Q2 2022 BP PLC Earnings Presentation
At this time at BP, obviously, and the question the obvious question for us and for our for our people and that our people ask is how can we help and that is why we are absolutely focused on delivering our strategy to become an integrated energy company a company that we believe can.
Help solve that energy trilemma, and we do that two ways, we do that by working hard to keep the energy flowing today and not ore and at the same time investing to accelerate the energy transition that's the role of an integrated energy.
<unk> company and I believe and we believe that its purpose has never been clearer.
And we do all of that while remaining acutely focused on delivering long term value for our owners our shareholders.
That is the context.
Against which we present today's results a set of results that show us performing while transforming.
During the quarter, we generated operating cash flow of $10 $9 billion, we reduced net debt for the ninth consecutive quarter to reach $22 $8 billion.
And we're growing distributions to our shareholders our owners by announcing a 10% increase in the quarterly dividend per ordinary share and a further $3 $5 billion share buyback.
Crucially.
We're doing this within the financial frame, which is unchanged and maintaining a resilient $40 per barrel cash balance point.
With all the uncertainty in the World now is not the time to lose discipline.
We also have real momentum in our transformation and in a moment I will update you on how we are driving improvements in our oil and gas portfolio.
And making good progress in our transition growth engines, but for now I'm going to hand over to Murray.
To take us through the second quarter results over to you Murray great. Thanks, Bernard and good morning, everyone. It's nice to see you here in the room.
Let's begin with the macro environment.
Starting with the oil price during the second quarter, Brent averaged $114 per barrel up from 102 barrels per barrel in the first quarter.
This was driven by reduced spare global capacity and inventory levels significantly below the five year average.
Looking ahead, we expect these factors to keep oil prices elevated during the third quarter.
Turning to gas prices during the second quarter average European prices declined as high LNG imports supported a recovery in inventories.
However, in the latter stages of the quarter prices moved sharply higher.
Driven by reduced Russian supply on the outage at Freeport.
In the U S. Henry hub rose by an average of 60% from the first quarter. This was supported by limited gas production growth and strong gas to power demand.
The outlook for global gas prices is heavily dependent on Russian pipeline flows, we expect prices to remain elevated and volatile during the third quarter due to a lack of supply to Europe .
Moving to refining margins more than doubled to average $45 50 per barrel in the second quarter.
This reflects resilient demand lower stocks and sanctioning of Russian crude and product.
In the third quarter, we expect refining margins to remain elevated due to ongoing supply disruptions.
Moving to results.
In the second quarter, we reported an underlying replacement cost profit of $8 $5 billion compared to $6 2 billion last quarter.
Compared to the first quarter and gas and low carbon energy as a result benefited from higher realizations. This was offset by an average gas marketing and trading result, following the exceptional exceptional performance in the first quarter.
The result includes our best estimate of the impact of the recent outage at Freeport LNG, leading to a significant reduction in the number of cargoes expected to be received.
In oil production and operations. The result reflects higher realizations.
And customers and products. The products result benefited from a significant increase in refining margins, partially offset by higher turnaround and maintenance activity the.
The contribution from oil trained trading remained exceptionally strong.
Strength in products more than offset the impact of a weaker fuel retail margins and higher inflation in a challenging environment in our customers' businesses.
Despite these factors the convenience contribution remained strong.
Turning to cash flow.
Operating cash flow was $10 9 billion in the second quarter. This included $1 2 billion of Gulf of Mexico oil spill payments with a working cap within a working capital build of $2 9 billion.
Capital expenditure was $2 8 billion with our guidance for 2022 remaining in a range of $14 billion to $15 billion.
And disposal proceeds were $700 million in the quarter, bringing our first half total to $1 $9 billion guidance of $2 billion to $3 billion in 2022 is unchanged.
During the quarter, we repurchased $2 3 billion of shares.
The $2 5 billion program announced with first quarter 2022 results was completed on July 22nd.
Reflecting underlying cash flow delivery net debt fell for the ninth consecutive quarter to reach $22 $8 billion.
And with second quarter surplus cash flow of $6 6 billion, we intend to execute a share buyback of $3 5 billion prior to reporting third quarter results.
Moving to our disciplined financial frame, which has five priorities and importantly remains unchanged.
Our first priority remains a resilient dividend as Bernard has outlined we have announced a 10% increase in the quarterly dividend.
Crucially. This is funded within an unchanged 20th 21 to 2025 cash balance point of around $40 per barrel Brent.
$3, Henry hub and $11 per barrel RMM.
All 2020 real.
This increase reflects the underlying performance and cash generation of the business, which has enabled strong progress in delivering share buybacks and net debt reduction.
Our second priority is to maintain a strong investment grade credit rating, we intend to continue to allocate 40% of 2022 surplus cash flow to further strengthen the balance sheet.
Our third and fourth priorities or the disciplined allocation of investment to our low carbon and convenience and mobility businesses.
And to resilient hydrocarbons.
And our fifth priority is share buybacks, we are committed to returning 60% of 2022 surplus cash flow through share buybacks subject to maintaining a strong investment grade credit rating.
And we have now announce share buybacks from 2021 and the first half of 2022 surplus cash flow of over $10 billion. This is equivalent to 60% of the cumulative surplus.
I'll now hand back burner.
Mary. Thank you. So turning then to some strategic momentum in transforming our BP to an integrated energy company for.
First I'm going to provide a little update on the progress that we're making in our oil and gas business and second I want to highlight some examples which gave us growing confidence in our transition growth engines.
And how this is underpinned by incumbency by our assets by our capabilities by our relationships by our friend and I will focus on two engines, specifically EV charging and hydrogen where we're <unk>.
Particularly excited by the progress over the last quarter, So turning first to our oil and gas business.
Strategy in oil and gas is to maximize returns and cash flow.
Creating resilience through lower costs higher margins and lower operating emissions focusing on the best barrels and high grading through divestments at the right time and for the right value. So let me say three things about our oil and gas portfolio, firstly leverage to <unk>.
Rice.
Today's results show our portfolio doing what it is supposed to do capturing the upside from higher prices and as the first chart shows over the decade, we expect our oil and gas EBITDA to remain highly highly leveraged to price as we high grade our portfolio and reduce production. This.
It is enabled by EBITDA growth coming from just six material regions set.
