Q2 2024 BP p.l.c. Earnings Call - Q&A

Unknown Attendee: A warm welcome to everyone joining us in person at our headquarters today and to those joining us online and on the phone. I trust everyone has had a chance to watch the second quarter 2024 video presentation and read our stock exchange announcement, both of which were posted this morning on our website, bp.com. We heard your feedback that you appreciated this new format. For today, we're aiming to finish the call at 2 p.m., UK time.

Speaker Change: A warm welcome to everyone joining us in person at our headquarters today and to those joining online and on the phones.

Speaker Change: I trust everyone has had a chance to watch the second quarter 2024 video presentation and read our stock exchange announcement, both of which were posted this morning on our website bp.com. We heard the feedback that you appreciated this new format.

Speaker Change: For today we're aiming to finish the call at 2 p.m. UK time.

Murray Auchincloss: So with that, let me hand over to Murray for some brief opening remarks. Great. Thanks, Craig, and thanks to everyone for joining us today.

Murray: So with that, let me hand over to Murray for some brief opening remarks. Great. Thanks Craig, and thanks to everyone for joining today I'm in the room and I'm joined by Kate Thompson, CFO , Carol Howell EVP Trading and Shipping and Emma Delaney, EVP Customers and Products

Murray Auchincloss: I'm in the room, and I'm joined by Kate Thompson, CFO, Carol Howell, EVP, Trading and Shipping, and Emma Delaney, EVP, Customers and Products, which, luckily for me, will provide me with the opportunity to pass all the difficult questions to them today. To recap on today's results, our operations are running really well; 96% upstream plant reliability and 96% refining availability in the quarter. We generated strong operating cash flow of $8.1 billion, net debt reduced by $1.4 billion to $22.6 billion, and we remain confident in the opportunity and potential we have for growing the value of BP.

Murray: which luckily for me will provide me with the opportunity to pass all difficult questions to them today. To recap on today's results, our operations are running really well.

Murray: 96% upstream plant reliability and 96% refining availability in the quarter. We generated strong operating cash flow of $8.1 billion, net debt reduced by $1.4 billion to $22.6 billion, and we remain confident in the opportunity and potential we have in growing the value of BP.

Murray Auchincloss: This should be clear with today's 10% increase in our announced dividends, the $1.75 billion buyback in respect of our 2Q results, and our commitment to announce $3.5 billion of share buybacks for the second half of 2024. That's $1.75 billion to be announced each at 3Q and 4Q results. You'll have heard from our video some real examples of us in action delivering on our six priorities.

Murray: This should be clear with today's 10% increase in our announced dividends, the $1.75 billion buyback in respect of our 2Q results, and our commitment to announce $3.5 billion of share buybacks for the second half of 2024. That's $1.75 billion to be announced each at 3Q and 4Q results.

Speaker Change: You'll have heard from our video some real examples of us in action delivering on our six priorities.

Murray Auchincloss: We've accomplished an awful lot over the past six months. Of course, there's always more to do, and we have a clear focus on our drive to 2025, which we can control. We see a lot of opportunity ahead of us, and we're remaining pragmatic, flexible, and focused on value. And we look forward to updating you on our medium-term plans in February next year. So Kate, Carol, Emma, and I are here to answer your questions. Can we ask each of you, please, to limit your questions to two? And I'll go ahead and start off in the room.

Speaker Change: We've accomplished an awful lot over the past six months. Of course, there's always more to do, and we have a clear focus on our drive to 2025, which we can control.

Speaker Change: We see a lot of opportunity ahead of us and we're remaining pragmatic, flexible, focused on value. And we look forward to updating you on our medium-term plans in February next year.

Speaker Change: So Kate, Carol, Emin and I are here to answer your questions. Can we ask each of you please to limit your questions to two and I'll go ahead and start off here in the room.

Irene Himona: Irene, why don't we start? Thank you, Irene Himona at Bernstein, and congratulations. My first question concerns progress towards the 2 billion operating cost reduction target you announced, particularly in the context of a 4% increase in unit upstream costs, which I see. My second question is on transition engine EBITDA, which in the first half has halved year on year. I can see biofuels, convenience, and renewables; they're all down. So even if EV charging and hydrogen break even by year end, the 3 to 4 billion next year looks a bit challenged. But that was my question.

Speaker Change: Thank you, Irene Himona at Bernstein, and congratulations.

Speaker Change: My first question concerns

Speaker Change: Progress towards the $2 billion operating cost reduction target you announced, particularly in the context of

Speaker Change: A 4% increase in unit upstream costs, which I see. My second question on transition engine EBITDA, which in the first half has halved year on year.

Speaker Change: I can see biofuels, convenience, renewables, they're all down. So it seems even if EV charging and hydrogen break even by year-end.

Speaker Change: The $3 to $4 billion next year looks a bit challenged, but that was my question. Great. Thanks, Irene. I'll let Kate lead off on cost, and maybe Emma, you can amplify a bit, and then I'll tackle the TGEs and pass it over to Carol and Emma as well.

Murray Auchincloss: Great. Thanks, Irene. I'll let Kate lead off on cost, and maybe Emma, you can amplify a bit. And then I'll tackle the TGEs and pass over to Carol and Emma as well. Go ahead, Kate.

Katherine Thomson: Yeah, thanks, Irene. As I said back in April at our 1Q results, we're aiming to deliver 2 billion. And I said then I'd like to exceed that. I'd like to be able to do it quicker.

Kate: Thanks Irene. As I said back in April at our 1Q results, we're aiming to deliver 2 billion and I said then I'd like to exceed it, I'd like to be able to do it quicker.

Katherine Thomson: So since April, as you can imagine, we've been in action right across the company in every business and every function underpinning that. So the three things that are on my mind are one, make sure that 2 billion is underpinned. Second, can we accelerate it?

Speaker Change: As you'd imagine, we've been in action right across the company, in every business, in every function, underpinning that. So the three things that are on my mind is, one, make sure that 2 billion is underpinned.

Katherine Thomson: Can we deliver more? And, thirdly, how do we make those savings sustainable? So that's where we've been over the last three months, and as you've seen today, we've now been able to get clear that we can deliver half a billion dollars of that cash cost saving in 2025. And we'll continue to update as we go. But back to where I was in April, I would hope we can do better in terms of delivery but also the pace.

Speaker Change: Second, can we accelerate it? Can we...

Speaker Change: Can we deliver more? And then third, how do we make those savings sustainable? So that's where we've been over the last three months. And as you've seen today, we've now been able to get clear that we can deliver half a billion dollars of that cash cost saving in 2025.

Speaker Change: And we'll continue to update as we go, but back to where I was in April , I would hope we can do better in terms of the delivery, but also the pace.

Katherine Thomson: Just in terms of the unit production cost, that's just portfolio mix at the moment. We're on track for the sort of around $6 that we said we would be by the middle of 2025. Great. Emma, anything to add on costs?

Speaker Change: Just in terms of the unit production cost, that's just portfolio mix at the moment. We're on track for the sort of around $6 that we said we would be by the middle of 2025.

Emma Delaney: Yeah, I think just amplify, Kate, your point is the costs are owned by the businesses. So we've run a process over the last few months, and the costs are embedded in our near-term plan for both 24 and 25, as well as that that will flow into 2026. The majority of the costs are embedded right down into the business units.

Speaker Change: Great. Emma, anything to add on cost, please?

Emma: Yeah, I think just amplify, Kate, your point is the costs are owned by the businesses. So we've run a process over the last few months.

Emma: And the costs are embedded in our near-term plan for both 24 and 25, as well as that will flow into 2026. The majority of the costs are embedded right down into the business units, and there's some that we're still holding centrally. Murray, you talked about four buckets for cost, portfolio. We're always churning the bottom of our portfolio, tail end. You talked about digital, just a couple of examples on digital.

Emma Delaney: And there's some that we're still holding centrally. Murray, you talked about four buckets for the cost portfolio. We're always churning the bottom of our portfolio, tail end. You talked about digital, just a couple of examples of digital, on cost. In my part of the business, we are, for example, rolling out self-serve checkout at our retail convenience site. That is a saving on labor cost, which increases inflation every year. So that's a sustained saving.

Marie: On cost, in my part of the business, we are, for example, rolling out self-serve checkout at our retail convenience site. That is a saving on labour cost, which...

Emma Delaney: Things like our on the digital side, we have multiple portals for B2B self-serve, which we're consolidating the back end so that you can still see a different front end that also will deliver a cost savings as well as the ability to self-serve on digital.

Speaker Change: So that's a sustained saving. Things like our digital side, we have multiple portals on B2B, self-serve, which we're consolidating the back end so you can still see a different front end. That also will deliver a cost saving as well as the ability to self-serve on digital. And then we're also in action, you talked about procurement as a potential saving, Marie, earlier.

Emma Delaney: And then we're also in action, you talked about procurement as a potential saving, Marie earlier. And some of the things we're in action on there are, in the U.S., for example, we are joining together our TA, AMPM, Travel Centers of America, AMPM, as well as our Thornton's merchandising. And now we have a bit more scale to go to market. So just some examples of how we're embedding and writing down the details on the cost side. Fantastic. Thanks, Emma.

Speaker Change: and some of the things we're in action on there is, in the U.S. for example, we are joining together our T.A., A.M.P.M., Travel Centers of America, A.M.P.M., as well as our Thorntons merchandising, and now we have a bit more scale to go to market. So just some examples of how we're embedding and write down in the details on the cost side.

Murray Auchincloss: And then on the TGEs, so last year we made around a billion dollars in EBITDA for the first half of this year. And we made about half a billion. We've, of course, announced the acquisition of Bungay as well, which we expect to close in the fourth quarter. If you just pretend the run rate is the same, 500 one H, 500 two H, and you add Bungay into the mix, you're probably at almost two billion dollars of EBITDA as a starting point headed into 2025.

Speaker Change: Fantastic. Thanks, Emma. And then on the TGEs, so last year we made around a billion of EBITDA. For the first half of this year, we made about a half a billion. We've, of course, announced the acquisition of...

Speaker Change: Bungay as well, which we expect to close in the fourth quarter. If you just pretend the run rate is the same, 500-1H, 500-2H, and you add Bungay into the mix, you're probably at almost $2 billion of EBITDA as a starting point headed into 2025.

Murray Auchincloss: And then we remain on track. We remain on track to grow into the three to four range. We feel very comfortable with that. Emma, maybe you can talk about what we see in convenience and electrification, and Carol can talk about bio as well. Sure, I'll kick off.

Speaker Change: And then we remain on track. We remain on track to grow into the three to four range. We feel very comfortable with that. Emma, maybe you can talk about what we see in convenience and electrification. And Carol can talk about bio as well, please.

Emma Delaney: So, in terms of convenience and electrification, we're well on track to deliver around $1.5 billion from convenience and electrification together. Electric EV charging lost $0.3, so $300 million last year. And we're talking about breaking even, so that will contribute to the $1.5 billion. And in convenience, we're well on track. So we did half a billion dollars this year already. First half, that's up $200 million, first half versus first half. And we're in action, both on the revenue line and on the cost line. So on the revenue line, just a few examples are like for like sales are up, and our store conversions.

