BP p.l.c. Q1 2023 Earnings Call
Speaker 2: Welcome to the BPE presentation to the financial community webcast and conference call. I now hand over to Craig Marshall, Head of Investor Relations.
Speaker 3: Good morning everyone and welcome to BP's first quarter 2023 results presentation.
Speaker 3: And I'm here today with Murray Ockencloss, our Chief Financial Officer.
Speaker 3: Before we begin today, let me draw your attention to our cautionary statement.
Speaker 3: During today's presentation, we will make forward-looking statements, including those that refer to our estimates, plans, and expectations.
Speaker 3: actual results and outcomes could differ materially.
Speaker 3: due to factors we note on this slide and in our UK and SEC filings.
Speaker 3: Please refer to our annual report, stock exchange announcement and SEC filings for more details.
Speaker 3: These documents are available on our website.
Speaker 3: I will now hand over to Murray. Thanks Craig.
Speaker 4: Hello everyone and thanks for joining us.
Speaker 4: We are here today to report on BP's first quarter of 2023 results.
Speaker 4: We continue to deliver resilient, operational, and financial...
Speaker 5: performance.
Speaker 4: For the first quarter, underlying earnings were $5 billion.
Speaker 4: And we have reduced that debt to $21.2 billion.
Speaker 4: Second, we are executing against our disciplined financial frame.
Speaker 4: including the announcement of a further 1.75 billion share buyback.
Speaker 4: And third, we are advancing at pace with our transformation.
Speaker 4: to an integrated energy company.
Speaker 4: reporting fourth quarter results.
Speaker 4: We have made progress toward our 2025 oil and gas production target.
Speaker 4: with a safe startup of Mad Dog Phase 2 and the...
Speaker 4: In addition, the KGD6-MJ project, Offshore India, is a project that is dedicated to the
Speaker 4: is in the final stages of commissioning.
Speaker 4: with two wells open to the...
Speaker 4: further strengthened our resilient oil and gas portfolio.
Speaker 4: Announcing our intention to form a JV with ADNOC focused on gas development in international areas of mutual interest.
Speaker 4: including the eastern Mediterranean.
Speaker 4: The VP expects to contribute assets to form the JV.
Speaker 4: And it's made a non-binding offer with AdNoc to acquire 50% of new med energy.
Speaker 4: Advancing our Cascadia project in the Gulf of Mexico concept selection.
Speaker 4: ... to almost double our convenience gross margin...
Speaker 4: and provide growth opportunities across four of our five transition growth initiatives.
Speaker 4: We have continued momentum in executing our fast on-the-go and fleet CV charging strategy.
Speaker 4: This includes a strategic collaboration agreement with Ibadrola.
Speaker 4: with plans to accelerate the rollout of EV charging infrastructure in Spain and Portugal.
Speaker 4: and new global mobility agreement with Uber.
Speaker 4: And in low carbon energy, our hydrogen and ACS strategy is progressing.
Speaker 4: with the UK government selecting three BP-led projects to proceed to the next stage of development.
Speaker 4: Turning to results.
Speaker 4: In the first quarter, we reported a headline profit of $8.2 billion.
Speaker 4: Allowing for post-tax adjusting items of $3.7 billion.
Speaker 4: and an inventory holding loss of $500 million.
Speaker 4: Our underlying replacement cost profit was $5 billion.
Speaker 4: despite the backdrop of lower average commodity price.
Speaker 4: Turning to business group performance compared to the fourth quarter.
Speaker 4: gas and low-carbon energy. The result benefited from an exceptional gas marketing and trading results.
Speaker 4: partly offset by lower gas realizations.
Speaker 4: In oil production and operations, the result reflects lower liquid than gas realizations.
Speaker 4: In Customers and Products, the product's result reflects a lower level of turnaround activity
Speaker 4: and a very strong oil trading result.
Speaker 4: Partly offset by lower refining margin.
Speaker 4: The customer's result reflects lower retail fuel margins.
Speaker 4: partially offset by higher results than castor.
Speaker 4: For the first quarter, BP has announced a dividend of $0.661.
Speaker 4: for ordinary share payable in the second quarter.
Speaker 4: Moving to cash flow.
Speaker 4: Operating cash flow was $7.6 billion in the first quarter.
Speaker 4: This includes a working capital build of 1.4 billion.
Speaker 4: After adjusting for inventory, holding losses, fair value, accounting effects, and other adjustments needed to ensure every target is
Speaker 4: working capital outflow, includes the impact timing of annual incentive payments.
Speaker 4: Capital expenditure was $3.6 billion and disposal proceeds were $800 million.
Speaker 4: During the quarter, we repurchased $2.4 billion worth of shares.
Speaker 4: The 2.75 billion program announced the fourth quarter 2022 results.
Speaker 4: was completed on April 28.
Speaker 4: Despite the working capital bill, surplus cash flow was $2.3 billion.
Speaker 4: And that debt was reduced to $21.2 billion.
Speaker 4: Taking into account the cumulative level of and outlook for 2023 surplus cash flow,
Speaker 4: BP intends to execute a further $1.75 billion buyback prior to announcing second quarter results.
Speaker 4: Looking ahead in the second quarter, we will make a scheduled payment of 1.2 billion relating to the Gulf of Mexico.
Speaker 6: oil spill settlement.
Speaker 4: And subject to shareholder approval, we expect to complete the $1.3 billion acquisition of
Speaker 1: Thank you..
Speaker 4: Turning to our discipline financial frame where our five priorities and our guidance for 2023 are unchanged.
Speaker 4: A resilient dividend remains our first priority.
Speaker 4: This is underpinned by cash balance point.
Speaker 4: of $40 per barrel, Brent.
Speaker 6: $11 RMM and $3 Henry.
Speaker 4: Our second priority is to maintain a strong investment grade credit rating.
Speaker 4: We intend to allocate 40% of the 2023 surplus cash flow.
Speaker 4: We intend to allocate 40% of 2023 surplus cash flow to further strengthening the balance sheet.