Really focus the Middle chart underpinned by a deep resource base, we are focusing our investment and leveraging our incumbency through 'twenty 30, we plan to allocate around 80% of all oil and gas investment in these six material regions and we expect EBITDA to grow from them.
And represents around 90% of the total in 2030 that comes from oil and gas from just those six.
Thirdly higher unit margins. The third chart illustrates our revolving margin mix is the same chart, we actually shared at our strategy update in February and it demonstrates how unit margins are expected to grow by over 20% by 2030 relative to 2021 as we focus our investments in.
The higher margin regions as we execute our plans to drive cost efficiency and as we high grade through divestments and lower margin regions.
And this high graded oil and gas portfolio together with our EBITDA plans growth plans and refining and in bioenergy gives us confidence in sustaining EBITA from resilient hydrocarbons at around 2021 levels through 2025 aiming to hold this level to 2030.
And we're making real progress in four areas in particular first an investment.
By the end of 2024, we expect to start up a seven a further seven high margin major projects.
And to maximize value will be flexible in our capital allocation for instance.
Within our disciplined capital frame, we plan to increase investment in <unk> energy from around $1 billion in 2021 to around $1 $7 billion in 2022 and here, we're leveraging our hopper of around 3500 drilling locations capable of delivering returns of over 30% at just 55 dollar W. T.
And $3 Henry hub.
Second reliability and efficiency in the first half of 2022 plant reliability increase to over 95% and unit production costs fell by almost 11% compared to the same period last year.
Third exploration and renewal, we continue to selectively explore aiming to further enhance the portfolio and so far this year, we've announced an oil discovery offshore Brazil with the potential to become a new hub and we participated in a gas discovery offshore Indonesia, and we strengthened.
Our position offshore Canada agreeing to acquire a 35% interest in the beta Nord discovery.
Finally portfolio optimization.
This year, we have agreed to divest our Canadian Sunrise and Pake Pike oil sand assets, we've created a new Angola folks focused company called Azula energy I think its first days to date and a joint venture between Eni and ourselves very exciting for Angola and for our two companies.
And we've restructured our business in Iraq with Petro China.
So that's hydrocarbons, let me turn now to two of our transition growth engine, starting with EV charging.
Here, we aim to deliver around $2 billion of EBITDA by 2030, focusing on fleets and focusing on fast charging to undergo customers.
We're clear sources of competitive advantage underpinned this what our data our global network of 20600 retail sites land.
Integrated convenience offers at our 'twenty 200 strategic sites, our customer base with around 16 million loyalty customers and around 170000 fleet customers.
Our trading and shipping organization, which provides optimized and reliable electron sourcing.
Over time, one of the benefits of integration is expected to be the sourcing of electrons from our own renewable business and here, we have already secured offshore wind licenses with over five gigawatts of capacity net to BP.
And strategic relationships with partners like Volkswagen like Uber like Didi like Daimler trucks.
And we are accelerating our rollout plans, we now have around 16000 charging points up almost 50% since the same.
Time last year, we've announced partnerships with Volkswagen and <unk>.
That have the potential to help achieve half of our targeted growth by 2025, and we're excited about potential opportunities in other regions like the United States.
Importantly, we have a distinctive focus on fast charging.
Around 50% of our charge points are now rapid our ultra fast and that's at least 50 kilowatts for rapid more than 150 kilowatts for ultrafast.
We recently became the leading provider of ultra fast charging in Germany building on our leading position in the U K.
And by 2030, we expect around 90% of our 100000 on the go Chargers to be rapid our ultrafast, resulting in around 10 gigawatts of installed capacity.
One is 10 gigawatts in this context. This is the equivalent to around 30 billion EV miles driven per annum 30 billion EV miles driven per annum, assuming a just a 10% utilization of our network and if you had seven kilowatt charge points for the same number that's 15 times more.
Sure mileage that will be driven.
And we are rapidly growing elektron sales supporting by increasing utilization rates the amount of electricity that we sold through EV charging rose more than two fold in the first half of 2022 compared to the previous year.
Turning then to hydrogen we see a huge opportunity given the anticipated and growing growth in global demand for low carbon hydrogen our strategy is to leverage existing demand pools, often our own by the way and developed advantage production hubs around that.
Manufacturing green and blue hydrogen at scale to create competitive supply for global markets and is underpinned by our distinctive sources of competitive advantage Barnard day, you ask again, delivering an operating complex global scale major projects.
Our global trading capability and experience in building.
Integrated value chains.
Our track record in building and maintaining partnerships and establishing long term customer relationships and we're actively progressing our business development and now have a global scale risked project hopper of over one M. Tpa of hydrogen production capacity and we have entered.
We have identified more than two and a half to five and tpa of potential customer demand and this includes our recently announced strategic.
Collaboration with Tyson crypt steel to advance the decarbonization of steel production.
Initially we are progressing projects that help decarbonize hydrogen feedstock to deliver low carbon hydrogen to our rockford them to our Lincoln to our Gelson kirchen onto our Castillo on refineries. We're also helping to decarbonize industrial clusters, including in Texas, and a T side in the U K.
And we're accelerating our aim to create cost advantaged global production hubs. We've agreed as you will have read I think to lead and operate the Asian renewable energy hub or Rea in Australia, where a BP will hold a 45% stake or it has the potential to be one of the world's largest renewable.
<unk> and green hydrogen hubs that will help decarbonize, the Australian market as well as supplying competitive green hydrogen and ammonia to major international users.
This project has plans to reach up to 26 gigawatts of renewable energy.
To put that in context, that's around a third of all electricity generated in Australia in 2020.
And it will target production of one 6 million tons of Green hydrogen are 9 million tons of green ammonia per annum, that's hydrogen at scale.
To summarize I hope you agree.
Today's results show that BP is focused on delivery.
We are performing while transforming doing exactly what we said we would do.
The company is running well.
And it is continuing to strengthen.
We have real strategic momentum in our transformation to an IEC.
Our financial frame has clarity and discipline.
Is unchanged.
And it is doing what it is intended to do.
And we are growing distributions remaining acutely focused on delivering long term value for our owners.
And we believe more than ever that BP has the capabilities and the scale to help address that energy trilemma and this is needed now more than ever.
So thank you for listening.
We should stop and Marie and I will be delighted to take any questions that you have so over to.
You all and Craig we're running this arent waste so let's start in the room and start with Gordon great.