Emma: Sure. Sure, I'll kick off.

Emma: In terms of convenience and electrification, we're well on track.

Emma: to deliver around one and a half billion dollars from convenience and electrification together.

Emma: Electro-EV charging with a loss of 0.3 for $300 million last year.

Emma: and we're talking about breaking even, so that will contribute to the 1.5 billion dollars. And in convenience, we're well on track, so we did half a billion dollars this year already.

Emma: First half, that's up 200 million dollars, first half versus first half.

Emma: And we're in action both on the revenue line as well as on the cost line. So on the revenue line, just a few examples are like for like sales are up.

Emma Delaney: So when we convert stores to strategic convenience sites, which you'll see, we've now increased another 50 over this recent reporting period. And when we increase our strategic convenience stores, we see double-digit increases in sales, just from those conversions. And at the same time, we're working on our revenue line in the base business. So, for example, we're constantly innovating our offers. We launched pizza in Thorntons that saw a 13% uplift in sales in the first month.

Emma: and our store conversions. So when we convert stores to strategic convenience sites, which you'll see we've now increased another 50 over this recent reporting period. And when we increase our strategic convenience stores, we see double digit increase in sales.

Emma: just from those conversions.

Emma: And at the same time, we're working on our revenue line on the base business. So, for example, we're constantly innovating our offers. We launched pizza in Thorntons. That saw a 13% uplift in sales in the first month.

Emma Delaney: We also launched just this year, and it was launched; we launched 13 SKU stock keeping units of water, which is one of the top selling beverages for anybody who stops on the road, as well as sweet sorts of jellies, and candies. They're called epic brands.

Emma: We also launched just this year, we launched 13 SKU stock keeping units on water, which is one of the top selling beverages for anybody who stops on the road.

Emma Delaney: Why do I say that? Because actually, consumers are under pressure, and consumers under pressure want a better-value product. And we actually make a better margin from these private labels. So where we go directly to suppliers, and we conceive of a range of the top selling products, it works for us, higher profit, and it works for the consumer because it's more value. So I think as I put those together, we're now in the top five convenience stores in the USA.

Emma: as well as sweet sort of jellies, candies. They're called epic brands. Why do I say that? Because actually consumers are under pressure and consumers under pressure want a better value product.

Emma: And we actually make a better margin from these private labels, so where we go directly to suppliers, conceive of a range of the top selling products.

Emma: It works for us, higher profit, and it works for the consumer because it's more value. So I think as I put those together, we're now in the top five of convenience.

Emma Delaney: And our program in Europe is well underpinned with the pipeline of conversion, big conversion still happening in Poland. Here in the UK, we continue to convert at the margin, and then we have a big program in Germany. Thanks, Carol. Evie?

Emma: Stores in the USA.

Emma: And our program in Europe is well underpinned with the pipeline of conversion, big conversion still happening in Poland. Here in the UK we continue to convert at the margin and then big program in Germany.

Emma Delaney: Evie, I think you said we'd break even, and we feel comfortable with that right now. Everything moving in the right direction. Happy to come back to that after, if we like, and then Carol? Okay, so I mean, I think the first thing I'd say is about BIO, because you did mention BIO.

Emma: Thanks, Carol. E.V.? E.V. I think you said we'd break even and we feel comfortable with that right now. Everything moving in the right direction. Happy to come back to that after if we like, and then Carol?

Carol Howell: So we recognize, obviously, globally, in most markets, it is weaker. And I'll come to IKEA shortly, because that's one market where it isn't. But I would say on the BIO side, you know, we have seen lower transport tickets in Europe. We have also seen short-term oversupply. We've also seen some reduction in mandates, for example, in Sweden and Finland.

Speaker Change: Okay, so I mean I think first thing I'd say is on bio because you didn't mention and bio to recognize obviously

Speaker Change: Globally in most markets it is weaker and I'll come to archaea shortly because that's one market where it isn't

Speaker Change: But I would say on the buyer's side, you know, we have seen lower transport tickets in Europe .

Speaker Change: We have also seen short-term oversupply. We've also seen some reduction in mandates, for example, Sweden, Finland. So, you know, there is some regulatory uncertainty which has contributed to that.

Carol Howell: So, you know, there is some regulatory uncertainty, which has contributed to that, but we do also forecast that we're going to see margins improving through the end of 25 and into 2026. That's as we see mandates increasing in key markets like Germany and the Netherlands, and that's also as, potentially, there might be import duties placed on biodiesel into Europe. And bioenergy is still needed to decarbonize the hard to abate sectors, such as transport.

Speaker Change: But we do also forecast that we're going to see margins improving through the end of 2025 and into 2026.

Speaker Change: That's as we see mandates increasing in key markets like Germany and Netherlands.

Speaker Change: and that's also as potentially there might be import duties placed on to biodiesel into Europe and also bioenergy is still needed to decarbonize the hard-to-abate sectors such as transport. I think Emma can talk to the business side of that more so but I'd say it's a recognition but we do still see positive margins for the future.

Carol Howell: I think Emma can talk to the business side of that more so. But I'd say it's recognition, but we do still see positive margins for the future. In IKEA, as I say, a slightly different story, D3 RINs are actually holding up very well at the moment.

Speaker Change: In Archaea, as I say, this is a slightly different story. D3 winds are actually holding up very well at the moment. It's a combination of high mandates.

Carol Howell: It's a combination of high mandates, it's a combination of low availability around cellulosic ethanol, and it's also that the waiver credit there has been discontinued. So that's a positive pricing market, averaged about 3.19 in Q2. So why are we confident around IKEA? Well, we're confident because we're also seeing increasing demand in the transportation market. So it's up 14% in the first half of this year versus last year. And we also see continuing growth as people use biogas to decarbonize. But we're also confident on the supply side. So we brought four plants online this first half of the year. So that's roughly around 4 million MMBTUs of high-margin RNG.

Speaker Change: It's a combination of low availability around cellulosic ethanol, it's also that the waiver credit there has been discontinued. So that's a positive pricing market, averaged about 3.19 in Q2.

Speaker Change: So why are we confident around our care?

Speaker Change: Well, we're confident because we're also seeing increasing demand in the transportation market. So it's up 14% first half of this year versus last year, and we also see continuing growth as people use biogas to decarbonize.

Speaker Change: but we're also confident on the supply side. So we brought online four plants this first half of the year, so that's roughly around four million MMBTUs of high-margin RNG.

Carol Howell: And we've got two more in commissioning at the moment due to start up this week, and a further two undergoing final commissioning due to start up in August. So we're making progress in bringing those plants online. And just as a reminder, if Henry was worth $3 an MMBTU, which I know is probably a little bit optimistic at the moment, but if it were, and we were looking at placing our RNG into the transport market with RINs at $3, we could actually sell that RNG for 10 times more the value of Henry Hub.

Speaker Change: and we've got two more in commissioning at the moment due to start up this week.

Speaker Change: and a further two undergoing final commissioning due to start up in August . So we're making progress in bringing those plants up online. And just as a reminder, if Henry Hub were $3 an MMBTU, which I know is probably a little bit optimistic at the moment, but if it were,

Speaker Change: and we were looking at placing our RNG into the transport market with RINs at $3. We can actually sell that RNG for 10 times more the value of Henry Hub.

Speaker Change: So that just gives you a sense still of the value in that portfolio. Now also what I would say is, you know, we've learnt a lot, commissioning times are reducing. Medora, that took us around seven weeks, we're now at around seven to ten days.

Carol Howell: So that just gives you a sense of the value in that portfolio. Now also, what I would say is, you know, we've learnt a lot. Commissioning times are reducing. Medora, that took us around seven weeks.

Carol Howell: We're now at around seven to 10 days. So we are improving and getting those plants up and running more quickly. But that's not to say that there are some headwinds.

Speaker Change: So we are improving and getting those plants up and running more quickly. That's not to say that there are some headwinds. We've seen that across the market, permitting interconnect delays.

Carol Howell: We've seen that across the market, with interconnect delays. But we're confident about that delivery, and we're still focused on delivering, you know, 800 million to a billion by 2030. So I'd say that arc here.

Speaker Change: but we're confident about that delivery and we're still focused on...

Speaker Change: delivering, you know, 800 million to a billion by 2030, so let's say that arc here. Thanks, Carol. Thanks, Emma. So we feel confident, Irene. One more question in the room, then we'll go out to the phone lines. Biraj.

Murray Auchincloss: Thanks, Carol. Thanks, Emma. So we feel confident, Irene. One more question in the room, then we'll go out on the phone lines. Biraj.

Biraj Borkhataria: Thanks for taking my question. It's Biraj Borkhataria from RBC. The first one is just on the balance sheet. The market's been concerned about your debt levels in recent quarters. And, you know, when I start to look at the figures, you've got net interest at 80% of your dividend. And your lease payments have gone up 40% over the last couple of years.

Speaker Change: Thanks for taking my questions, Biraj Borkhataria, RBC.

Speaker Change: The first one's just on the balance sheet. The market's been concerned about your debt levels over recent quarters. And when I started to look at the figures, you've got net interest at 80% of your dividend. Your lease payments have gone up 40% over the last couple of years.

Murray Auchincloss: And, you know, I understand the push on EBITDA growth, but there are real reasons why the EBITDA growth is not translating to free cash, free cash at the bottom line. So just going back to the 80% surplus payout, could you just help me understand why it still makes sense to, it feels quite restrictive, is my question, and rather than putting more cash on the balance sheet. So that's the first question. And then the second question is just on employee share options and dilution, which looks like there's a large amount coming due in the first quarter of 2025 from plans put in place a few years ago.

Speaker Change: I understand the push on EBITDA growth, but there are real reasons why the EBITDA growth is not translating to free cash flow at the bottom line. So just going back to the 80% surplus payout, could you just help me understand why it still makes sense to, it feels quite restrictive, is my question.

Speaker Change: and rather than putting more cash to the balance sheet. So that's the first question. And then the second question is just on

Speaker Change: Employee share options and dilution that looks like there's a large amount that comes due in the first quarter of 2025 from plans put in place a few years ago. In normal years you have a separate buyback to offset that dilution.

Murray Auchincloss: In normal years, you have a separate buyback to offset that dilution, but it looks like a very large number. And obviously, you don't know exactly what's going to come through. So could you help me understand whether you intend to offset the amount in 2025 or not? I think last quarter you introduced language saying overtime. So what exactly does overtime mean?

Speaker Change: But it looks like only a very large number and obviously you don't know exactly what's going to come through so

Kate: Could you help me understand whether you intend to offset the amount in 2025 or, I think last quarter you introduced language saying overtime, so what exactly does overtime mean? Thank you. Yep, great. Kate, I think on the balance sheet I'll start and pass to Kate and she can answer the question on shareholder options.

Katherine Thomson: Thank you. Yeah, great. Kate, I think on the balance sheet, I'll start and pass to Kate, and she can answer the question on shareholder options. I think it's important to remember that we're focused on credit ratings. We're not necessarily slavishly focused on net debt. And if you think about where our credit rating is and where our spreads are, we're A plus and A plus with Fitch and Moody's. So we're in a very strong position, and we don't plan on moving to AA.