Speaker 4: Recognizing the significant progress made.
Speaker 4: We are now on Positive Outlook with S&P, Moody's, and Fitch.
Speaker 4: Third and fourth, we will continue to invest with discipline in our transition growth engines
Speaker 4: and in our oil, gas, and refining businesses.
Speaker 4: Our guidance of 16 to 18 billion capital expenditure for 2023 is unchanged. And as a reminder, this includes inorganic capital expenditure. And fifth, we remain committed to returning 60% of 2023 surplus cash flow.
Speaker 4: to buy back, subject to maintaining a strong investment rate credit rate.
Speaker 4: At around $60 per barrel and subject to the board's discretion each quarter, the board
Speaker 4: We continue to expect to be able to deliver share buybacks of around 4 billion per annum at the lower end of the 14 to 18...
Speaker 4: billion, medium term capital expenditure range.
Speaker 4: and have capacity for an annual increase in the dividend for ordinary sharer.
Speaker 4: increase in the dividend for ordinary share of around 4%.
Speaker 4: Looking ahead, we remain focused on delivery.
Speaker 4: We remain focused on delivery with strong momentum across our business.
Speaker 4: First, today's results show that we are performing operationally.
Speaker 4: We expect around 200 MBOED.
Speaker 4: of high margin production from nine major projects by 2025.
Speaker 4: Mad Dog Phase 2 and CAGD6-MJ are expected to underpin over one-third of this volume as they ramp up during 2023.
Speaker 4: with further start-ups expected this year.
Speaker 4: BPX is on track to start up Bingo.
Speaker 4: at the second major Permian processing facility in 3-Q-23.
Speaker 4: Will double BP's operated Permian oil and gas processing capacity
Speaker 4: Yeah just one more time if you're getting that.
Speaker 4: And, we expect to grow our Equity LNG Liquefaction Capacity in 2023.
Speaker 4: supported by major project startup with further increases in supply.
Speaker 4: driven by third-party offtakes from Coral Venture Global.
Speaker 5: and the restart of Freeport.
Speaker 4: Second, we are transforming.
Speaker 4: for me.
Speaker 4: We expect the acquisition of Travel Centers of America to close in the second quarter and target around $800 million of EBITDA in 2025.
Speaker 4: We expect around a two-fold increase in energy sold.
Speaker 4: in 2023 compared to 2022.
Speaker 4: supported by EV charging infrastructure rollout, increasing utilization of our charge points.
Speaker 4: and strategic partnerships. In bioenergy during 2023, we expect to advance one of our five biofuels projects to final investment decisions.
Speaker 4: with a further three moving into front-end engineering and design.
Speaker 4: In Biogas, we are proceeding with the integration of Arkea Energy and executing our project modifications to hardware design system I
Speaker 4: Finally, in hydrogen renewables and power, we are progressing our global portfolio project.
Speaker 4: We are on track to nearly double our hydrogen pipeline by year end from 1.8 MTPA at the end of 2022.
Speaker 4: to around 3.5 MTPA.
Speaker 4: 3.5 MTPA and we continue to grow our renewables.
Speaker 4: Third, we continue to apply our financial frame.
Speaker 4: with discipline and predictability.
Speaker 4: remaining focused on delivering long-term value for you, our shareholders.
Speaker 4: focused on delivering long-term value for you, our shareholders. Thank you for your time.
Speaker 2: Now let's turn to your question. If audio participants would like to ask a question, they may do so by pressing star 1.
Speaker 2: To cancel your question please press star 2.
Speaker 2: If you are listening on the web, please submit your question using the web question facility.
Speaker 3: Okay, thanks again everybody for listening. We'll turn to questions and answers now. The usual reminder from me, please just two questions per person so we get a chance to get through everybody. On that note, let's take our first question from Viraj Bockataria, RBC. Viraj, good morning.
Speaker 7: Hi, good morning. Thanks for taking my question. First one's on the financial frame. When you're deciding the buyback rendering, in the past you talked about, you look at the quarter, but you also do a forward look at the future. So if I'm thinking about 2023, first off, you've obviously got the working capital bills, you've got Macondo, you're guiding to higher maintenance and so on.
Speaker 7: than there was. So just two questions as it relates to that. What time period are you looking at when you're deciding the buyback run rate? And secondly, you know, how much of this ties into your comments on the credit rating upgrade? Because my sense is that this is one way to signal that you're willing to put a bit more cash to the balance sheet in the near term.
Speaker 7: applications, in how much exposure do you have to local currency versus dollars and any issues in terms of getting paid there and so on. Thank you.
Speaker 4: Great. Thanks, Paraj. Good morning.
Speaker 4: Thank you for your questions. First on Egypt, our contracts are dollar-based, so there's not very much exposure in that space. Overdue has come and go over time. There's a bit of an overdue right now, but nothing of any concern for us. I think that's the answer on Egypt.
Speaker 4: And then buybacks, maybe just to recite how we think about the financial frame right now. As you all know, we have five priorities.
Speaker 4: And then buybacks, maybe just to recite how we think about the financial frame right now. As you all know, we have five priorities. Priority with surpluses, buybacks.
Speaker 4: What we've communicated to the market is that we'll do 60% of surplus to buybacks and we guide on an annual basis. So our guidance that we provided on February 7th was that at $60 oil we could do 4 billion in buybacks through the year and you could use our rules of thumb. And we gave you CapEx guidance as well, the $16 to $18 billion in the year.
Speaker 4: As you say, Barrage, we calculated the surplus in the first quarter, we had $2.3 billion of surplus. 60% of $2.3 would be $1.5.
Speaker 4: We lent in a bit, given the strong performance that we see moving forward from the upstream project starting up to the upstream project. That's the end of the webinar. Thank you for listening.
Speaker 4: continued LMG expansion and our off takes to our good trading performance and so we leaned in a bit.
Speaker 4: And that's why you got to the 1.75 billion.