Do we need to add microphones for people in the room are they okay. We do so if we can get microphone. So people that would be great. Thank you. Thanks Gordon Thanks, Gordon Gray of HSBC with a cash balance of someone like $40 per barrel the amount of excess cash flow at the moment is huge.
Your distribution policy was 40% of that going to the balance sheet.
If the macro environment stays anything likely to spin and in recent quarters. The balance sheet de levers massively quickly can you give us a sense of how long do you think or all the way you think you would like to take the balance sheet over time.
Because at some point you would imagine that 40% going to debt reduction will be unnecessary. So that's just a comment about the longer term capital frame I guess beyond this year.
Very good good question for the CFO I think alright, good morning morning, Gordon. Thanks, Thanks for the question.
Just back to the financial frame if I can.
0.1 is that we focus on a $40 world and that we make sure the dividend can be funded in a $40 world that's critical to us point to them as the balance sheet as you say.
What's critical for us as they are given the scale of our trading organization is that we maintain a strong investment grade credit rating. That's what's super important we focus on the ratings agencies. When we think about this.
And in particular, right now and it happens newly affirmed today minus we need to continue to drive down.
Drive down net debt as we move forward and that's why we're allocating 40% of our surplus cash flow to debt reduction in 2022 of course, we'll update the market in 2023, when we make a decision there, but it's all about strong investment grade credit rating S&P focuses on a $55 world. So we're focused on this lower price world and ensuring that through cycle and a fifth.
$5 World, we're able to maintain that strong investment grade credit rating and I'll, let you I'll, let you use our rules of thumb to think about what that might be might mean relative to the ratings agencies hope that helps.
I would add is the comment that we made during the tax which is that <unk> is a big proponent of this now is not the time to.
To lose discipline this.
This is very very important.
For us and therefore, it's very important that we execute on the financial framework, which I hope is very very clear in terms of its priorities. It's order of priorities and so on so we're very focused on that let's keep going.
And you might want to introduce yourself for people online if you don't mind.
Hello, It's martijn rats at Morgan Stanley I've got two questions. If I may both related to the upstream.
Hum.
I was hoping you could say a few words about the capex increase from one to $1 seven in the U S shales business and not specifically about U S shale, but sort of broadly about upstream capex sort of what sort of cost of capital do you use these days to evaluate dose sort of oily type.
Type projects.
And how do you make the tradeoffs with other other types of Capex and.
And the second question I wanted to ask is what do you think the outlook is for your business in the Gulf of Mexico, given some.
Regulatory changes as licensing rounds.
I have to say I found a little bit sort of difficult to read really what's going on but I was wondering if you could say a few words about that.
Good I mean, I think hum on the upstream.
In hydrocarbons overall, we've generally guided to between nine and $10 billion of investment in the hydrocarbons business.
Decade, we are increasing investment into hydrocarbons at the margin. So we're probably in the process of allocating around.
$1 billion to things like the Haynesville in the U S. The Haynesville is 11 Tcf of gas it's right next to the market. So it's probably one of the lowest cost lowest methane emissions gas in the United States.
And obviously, it's very flexible investment and where we will allocate our allocating we'll allocate more capital to that the.
The returns in that business at anything like strip or are significant the returns that we're expecting from our oil and gas investments our oil investments need to make over 20% rate of return at $60. So we're very focused on where we can making.
Decisions that.
Allocate capital to where energy security can be helped and to where we can make good returns, we'll probably add a rig in the Gulf of Mexico. This year, which takes me to your second question.
<unk> continues to be a.
Core business for BP.
It's running well we are investing in and we've got three rigs going there right now we're going to add a fourth we've had one intervention vessel and the gone we're going to add a second or in the process of adding a second intervention vessel. There is some uncertainty around the leasing the car.
What was a climate Bill now I think in inflation.
<unk> Bill or something 725 pages, so I can't say I've read it all it hasn't yet passed as well so we need to wait on that.
Got it.
Gives a nod to the importance of oil and gas it gives a nod to leasing in the Gulf of Mexico.
And I think is attempting to strike a balance, which I think is quite sensible and pragmatic between delivering energy security today, which is a hydrocarbon based system pretty United States and at the same time, obviously, a lot of climate provisions, which will help our hydrogen business, our offshore wind business, our EV business in the U S.
I missed.
Very very very strong seismic.
We've recently seen lighting up new exploration opportunities that we didn't think we'd have in the past.
Seven targets around Thunder horse is an example that we wouldnt have seen in the past, but new algorithms, new seismic had been done and so theres interesting stuff in there. So I think along with a very solid base of five four moving to five big hubs. We're just now starting to see further exploration opportunities that you know I hope allow us to maintain the Gulf of Mexico.
Through the decade, and maybe beyond that would be fantastic certainly one of the six core regions as you might imagine and and.
Definitely it will be a core region in 2030, just like it is today will have to decide the room and we'll come back yes, Please and then linear.
Thanks, Chris Coupland from Bank of America.
I Wonder whether you can talk a little bit about your outlook on the Henry hub in particular, you've already mentioned the haynesville offering some very exciting returns at the margin.
And alongside that perhaps comment on your hedging strategy regarding.
Regarding your exposure to Henry hub, I Wonder Haynesville seems to me.
In a great place in terms of takeaway capacity.
How you view the world as you referred to it but the energy trilemma seems like is locking Europe into a higher for longer gas price environment.
What's your view, how long will it take for that to translate to a higher for longer Henry hub price environment and your strategy around that would be interesting and another one on North America briefly.
Youll Husky energy deal or let's call. It swap I don't think either of you have announced any financial flows, but I'd be interested to hear how excited you are about opening up effectively potentially a new core region offshore East, Canada, and how that fits into your high grading strategy that you laid out on it. Thank you.
Good let Mary talk about hedging in the U S. I mean, the outlook for Henry hub in the U S.
As with all commodities and commodity markets right now is probably.
Largely uncertain gas I think in particular globally as we expect to remain elevated and for there to be quite a bit of volatility.
Storage levels, I think are probably be particularly low in the United States right now.
There is limited capacity.
Turn on coal compared to the past because a lot of coal has been retired on the flipside Freeport is down so that's relieving some of the pressure there has been a heat wave.
Across the U S, which is drawing hard and you're seeing prices up at $8 today.
So I think it all depends freeport needs to come back we need to see what the winter.
It looks like.
In terms of cold weather.
Storage, we probably could do with being a bit higher than it is today.