Kate: I think it's important to remember that we're focused on credit rating. We're not necessarily slavishly focused on net debt. And if you think about where our credit rating is and where our spreads are, we're A plus and A plus with Fitch and Moody's.

Katherine Thomson: It gives us the flexibility we need for trading. It gives us lots of firepower for what we want to do. So that's why we feel that we're comfortable with where we are. We've come a long way in the past. And it makes sense for us to buy back shares that we think create more value for shareholders, both through the buyback flywheel and the dividend that comes with that. Kate, anything to add and then on to employee schemes? Maybe just a couple of points.

Kate: So we're in very strong position and we don't plan on moving to AA. It gives us the flexibility we need for trading. It gives us lots of firepower for what we want to do. So that's why we feel that we're comfortable with where we are. We've come a long way over the past.

Kate: and it makes sense to buy us to share buybacks that we think create more value for shareholders both through the buyback flywheel and the dividend that comes with that.

Kate: Kate, anything to add? And then on to employee schemes.

Katherine Thomson: I think that the share buybacks are part and parcel of our sector-leading distributions, and the shareholders that we talk to are very supportive of that component of the financial framework. The balance sheet's in good shape. We've made tremendous progress since 2020 in reducing it by 29 billion in terms of debt. So it's there, and it's strong so that it can tolerate fluctuations.

Kate: A couple of points. I think that the share buybacks are part and parcel of our sector-leading distributions and the shareholders that we talk to are very supportive of that component of the financial frame.

Speaker Change: The balance sheet's in good shape. We've made tremendous progress since 2020. We're reducing it by $29 billion in terms of debt.

Murray: It's there and it's it's strong so that it can tolerate fluctuations So I think that's important alongside Murray's point which is absolutely spot-on with regard to financial resilience We're being way more than just net debt

Katherine Thomson: So I think that's important alongside Murray's point, which is absolutely spot on with regard to financial resilience being way more than just net debt. On the ETHOP dilution, yes, we did decide to move to offsetting overtime, and that is where we are going to be. So at a decent run rate last year, we offset 675 million of ETHOP dilution through share buybacks. So we'll continue to step through that. With regard to next year, yes, there are some options out there, but I'm not going to predict at what point they start to be used. They have a six-year life expectancy.

Speaker Change: On the ETHOP dilution, yes we did decide to move to offsetting over time and that is where we are going to be. So a decent run rate last year, we offset 675 million of ETHOP dilution through share buybacks, so we'll continue to step through that.

Speaker Change: With regard to next year, yes, there are some options out there. I'm not going to predict at what point they start to be exercised. They have a six-year life. So we will continue to offset that over time and we'll step through it and can give you a little bit more detail as we get into that.

Katherine Thomson: So we will continue to offset that overtime, and we'll step through it and can give you a little bit more detail as we get into that. Hard to predict, isn't it? Yep. Great. Thanks, Biraj.

Paul Cheng: Why don't we go to the phone, and I'll start with Paul Cheng on the phone, please, sort of addressed. For OP&P, the op-ex, the in-pilot op-ex seems like it's a bit high. I think there's a higher exploration charge off. But in addition to that, is there anything else we should be aware of? And how much is the exploration charge off for the quarter? The second question is probably for Murray.

Speaker Change: Hard to predict, isn't it? Yep, great. Thanks, Biraj. Why don't we go to the phone, and I'll start with Paul Cheng on the phone, please.

Paul Cheng: Thank you. Good morning.

Paul Cheng: I have two questions. I think the first one is for Kay. You may have already saw my address. For OP&P, the OP-X

Paul Cheng: The Empire of X seems like it's a bit high. I think there's a higher exploration charge off, but in addition to that, is there anything else we should be aware? And how much is the exploration charge off for the quarter?

Paul Cheng: BPX, can you give us an idea of how the second half activity level is going to look like in the first half? The second quarter is a good quarter. It looks like it must be permanent.

Paul Cheng: The second question maybe is for Murray. BPX...

Speaker Change: Can you give us an idea of how the second half activity level is going to look like in the first half? The second quarter is a good quarter. It looks like it must be permanent. The production numbers, especially in the liquid, are much higher.

Paul Cheng: The production number, especially in the liquid, is much higher. So if you can comment on that, that would be great. Thank you.

Murray Auchincloss: Great. Thanks, Paul. I'll lead off with BPX, and I'll hand it back to Kay. She might have answered most of your questions already.

Murray: So if you can comment on that, that would be great. Thank you. Great. Thanks, Paul. I'll lead off with BPX and I'll hand back to Kate. She might have answered most of your question already. On BPX, yeah, the teams have made great progress there. I visited with them after the last set of results for a few days.

Murray Auchincloss: On BPX, yeah, the teams have made great progress there. I visited with them after the last set of results for a few days. And you're right, we brought in the third central gathering facility in the first quarter, and we started to fill that up; that's why we see the strong growth in liquids. In the second quarter, they're now working on the last one, which is really a compressor station which will lower line pressure, which will draw more resources out of the ground, and that should come online sometime in the middle of next year. As far as activity sets are concerned, generally, we've described these in rig years.

Speaker Change: And you're right, we brought on the third central gathering facility in the first quarter and we started to fill that up. That's why we see the strong growth in liquids.

Speaker Change: In the second quarter, they're now working on the last one, which is really a compressor station, which will lower line pressure, which will draw more resource out of the ground, and that should come online sometime middle of next year.

Speaker Change: As far as activity set, generally we've described these in rig years.

Murray Auchincloss: The difficulty with that is they're drilling so fast that they're able to drill the same number of wells with half the rigs. So they've just done incredible work on ranging well drilling and some TDS technology as well. It's hard to believe that they've been able to do that step change yet again.

Speaker Change: The difficulty with that is they're drilling so fast that they're able to drill the same number of wells with half the rigs. So they've just done incredible work on ranging well drilling and some TDS technology as well. It's hard to believe that they've been able to do that step change yet again.

Murray Auchincloss: So when you look at the rig count numbers that we provide with you, it's as if it's two times the rigs that existed two years ago, if you measure it to that metric, given the productivity they've seen. Right now in the gas basins, obviously, gas prices are quite low. We've got tons of resources, 22 TCF of resources, and we've just moved down to minimal drilling inside the Haynesville. So we're down to one rig in the Haynesville, just keeping going.

Speaker Change: So when you look at the rig count numbers that we provide with you, it's as if it's two times the rigs that existed two years ago, if you measure to that metric, given the productivity they've seen.

Speaker Change: Right now in the gas basins, obviously gas price is quite low. We've got tons of resource, 22 TCF of resource.

Speaker Change: and we've just moved down to minimal drilling inside Haynesville.

Murray Auchincloss: But we continue to focus on the oily side. So we'll continue to drill out the Permian and gradually fill that system up entirely. We'll probably hit peak production for liquids in the Permian around 2027, based on the last analysis I did.

Speaker Change: So we're down to one rig in the Haynesville, just keeping going, but we continue to focus on the oily side.

Speaker Change: So we'll continue to drill out the Permian and gradually fill that system up entirely. We'll probably hit peak production for liquids.

Murray Auchincloss: And the other very interesting thing that we talked about while I was there is that they're rethinking Eagleford. So we have 500 wells there that have been producing for about a decade, but they were fracked a decade ago.

Speaker Change: and the Permian around 2027 based on the last analysis I did.

Speaker Change: And the other very interesting thing that we talked about while I was there is they're rethinking the Eagleford.

Speaker Change: So we have 500 wells there that have been producing for about a decade, they were fracked a decade ago. Obviously fracking technology has moved on materially since then, so they've gone in and done 50 refracts.

Murray Auchincloss: Obviously, fracking technology has moved on materially since then, so they've gone in and done 50 refracks, and the returns on these things are unbelievable. With the new technology on the fracks, you're getting all kinds of liquid production coming out of them. So we're up to about 30. We now have 500 opportunities that Gordon's working with them on to decide at what pace we fund those. And the last thing I'd say about Eagleford is they also started to downspace, which is very counter to what you think of in some of these plays where maybe you don't downspace, you're getting it through laterals.

Speaker Change: And the returns on these things are unbelievable. With the new technology on the fracks, you're getting all kinds of liquid production coming out of them. So we trialed 30. We now have 500 opportunities that Gordon's working with them on to decide at what pace we fund those.

Speaker Change: And the last thing I'd say on the Eagleford is they also started a downspace, which is very counter to what you think of.

Murray Auchincloss: But what they found is that the couple of downspacing wells they've drilled have delivered 3,700 barrels of oil a day, which is way above POPs, even what we're seeing in some of the Permian. So the Eagleford's opening back up to us, and it's this mantra that we always have to think about with resources: once you think you're done with the recovery factor, have another go at technology And that's what we're proving in the Eagleford. They used to talk about recovery factors of 7 to 10 percent. That might resonate with you for the Permian.

Speaker Change: In some of these plays that maybe you don't downspace, you're getting it through laterals. But what they found is the couple of downspacing wells they've drilled have delivered 3,700 barrels of oil a day, which is way above POPs, even what we're seeing in some of the Permian acreage.

Speaker Change: So the Eagleford's opening back up to us.

Speaker Change: And it's this mantra that we always have to think about with resources is

Speaker Change: Once you think you're done on recovery factor, have another go at technology and see what happens. And that's what we're proving in the Eagleford.

Murray Auchincloss: They're now talking 30 percent recovery factors in the Eagleford from these refracts and from the downspacing. And of course, that's a question that we'll constantly challenge ourselves in the Permian as well. How can we completely change that?

Speaker Change: They used to talk about recovery factors of 7-10%. That might resonate with you for the Permian. They're now talking 30% recovery factors in the Eagleford.

Speaker Change: from these refracts and from the downspacing and of course that's a question that will

Speaker Change: Constantly challenge ourselves in the Permian as well. How can we completely change that? So what should you see? You should see us continue to focus on liquids with liquids growth. Gas production will decline with only one rig running in the Haynesville, but given where prices are right now, that's fine. We'll take our hedges through profit.

Murray Auchincloss: So what should you see? We continue to focus on liquids growth and gas production will decline with only one rig running in Haynesville. But given where our prices are right now, that's fine. We'll take our hedges through profit, and we'll see what happens with gas prices as we move through 25 and 26.

Kate: And we'll see what happens with gas prices as we move through 2025 and 2026. Our sense is it'll be more resilient. And if it's more resilient, we can lean in and we can produce an awful lot more natural gas. But we have tremendous flexibility in the portfolio given all the resources we have there. Kate, back to you then on OPEX.

Murray Auchincloss: Our sense is it'll be more resilient. And if it's more resilient, we can lean in, and we can produce an awful lot more natural gas. But we have tremendous flexibility in the portfolio given all the resources we have there. Kate, back to you then on OPEX.

Katherine Thomson: Yeah, so just a couple of quick points. I think I kind of answered the point on unit production costs earlier. It's really just a mix.

Kate: Yeah, so, Paul, just a couple of quick points. So, I think I kind of answered the point on unit production costs earlier, it's really just mix.