Speaker 4: Of course, actual buybacks will be $2 billion as we do 250 of employee offsets as well. So that's how we think about it. We look at it through the year and we account both the surplus that we've accumulated in the past and the outcome.
Speaker 5: look for the future. Hope that helps, Raj.
Speaker 3: Okay, thanks, Biraj. We'll take the next question from Paul Cheng, Brian Early in the US, Paul at Scotia. Go ahead.
Speaker 8: Thank you. Good morning, guys. Two questions, please. I'm worried that you guys just signed...
Speaker 8: the purchase agreement with Shell on the BROWNS LNG project. Just curious, what's the rationale behind, given the difficulty to operate in Australia, and the return is really going to be that good in order for you to increase? What's the hurdle and the...
Speaker 8: and the staff in order for that project to take hold and to move to the FID. The second question is on the inflation. Can you give us some idea of what you see on the inflation sign and also what's building into your current capex? Thank you. Great. Thanks, Paul. I saw you were the first person to answer that question.
Speaker 8: project to take hold and to move to the FID. The second question is on the inflation. Can you give us some idea of what you see on the inflation side? And also, what's building into your current capex? Thank you. Great. Thanks, Paul. Brayden, early this morning, I saw you were the first person to call in as well. Thank you.
Speaker 4: Thanks for joining us. Thank you. Thanks for joining us on Inflation.
Speaker 4: There continues to be labor inflation, but as you can imagine, fuel prices are decreasing, raw products are decreasing as well. So we're really not seeing much inflation right now across the sector other than in wages.
Speaker 4: So, I think that's the inflation question. And then on BROWS, look, to step back to February 7th, what we talked about is 8 billion more into our transition growth engines and 8 billion more into our oil and gas operations. The first three years of that will be focused on infill and tieback, and that's why we added seven rigs. And that's what we're looking at as we look to the second half of the decade.
Speaker 4: We have 15 potential FIDs that we can move forward. Cascida that you heard me talk about earlier is one of those that we've moved into ConceptSelect on. And Browse is moving in that direction as well. We saw the opportunity to deepen and browse which we thought would be a great opportunity.
Speaker 4: 13 TCF of gas came at the immaterial price that's within our financial framework, and it's gas that's pointed at Asia that needs natural gas moving forward. From a difficulty perspective, it's gas that's pointing at Asia that needs natural gas moving
Speaker 4: As we've talked through it with our project teams in detail, this isn't a normal LNG project like the past ones. It's not onshore, it's not near the shore, which has been so tricky. Instead, you'll see fabrication through the operator Woodside done probably offshore in other countries. You've got a pipeline delay.
Speaker 4: but it's an offshore pipeline, that there's good industry experience around this, and of course it's going into ullage that's available in Northwest Shell. So we like the project. We think the returns will be mid-teens that we're happy with, but of course we need to continue to work with Woodside to optimize that and move it forward. But at least to be able to do the transaction.
Speaker 4: pipeline, that there's good industry experience around this, and of course it's going into Ullage that's available in Northwest Shell. We like the project. We think the returns will be mid-teens that we're happy with, but of course we need to continue to work with Woodside to optimize that and move it forward. We're pleased to be able to do the transaction. Hope that helps.
Speaker 3: Thank you. Thanks Paul. We'll stay in the US and go to Roger Reed at Wells Fargo. Roger. Hey, good morning. And I can guarantee you I was not the first to dial in this morning.
Speaker 9: I'd like to hit you up Murray on a couple things on the demand side. What you're seeing, you know, just since so much of the macro right now, what you're seeing in terms of, call it non-US R&M demand, we're finding in marketing and then I guess particularly a focus on China.
Speaker 9: And then the other thing to ask about, I performed a little bit on the production side this quarter, just maybe what were some of the factors in that, if any, or if it just looked normal to you and I'm not very good at forecasting.
Speaker 4: Thanks, Roger. Thanks for joining us so early. R&M demand side outside the United States, demands a little bit soft in Northern Europe . And China really is the main story where post COVID lockdown. We've seen strong demand on the retail.
Speaker 4: That's why you've started to see Castrol starting to pick up a little bit, and we've seen an awful lot of retail demand both on the fuel side and on the EV charging side.
Speaker 4: That's why you've started to see Castrol starting to pick up a little bit, and we've seen an awful lot of retail demand both on the fuel side and on the EV charging side, setting records on the EV charging demand.
Speaker 4: We haven't seen as much industrial demand. We're only starting to see the first few cargos of LNG flow into China now. So I think from a demand side perspective, the Chinese story from an industrial capacity perspective is still to play out throughout the year. It's why we are constructive on oil prices looking out through the rest of the year.
Speaker 4: As far as production, we're up a little bit more than we thought we'd be. I'll always take that as CFO , as you can imagine, Roger. We've had really strong performance out of the Gulf of Mexico from base performance. BPX brought online an awful lot of new wells that are performing better than we hoped. That's been underlying reservoir performance right now is the story, Roger.
Speaker 10: Appreciate it. Thank you.
Speaker 3: Thank you. Thanks, Roger. We'll take the next question from Irene Hamona, Society General. Irene.
Speaker 11: Thank you. Good morning, good morning, Marie, and congratulations on the results. Two questions. Firstly, you refer in your press release to the Shaq Dines consortium having secured additional pipeline capacity. Can you share with us, please, what you've seen in the past?
Speaker 11: what the flexibility or the spare capacity is attracting these and so how much could you grow exports into into Europe and then you refer to stronger biofuels performance in the quarter can you please remind us of your biofuels capacity and then
Speaker 11: give us a sense of how material that contribution is to EBIT, please. Thank you. Yep, great. Thanks very much for the questions.
Speaker 4: of how material that contribution is to EBIT, please. Thank you. Yep, great. Thanks very much for the questions. Chardonnay's excess capacity.
Speaker 4: Without pipeline expansion, there's probably excess capacity. I'm going from memory here, so this may not be an exact answer and Craig will follow up if I get it wrong, but I think we had about 5% capacity inside the existing pipes to expand if we could. But anything beyond that would take line looping, etc., that I know the consortium's working on as well.