But those investments that we're making in the Haynesville will be very very quick payback investments.
Without question high quality low emissions.
And it seems like a robust market for the time being Marie hedging and anything you'd add on the Haynesville and you can go to husky.
I think I think on on bps on our hedging strategy generally we're trying to ensure cash flow and ensure that we've got a dividend. So we can pay back the acquisition price of a few years ago. So we're hedged out about 18 months right now a year and a half.
Happy with that and it's in along with the increase in Capex that Bernard mentioned, we're still getting a dividend out of our out of the PX about $1 2 billion. This year due to the hedges. So we feel we feel very comfortable continuing with that strategy of locking in returns locking in cash flow and making sure that we pay back the dividend.
The payback of the original purchase price that we had a few years ago for from BHP.
As far as Husky, yet, we're very excited about beta north.
Fantastic discovery looking forward to opening up I think maybe it will describe it as another hub and an extended Gulf of Mexico over time.
I'm thinking out to you as I say, that's very extended as a Canadian I can get away with that campaign.
So no we're very excited about it it's a lovely reservoir and we're happy to take the 35% interest in that and work with the operator, Ecuador, and we'll talk to you talk to you more about it once we close because then we can we can actually say stuff right now were on the outside but very exciting for us.
Great.
Just because we're going into oil in Canada. It doesn't mean, we're going to go exploring in Ireland.
You did get you did get license rounds in the accuracy and chip yeah true.
Lydia.
Thanks, Lydia <unk> from Barclays and key questions. If I got this one just coming back.
Obviously, the largest guy I can remember between planning assumptions and we're exiting that credit prices, let's say.
What challenges does that present to you at the next case side of things do you I ended up talking to me other things you need should accelerate things even missing out on other opportunities for us all right. So just how that creates challenges. It does not sold and then the second one on cash returns to shareholders and I. Appreciate this is a little bit of a difficult question and it comes back to those.
Letting crisis as well.
How far can that then.
Cash returned to shareholders Guy you can say increase the dividend. This time round whatsapp thresholds that looking at further dividend increases why the three and a half billion set aside time and just in terms of going forward.
Got it.
Mario will take the planning process.
I'll have a go at the second.
Second question and he will he will he will correct me I mean in terms of cost of living I think we all have to recognize.
That.
<unk>.
It's a very very difficult place for you and I talked about this it's a very very difficult place for for people.
Not just by the way in the UK, but right across the world.
Right now that's that's something that is absolutely that.
We understand that.
We get our people inside the company get it they want to help and so the question becomes what can we do to help and of course, what we do here in the U K.
We're backing Britain, we said, we're going to invest up to 18 billion pounds in Britain. This decade, we're going to continue to do that in the majority of that is going to be in the energy transition, but there is also going to be a lot going into energy security for today in hydrocarbons and that's what the Murloc development that we're taking to the next stage in the North Sea. As one example, the second thing that we do is we're trying to.
Jobs. So we think will create over 10000 jobs.
In Britain over this decade through those investment plans net zero T side power project alone will create 3000 jobs during construction 1000 during operation.
Just announced this week that we're going to put our global R&D Center for battery research in Britain in Pangbourne and the third thing that we do is we pay taxes and when prices are higher rightly. So we pay a higher <unk>.
Texas and now we have an energy profits levy, which means that we will pay even more taxes on top of what we had already planned and and that's what we will do in terms of cash returns to shareholders.
Of course, we have to remind ourselves that it's just two years ago.
That we have to cut our dividend and take the difficult decision to cut the dividend by 50%.
If you look at the numbers today.
The $3 5 billion that we've announced in buybacks for the second quarter that takes us to exactly 60% of the cumulative surplus cash that we've had since beginning this program I think was $17 1 billion of surplus and the amount today takes us through exactly 60%. So Lydia on that were <unk>.
Following.
The math and on the dividend increase.
What you've seen is we want that number one priority resilient dividend, we wanted to be anchored.
And that word resilient, therefore, we say $40 world because we think that is the prudent way to plan our company.
<unk> seen the reduction in.
And share count.
Which means a reduced dividend burden Marie has also taken down gross debt, which is taken down our interest expense and the balance of all of that is that we can then afford a 10% dividend increase while keeping the balance point importantly, keeping that balance point constant and given the operating performance of the <unk>.
Company and all of the things that we look at we felt that was a prudent thing to do so hopefully I haven't explained any of that incorrectly.
You can correct me or move to the planning prices brilliant answer Bernd.
On the planning prices, let adds important we'd like to look through cycle. So if you look back two years ago oil price was negative we didn't change how we did things.
Prices high higher now we're not changing things. So we look through cycle, we have a returns hurdles we invest into those on the margin. We're weirdoes planning change on the margin you'll pursue options faster in fast payback. So you'll look at doing well work, adding adding well work rigs like Bernard talked about.
In the Gulf of Mexico, you'll look at accelerating some some short cycle stuff inside inside the BT acts as well, but that's really on the margin relative to the overall shape of the business, we focus on through cycle and a $60 world for us seems a sensible thing to focus on through cycle.
We should probably go online to get a couple of people Jason Kenny is on Zoom I'm told and then we'll go to maybe Oswald Clint on audio so go to Jason Jason that we can bring you into the room I think it's possible with the technology can you hear us see us.
Not yet built maybe.
Maybe not as Jason.
No yeah.
Not yet so let's go.
There you are there you are hi, Jason good good good to see you are not at all no problem go for it please Jason.
Because they're used to getting a HUD rajeev.
Henri.
[laughter] hydrogen.
Phenomena positioning.
Yes.
In a massive scale, particularly in Australia, and also Spain, Portugal UK.
When do you expect to first outline your investments, let's say.
That money is going to take what kind of earnings you're going to generate.
The countless contributions to the bottom line.
When do you see you being able to define and secondly on the transport solution I mean, obviously, Australia is.
Significantly you moved to.
<unk> heard us Jim.
Molecules to other.
Across the world.
There was a raging debate about the toxicity.
Ammonia in the transport mechanisms, which are if you look against the solid state.
Sports opportunities.
And the third one if I may just on new businesses.
For the large cap.
<unk> now invested into fusion startups is it somebody that could be interested in as well.
Very good okay, Jason I think very quickly I think on hydrogen or collapsed both questions into one.
So anya has joined us she's been working hard on.
What we've got what our plans are and.