Katherine Thomson: The only thing I would add to that is don't try and correlate that directly to what we're saying about cash costs, because obviously there's a whole segment of costs that don't feed into the production cost number. So there's not a direct relationship between those. And then EWOs, we had an EWO of about 100 million in the second quarter, which was largely related to the Gulf of Mexico. Great, thank you, Kate. I'll take one more on the call, and then I'll come to the room. Michele de la Vigna at Goldman.

Kate: The only thing I would add to that is, don't try and correlate that directly to what we're saying on cash costs because obviously there's a whole segment of costs that don't feed into the production cost number, so there's not a direct relationship between those.

Kate: And then on EWOs, we had an EWO of about 100 million in the second quarter, which was largely related to the Gulf of Mexico.

Speaker Change: Great. Thank you, Kate. I'll take one more on the call and then I'll come to the room. Michele Della Vigna at Goldman's.

Michele Della Vigna: And really, congratulations on the strong results and the industry-leading cash return to shareholders. Two questions, if I may. The first one is on LNG.

Speaker Change: And really, congratulations on the strong results and the industry-leading cash return to shareholders. Two questions, if I may. The first one is on LNG. You've run historically with more spot exposure than most of your peers and you've monetized it.

Michele Della Vigna: You've historically run with more spot exposure than most of your peers, and you've monetized it through trading. I'm wondering, with more and more supply coming on stream, especially potentially oversupplied markets from 2026-2027, whether you're looking for more brand-linked long-term contracts? And if you can give us an idea of the split of your long-term exposure between spot and long-term?

Speaker Change: through trading, I'm wondering with more and more supply coming on stream, especially potentially oversupplied market from 26, 27, whether you're looking for more brand linked.

Speaker Change: Long-term contracts and if you can give us an idea of the split of your long-term exposure between spot and long-term And then secondly, I wanted to come back to the two bio refiners that you've decided for the moment not to proceed with It makes perfect sense in terms of capital reallocation following the BP Boone acquisition but I was also wondering if there was anything that changed in your assumptions on policy or demand or cost of feedstock

Michele Della Vigna: And then, secondly, I wanted to come back to the two biorefineries that you've decided not to proceed with. It makes perfect sense in terms of capital reallocation following the BP Bunge acquisition, but I was also wondering if there was anything that changed in your assumptions on policy or demand or cost of feedstock that influenced that decision. Thank you. Great. Well, as long as Carol's in the room, she can have fun with LNG. Away you go, Carol.

Speaker Change: that influenced that decision. Thank you.

Carol: Great. Well, as Carol's in the room, she can have fun with LNG. Away you go, Carol. Oh, thank you, Murray. So, I won't give you a percentage of the Brent link, but what I would say is, you know, we do buy on Henry Hubb and Brent basis, and we do also sell on Henry Hubb and Brent basis.

Carol Howell: Oh, thank you, Murray. So I won't give you a percentage of the Brent link, but what I would say is we do buy on a Henry Hub and Brent basis, and we do also sell on a Henry Hub and Brent basis. The way that we look at our portfolio is that the first thing that we want to do is lock in the intrinsic margin. Then, because we've built a lot of optionality into our portfolio over time, what we then look to do is trade and optimize around those flows, rewire cargoes into the optimal markets and highest price centers.

Speaker Change: The way that we look at our portfolio is the first thing that we want to do is lock in the intrinsic margin. Then, because we've built a lot of optionality into our portfolio over time, what we then look to do is trade and optimise around those flows, rewire cargoes into the optimal markets and highest pricing centres.

Carol Howell: So, as an example, around 50% of our supply is open for Asia and Atlantic cross-basin optimisation, and we expect that to grow to around two-thirds in 2025. We also use tools continuously on a daily basis to actually look at those rewiring opportunities, and they take price feeds in. So we're looking at whether we should be flexing volumes? Should we be redirecting supply into a particular market because of a price change or an ARB movement?

Speaker Change: So as an example, around 50% of our supply is open for Asia and Atlantic cross-basin optimisation, and we expect that to grow to around two-thirds in 2025.

Speaker Change: We also use tools continuously on a daily basis to actually look at those rewiring opportunities and they take price feeds in, so we're looking at should we be flexing volumes, should we be redirecting supply into a particular market because of a price change or an ARB movement. So we're constantly looking at that portfolio in order to maximise the value for BP.

Carol Howell: So we're constantly looking at that portfolio in order to maximize the value for BP. In terms of volumes, we had around 23 million tonnes last year, which was up 20% versus 2022. On top of that, we had 10 million tonnes, around 10 million tonnes of what we would call short term and spot contracts. But for us, the short term is like a three to five year period, so it's not all spot. But if you think, if you're looking for a split, last year was 23 long terms and 10 short to medium terms.

Speaker Change: In terms of volumes, so we had around 23 million tonnes last year, which was up 20% versus 2022. On top of that,

Speaker Change: We had 10 million tons, around 10 million tons of...

Speaker Change: What we would call short-term and spot contracts.

Speaker Change: but for us the short term is like a three to five year period so it's not all spot but if you think, if you're looking for a split

Unknown Attendee: And in terms of long-term contracts, just in April, we signed with COGAS, who have a strategic relationship with us. We signed a further contract with them, which was 11 years in duration and up to 9.8 million tonnes of supplies to them, which is in addition to a long-term contract we already had with them, which I think was 20 plus years. So we are looking at long-term contracts. We also look at short-term market opportunities. And I think on the bio, thank you.

Speaker Change: Last year was 23 long-term and 10.

Speaker Change: from the compounds to the general compounds.

Speaker Change: and in terms of long-term contracts.

Speaker Change: You know, just in April , we signed with Kogas, who is a strategic relationship with us. We signed a further contract with them, which was 11 years in duration and up to 9.8 million tonnes supplying into them, which is in addition to a long-term contract we already had with them, which I think was 20-plus years.

Unknown Attendee: Thank you, Carol. Excellent. We are very different than the competition. We have a different viewpoint on this, and we believe. On biorefining, I have just a few things to say.

Speaker Change: So we are looking at long-term contracts, we also look at short-term market opportunities.

Speaker Change: And I think on the bio, thank you. Thank you, Carol. Excellent. We are very different than the competition. We have a different viewpoint on this and we believe in flexibility.

Speaker Change: On biorefining, maybe just a few things to say. Over time, it's become clear that a lot of people are building biorefineries, whether it's through coprocessing or hydrocracking.

Murray Auchincloss: Over time, it's become clear that a lot of people are building biorefineries, whether it's through coprocessing or hydrocracking, and that's not the part of the complex that will be short, so you'll have lots of steel. We think we need up to three different plants that we build this decade. None have been sanctioned yet, so we still have to go through our sanction process, but we think that gives us enough capacity for what we want for our aviation fleet and for our trading fleet.

Speaker Change: and that's not the part of the complex that will be short.

Speaker Change: So you'll have lots of steel. We think we need up to three different plants that we build this decade. None have been sanctioned yet. So we still have to go through our sanction process. But we think that gives us enough capacity for what we want for our aviation fleet and for our trading fleet.

Murray Auchincloss: We think instead that the value is in the upstream, and that's why we decided to reallocate scarce capital to the purchase in Bungay. It offers us a lovely bioethanol position in the domestic market in Brazil. It also offers tremendous opportunity to increase yields and drive better performance inside the plants because it can be modernized significantly over time with very little investment. Our scientists in San Diego, who we work with so closely, have all kinds of different enzymes that they're thinking about that can increase yield and create different products out of it.

Speaker Change: We think instead that the value is in the upstream, and that's why we decided to reallocate scarce capital to the purchase in Bungay. It offers us a lovely bioethanol position inside the domestic market.

Speaker Change: Inside Brazil. It also offers tremendous opportunity to increase yields, to drive better performance inside the plants because it can be modernized significantly over time with very little investment.

Speaker Change: And our scientists in San Diego, who we work with so closely, have all kinds of different enzymes that they're thinking about that can increase yield, create different products out of it.

Murray Auchincloss: Last, Carroll has the opportunity to on-trade this out of Brazil, which is always historically where we've been selling, and into the West Coast of the United States or Europe to optimize trading flows as well. We think that, along with focusing on the upstream, on things like Carinata with NuSeed, that's where you apply your scarce capital, that's where the value will be, and that's what's going to create long- It's not about any changes in viewpoint on pricing; there is no change in viewpoint on mandates.

Speaker Change: And last, Carol has the opportunity to on-trade this out of Brazil, which is always historically where we've been selling, and into the West Coast of the United States or Europe to optimize trading flows as well.

Speaker Change: So we think that, along with focusing on the upstream, on things like Carinata with NuSeed, that's where you apply your scarce capital, that's where the value will be, and that's what's going to create long-term enduring value. It's not about any changes in viewpoint on pricing, no change on viewpoint on mandates. It's simply the fact that so many plants have been built.

Lydia Rainforth: It's simply the fact that so many plants have been built. We can toll them as opposed to constructing them ourselves, which is much more capital efficient for shareholders. So thanks for the question, Michele, and we'll come back here into the room and lead off with Lydia. Thank you. And it's Lydia Rainforth from Barclays.

Speaker Change: We can toll through them as opposed to constructing them ourselves, which is much more capitally efficient for shareholders. So thanks for the question, Michele, and we'll come back here into the room and lead off with Lydia, please.

Lydia Rainforth: And hopefully you'll forgive me a direct question, Marie. But that idea of being simpler, more focused, higher value, that idea of how focused are you really on that drive to 25? And part of the reason I asked that is things like Bungi. There is an opportunity cost to doing it, you could have taken down there. And you've then got Bungi TA to incorporate everything else to do.

Lydia Rainforth: Thank you. And it's Lydia Rainforth from Barclays. And hopefully you'll forgive a direct question, Marie. But the idea of being simpler, more focused, higher value.

Lydia Rainforth: that idea of how focused are you really on that drive to 25 and

Lydia Rainforth: Part of the reason I asked that, things like Bungie, there is an opportunity cost to doing it, you could have taken down debt, and you've then got Bungie TA to incorporate everything else to do, so actually how focused is it really on that drive to 25?

Lydia Rainforth: So actually, how focused is it really on that drive to 25? And then secondly, on the EBITDA numbers for 2025, I know you flagged the kind of potential price impacts. If we were indexing for the current environment, what would that mean for cash returns at this stage? Yep, okay. I'll ask Kate to answer the cash question.

Speaker Change: And then secondly, on the EBITDA numbers for 2025, I know you flagged the kind of potential price impacts if we were indexing for the current environment. What would that mean for cash returns at this stage? Yeah, okay.

Katherine Thomson: I think it's a relatively straightforward question. For a more simplified and focused answer, look, when we laid out six months ago when I became CEO, we laid out six priorities. Obviously, safety, obviously, drive to 2025 are big parts of that, including the cost agenda that Kate talked about earlier. But what we said is that we really now need to focus our efforts and focus in on the things that we're going to build this decade that will set the shape for 2030. And that's what we're focused on. And so you've heard us talk about focusing inside Emma's business in EV.