But Craig will clean that answer up if I...
if I got it wrong. Our bio production capacity across the business is about 27 KBD at the end of 2022 and we continue to grow that through the decade.
as we bring on online biofuels plans and expand the efficiency of the existing ones. Of course an awful lot of the profit we make inside bios inside trading as well.
We'll start to bring disclosures on the bio side. I have two key results. We'll show you where we're getting to on EBITDA from our transition growth engines. There will be more to provide you with there, Irene, as opposed to today. Hope that's okay.
Thank you very much. Thanks Irene. And we'll move now to Christian Malik of JP Morgan.
Thank you, Greg, and good morning. I have two questions for me. First of all, on the buyback quantum, I must admit it was a bit of a surprise that you lowered it. And I just want to understand the relationship between that quantum, outside of your capital frame formula, which I totally understand, but just in the context of the macro environment.
Would it be fair to say that if the macro got weaker?
which it seems to be given demand weakness and opaque relentless cuts. Would that be a new norm in terms of your buyback range from a quantum perspective and as far as taking a more cautionary tone in terms of your approach to balance sheet? So I'm just trying to link the macro as opposed to the formula if that's okay in isolation.
And the second question is regarding new made energy and the acquisition. I'm trying to understand the industrial logic. Maybe that extends to other acquisitions that you've made recently in terms of buying into equity as opposed to building through your own portfolio organically given your optionality. So how should we think about the balance between accessing reserves through an acquisition statement?
versus proving our progressing in terms of your online portfolio. And should we read into this that perhaps the portfolio over the medium term needs to be beefed up, if you will, through acquisition because of the lack of optionality. So I'm sort of challenging you on that point, but I just want to understand the industrial logic of buy versus build. Thank you.
Great, why don't I start on the gas side of the portfolio. Very pleased to be progressing the New Med transaction and the offer is made, gives us access into Aphrodite and Leviathan, two great fields that can be developed for the future for Europe . And as I mentioned in my script.
that will be contributing assets to that venture. So you should think of that as an efficiency swap. And as time unfolds, we'll give you more details on what that looks like. On the broader point, we have a lot of optionality inside natural gas, but it never hurts to get more is our viewpoint to drive towards the highest quality. We obviously have discoveries in Trinidad that allow Trinidad to continue. We have discoveries in Mauritania and Senegal.
that allow to continue. We've now got an interesting anchor point in the Middle East for export. And of course we've deepened our Asian access on on the equity side. So we have lots of options. It's really about creating as many options as you can and then deciding which ones you do. Quality through choice I think is the mantra that we all learned growing up under John Brown.
So, I hope that helps understand that. As far as the buybacks, just to reiterate guidance yet again, Christian, I think that
I hope that helps understand that. As far as the buybacks, just to reiterate guidance yet again, Christian, 60% of surplus, 60% of surplus, 60% of surplus,
$4 billion of buybacks at $60. Use the rule of thumb and the price is around $80. I think it's drip right now, give or take, and you'll have the Henry Hub and...
and RMM and use our rules of thumb to calculate it with our 16 to 18 billion capital range. And I think you'll find the number is spot-on, absolutely spot-on what we got.
So, as far as I'm concerned, we've hit just about dead on guidance and as we look forward,
We leaned in a bit above the 1.5 to the 1.75 as I talked about on the strength of performance. And of course, if the oil environment improves, let's see what happens. Remember last quarter, we did 2.75 billion of buybacks.
And that happened because we had a working capital release. This time we've got 1.75 with a 1.4 build. And what you should focus on is we are honoring our commitment to a 60% surplus. We have not created a run rate framework. We have created a percentage of surplus.
And as far as I can tell, the math works. So thanks, Christian. Appreciate your question.
can tell the math works. So thanks, Christian. Appreciate your question. Thank you.
Thanks Christian. We'll take the next question from Oz Clint at Bernstein. Oz, good morning. Yes, good morning. Thank you. Maybe just talking about the LNG book and a little bit of an update on the derivative unwind that we spoke about last quarter or the quarter before the five billion dollars potentially second half this year.
towards half of Bailin for that payment. I wonder if you could just put something around it. Secondly, yeah, Mary, you talked Castro's picking up. Is that simply China or are we still seeing those base all effects coming through the Castro business would be the second one, please. Thank you.
Thanks Oz, appreciate the questions. Brows, we're under a confidentiality agreement, so I really can't comment. I don't think we want the CFOBP getting in trouble for commenting against a confidentiality agreement. All I can say is it's an immaterial amount.
within our capital frame. As far as the LNG unwind, I think what you're asking is, is there any change to the cash flow guidance on the release on working capital? And the answer is no.
So our guidance remains as described last quarter, which is last year we locked in a bunch of high quality priced LNG with the cargos to come starting in 3Q this year.
And we see five billion releasing from 3Q2023 through about 2Q2024, weighted towards 2024.
So, no change to that guidance, I thought I'd just repeat it. And just interestingly, nobody's asked me, but we are starting to see Freeport come back.
and coral is lifting well as well. So that's good news. Craig, remind me of the third question. And Kestrel. Yes, Kestrel. Sorry, Oz, I forgot the third question. I can't read my own writing. On Kestrel, we have started to see additive prices and base oil prices relaxing.
So that's good news. There's a little bit of performance there. More to come.
and then we had the one month of unlock inside China, which obviously China's our largest market for Castrol, so that started to move forward as well. As well, we have a new leader in place now, Michelle Zhu. She's doing a fantastic job. She's got a new leadership team. They're fired up, and they're getting ready to go get market share and move forward on Castrol.
I'm looking forward to continuing trend in Castrol in the quarters ahead. Thanks Oz. Good, thank you. Thank you. Thanks Oz. We'll take the next question from Peter Lowe at Redburn. Peter.