One of the things coming out of that is that there'll be a real focus on offshore wind and a real focus on hydrogen and the low carbon energy space. So you will see that coming in terms of when we will talk about the transport solutions and Youre right transport is one of the big challenges for Green hydrogen integrated global market in the long run.
Not everybody wants ammonia when it arrives at the other side some people need hydrogen it's gotta be re cracked into hydrogen there are lots of different challenges. The teams are looking at that in terms of when we'll update on that on our financial frame on our outlook and that would be in February of next year. When when we do our annual sort of update and on you will be joining us then.
To share her insights in her updated look.
At things in terms of new business, there's I think one.
One of the things that we are trying to do is get very very focused.
We've talked about our five transition growth engines, that's worthy energy of the company is and needs to be.
We may do some.
Knowledge investing if you call it at the margin through our ventures business, but we are as a world of opportunity out there and one of the ways to slow down the transition is to try to do too much. So we're very focused on those growth engines, those five and we need to deliver on those and they are the things that matter to us. So that's really where we're focused.
Jason on those five so thank you for your question, let's go to Oswald Clint of Bernstein. Please if we can hear Oswald.
Yeah. If you can hear me, let's go ahead al.
Thank you yes. Good morning, Thank you very much firstly, just on customers and color.
Yeah, I think you called out in the release.
Inflation impacting margins and costs in an actual customer purchasing behavior.
You do not 200 more strategic convenience side year over year. So I wanted to get a sense of what that changing purchasing behavior is if you could flesh that out a little bit more is it north America or is it affecting your India growth strategy here.
That will be interesting on the first side and then secondly.
I know you don't believe in cutting our pieces of the business.
But it's interesting to note around providing valvoline this.
This week it looks like around eight times EBITDA.
Trading on too.
EBITDA.
That was in your business.
<unk> 20 billion closer to 2034 for our business you have number one position in China and India. So I'm just curious does your thinking evolved in any way.
<unk> transactions or should we just assume we led all come together it comes out through the DPF bond buyback line overtime. Thank you.
Great Mary I'll, let you take the customer question in terms of customer behavior. The reality Oswald is that it's up it's a relatively complex picture as you look across the various customer pools that we have so.
I think gasoline sales are down relative to pre COVID-19 a downright.
Down relative to 2019 and of course, it's very hard to get a true sense of what is driving that is it price is it changing customer behaviors and patterns.
Is it the impact of people worried about inflation and in a recession today. So we're seeing that on gasoline on the other side.
Diesel sales are up 5% in the United States. So diesel is quite resilient.
<unk> in our refining system is actually at bias towards diesel which is one of the reasons that you will have seen.
Some strong numbers today, and the refining side diesel tends to be a bit more.
Recession proof shall we say.
Than others, so diesel sales in the United States are up.
Aviation fuel is way up a quarter on quarter. It is up over 60% quarter on quarter. So aviation is really rebounding, but it's still not back to pre pandemic levels.
The convenience business is actually doing relatively well.
And as you said, we've added strategic sites.
It's actually doing relatively well if you adjusted for.
Forex, it's one of the strongest quarters that we've had.
We have now I think 16 million loyalty customers. The BP me App had the greatest number of transactions in may as it's ever had in those customers come back more and more and we are seeing basket sizes on the up so it's a mixed picture and I think it's very early to draw too many conclusions other than that.
Integrated business and maybe Maria will talk about that in the Castro question. This integrated business, where we can.
C value shifting up and down the value chain remains a very very important part. So hopefully that gives you a little sense on the customer side marine cash flow, Yeah, I think oh.
It's nice to hear your voice you you know that you know that we think integration is the way to go and then we create more value that way.
That sits with each of the businesses, we have right now castrol in particular has lots of integration value with IV fluids as those emerge.
Including the manufacturing side as well. Additionally, castrol has tremendous upside it's got huge headwinds right now on base oil price because of the price of oil Pan out on the customers has lagged the additives shortage is starting to move behind US we have the opportunity to high grade the <unk>.
Warehouses around the world, we have the opportunity to decrease Skus massively that will drive efficiency into the business and as markets rebound, especially in Asia from Covid will get back to advertising and we should start getting more market share. So we see a tremendous opportunity for profit growth and Castro that's built into the numbers that we talk about and we think we think we will.
That value by by having it together with BP and so yes. The answer to your question is yes, you'll see that through dividends and share buybacks Interestingly Mario I think it's and I think it is an extraordinary number.
Think between 60 and 70%.
The vehicle manufacturers in the EV space are recommending and filling Castro coolants into the system on day $1, 60% to 70% and this new emerging market of coolants for batteries, it's pretty extraordinary.
And I think it says a lot to what the team has done which is why we're doubling down on the on the R&D in that space because obviously, it's a it's a source of growth and we're seeing that in the EV charging business. Thank you Oswald I think we'll go to Irene here in the room and then we'll keep going Lucas.
Amy.
Great great.
Corporate Ari.
Thank you good morning, it's Amy and he wanted to St Engineering and my first question. If I can just clarify a couple of numbers.
What was that provision relating to the free food.
<unk> outage in that in these numbers and.
What is your estimated costs this year of the U K when some tax please and.
And then my second question was actually on Russia and.
You've exited in the west on mass is trying to exit and unplugged, Russian energy and as a major oil and gas producers try and explain to US what are the challenges you're facing in this situation whether that be logistical or operations financing and just to try and understand.
And the gravity or not so what we're trying to do here. Thank you very good Irina I think only you could put freeport and windfall tax in one question, but but but you get full marks for ingenuity on that marine maybe haven't got Russia, but we can do it together just on Freeport, we're not providing a number but what we are saying is that the.
Management's best estimate of the full impact of the Freeport outage in today's accounts. Okay. So full impact our best judgment is in today's accounts and secondly on the windfall tax.
The you will have seen a number in our accounts that is not the estimated cost of the windfall tax that is an accounting issue around deferred taxes and the changes in valuation and so on and so forth.
You'll have seen R. S.
Estimate of tax.
Increase for the second half of the year.
And we will provide what the number is when we report our Texas at the end of the year you were a tax expert you can correct me on that and then talk about Russia right I'll, just leave that one alone Russia challenges.
Challenges in the systems, obviously energy provision.
Russian oil above.
About back to where it was prior to the conflict.
<unk> remained lower some products coming out of Russia, especially diesel are a challenge for Europe and the rest of the world.