Speaker Change: I'll ask Kate to answer the cash question. I think it's a relatively straightforward question. On Simpler and Focus, look, when we laid out, six months ago when I became CEO , we laid out six priorities.

Speaker Change: Obviously safety, obviously drive to 2025 are big parts of that including the cost agenda that Kate talked about earlier. But what we said is we really now need to focus our efforts and focus in on the things that we're going to build this decade that will set the shape for 2030 and that's what we're focused on.

Murray Auchincloss: We're focused on four core markets for EV, China where we're number one, Germany number one, the UK number one or two, and building out the west coast of the US right now. So we're very, very focused on EV now as we have been over the past couple of years. In biofuels, focusing down on the number of plants we're pursuing and this tremendous counter-cyclical pricing opportunity with Bungay to create real long-term flows like we have in Archaea.

Speaker Change: And so you've heard us talk about focusing inside Emma's business and EV. We're focused on four core markets for EV, China where we're number one, Germany number one, UK number one or two, and building out the West Coast of the U.S. right now.

Speaker Change: So we're very, very focused on EV now that we've had over the past couple years.

Speaker Change: In biofuels, focusing down the number of plants we're pursuing in this tremendous counter-cyclical.

Murray Auchincloss: That's the benefit of these renewable oil fields or gas fields. They've got long, long flows and long, long RTP associated with them, which is quite valuable. And we said today about hydrogen. We're focusing on hydrogen down. We'd chased 30 different opportunities in the past.

Speaker Change: Pricing opportunity with Bungay to create real long-term flows like we have in Archaea.

Speaker Change: That's the benefit of these renewable oil fields or gas fields. They've got long, long flow and long, long R to P associated with them, which is quite valuable.

Murray Auchincloss: We're now thinking about what we can actually construct and get going. And that's where we focused it, where we think we'll sanction around five to ten and build five to ten this decade, with the first two being in Castellon in Spain, building a green electrolyzer at Castellon that will help us make SAF in Castellon and decrease the carbon intensity of the refinery, and the same in Lingen. Castellon is with our partner Evadrola.

Speaker Change: And we said today hydrogen, and we're focusing hydrogen down. We'd chased 30 different opportunities in the past. We're now thinking about what can we actually construct and get going, and that's where we focused it down, where we think we'll sanction around 5 to 10 and build 5 to 10 this decade.

Speaker Change: with the first two being in Castellón in Spain building a green electrolyzer at Castellón.

Speaker Change: that will help us make Saf and Castillon and decrease the carbon intensity of the refinery and the same in Lingen.

Murray Auchincloss: Lingen, it's 100% owned. It'll create 100 megawatts of green hydrogen to go into local use, both for SAF and local demand. And of course, the EPSA funding that's coming from the European market for these things makes them very attractive with high So I think, Lydia, the geographic focus is concentrating and concentrating and concentrating. You'll see more of that.

Speaker Change: Castellans with our partner Evadrola, Lingen it's 100% owned, it'll create 100 megawatts of 100 megawatts of green hydrogen to go into local both for SAF and local demand.

Speaker Change: And of course, the EPSA funding that's coming from the European market for these things makes these very attractive with high returns.

Lydia Rainforth: So I think Lydia...

Murray Auchincloss: So we're concentrating down to fewer markets that are aligned with the movement that we're taking as moving from an IOC to an IEC, and we're picking those very best markets with the very best opportunities that give us integrated trading value or optionality outside it. So I feel as if we are concentrating, and I'd invite you each quarter to ask that as you see the announcements we make and watch how we concentrate. I won't pre-announce any other moves. Kate, it's over to you.

Lydia Rainforth: Geographic focus is concentrating and concentrating and concentrating. You'll see more of that.

Lydia Rainforth: So we're concentrating down to fewer markets that are aligned with the movement that we're taking.

Lydia Rainforth: as moving from an IOC to IEC, and we're picking those very best markets with the very best opportunities that give us integrated trading value or optionality outside of it.

Lydia Rainforth: So I feel as if we are concentrating and I'd invite you each quarter to ask that as you see the announcements we make and watch how we concentrate. I won't pre-announce any other moves.

Katherine Thomson: It certainly feels like we're focused internally, I have to say that. So it's probably a fair assessment if you just look at the impact on EBITDA, a typical proportion of that will feed through into cash flow, right? Our cash conversion has been improving quarter on quarter for the last four quarters, but I think that's as good a guide as we can give you.

Lydia Rainforth: Kate, over to you. It certainly feels like we're focused internally on it, I have to say that. So it's probably a fair assessment if you just look at the impact on EBITDA.

Kate: A typical proportion of that will feed through into cash flow, right?

Kate: Our cash conversion has been improving quarter on quarter the last four quarters, but I think that's as good a guide as we as we can give you.

Katherine Thomson: In terms of what your next question might be in terms of, so what does that do for the 14? We're next going to update on February 25. So we've moved to a cadence where we just update twice a year with regard to share buyback. We've pre-announced all the way through to February 25. And as a board, we'll take into consideration facts and circumstances at that time. Thank you, Lydia.

Kate: In terms of what your next question might be, in terms of, so what does that do for the 14?

Kate: We're next going to update in February 25, so we've moved to a cadence where we just update twice a year with regard to ShareBuy, but we've pre-announced all the way through to February 25.

Kate: And as a board, we'll take into consideration facts and circumstances at that time, but anchor on the fact that we've said 80%, at least 80% of surplus to buy back.

Peter Low: Next question in the room, Peter. Thanks. Peter Low from Redburn Atlantic. Yeah, the first was just on the Paleogene following the sanction of Cascada.

Kate: Thank you, Lydia. Next question in the room? Peter?

Peter Low: Would you look to farm down your position there at some point, and what would be the optimum time in the development to do that? And the second was just on oil production and operations, just on the results. I think you mentioned, again, that there were some price lag effects in the GOM and the UAE. Are you able to just quantify the approximate impact of that in the quarter? Thanks. Kate, do you want to do a price flag, and then I'll do Paleogene?

Peter Low: Thanks. Peter Low from Redburn Atlantic. Yeah, the first was just on the Paleogene following the sanction of Cascada. Would you look to farm down your position there at some point, and what would be the optimum time in development to do that?

Peter Low: And the second was just on oil production and operations, just on the results. I think you mentioned again that there were some price lag effects in the GOM and the UAE. Are you able to just quantify the approximate impact of that in the quarter? Thanks.

Katherine Thomson: Yeah, I think it was in the trading statement, I think we quantified it as between $100 and $200 million. Don't don't think of price lag impacts as a direct correlation to things like working capital, which does reverse. So price lag and the degree to which it reverses in subsequent quarters depends on the pattern of prices in that quarter and also the two areas where we get the price lag in the US and in the UAE.

Katherine Thomson: And the outcome that you saw is a combination of the fact that there was some reversal from the first quarter, but also in the first quarter, we had a read through from the price lag impacts in the fourth quarter of last year. On Paleogene, if you'll allow me to wax eloquent about Paleogene for a minute, 10 billion barrels of discovered resource in the basin that's now been highly developed It's time for us to catch up with that. We've used an industry-standard solution for Cascada.

Peter Low: Kate, do you want to do a price flag and then I'll do Paleogene? Yeah, I think it was in the trading statement, I think we quantified it as between $100 and $200 million.

Speaker Change: Don't think of price lag impacts as a direct correlation to things like working capital, which does reverse.

Speaker Change: Price lag and the degree to which it reverses in subsequent quarters depends on the

Speaker Change: The pattern of prices in that quarter, and also the two areas where we get the price lag in the US and in the UAE, and the outcome that you saw is a combination of the fact that there was some reversal from the first quarter, but also in the first quarter we had a read-through from the price lag impact in the fourth quarter of last year.

Speaker Change: On Paleogene, if you'll allow me to wax eloquent about the Paleogene for a minute, 10 billion barrels of discovered resource in the basin, that's now been highly developed by other companies. It's time for us to catch up with that. We've used an industry standard solution for casquita.

Murray Auchincloss: It'll produce 80 KBD. It'll be less than $5 billion. It'll drill six wells in the East Bump. That's all that we're putting into that sanction case, delivering at least 275 million barrels. But when I listen to Gordon's team, we might do quite a bit better than that.

Speaker Change: It'll produce 80 KBD. It'll be less than $5 billion. It'll drill six wells in the East Bump. That's all that we're putting into that sanction case, delivering at least 275 million barrels.

Murray Auchincloss: The reason we might do quite a bit better than that is we have a thousand feet of pay, and the average across the rest of the Paleogenes is 500 feet of pay. So it's an enormous, enormous column of oil, and we'll be doing a seven-frack completion inside those. So let's see. Let's see if we get 275 or something much higher over time. It will be hopefully followed by Tiber 12 months later. By mid next year, we think we'll be sanctioning Tiber.

Speaker Change: When I listen to Gordon's team, we might do quite a bit better than that. The reason we might do quite a bit better than that...

Gordon: is we have a thousand feet of pay and the average across the rest of the paleogenes 500 feet of pay. So it's an enormous enormous column of oil.

Gordon: and we'll be doing a seven-frac completion inside those.

Speaker Change: So, let's see. Let's see if we get 275 or something much higher over time. It will be hopefully followed by Tiber 12 months later. Mid-next year we think we'll be sanctioning Tiber. It'll pretty much be a photocopy of Cascada as well for capital productivity.

Murray Auchincloss: It'll pretty much be a photocopy of Cascada as well for capital productivity. And at the same time, we'll be appraising the West Bump at Cascada, and hopefully, that'll just tie back and flow into East Cascada over time. And we've got a couple of exploration wells to the East and West of Cascada and some more stuff near Guadalupe and Tiber as well.

Speaker Change: And at the same time we're doing that, we'll be appraising the West Bump in Cascada, and hopefully that'll just tie back and flow into East Cascada over time. And we've got a couple of exploration wells to the east and west of Cascada, and some more stuff near Guadalupe and Tiber as well.

Murray Auchincloss: So it's a very, very, very strong resource base. We've got some de-risking to do with appraisal wells and exploration wells that are very sensible to do given the high quality seismic that we've shot. And obviously, to your point, Peter, we have a 100% working interest there. I think for now, we're going to start Cascada and get it going.

Speaker Change: So it's a very, very, very strong resource base. We've got some de-risking to do with appraisal wells and exploration wells that are very sensible to do given the high quality seismic that we've shot. And...

Speaker Change: Obviously, to your point, Peter, we have 100% working interest there. I think for now, we're going to start Cascada, get it going. We will appraise these wells, we'll drill the exploration wells, see what we have. And in probably 12 to 18 months' time, ask me that question again.

Murray Auchincloss: We will appraise these wells. We'll drill the exploration wells, see what we have. And in probably 12 to 18 months' time, ask me that question again, and I'll think about how much of the resource we've appraised and got under our thumb to think about what we do. Do we bring in a partner or not?

Speaker Change: And I'll think about how much of the resource we've appraised and got under our thumb to think about what we do. Do we bring in a partner or not? Taskita alone will be a 5% increase in operating cash flow when it comes in at a group level.