Hey, thanks. It's actually just another question on the customers and products result more generally. It looks like it was actually the weakest quarterly result for some time. Can you give a little bit more color on what's causing that and then perhaps how you're tracking against 2025 target after $7 billion of EBITDA from that area? Thanks. That was it.
Yep, Peter, we remain still on track in 2025. Remember, a key milestone will be the completion of Travel Centers of America. We're looking forward to the shareholder vote next week. And then obviously it has a strong contribution in to have it done in 2025. And current performance, it's a bit of an anomaly in the quarter.
where the fuel margins were in refining as opposed to in the inside mobility, a fairly sizable number. So that's what makes it look a little bit suppressed. Additionally, we're really pushing hard on the bio space and we're really pushing hard on the electrification space. So those create losses. Again, we'll come show you a bit more granularity on that in the second quarter results.
So, because you've got growth engines inside that, it creates a little bit of a suppressed number along with the fuel margins that we saw. From a headline basis, though, I'm really pleased with the transition growth engines. Convenience year on year, 9% up. That's against a market average of 6%.
EV charging is storming ahead with continued deployment of fast charging. We hit 8.8% utilization in the UK in the quarter, way ahead of what we would have expected as consumers adopt. So, that's the end of the show.
more electric vehicles and use our services. So the underlying drivers at growth are looking fantastic and it's a bit of an anomaly in the first quarter.
Hope that helps. Thanks Pete.
Thanks Peter. We'll take the next question from Lydia Rainsworth at Barclays. Lydia.
Hi Greg and thank you and good morning. Two questions if I could. If I can come back to the buyback and Marie you referenced the kind of the working cap impact on last quarter this quarter but there is a loss of volatility it seems like in those numbers so do you ever think about moving something that's slightly more stable it says that framework.
I am particularly thinking about TQ when you do have Gulf of Mexico payments going out, you do have travel centres closing. So just so that idea is that the volatility sometimes isn't necessarily helpful for that side. And then the second one was actually just on the OPEC side in the upstream. Clearly that number is down 12% on last year.
in what has been an inflationary environment. I just wondering if you can comment a little bit more about what's driving that. Thank you. Yep, great. Lydia, financial frameworks, crystal clear from our perspective, the five priorities we've been doing it for the past three years. No intent of change.
And I don't imagine you want me to repeat the guidance. I just gave the guys on the previous two questions, but no intent to change, which I think was what you might have been asking. And just as a reminder, the board looks through the year as we think about surplus. And we're committed to 60% of surplus. And yes, working capital does swing amazingly across the quarters and has many, many moving parts. And as you can see, we leaned in a bit this quarter.
given what happened on working cow.
As far as your second question, OPEX in the upstream.
You have to think about this really as a ten-year journey that the Upstream has been on. You'll remember that we heavily, heavily started to digitize years ago.
And the work of all of that along with reorganization that occurred to move to a much more central model with agile squads is Really starting to pay off. I think the number was $14 a barrel lifting costs back in 2012 or 2013 And we're all the way to sub 6 now
and aspiring to hold that moving forward. That's really about the fact that we spent years and years and years streamlining all our data thanks to help from Palantir, a great partner we have.
They really helped us clean up our data so that everybody would have it at their fingertips. That enabled us to centralize many of the teams around the globe, from the drillers to the reservoir engineers to the explorers.
And another big thing we did in the background is we put in place a single SAP system across the upstream, including a purchasing package. And that purchasing package now really coming to bear where we're able to do offshore work remotely.
In October , we're going to host an away day for the upstream and archaea and at that we'll do a few showcases on the brilliant stories that we're seeing out of this. One that captured my imagination last quarter was that the operators on Shehalion can actually plan and do the entire work.
onshore. So they don't have to travel back and forth on helicopters offshore to plan a trip. They have laser sighting that can put up all the architecture of scaffolding, etc., onshore in a virtual model.
They bring the contractors in to work through the work packs, and all of a sudden you eliminate all the labor going back and forth between our planners, the contractors, etc., and you arrive with a package that works the first time. That's just a step change and nothing I've ever seen in my career, especially in difficult places like the North Sea.
So, you know, it's a long, very long-winded answer. Sorry for that, Lydia. You can tell I have a huge amount of passion in this, but digitization agile and the structure that Gordon put in place have really, really brought technology to bear.
Very long-winded answer, sorry for that Lydia. You can tell I have a huge amount of passion in this, but digitization agile and the structure that Gordon put in place have really, really brought technology to bear inside the upstream.
And you know the great thing is that we can start on the downstream now, so we can really start on the refineries and the customer's business, which we haven't done yet. So it'll be fantastic for the future.
great thing is that we can start on the downstream now so we can really start on the refineries and the customers business which we haven't done yet so it'll be fantastic for the future. Hope that helps with you.
Perfect, thank you very much. Thanks, Lydia. I will turn now to Martin Ratz at Morgan Stanley . Martin. Yeah, hi, hello. Two questions from me as well, if I may. First of all, I wanted to ask you about Cascida. I find it quite noteworthy that WODMAC is still showing this as non-viable. While...
or other things that allowed you to now progress this to the next stage. The project is a bit of a blast from the past, so clearly something must have happened in the meantime. And then secondly, yeah, sort of nitty-gritty detail, but it feels like quite an obvious one. The 1.4 billion working capital built in this quarter, would you also consider that to be...
reversible in quarters ahead or is that not something we should expect? On the second one Martin you should not expect it to be reversible, it principally had to do with bonus payments where you accrue for them last year and you pay them out in the
first quarter. So that's the majority of that build and the only thing you should think about for release right now is the five billion that we talked about on the earlier questions.
On your first question, blast from the past, I can feel the title to your research note this quarter, Martin. For those who haven't been around as long as I have or Martin has, we discovered Cascadia back in 2006. I think something like 4 billion barrels of oil in place.