And then obviously natural gas with flows of natural gas being down I think 20% of historic levels on Nord stream. That's those are really the biggest impacts and that's just creating volatility inside the market with low supplies. So that that's really the principal.
Impacts that we see across our portfolio in the world and really the world right now.
A bit of a bit of lots of other products like iron ore etcetera, and we're well diversified in our sources of that so that's not really impacting us. So I think it's principally products and natural gas are the key K impacts that we see at this stage.
Thank you Barry. Thank you Irene we will go to Lucas then Amy.
Thanks, very much Maria Lucasfilm from <unk> and <unk>, so very strong results.
[noise] excuse me so like my slightly hoarse voice trading I wanted to ask about it.
Could you just trading has obviously had a very good six months typically you talk about 2% and return on capital as a consequence of trading can you give us some idea of what the run rate might actually be if we look to the first half trading income and.
How it has impacted numbers.
And just staying with trading for a moment volatility has been pretty extreme back ended last year with an LNG. As an example, you elected to take down volumes take down trading in that business to.
To some degree.
Just how volatility is impacting the way you think about the trading business at the moment because not only the opportunity is large, but obviously the risks of pretty substantial as well.
And then secondly could you just give us a wrap on projects you didn't mention my dog you Didnt mentioned Tanger.
I presume that was just an oversight rosin.
We're on a mission rather than anything.
Or anything else, but where are we in terms of progress on our non projects. When are you expecting to take first cargos from Carl.
Very good great.
Murray trading.
Yeah, Lucas side, I'm, not going to guide on run rate.
We'll give you our exceptional an average quarter for oil and gas and of course, you had double exceptional in the first half obviously its above the two 2% impact that we've talked about I'll. Let you. Let you decide how you'd like to model that but we don't guide that specifically apologies.
Volatility or rights of natural gas volatility is the big challenge with trading right now.
The way that we really think about it as our job is to provide energy flows first and foremost 100 cargoes into Europe to help them.
As you do that you hedged those hedge those cargoes to make sure that your profits are sustainable as you go through this obviously liquidity isn't particularly high inside the traded markets right. Now you are saying that in many of the press announcements you see from other companies. So the principal risk that we really manage as liquidity risk and making sure that we have enough liquidity to move through a volatile price.
Market. That's why you see our cash levels are so high to manage that liquidity as we as we move through this difficult time through the winter. So it is volatile and that demands liquidity and.
That's why that's why a company like ourselves can work our way through that particular system.
Over to you Bernard on projects on projects from the intent wasn't to go through all the projects Lucas We said southern projects by 2024 I think.
We could've talked about any number of them, but I will give you an update on as you asked on tango and on Mad dog.
It has been a very very challenging from a COVID-19 perspective, as you might imagine over the last couple of years.
Having to when you can imagine a site with 10000 workers at the time with medical facilities for an accident or somebody getting hurt, but not medical facilities for the pandemic and having to the man that site and then ramp it back up and.
We're actually back at 12000 people onside today.
In Tango, it's going well the team is doing I think a fantastic.
Job and we would hope to start.
Start that up by the end of next year.
Adult phase III on location Argos.
The top sides commissioning has gone well, it's all done that's looking good we have encountered some issues with <unk>.
To flex joints on the riser on two risers in August we're evaluating those.
The moment the guidance remains as the guidance and as soon as we know more we will we will update loads of other projects Ace torque to the list goes on.
Karl I think it's before the end of this year right around here, yes, right around year end for first lifting.
Great.
Good morning, It's Amy Wong from Credit Suisse. Two questions from me. Please the first one is on your effective tax rate, which has died.
Got it down now and you said that it is due to a change in the geographical mix of profits. So could you elaborate what some of those moving parts are in in those geographies and what's changed relative to when you first I did not think effective tax rate and then the second question is unrelated I apologize for that but its entire been offset markets and it's.
Fairly new area, but not core at the moment, but nonetheless, a very important topic I think in the industry. So love to hear more about them and article that appeared during recently about your practices in Mexico. Your response to that and some talk about compensation prices and how that's all.
Evolving thank you.
I'm happy to take the second one and our tax expert will take the first one you did start in tax so can't wait that down kind of no that's true.
On carbon also of markets under article in Mexico.
The Frank answer is we think the article is misleading.
We actually went into Mexico.
Created I don't have all the details, but created a grant to get the market established.
We did a contract or whatever.
We did a contract at the price at the time.
That the market was.
We are obviously adhering to.
Carbon market sort of offset principles here around making sure the communities and so on get fair share and all of that so all of the things that you should expect from a company like ours. So we went in and made a grant to establish it we did contracts based on the market price at that time prior to the article published we.
I realize that the market had a recognized realized recognized that the market had increased and are in the process of renegotiating that to make sure that there is a fair or more equitable outcome based on today's prices, which I think is a thing that maybe not everyone would do but we are doing so I think overall the tone, we would say is somewhat misleading and.
You should expect high levels of.
Integrity from a company like ours, and what we do in carbon offsets and in that particular situation. I believe is no exception. So thanks for asking the question that gives me the opportunity to clarify our position effective tax rates.
Miami first half of the year, 30% give or take effective tax rate second half of the year back to normal 40% tax rate, hence the full year guidance 35, I suppose what I'm, we didn't plan for at the beginning there was much a much stronger refining market.
That that we didn't plan for nor did we plan for exceptional trading results sorry. If you. If you are if you take account of those things that's what that's what drives the effective rate lower it is possibly the hardest thing to guide on is trying to guide on effective rate, we never really do seem to get it right, but we think we'll be back at back.
Back in 35% for the full year.
Thank you Amy lets go to Jason gable man, if we can on zoom and see if we can get Jason then and then we'll go to Paul Cheng Scotiabank, So Jason good morning.
Thanks for taking my.
Question first on the refining business.
I think you and your peers have been discussing lower intake.
<unk> of third party natural gas in your refineries in Europe and minimize costs can you just discuss all of them.
Thanks for calling out but.
On the on the yield side I'm, assuming less Ngls being produced but does that have an impact.
Operating margin capture.
And then secondly, just on Capex.
Capex cost inflation, we've heard from your peers that within the oil and gas was mostly seem to be managing that well just given the stablish relationships.
With suppliers, but im wondering more on the renewable power side.
How are you managing through the inflationary environment as you build our loan portfolio.