Murray Auchincloss: Cascada alone will be a 5% increase in operating cash flow when it comes in at a group level. 5% alone. I'm tired, but we follow that as well. So it'll be an interesting choice to ask May, 12 or 18 months away. Thank you. Did everybody like the casket pitch?

Speaker Change: 5% alone. And Tyra will follow that as well. So it will be an interesting choice to ask me 12 or 18 months away. Thank you.

Murray Auchincloss: Was that okay? Great. Sorry for waxing eloquent, those of you on the web. Next question for the web, and then we'll come back to the room. Roger Read, please. Hey Roger, can you hear us? Can you hear me?

Speaker Change: Did everybody like the casket pitch? Is that okay? Great. Sorry for waxing eloquent, those of you on the web. Next question to the web and then we'll come back to the room. Roger Read, please.

Roger Read: Yep, go for it, Roger. Can you all hear me now? Yeah, I can hear you, Roger. Okay, sorry, something with my headset. So apologies for the speaker here if it creates a problem. Um, can we just take a quick ride down the political aisle? You just had an election and a change in government in the UK. We've got an election coming up in the US. Anything in particular you're seeing locally or looking at over here in the US that we should be thinking about?

Roger Read: Hey, Roger, can you hear us?

Roger Read: Can you hear me? Yep, go for it, Roger. Can you all hear me now? Yep, can hear you, Roger. Okay, sorry, something with my headset, so apologies for the speaker here if it creates a problem.

Speaker Change: Can we just take a quick ride down the political aisle, you just had an election and a change in government in the UK, we've got an election coming up in the US, anything in particular you're seeing locally or looking at over here in the US that we should be thinking about?

Roger Read: I think, you know, my hope, Roger, from all these elections is that we can speed up the pace of moving forward, whether that be in the oil and gas space or in the transition space. Permitting, grid connections, and build-outs have been an incredible drag. No matter what geography you sit on in the West, the East is different.

Roger: I think my hope, my hope, Roger, from all these elections is we can speed up the pace of moving forward, whether that be in the oil and gas space or in the transition space.

Roger: Permitting grid connections, buildouts have been an incredible drag.

Murray Auchincloss: It's very fast in the East, but in the West, whether that's Europe, the UK, or the United States, I'm hopeful that whoever comes in during the elections can help us with that, because it's a definite drag on returns and cash flow for corporations, and I'm very much looking forward to seeing the pace of that pick up. And as you know, we're happy to work with whichever governments come to power in any nation.

Roger: No matter what geography you sit inside in the West, the East is different, it's very fast in the East, but in the West...

Roger: whether that's Europe, the UK, or the United States.

Roger: I'm hopeful that whoever comes in in the elections can help us with that because it's a definite drag on returns and cash flow for the corporations and I'm very much looking forward to seeing the pace of that pick up.

Speaker Change: And as you know, we're happy to work with whichever governments come in in any nation. We've been around for 115 years working with all sides in all kinds of countries.

Murray Auchincloss: We've been around for 115 years, working with all sides in all kinds of countries. So as long as you stay aligned with the country, you pay your taxes, you invest in your people, you develop research, and you're a good corporate citizen, I think we're happy to work with any political affiliation in the world. Do you have a second question, Roger? Yeah, I do.

Speaker Change: So, as long as you stay aligned with the country, you're paying your taxes, you're investing in your people, you're developing research, and you're a good corporate citizen, I think we're happy to work with any political affiliation in the world.

Roger Read: As we think about, and I don't mean this at all to criticize the cash returns you're doing now, but you know, as you've laid out a pretty good path here to greater cash flows as we go towards the end of the decade, what's the right way for us to think about, What are some of the, maybe, StairStep events or other catalysts for what would make you confident to continue increasing cash payouts to shareholders? Yeah, if you think about our current financial framework and how we talk about it, we obviously have a buyback dividend mechanism that, if you look backwards, has enabled at least three 10% buybacks now so that it's not guidance, it's not meant for guidance, but it gives you a sense of how we think about these things.

Roger: Do you have a second question, Roger?

Roger: Yeah, I do. As we think about, and I don't mean this at all to criticize the cash returns you're doing now, but you know, as you've laid out a pretty good path here to greater cash flows as we go towards the end of the decade, what's the right way for us to think about

Speaker Change: You know what are some of the maybe

Speaker Change: Stair-step events or other catalysts for what would make you confident to continue increasing cash payouts to shareholders.

Speaker Change: Yeah, I think if you think about our current financial frame and how we talk about it, we obviously have a buyback dividend mechanism that if you look backwards,

Speaker Change: It's enabled at least three 10% buybacks now, so it's not for guidance.

Roger Read: And then from an underlying basis, what you should continue to hear me say is we're aiming for three to 4% underlying growth in EBITDA. We call it EBITDA, but since CapEx is relatively flat, proceeds are flat, working capital through the cycle is relatively flat, you should be thinking about a three to 4% increase in cash flow as well moving forward. And that comes about from two things.

Speaker Change: but it gives you a sense of how we think about these things.

Speaker Change: And then from an underlying basis, what you should continue to hear me say is that we're aiming for three to four percent.

Speaker Change: underlying growth in, we call it EBITDA, but since CapEx is relatively flat, proceeds are flat.

Speaker Change: working capital through cycles relatively flat. You should be thinking about three to four percent increase in cash flow as well moving forward.

Murray Auchincloss: One, the cost efficiency drive we've talked about where we see $2 billion by the end of 26. Hopefully, we can go further. We'll see. Time will tell.

Speaker Change: And that comes about from two things. One, the cost efficiency drive we've talked about, where we see $2 billion by the end of 2026. Hopefully, we can go further. We'll see. Time will tell. Certainly, given where technology is going these days, it gives me optimism.

Speaker Change: Second, construction. We are a construction company and that's what we're doing is we're sanctioning a ton of construction projects.

Speaker Change: Six months ago I told you that we have 32 projects that we need to sanction moving forward. We've been through 12 of them, we've sanctioned 5 of them, we've said no thank you to 7. But those 5, along with what we've done in Bungay, what Carol's doing in Arkea, etc., just shows this constant construction wave.

Murray Auchincloss: We look for that construction wave to overcome basic clients in the business and grow overall cash flows for the business by three to 4% per annum moving forward. So I think watch progress on construction, and you can sure feel that the later part of the decade is really underpinned by the Paleogene. That feels pretty good right now to be that well underpinned, and we continue to do other interesting things in transition growth engines and unconventionals to drive forward growth earlier than that. Thanks for the questions, Roger. I'll go one more on the web before I come back to the room, Ryan Todd, please.

Speaker Change: We look for that construction wave to overcome basic decline in the business and grow overall cash flows for the business.

Speaker Change: 3-4% per annum moving forward.

Speaker Change: So, I think watch, watch progress on construction and you can sure feel that, uh...

Speaker Change: The later part of the decade is really underpinned with the Paleogene. That feels pretty good right now to be that well underpinned, and we continue to do other interesting things in transition growth engines and unconventionals to drive forward the growth earlier than that.

Speaker Change: Thanks for the questions, Roger. I'll go one more on the web before I come back to the room. Ryan Todd, please.

Ryan M. Todd: Chris, thanks. Maybe I have a couple of gas related questions. I mean, as we think about your global gas business, thanks for some of the, Carol, thanks for some of the color you gave earlier on trading. I mean, some of your competitors have talked about gas trading, maybe trending towards the lower end of the typical range, as you think about returns uplift over the next couple of years due to market dynamics. When you look forward at your business over the next couple of years, both your portfolio trading next, Global Supply and Demand Dynamics, and potential impacts on price and volatility, etc.

Ryan: Great, thanks. Maybe...

Speaker Change: A couple of gas related questions, as we think about your global gas business.

Speaker Change: Thanks for some of the, Carol, thanks for some of the color you gave earlier on trading. I mean, some of your competitors have talked about gas trading maybe trending towards the lower end of the typical range as you think about returns uplift over the next couple years due to the market dynamics.

Speaker Change: When you look forward at your business over the next couple of years, both of your portfolio trading mix.

Ryan M. Todd: What do you think about your gas trading business? And does that, do you expect to be able to continue to grow it over the next couple of years? Are there any broader dynamics that may push the kind of returns up with lower in the range?

Speaker Change: Global Supply-Demand Dynamics and Potential Impacts on Price and Volatility, etc. What do you think about your gas trading business and is that...

Speaker Change: Do you expect to be able to continue to grow that over the next couple of years? Are there any broader dynamics that may push the kind of the returns uplift lower in the range? And then maybe just a follow-up on specific timing, maybe any update on timing of Tour 2?

Ryan M. Todd: And then maybe just a follow-up on specific timing, maybe any update on timing of Torch 2 and first gas and first cargoes? Yeah, Torch 2, and then over to Carol on Torch 2, we continue to make good progress. We got the FPSO into the harbor. I think Gordon, you were out there recently.

Speaker Change: and first gas and first cargoes. Yeah, Tortue and then over to Carol on Tortue. We continue to make good progress. We got the FPSO into the harbor. I think, Gordon, you were out there recently. And now we're just hooking together all the equipment and we'll have to start to flow gas.

Murray Auchincloss: And now we're just hooking up all the equipment, and we'll have to start flowing gas relatively soon. I think we will start flowing gas into the systems. We obviously need to leak test, make sure everything's OK from the journeys across the world to get together. And once we've got the leak testing done, then you'll move into starting the refrigeration units inside the LNG. And then you can start to build up cargoes. We would look to introduce first gas into the system to start all the pressure testing, etc.

Speaker Change: Relatively soon, I think, we'll start flowing gas into the systems. We obviously need to leak test, make sure everything's OK from the journeys across the world to get together.

Speaker Change: And once we've got the leak testing done, then you'll move into starting the refrigeration units inside the LNG, and then you can start to build up cargos.

Murray Auchincloss: Over the next three or four months, I think it would be a comfortable place to say. So that's what we can say on Torch 2. I'll just say to the teams in the field who are listening, be safe guys, no matter what. Safety is all we care about. Carol, let's see how you negotiate your performance contract. Yeah, thank you for that. I mean, the first thing I would say is that, you know, from a trading and shipping perspective, overall, we've been consistent in our delivery.

Speaker Change: We would look to introduce first gas into the system to start all the pressure testing, etc. over the next three or four months, I think would be a comfortable place to say.

Speaker Change: So that's what we can say on Tortue. I'll just say to the teams in the field who are listening, safe guys. No matter what, safety is all we care about.

Speaker Change: Carol let's see how you negotiate your performance contract. Yeah thank you for that. I mean the first thing I would say is that you know from a trading and shipping perspective overall we've been consistent in our delivery.

Murray Auchincloss: So we have delivered on average an uplift of around 4% to the group's return on average capital employed over the past four years. So that's through a number of cycles, a number, and we've also got a history, I'd say, on the gas side of actually purchasing counter-cyclical. So a lot of the long-term contracts that we've entered into on the supply side have been done at low points in the market, so they are high-value contracts.

Speaker Change: So we have delivered, on average, an uplift of around 4% to the group's return on average capital employed over the past four years. So that's through a number of cycles, a number of environments, and roughly, we would say it's probably 50-50 oil gas.

