors combined, was 0.24. This improvement on 2014 was also reflected in our other occupational safety metrics. While this is encouraging, continued vigilance is needed.

Loss of primary containment (LOPC) is the number of unplanned or uncontrolled releases of oil, gas or other hazardous materials from a tank, vessel, pipe, railcar or other equipment used for containment or transfer.

By tracking these losses we can monitor the safety and efficiency of our operations as well as our progress in making improvements.

2015 performance We have seen a decrease in our loss of primary containment to 235. Figures for 2014 and 2015 include increased reporting due to the introduction of enhanced automated monitoring for remote sites in our US Lower 48 business. Using a like-for-like approach with prior years’ reporting, our 2015 loss of primary containment figure is 208 (2014 246).

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More than 200 of our UK BP stores have an M&S Simply Food ^® outlet. This premium offer is helping to drive overall service station sales growth.

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Construction of Glen Lyon, our new 270 metre long floating, production, storage and offloading vessel, at a shipyard in South Korea.

BP Statistical Review of World Energy

        See bp.com/statisticalreview for an
        objective review of key global energy
        trends.

Crude oil prices (quarterly average)

Natural gas prices (quarterly average)

The global economy struggled to return to a more normal pace of growth in 2015 – GDP growth estimates were revised down over the course of the year, with latest estimates indicating that the world economy grew by 2.5% in 2015, compared to trend growth of around 3%. Slowing growth in China contributed to falling commodity prices, weak global trade and weakening emerging market growth. The developed world also failed to take off as expected with the US, EU and Japan all underperforming.

Oil

Crude oil prices averaged $52.39 per barrel in 2015, as demonstrated by the industry benchmark of dated Brent « , nearly $47 per barrel below the 2014 average of $98.95. This was the largest oil price decline ever – in inflation-adjusted terms – and it was the third-largest percentage decline (behind 1873 and 1986). Prices recovered in the second quarter, averaging nearly $62, but fell later in the year as OPEC production increased and inventories grew. Brent prices ended the year near $35.

In response to the sharp decline in world oil prices, global oil consumption increased by an above-average 1.6 million barrels per day (mmb/d) for the year (1.7%). ^a While emerging economies accounted for the majority of growth, the mature economies of the OECD recorded a rare increase as well. The robust growth in consumption was once again exceeded by growth in global production. Non-OPEC production growth slowed to 1.4mmb/d as US production peaked in the second quarter in the face of a rapid contraction in investment and drilling. ^a OPEC crude oil production, however, accelerated, growing by 1.1mmb/d in 2015. ^a As a result, OECD commercial oil inventories reached record levels late in the year.

^a    From IEA Oil Market Report, February 2016 ©, OECD/IEA

    2016, Page 4.

^b     BP Statistical Review of World Energy 2015.

In 2014 global oil consumption grew by roughly 0.8 million barrels per day (0.8%), significantly slower than the increase in global production (2.3%). ^b Non-OPEC production once again accounted for all the net global increase, driven by record US growth.

Natural gas

Global price differentials in 2015 continued to narrow. US gas prices and Asian transacted LNG prices were more than 40% lower, while European transacted LNG prices were 15% lower. The Henry Hub « First of the Month index fell from $4.43 per million British thermal units (mmBtu) in 2014 to $2.67 in 2015 as supply growth continued to be resilient.

Transacted LNG prices in Europe and Asia fell with rising global LNG supplies and weak demand growth. New LNG projects in Papua New Guinea and Australia and recovering supplies in Africa added 1.4bcf/d of supply capacity to the LNG market in 2015.

Moderating demand and ample supplies from both Russia and LNG markets reduced the UK National Balancing Point « hub price to an average of 42.61 pence per therm in 2015 (2014 50.01). The Japanese spot price fell to an average of $7.45/mmBtu in 2015 (2014 $13.86) with weaker demand from North Asian consumers coinciding with rising supplies in the region.

In 2014 growth in natural gas consumption was at its slowest rate for the last 20 years – with the exception of the financial crisis of 2008-09. Broad differentials between regional gas prices narrowed considerably, as US gas prices continued their recovery from their 2012 lows. Global LNG supply capacity expanded further in 2014, following a small increase in 2013, while growth in LNG demand moderated.

Prices and margins

        See pages 29 and 35.