Thanks, Jason I'll take refining I'll, let Mary take the second one on refining in Europe , we've managed to reduce our <unk>.
Gas natural gas usage by almost 50%, which I must say.
Surprised me when I saw the number I think the teams have been working very hard on trying to find different ways to power.
The facilities and use natural gas and they've been doing that and optimizing the refining system.
As they try to help their own countries, we have refineries in Germany, and Spain and in Holland. Thus.
Thus far it hasnt impacted output in any way in fact, our refineries utilization and if you look at that compared to some others.
Exceptionally high running.
We're running at over 90% utilization, Jason which is.
One of the highest for for quite some time, so we're managing to maintain.
Strong utilization some of the strongest surround I think reducing natural gas usage, but no impact at this stage on the output of the refining system.
Inflation on renewable power Yep, Hey, Jason Thanks for joining us so early from the U S.
On renewable power, probably the same answer that I gave last quarter nothing's really changed since last quarter year on year, we've seen 30% inflation in solar panels.
Due to the different rules around the world.
But power purchase agreements are going up by a commensurate amount so returns aren't changed.
Especially in the United States and then in offshore wind.
We've seen a 5% increase in the overall cost of the offshore wind programs, that's mainly reflected steel and iron ore prices, that's kind of a theoretical that's a theoretical measure because were not locking in right now.
But of course in the latest contract for difference rounds, Youre seeing a commensurate rise in power price that offsets that as well so the returns stay relatively stable.
Thing to watch is.
Iron ore prices steel prices et cetera are starting to deflate with recessionary talk and you can all see the indices and what those are doing in 2023. So we'll be we'll be trying to make sure that that flows through into these into these types of businesses and recapture some of that deflation as we enter 2023.
Great. Thanks, Jason Let's go to pole sharing of Scotiabank.
Hi, Good morning, Okay. Yes. Paul go ahead are it's early for you as well so thank you for joining us early.
Thank you two questions. Please.
First on the dividend increase you guys are talking about 4%.
And it would impact 2025.
You are also buying back on the normal Oh.
So with the shape.
The strength.
You will be able to or more than 4%, because you're probably going to buyback more focus there. So how should we take that into consideration.
When we're looking at the potential to increase that.
The increase that's the first question.
Second question want to go back into your refining system in Europe .
Even though you reduced your gas consumption by 50%, but we have been much higher natural gas costs in Europe versus the U S.
That's a.
Uh huh.
So it's all based on one page and you quantified for us that opinion that caused this advantage waiting now between Europe U S and in Europe .
Uh huh.
How much fundamental guest points over there. Thank you.
Thank you Paul Maria maybe help me on the second one a little bit on the dividend I think it's really what we said earlier isn't that it's the guidance for 4% is at $60.
Oil price the fundamental factor here that we're dealing with is we want to maintain a strong balance point, we want to anchor on that $40. We think it's.
The right way to run our company.
As you quite rightly pointed out we've.
Purchased a lot of shares that has brought the share count down we've also repaid a lot of debt.
And our gross debt sensitive brought our interest expense down that means that this quarter given the fact that the company is running well and the outlook for the environment, we are able to raise the dividend by 60% by 10%.
And do so while maintaining a $40 oil.
Oil price breakeven so our guidance remains what the guidance says first call on capital resilient dividend resilient, meaning $40 breakeven.
And 4% at $60 and you've seen today, what we've managed to achieve in the current environment and I should leave that at that great.
Great.
On European refining I think Paul what you're mentioning is that the price of natural gas in Europe is much higher than the United States and so does that impact the European refineries of course, it makes them much less profitable.
But carbon taxes are different between nations demand is different between nations as well. So it's probably more complicated than that I would say refining profits inside of Europe are quite surprised though that's a difficult time period, and we're primarily focused on flow flow for flow for society.
But I think I think that's all we can say okay. Great excellent question, Alex on the phone and then we're done with everybody online Craig how are we doing on time.
Okay, Great and then 10 minutes in the room, so kristian over to you. Please hey, hey, good morning. So it can be that person I mentioned the question to be honest. This is gonna be slightly more strategic.
Since you talked about a split was great.
To create a disciplined gerry.
Hiseq curious if volatility.
The areas, where we just didn't see demand visibility, but to what extent is becoming a double edge sword should be now in the sense that.
Yeah.
It does feel to me that concerns around demand recession, and ultimate disbelief in a long term view I guess it gets exacerbated by the industry.
A fairly sort of lower for longer.
Relatively conservative planning assumption. So I guess my question is.
What does it take you to raise that fast too.
Most of my questions.
Cash breakeven.
Sure.
We have efficacy of cash flows, but just wondering if you are going to lead the market believes that this is sustainable macro environment beyond that actually want to see is what does it takes you need to do that and then sort of the gassy. This is a priority that is.
Would you then consider.
Thinking about maintaining or managing your oil volumes in the medium term as opposed to decline. So just as more of an issue with your questions, but just want to know your thought process.
The key.
Thank you Christian and thank you. So I think there's just a couple of things to say on this so.
First of all I think we all know the history of our industry.
Which is that I'm not sure a lot of value was created when we chased price.
So we.
Field at P. P Maria and I feel like that is a lesson that we have learned.
And the comment in the script today was was was.
It was meant with that purpose in mind, which is now is not the time to lose discipline. So that's the first thing to say is that we are.
Anxious not to get drawn into this.
Into believing that this new world will be this new world Forever, and we're cognizant of the industry's history.
So that's point number one point number two.
Is the first call on capital and our financial framework is our dividend and we talk about it being a resilient dividend, which means that we want to protect that dividend.
Given our experience of having to cut it just two years ago. So we're very focused on making sure that our investors and our owners can rely on that dividend and therefore, we believe.
It remains prudent to me.
Maintain a.
$40 breakeven price in light of the fact that prices are much much higher today, but we believe that that is the right thing to do in terms of production.
And so on you have heard us talking today about allocating.
About a half a billion dollars potentially more towards energy security today, which is about hydrocarbons in particular natural gas in the Haynesville and we will continue to make those adjustments the margin where we can get the returns for our owners that we feel are good returns and where that capital is.
Relatively flexible so we believe this is the right thing.
To do and the right way to run.
The company and I understand the question very very well.
But that's what we have concluded Maria anything to add disciplines with ownership.
Disciplined as our focus Christian Thank you will go back in the room question here Yep.