Speaker Change: So, we've also got a history, I'd say, on the gas side of actually purchasing counter-cyclical. So a lot of the long-term contracts that we've entered into on the supply side have been done at low points in the market. So they are high-value contracts. And we also have...

Unknown Attendee: And we also have strong strategic relationships in terms of contracts for sales into the east as well as into other markets. We're a top-tier energy trader, so we're going to continue to invest in the platform. This is my return on performance contract to Murray.

Speaker Change: Strong strategic relationships in terms of contracts for sales into the east as well into other markets We're a top tier energy trader

Speaker Change: So we're going to continue to invest in the platform. This is my return performance contract to Murray.

Unknown Attendee: We're going to continue to invest in the platform to maintain and grow that competitiveness. And that does mean looking at access to infrastructure, to downstream markets, and I mean this both on the oil and gas side. As an example, we were the leaders of going into LNG downstream in China with a Guangdong JV.

Speaker Change: We're going to continue to invest in the platform to maintain and grow that competitiveness.

Speaker Change: and that does mean I'm looking at, you know, access to infrastructure to downstream markets and I mean this both on the oil and gas side.

Speaker Change: You know, as an example, we were the leaders of going into LNG downstream in China with a Guangdong JV. So we're going to be continuing to look at opportunities there to also support and develop and grow that portfolio going forward.

Unknown Attendee: So we're going to be continuing to look at opportunities there to also support and develop and grow that portfolio going forward. So I'm still, you know, we're not guiding to the future, but I'm still holding that the team will be able to continue to deliver consistently with historic performance. Yeah.

Speaker Change: I'm still, you know, we're not guiding to the future, but I'm still holding that the team will be able to continue to deliver consistently with historic performance.

Murray Auchincloss: And we've said since 2020, we've averaged 4% incremental return on Roche on the overall group capital employed, and there's no reason to think despite dampened volatility that we wouldn't be able to continue to do that, as Carol spake in some fabulous. Great, questions back in the room now. Thanks, Murray.

Yep, and we've said since 2020 we've averaged 4% incremental return on Roche on the overall group capital employed And there's no reason to think despite dampened volatility that we wouldn't be able to continue to do that as Carol spaked in some fabulous Contracts over time great questions back in the room now

Unknown Attendee: Can I ask a couple, one on refining and downstream and the other, you know, capital allocation towards the Renewable Power businesses. So refining downstream, I kind of feel I'm losing track on what the earnings power of that business actually is. Clearly, a chunk of that is because you've had a lot of downtime. TART has been a real focus this year and last year.

Speaker Change: Thanks Murray. Can I ask a couple? One on refining and downstream and the other, you know, capital allocation towards the renewable power businesses. So refining downstream, I kind of feel I'm losing track on what the earnings power of that business actually is.

Speaker Change: Clearly a chunk of that is because you've had a lot of downtime. TARS have been a real focus this year, last year.

Unknown Attendee: Just to try and give us some better idea of what you think the underlying earnings power of the refining assets is in a normalized price environment, or at your RMM, however you choose to put it. And I guess aligned with that, on the basis that the margin environment looks as though it will be tougher going forward. You've talked in the past about margin shifting from Emma's businesses to the refining business. How much of that would you expect may shift back?

Speaker Change: Just to try and give us some better idea of what you think the underlying earnings power of the refining assets are in a normalised price environment, or at your RMM, however you choose to put it. And I guess aligned with that,

Speaker Change: on the way the environment looks like it would be more difficult ahead.

Speaker Change: You've talked in the past about margins shifting from...

Speaker Change: HEMA's business is to refining business.

Unknown Attendee: That's that's one question. And the second, when you stood up in 20 toward the start of 2023, you talked about the allocation of 60 billion or so of capital towards the transition growth engines over the period of 2030. But I know you're going to update that next year.

Speaker Change: How much of that would you expect may shift back?

Speaker Change: That's one question. And the second, when you stood up at the start of 2023, you talked about the allocation of $60 billion or so of capital towards the transition growth engines over the period to 2030.

Unknown Attendee: But do you still think that 25 to 30 billion of that was going to be allocated toward hydrogen, solar, and offshore wind power? In effect? Is that still a realistic number or is that something that you really think you can allocate elsewhere or not allocate at all? On the safety side, the first thing I'd point to is safe operational performance.

Speaker Change: I know you're going to update next year, but do you still think that 25 to 30 billion of that was going to be allocated towards hydrogen, solar, offshore wind power in effect?

Speaker Change: Is that still a realistic number or is that something that you really think you can allocate elsewhere or not allocate at all?

Speaker Change: That's it.

Speaker Change: Great. Thanks, Lucas. Emma, do you want to tackle the refining and margin shift question? And I'll tackle the second one. Yeah, sure. Thanks, Lucas.

Unknown Attendee: That's always our focus in refining. And this quarter, we did have an availability of 96.4%, and four of our refineries were up at 96.5%. Just as a reminder, last year, the full-year performance for refining was 96.1%, and that was a record since 2005, if I remember right.

Emma: On the refining side, the first thing I'd point to is safe operational performance, that's always our focus in refining.

Emma: and this quarter we did have an availability of 96.4%.

Emma: and four of our refineries were up at 96.5. Just as a reminder.

Emma: Last year, the four-year performance for refining was 96.1, and that was a record for refining.

Unknown Attendee: So job number one is to run the plant safely, and then we optimize commercially. Actually, we don't report refining, as you know, because we put it in products. We work very closely together with Carol's business on the oil trading side and the product side in the midstream. And so after job number one, which is safe operational performance, job number two is to optimize commercial value.

Speaker Change: Since 2005, if I remember right.

Speaker Change: For job number one is to run the kit safely and then we optimize commercially. Actually, we don't report refining, as you know, because we put it in products. We work very closely together with Carol's business on the oil trading.

Carol: and the product side in the midstream and so after job number one which is safe operational performance, job number two is to optimize the commercial value and we do see value move up and down the chain from customers to products and back.

Unknown Attendee: And we do see value move up and down the chain, from customers to products and back. I think as I reflect on 22 and 23, we saw elevated refining margins compared to history; I think 27 RMM and 22-23 versus 15 in the period 2015 to 21, if I remember correctly. So there has been significant volatility in refining. So I'm not going to guide you to the future because, you know, it's really difficult.

Carol: I think, as I reflect on 22 and 23, we saw...

Carol: elevated refining margins compared to history.

Douglas: if I remember. There has been significant volatility in the refining. I'm not going to guide to the future because that's difficult but with our trading statements and Kate we do aim to definitely tap into the ludicrous amount of volatility

Unknown Attendee: But we do, with our trading statements, and Kate, you know, we do aim to guide as we go into each quarter because the volatility just has been really, really significant over the past quarters. And in this particular quarter, so second quarter 24, what we did see was our RMM is based on the typical configuration of refineries in a specific region, and then we blend it all together. Actually, our advantaged refinery configuration has more distillate weighting, about 60%.

Speaker Change: I'm going to give you a brief guide as we go into each quarter because the volatility has been really significant over the past quarters. In this particular quarter, so second quarter of 2024, what we did see was

Speaker Change: Our RMM.

Speaker Change: is based on the typical configuration of refineries in a specific region and then we blend it all together.

Unknown Attendee: And so that's why you saw in this quarter, with the diesel, well, the distillate in general, but the diesel margin declined significantly with gasoline going up, that did impact our refining financial delivery this quarter. So I think it's hard to say for the future.

Speaker Change: Actually, our advantaged refinery configuration has more distillate weighting, about 60%, and so that's why you saw in this quarter.

Speaker Change: with the diesel well the distillate in general but the diesel margin declined significantly with gasoline going up that did impact our refining financial delivery this quarter so I think hard to say for the future

Unknown Attendee: What I'm not sure of, or sorry, what I've always remained slightly uncertain of, is how much... [inaudible] Is that correct? Yes, so so in terms of the the TARS, we do give guidance on the TARS for the for the and this year we've said the TARS will be weighted towards the second half and four quarter and I think on the, on the portfolio side, you know, we have been streamlining our portfolio for some time now, and with the six refineries remaining, and we all also have talked about, in Gail's incursion in particular, that we will be reducing capacity from 25 in a controlled manner by about a third.

Speaker Change: The occupancy numbers are great. What I'm not sure of, or sorry, what I'm always remaining slightly uncertain of is how much...

Speaker Change: All the extent to which the kit is actually available and how much more kit is going to be available To you know optimize make money from etc in 25 relative to you know the past two years It's the scale of the task

Speaker Change: and I guess associated with TARs, I presume the costs of a TAR are actually capitalised rather than taken through P&L.

Speaker Change: Is that correct?

Speaker Change: Yes, so in terms of the TARS, we do give guidance on the TARS, and this year we've said that the TARS will be weighted towards the second half and four quarter, and I think on the second half. Thank you. Thank you.

Speaker Change: On the portfolio side, you know, we have been streamlining our portfolio for some time now, and with the six refineries remaining, and we all also have

Speaker Change: talked about, in Gail's incursion in particular, that we will be reducing capacity from 25 in a controlled manner by about a third. So I think from a throughput capacity and availability, I think, I'm happy to pick it up, happy to pick this up later, but I think we give quite enough.

Unknown Attendee: So I think from a throughput capacity and availability, I think I'm happy to pick it up, happy to pick this up later, but I think we give quite enough on the on the availability quarter Yeah, I'll just go back to something we, some safe comments, some comments we made in a previous quarter, Lucas, which is we expect the refining TARs to decrease in intensity from 25 onwards, because we've had a heavy dose of TARs in 22, 23, 24, as we catched up from the COVID time period, where it was impossible to mobilize individuals. So we do see a lessening of the TAR environment from 25 as we've done that catch up.

Speaker Change: on the availability quarter-on-quarter. Yeah, I'll just go back to some safe comments we made.

Speaker Change: and a previous quarter, Lucas, which is we expect the refining TARS to decrease in intensity from 25 onwards because we've had a heavy dose of TARS.

Speaker Change: in 22, 23, 24 as we catched up from the COVID time period.

Murray Auchincloss: Capacity, I think we've, I think you can see the capacity; you can see where we're operating at. How much we actually utilize, then, is a question of supply and demand for the product. Right now, diesel is slightly oversupplied, and gasoline's about average. Let's see what happens during driving season. Generally, you deplete these stocks as we move through the driving season, and the interesting things to watch are that we have not seen any weather events yet in North America or Europe that would impact the refineries. We have seen them in Asia and the Middle East, but not yet in the West.

Speaker Change: where it was impossible to mobilize individuals. So we do see a lessening of the TAR environment from 25 as we've done that catch-up. Capacity, I think you can see the capacity, you can see where we're operating at.

Speaker Change: How much we actually utilize then is a question of supply and demand for the product. Right now diesel is slightly oversupplied, gasoline is about average.

Speaker Change: Let's see what happens in driving season. Generally you deplete these stocks as we move through driving season. And the interesting things to watch are we have not seen any weather events yet.