And really what's happened is technology has transformed around us, Martin. We now have two 20k rigs that are operating in the Gulf of Mexico. We have track technology that works inside the Paleogene at the high temperature, high pressure. We have production for 500,000 a day of Paleogene analog.
introduce what we can to ask you to to WODMAC at the right time. But we feel pretty good about this Martin. It's probably going to have a decoss to somewhere between 15 and 20. It's an enormous resource base and we're just moving through concept select.
and hopefully we'll move to FID next year. It's 100 percent BP-owned and we're thrilled. It definitely gives us the capacity to hold the Gulf of Mexico up around that 350 to 400 level through the end of the decade, which I think is exceptionally valuable for the company. Hope that helps, Martin. Wonderful, thank you.
Thanks Martin and we'll take the next question from Chris Coopland at Bank of America.
Thank you Craig. Murray, I just want to follow up on the question that Martin just asked. It's not 1.4 billion of outflows, right? It's more than 4 billion of what I would consider classic working capital outflows in the quarter. Is that all due to those bonus payments you referred to? I just struggle to see.
the relationship between quarter on quarter price movements which in particular gas I would have expected to lead to working capital inflow. So I appreciate I'm probably asking the same question again but yeah if you could just confirm whether where you can the quantum of
of those bonus payments that you refer to just now and any other color you can add to that would be great. Secondly, a question on your 16 to 18 billion frame. Now that you've announced a few acquisitions that will, I guess, be part of that frame, be good to know what you can see today from Browse, TA, New Med. I appreciate you probably have confidentiality agreements around that.
The build was 1.4. Last quarter we had a release of 4 billion. You can't really compare a quarter to quarter working capital build. That's not math that makes sense. But the 1.4 is what the build was in the quarter. And the majority was bonus payment.
That's all I can say on that one and we'll have Craig follow up with you afterwards to try to understand the map that you're looking at.
As far as capital frame for 2023, a few things to say. 16 to 18 obviously remains our guidance. You saw that our run rate in the first quarter was 3.6. That's largely an organic run rate.
So you can see where the run rate's moving to right now. Acquisitions that might fit inside the inorganic side of things. First one obviously is Travel Centers of America and we're waiting for the shareholder vote next week. So we'll see how that goes and you know what the capital is.
associated with that. I've talked about browse already. NewMed is not CapEx since NewMed is a swap.
So that doesn't show up as cash capex, which is what we measure as cash capex.
So, I think 16 to 18 remains valid. You can see what the organic run rate is right now from one key result and so far reallyanti-
of materiality as travel centers of America, if the shareholders approve that. Hope that helps, Chris.
Okay, yeah, thank you. Thanks for the color on new bed and and the ta is is 1.3, right? That's the portion that you would account for as as as capex
Yeah, thank you. Thanks for the color on new bed and and the ta is is 1.3 right? That's the portion that you would account for as as capex Yeah, that's correct. Yeah. Thank you. Thanks Chris.
Thank you. We'll take the next question from Lucas Herman at Ex-Im. Lucas, good morning. Yeah, morning guys. Thanks very much. A couple if I might. Just, Murray, US onshore, can you give us any idea as to, you know, what the likely impact on production and economics is going to be as bingo steps up?
I ask simply because CapEx obviously is rising as you'd indicated but production costs of all we're seeing quite some elevation this quarter. So just in commentary if you don't mind around the US onshore and progression as we go through the year and otherwise if I might just in LNG how many cargo...
I'm not sure if we've guided on the Permian before at low rates, but I'll do it anyway. The first one, Grand Slam, is about 30 kBd of black oil. Bingo is about 30 kBd of black oil. We have three more of these to come through 24 and 25. That's building the Permian oil capacity up to about 30 kBd of black oil.
to 120 MBD. One cue had some anomalies inside BPX. You brought a bunch of wells online. We had some well work to stimulate them. It creates a bit of an artificial bubble in cost.
Plus, obviously, they had the bonus payment that we talked about a little bit ago as well. So hopefully that helps you on the U.S. onshore. On LNG, I don't actually have that information at my fingertips, Lucas. What happened that drove an exceptional result in the quarter is we signed up a bunch of new contracts for medium-length delivery at a profit inside the portfolio.
The statistic last year that we made public is we redirected 160 cargos to Europe when Europe needed gas in 2022.
last year that we've made public is we redirected 160 cargos to Europe when Europe needed gas in 2022. So I hope that helps.
Murray, can I just come back one moment on the US onshore? How much of, how much oil is behind pipe? I effectively as the facility, as Bingo comes on stream, we should expect a pretty rapid ramp in production, latter stages of the year.
Yeah, you should see the 30 KBD flow over a 90 to 120 day period. It'll just depend on where they are inside the completions versus drawing the next ones out. So it should be a nice rise.
Thank you very much.
Thank you very much, Marianne. Congratulations on the strong results. I wanted to ask you two questions. On hydrogen, you are clearly building a strong portfolio. You expect to double the pipeline of projects. I was wondering if you could update us on what you expect to be the average profitability of the portfolio.
And secondly, on US gas, you're very well positioned with, I believe, pretty much fully hedged production for this year. But I'm wondering if at $2 per MCAF gas, you're actually starting to see the opportunity to perhaps take away some of the rigs and refocus them in the permanent where you keep strongly growing the activity. Thank you.
Thanks, Michaela. On the US gas side, we're actually hedged out two years right now, so we see pretty strong economics on that, actually stronger than the Permian.
When we're hedged at, we're hedged around for rounds to $4 out through 2024 and we keep that position under review. So no intent to reallocate rigs.
As we signed up longer-term rig contracts, I wanted to hedge around that to guarantee the profitability and cash flow that came out of it. We're happy with where the rigs are directed right now, and we have three in the Eagleford and three in the Haynesville.
On hydrogen, progress is happening and it's quite pleasing. The returns are above the 10% that we're saying on average across the portfolio.
I won't quote any direct numbers at this stage given that we have to get through FID before I get the confidence level, but certainly above the 10 percent hurdle that we're seeing. Probably the first projects that are going to happen on the hydrogen side are in the binaries as you mentioned.
probably green hydrogen out at Cherry Point, probably blue hydrogen at Whiting is our sense, and then green hydrogen across the refineries inside Europe .