Hi, there. Thanks for taking my question is Peter low from Redburn, Yeah. So I just had one on your targets developed 20 gigawatts of renewables by 2025.
What extent is that now already underpinned by your existing pipeline or to what extent do you still needs to kind of acquire existing opportunities to deliver that than perhaps linked to that how are you thinking about the split between kind of ppas and merchant exposure within that renewables business. It feels like kind of in an increasingly volatile energy price environment as shown there.
Vantage, perhaps of having more merchant, especially why you are not reliant on ppas for financing.
And it also Peter shows the benefits of being an integrated company because I hope the point.
<unk> point about the Teng 10, gigawatts of demand that we will have from our own EV charging network versus our five gigawatts of offshore wind capacity. It wasn't lost on there being a real connection there, but I'll, let Marty take the PPA and the merchant thing on the 20 Gigawatts I think.
Hi, there largely underpinned by existing our expectation that it will be underpinned we're at four four gigawatts today.
The pipeline is.
It's well over 20, Gigawatts, it's 80% solar.
Light source PPE continues to be very effective.
Solar development machine.
And therefore, I'm very comfortable that we will reach that 20 gigawatts by 2025 in a way that satisfies our returns.
And it doesn't mean that we're gonna have to go in and buy.
By something to get there. So that's what I would say on that Mary Ppas merchant Hum.
The way to think about it as in a portfolio sense and we start to think about what are the different sales that we have that we can anchor electrons into so if you think about the different parts of the burner business. Bernard has already mentioned the fast on the go charging with 10 gigawatts of potential demand.
We will have fleet customers that arent inside that number that will have their own demand like a royal mail.
We will have the big corporate deals and our marketing teams have done with Microsoft.
Et cetera that you've seen publicized.
I'll have natural sinks, such as net zero T side, if we put a green hydrogen plant in there, which I think we well that'll that'll be a natural sink will have other green hydrogen opportunities across all of our refineries globally.
So we have a very very large natural sink that we can plough. These electrons into and then on trade, which is what we've done with natural gas for four decades, we established natural things for our natural gas and we then on training through trading to arbitrage. So.
What percentage do we do I don't know that's something that we're continuing to evaluate and we'll make those decisions as we get close to sanction on each of these projects, but certainly as you can see the.
The importance of that integration is very very high and to Lucas's question.
The returns are enhanced when you can do that given the optionality Ukrainian side of the portfolio. So we'll update you in the years ahead I think is what I'd say as we do each of these big investment programs in the offshore wind space.
And.
I think I think you'll see a very different type of company.
Yourselves versus the peer plays where they'll they'll be having fixed returns and wont be having returns that take that returns that plan to volatility.
Peter Thank you and maybe the last question in the room, if we can no more questions online and yes Sir.
So I'd have to go from UBS. Thank you for the presentation. Just one left on your EV charging EBITDA target 2 billion by 2030, and you do provide for 'twenty 'twenty five targets in terms of charging solution I was wondering in terms of the EBITDA evolution over the course of the Dk does it follow closely the number of changing.
Points or is there more of an inflection point in the second half and it's been on the drivers here. Yeah. I think so we do have a number of we don't have an EBITDA target for them for 2025, but we have showed you what the EBITA number today is which for 2030.
Think you will see that it will start to kick in in the second half I wouldn't say the late second half I'd say the early second half of the decade.
We're actually seeing some of our sites already being EBIT.
Positive Henri so.
This is a question of driving utilization.
And our top.
20 sites in Britain today are at double digit power utilization already or top 30 sites in China are over 20% and I think we're beginning to see a real tipping point coming in terms of the EV.
Sales representing globally, I think about 5% now and we're starting to see that being a real tipping point based on history.
So very optimistic actually in this business.
Very optimistic.
It is exactly what we should be doing you know I always say if you wanted to start a company tomorrow. If you wanted to do a startup to do EV charging.
The biggest issue you would have is access to land.
550 million people live within 20 minutes of a BP side. So it's right. There and then we have this enormous incumbent advantage. We have a brand we have a convenience offer we have a loyalty scheme. We have all these things that are crucial and we're focused on fast or ultrafast charging and we're focused on fleets.
When we come back next time, we'll maybe talk about what family is doing in America. The company that we recently bought and the management team there, which is focused on software as a service and charging and hardware as a service so huge.
Huge excitement quite frankly about what's possible in this space and of course with the price of energy today.
Tvs or are.
Even more attractive so we.
We shall see.
Sure.
We're all in on that space, where.
Expanding that Royal mail here in the U K continuing growth with <unk> with Uber, where now with Hertz in the United States.
<unk>.
It's a very exciting business just opened in fact.
I'll close I was in.
Stuttgart, a couple of weeks ago and.
On an electric truck, which was a 28 ton truck, which is not a prototype it's available for sale to date and it is extraordinary I showed you a picture of this truck.
I said, that's an electric.
Battery truck and as for sale and people are buying it not at huge quantities yet of course, but they are buying it that would've been on thinkable three.
Three or four years ago in fact, Martin dome talked about shutting down that program in 2016, because he felt it was going nowhere and yet here. We are in 2022 and they are building those trucks in Stuttgart.
Increased both the size and scale and pace of acceleration in this space. So we're excited as you can tell about EV charging it's one of our five growth engines, it's not the only one but it's certainly one of the ones that's going to show up and in earnings.
This decade, so let me I think leave it there if that's okay. Let me just close with how I close the the main session, which as you know.
The company overall are always things to deal with as you might imagine, but overall our company is running well.
Continues to strengthen.
And I'm and Murray are enormously grateful to our teams around the world.
Who are the ones that do that each and every day. So that's the first thing. The second thing is we are making good strategic progress we're doing the things that we want to do which is about providing the world. The energy that it needs today, which is mainly a hydrocarbon system while at the same time investing to accelerate the <unk>.
<unk> transitioned and we're making real progress on that strategic progress thirdly, the financial frame I think it is.
One of the things that we can say about BP is that I hope you all think that it's clear it's consistent it's unchanged and it's doing what it's supposed to do which leads me to the fourth point, which is obviously we are also growing distributions to our owners and you've seen the results of that today so as ever.
You for your interest in our company and what we're trying to do we're doing our best we're keeping going and if you haven't had a break I hope.
You get a break over the holidays. So thanks very much thanks for being here.
Yeah.