Seaborn is something that we're in conversation with many customers two different directions. There's the potential for green methanol to fuel tankers or green ammonia to fuel tankers that are shipping products around the world. So that's a potential that's starting to emerge. We'll see if that works. And then in Asia.
we continue conversations with Asian countries on export. I think that'll be longer wavelength though. I think that'll be more towards the back end of the decade by the time you start to build that business out. So interestingly, it's refineries and seaboard tanking that may be the things that move first.
ask me that question each quarter and I'll probably slightly change the emphasis as the model starts to unfold, Michaela.
Thank you for the question. Thanks, Amaret. I will take the next question from Jason Kenny at Santander.
Thanks, Craig. Thanks, Murray. Murray, I'm going to try and pin you down a bit on customer and products.
financial delivery this year. Last year full year $22-10.8 billion.
quite a good first quarter $2.8 billion. I mean the run rate points to another double digit EBIT delivery this year. I realize that you've got some confidence in customers going into the second and third quarter. What kind of level of EBIT do you think is sustainable from this on a through cycle, normalized basis?
because it's quite an interesting division. And then secondly,
Do you have a view on the valuation disparity UK Europe versus the US majors at the minute one of your Competitors commenting that it's all about location location location Yeah, I think on the second one, I don't know what they compare
are saying, but for our perspective, it just looks like an opportunity. If we perform as we're saying we're performing, growing the upstream volumes, for example, the 200 KBD from the high margin oil and gas businesses, growing that LNG portfolio as we talked about, and growing CNM and the transition growth engines.
I think that's the first thing that we have to do. This was another strong quarter above expectation and we just have to constantly continue to perform that way. And through the buybacks and the potential dividend increases that the board's outlined of $4 billion a year of buybacks and 4% increase in dividend at $60.
we just see the ability to converge and that's a great opportunity to work our way through. So that's probably all I have to say on that one. And then on the C&P side, I don't, I mean, I guess the way I'd say this is we have our targets for CNM growing to 7 billion through the decade.
So I won't, through 2025, I won't correct, I won't change that. As far as the refineries go, you're kind of asking what's the refining margin look like moving forward. Very difficult thing to predict. I suppose we're more optimistic than we were a few years ago because of refining outage and because of continuing demand growth inside fuels markets, especially aviation.
So, I'm not going to try to guide on what our M-M would be, but think about it in chunks of our C-M-M that we provided guidance for, and then you choose your refining environment. You can use rules of thumb to see where you think we'll go. But we're pretty happy with our refining slate. We're happy with the 1.5 capacity we have now.
And we're very much looking forward to taking the refining side of the business and moving it from grey to green or blue hydrogen and building out the five biofuel plants that we talked about that should make for more radical earnings as we move forward.
Sorry I'm being a little bit invasive, but I didn't want to try to guide too closely on RMM. Thanks, Jason. No problem. Thanks. We'll take the next question from Amy Wong at Credit Suisse.
Hi good morning. Got a couple of questions. The first one is just to go about to Australia. Appreciate you're not going to talk about the terms of browse, but it was more just, kind of strategically, given you have some existing operations. You also last year and now the large investment in the Asia renewable energy hub. You've got this.
appreciate it's only been a few months since you've had that business completed and acquired but seems to be having a lot of momentum in that biogas business and it's important for your growth engines as well so just really love to get an update on where you are on your targets on that one if things have accelerated have you found more
positive or negative things with archaea. Okay, great. I think in archaea, as you said, it's a little bit early to be saying anything. We'll update the market at our events in October in Denver where we'll go through archaea as well. I think that will be a more appropriate time. I think we remain pleased with it. We have about 50 operating plants, 80 to build.
We look forward to that and I think we'll unpack that story more when we talk to the market in October . Apologies, it's just been a few months so I think it's too early to say anything other than our enthusiasm for it remains very, very high. As far as Australia, we do have a tremendous amount of opportunities to increase investment inside Australia. The ones obviously we've got in the CNM business, we've got New Zealand, Australia.
where we stand the chance to electrify the fleets there. We're seeing quite a bit of uptake there. On the bio side, the bio demand for sustainable aviation fuels is very high. That's why we're converting Kwinana. So that's a good investment for us as well. And then we have two very, very large land positions in Australia. One, ARA, that you talked about. Another one as well that give us the opportunity to move through in a phased manner.
starting with either green electricity or green hydrogen into the mining companies to help them decarbonize. We're a big fuel supplier to them now and it's a way to start to shift what we provide both through electricity and through fuel. And then the start of export, whether that be through bunkering or whether that be through direct export of hydrogen Yes, in Sean also
and ammonia depending on what customers want over time.
So, it's a bit early to predict where CapEx will go. We need to get to FID on these things.
before we decide it, but certainly between as you say Brau's, ARA, the Pilbara region, as long as along with biofuels, etc. We stand the chance to grow CAPM in Australia strongly and I think it's a great market that we worked in for many many years and I like it because I was born there as well. I don't often advertise that one.
Thanks, Amy. I hope that helps. Thanks for the colour. Thanks, Amy. Australian Canadian. Next question. Henri Patrickot at UBS. Henri. Yes, sorry. Thank you, Murray. Thank you. I just have one question on the upstream and liquid summarization, which were lower than usual compared to benchmark prices. Can you...
No problem.
I think it was inside some of the lag effects we saw.
Thank you for the question. Thanks, Henri. We'll go from Henri to Henry. Henry Tyre at Berenberg. Next question, please.
Hi there, thanks for taking my question. Just two quickly. One on ROSNEFT, just whether there's any change there or any prospect of receiving anything potentially from the stake, where it's completely written off at this point.
Just whether there's been any communication around that. And then on windfall taxes and any impact that you've seen there in Q1 or expecting for 23. Thanks. Yep, thanks Henry. Rosneft, I'm afraid, no change. It's a commercial progress and we don't disclose any details of a commercial process. Hello everyone, welcome back to our live will of the exemption.
and we'll update you when something changes on that. We haven't received any dividends nor do we plan to receive any dividends either. That's probably all I can really say on Rosneft. On windfall taxes, I presume you're meaning the North Sea. A few statistics for you. 2.2 paid in taxes in the North Sea, $2.2 billion of taxes paid in the North Sea in 2022, including $700 million on the EPL.
the energy profit levy. And for the first quarter, we paid about $650 million of taxes in the North Sea. That included $300 million on the profit levy. So that's over a billion now on the profit levy in the North Sea. As far as...
As far as European solidarity taxes, we paid about 500 million euros in last year in 2022. I hope that helps, Henry. That's great. Thank you. Henry, thank you. We'll take the penultimate question from Kim Pustia, HSBC. Kim?
Hi, good morning and thank you for taking my questions. I just had two please. First one is on gas in India. Could you just talk about your investments and activity there? That deepwater gas project feels like it's also been quite a long time coming. And also how the recent gas price reforms in India are impacting economics there.
The second one is on CCS. Could you talk about the recent CCS developments in your portfolio, in particular the Viking project in the UK and then the Southern China project with PetroChina? And on the latter, I'm just curious about what might be the business model or incentives to do CCS in China?
Great, thanks Kim. Thank you for the questions. Gas in India, this is the third project we brought online, the MJA project, which is just in its final commissioning stages. So we've had a couple more projects that have come online previously and we're now providing, I think the statistic is one third of natural gas into India.
through those offshore facilities. I think you know it's ended up being a pretty decent pretty decent investment. We're long-term contracted with consumers directly on the gas prices so given that we're going to industrials we're not impacted by the latest wave of change from India as far as I understand. So I think that answers the India question. on CCS.
In the Viking area, so if you think about what's happening, the government has awarded the next round of projects for incentivization. Net-zero T-side along with our blue hydrogen plant.
and of course NEP offshore which is the storage injection caverns. Those are located very close to Viking so they provide further capacity in the event the NEP ones are filled up over time. And we already have a pipeline to Viking from historic ownership that we have through the southern North Sea and it has access to the east.
in case carbon sequestration comes from Europe . So it was a very cheap option for us to buy, to set up more optionality both for net-zero T-side and then potential continental import of CO2 over time. So it was a nice little option to build as the UK is really pushing, the UK government is really pushing CCS as a way to decarbonize the economy. So we're very, very pleased on that.
On China, I think, Craig, we're going to have to get back to you on that one. Not one that I immediately have to hand. We will come back to you on Southern China. We'll come back to you on that, Kim. Apologies. I don't often miss questions, but I miss that one. Thank you, Kim. Then we will take the final question from Alastair Syme at Citi. Alastair. Thanks, Craig. From one antipodeum to the other is a…
Given you've done a bunch of investor meetings since then, I'm just interested in the conversations you've been having.
with investors on both sides of the Atlantic and how they've interpreted the shift. Thank you. Yeah, thanks Al. Look, the way I'd characterize it is, as Bernard said, we're leaning in both to transition graph engines and oil and gas, another 8 billion into oil and gas and another 8 billion into the transition growth engines, focused on the shorter cycle ones, so the biogas, biopuels, convenience and electrification that society is demanding.
I think shareholder conversations, we've had an extensive amount of engagement, both after February and then leading up to our AGM. And you see broad support, that's what we saw at the votes inside the AGM and that's what you saw through share price response. I think shareholders like the fact that we continue to focus on short cycle inside the upstate.
prior distributions to shareholders over time.
very very very supportive shareholder meetings on all sides of the Atlantic with the moves that we made back in February 7. Murray can I ask you since there's been any sort of re-engagement from maybe European investors that might not have looked at BP in the past?
Yes, I think there has. I think the fact that we're pivoting hard to the shorter cycle transition growth engines has captured their imagination. We've got a heavy, heavy demand coming out of continental Europe for road shows. So I'm off to California this afternoon for road shows with some big shareholders out there.
but we have four teams going into continental Europe to meet from Finland to Spain and in between. So very, very heavy demand for engagement and we'll look forward for them buying into the shares over time.
teams going into continental Europe to meet from Finland to Spain and in between. So very, very heavy demand for engagement and we'll look forward for them buying into the shares over time. Great. Thank you very much.
Roger, maybe just a few closing remarks, Greg, if that sounds okay? Yep, go ahead, Murray. And I've got one just to close off on Chardonnay's in the interest of... Oh, you closed on Chardonnay's first. It was just a follow-up, two points in the interest of having everybody online, I think. Just to confirm on Chardonnay's, yes, we have spare capacity, I think Murray said 5%.
I think it's around 10%. Basically where we are on Chardonnay just now is the European leg of the Southern Gas Corridor is operating however at full capacity. So as we look at opportunities there to expand that capacity.
The TAP pipeline has already launched a first level expansion. There's an additional expansion possible around that. TANAP can also be expanded and both TAP and TANAP expansion would be via addition of compression. So there is work to be done there. I think, Murray, you've kind of framed that. There's opportunity and we're obviously working closely around that in terms of gas into Europe .
One other thing I think, Henri, just quickly on your question on oil price, as Murray said, lag impacts, mostly actually in the UAE, just to clarify on that one. And Lucas, I'll come back to you separately on BPX.
I think those were the three homework questions, but we will have an opportunity to talk a little bit later as well. And then on that note, sorry, Murray, closing remarks. Thanks, Greg. Appreciate the follow up. Look, a few things just to say. Thank you for listening. BP remains a company that is performing very well, as the tagline goes, performing while transforming. Another good quarter, especially on the trading side.
and very robust performance across our refineries and the upstream as well. We remain confident in the future. We've got strong growth ahead of us over the next two years. It's great to see Mad Dog Phase 2 up and ramping up. It's great to see that the Indian projects are coming and we have more startups to come this year and other three startups to come this year, along with growth inside the LNG offtakes as we've talked about. So great momentum moving forward and thank you very much for listening.
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