Murray Auchincloss: So that will play on forward margin and what the earning capacity is. And there have been 600 KBD of announced shutdowns that have not occurred yet from the third party market. So we should, in Europe, the UK, and the US, see that 80 million a day capacity shrink again as these things shut down, which again means less product flow and more transfer margin. I think my overall conclusion in this space, Lucas, is that capacity is tight.

Speaker Change: in North America or Europe that would impact the refineries. We have seen them in Asia and the Middle East, but not yet in the West.

Speaker Change: So that will play on forward margin and what the earning capacity is. And there have been 600 KBD of announced shutdowns that have not occurred yet.

Speaker Change: from the third-party market. So we should, in Europe , UK, and the US, we should see that 80 million a day capacity shrink again as these things shut down, which again means less product flow and more transfer margin. I think

Speaker Change: My overall conclusion in this space, Lucas, is that capacity is tight.

Murray Auchincloss: Capacity is tight because all that continues to grow. Refining capacity in the West continues to shrink, and we continue to have weather events that are quite, quite, quite volatile. So I think what that leads me to is we'll see quite a bit of volatility in margins around refining. As far as the eye can see, that's how I relate to it.

Speaker Change: Capacity is tight because all down continues to grow. Refining capacity in the west continues to shrink. And we continue to have weather events that are quite...

Lucas: Quite volatile.

Lucas: So I think what that leads me to is we'll see quite a bit of volatility in margins around refining.

Murray Auchincloss: And that our earnings capacity will be based on how we do in that. On your capital allocation question, it's probably more a question for February than it is today. I think the statements that I can make right now are about offshore wind. We're happy with our portfolio, we're busy building out 10 gigawatts, and we will do that for as little capital as possible. This, for us, is all about the electrons.

Lucas: As far as the eye can see, that's how I relate to it.

Lucas: and that our earnings capacity will be based on how we do in that. On your capital allocation question, it's probably more a question for February than it is today.

Lucas: I think the statements that I can make right now are...

Speaker Change #101: In offshore wind, we're happy with our portfolio. We're busy building out 10 gigawatts. We will do that for as little capital as possible.

Murray Auchincloss: So we'll lever these up as much as we can; we'll bring partners in. And this is all about electron flows into our own business. That's how we relate to offshore wind.

Speaker Change #101: This for us is all about the electrons, so we'll lever these up as much as we can, we'll bring partners in.

Murray Auchincloss: Light source BP, of which we're buying 50%. Once that's brought into the envelope, we adjusted a bit on what it's working on, and we are happy that we optimized it. We'll consider bringing in partners for that quite quickly. So that will mean Lincoln.

Speaker Change #101: And this is all about electron flows into our own business, that's how we relate to offshore wind. Light source BP, of which we're buying 50%. Once that's brought into the envelope, we adjust it a bit on what it's working on and we are happy that we optimized it. We'll consider bringing in partners for that quite quickly.

Speaker Change #101: So that will mean there's very little capital intensity and light source BP for us. And hydrogen, let's see how we get on on the 5 to 10 plants. We've sanctioned two things, Castillon and...

Murray Auchincloss: We have big decisions coming on the net zero T side here in the UK. The integrated energy hub in Qanon, Australia, is a big decision. And we have a few more as well that we need to think our way through. Whatever those capital decisions are, that will determine what the capital is for the decade. And I'd hate to prejudge that.

Speaker Change #101: and Lincoln. We have big decisions coming on net-zero T side here in the UK. On the integrated energy hub in Quenana in Australia is a big decision. And we have a few more as well that we need to think our way through. Whatever those capital decisions are, that will determine what the capital is for the decade and I'd hate to prejudge that right now.

Murray Auchincloss: Hope that helps, Lucas. Another question in the room, Martin. Hi, hello, it's Martijn Rats from Morgan Stanley. I've got two questions, if I may.

Speaker Change #101: Hope that helps, Lucas. Another question in the room? Martin.

Martijn Rats: First of all, on the previous call, there was a question about the production profile in the second half of the decade towards 2030 and what that could look like. And I remember you saying at the time: well, we have 32 possible FIDs ahead, and what we decide on those will determine how that looks. I fully recognize you haven't done all 32 by now, but you've done 12, and you seem to have some strong ideas about Tiber and a few others.

Martin Rasmussen: Yeah, hi, hello, it's Martijn Rats from Morgan Stanley . I've got two questions, if I may. First of all, in the previous call, there was a question about the production profile in the second half of the decade towards 2030 and what that could look like. And I remember you mentioning at the time, you said, well, we have 32 possible FIDs ahead, and what we decide on those will determine how that looks like.

Martin Rasmussen: fully recognize you haven't done all 32 by now but you've done 12 and you seem to have some strong ideas about Tiber and a few others so perhaps some clarity is emerging of what the production profile could look like in the second half of the decade and uh you know not to preempt yet another question that is shifted to February

Martijn Rats: So perhaps some clarity is emerging about what the production profile could look like in the second half of the decade. And, you know, not to preempt yet another question that has shifted to February, but could you say something about the production profile in the second half of the decade? The other one I wanted to ask you is about impairments.

Murray Auchincloss: BP is not alone in this, but the impairments continue to run at very high levels, and every quarter we go, ah, non-cash. But it was cash once, and impairments, you know, they're not, you know, they're not great. Can you say anything about what the outlook is for further impairment charges over the quarters and possibly years ahead? Kate, I'll let you do impairments on production profile, Martin. I think we've gone through 12 different sanctions. Five of them we've approved, seven we have not. The two that we've approved in the upstream, actually three in the upstream, sorry. We did Atlantis DC-1 last time around. We've done Ruwes, and we've done Kestan.

Speaker Change #103: Could you say something about the production profile in the second half of the decade?

Speaker Change #104: The other one I wanted to ask you is about impairments. BP is not alone in this, but...

Speaker Change #105: The impairments continue to run at very high levels, and every quarter we go, ah, non-cash.

Martin Rasmussen: But it was cash once and impairments, you know, they're not, you know, they're not great. Can you say anything about what the outlook is for further impairment charges over the quarters and possibly years ahead? Great. Kate, I'll let you do impairments on production profile, Martijn.

Speaker Change #106: So we've gone through 12 different sanctions.

Kate: Five of them we've approved, seven we have not. The two that we've approved in the upstream.

Murray Auchincloss: Tiber looks hopeful, but we need to work our way through the supply chain to make sure that's so I can't prejudge Tiber, but I feel optimistic about it today. So we have done some, but there's an awful lot more to go as we think about it in that program of 32. But I don't, I'm not really thinking about production.

Kate: Actually three in the upstream, sorry. We did Atlantis DC-1 last time around. We've done Ruwes and we've done Cascada. Tiber looks hopeful, but we need to work our way through the supply chain to make sure that's the case.

Kate: So I can't prejudge Tiber, but I feel optimistic about it today. So we have done some, but there's an awful lot more to go as we think about it in that program of 32.

Murray Auchincloss: What I'm thinking about is cash flow and return. How can I really drive the upstream to be as prolific as possible on cash flow growth through the decade at the return hurdles that we have or better? That's how I really think about it and what we've guided on. Cash flow is growing to 25 and then relatively stable. I'm optimistic we can do better than that. I don't know what the production associated with that will be, but I'm optimistic that we can do better with that given the quality of the portfolio. So let's see, Martin.

Kate: but

Speaker Change #107: I don't, I'm not really thinking about production, what I'm thinking about is cash flow and returns.

Speaker Change #107: How can I really drive the uptrend to be as prolific as possible on cash flow growth?

Speaker Change #107: through the decade at the return hurdles that we have or better. That's how I really think about it and what we've guided on. Cash flow is going to 25 and then relatively stable. I'm optimistic we'll do better than that.

Speaker Change #107: I don't know what the production associated with that will be, but I'm optimistic that we can do better with that given the quality of the portfolio. So let's see, Martin. I think that's all I can say right now. And yes, we'll update you in February .

Katherine Thomson: I think that's all I can say right now. And yes, we'll update you in a... uh... a catered to you fashion. Yes, so at 2Q, a chunk of the impairments were due to refining, and we've made previous announcements with regard to how we're seeking to optimize Gelsenkirchen and, in particular, reducing the capacity there by a third. We said in the trading statement that it would be 1 to 2 billion post-tax. We're banging in the middle of that, and payments came in at 1.5.

Speaker Change #107: Kate, over to you on unparalleled

Kate: Yes, so at 2Q, a chunk of the impairments were due to refining and we've made previous announcements with regard to how we're seeking to optimise the Gelsenkirchen and in particular reducing the capacity there by a third.

Katherine Thomson: The other point to just comment on with regard to refining is that, as a function of the accounting rules, which push you to be prudent, we took onerous contract provisions in the second quarter. Those are calculated at a point in time before you have any option to commercially negotiate the outcome. So I would expect we'll do an awful lot better than that. I give Emma a stretch target now that we see that entirely reversing as we step through it because, currently, it's a non-cash cost. That truly is a non-cash cost.

Speaker Change #108: We said in the trading statement it would be 1 to 2 billion post-tax, we're banging in the middle of that, impairments came in at 1.5.

Speaker Change #108: The other point to just comment on with regard to refining is we...

Speaker Change #108: As a function of the accounting rules which push you to be prudent.

Speaker Change #108: We took onerous contract provisions in the second quarter.

Emma: Those are calculated at a point in time before you have any option to commercially negotiate the outcome. So I would expect we'll do an awful lot better than that. And I give Emma a stretch target now that we see that entirely reversing as we step through it, because currently it's non-cash cost.

Katherine Thomson: With regard to impairments going forward, it's a function of business decisions that we make in plans and environments. So I'm not going to start predicting what that's going to look like, but I take your point. It's a bit tricky with IFRS. It effectively brings your asset values, it just mechanically brings your asset values down to your price and your discount rate.

Speaker Change #109: That truly is non-cash cost. With regard to impairments going forward, it's a function of business decisions that we make in plans and the environment, so I'm not going to start predicting what that's going to look like, but I take your point.

Speaker Change #110: It's a bit tricky with IFRS It makes you it effectively brings your asset values It just mechanically brings your asset values down to your price and your discount rate And then if your discount rate increases you impair if your discount rate drops you write back And if your price viewpoints change up and down you have to you have to write back etc. So

Speaker Change #112: I tend to think of it more like advanced depreciation, because it's forcing us to depreciate earlier than we otherwise might have, and it's a nature of the rules.

Katherine Thomson: And then, if your discount rate increases, you pay more. If your discount rate drops, you write back. And if your price viewpoints change up and down, you have to write back, et cetera. I tend to think of it more like advanced depreciation because it's forcing us to depreciate earlier than we otherwise might have, and that's the nature of the rule. So that's just another thing to think about, Martin, as you look at it. Next question in the room, Alastair.

Speaker Change #110: So, that's just another thing to think about, Martin, as you look at it. Next question in the room.

Emma Delaney: I just have a question for Emma about the marketing business. If you could give some idea of globally what you're seeing in same-store sales, particularly how maybe that shifts between or splits between footfall and basket size, and particularly within the US, given that you did call out in previous quarters that you're seeing signs of a consumer recession in the US. So in the marketing business, in terms of, if I think about, we did four and a half billion dollars last year, and we're aiming towards seven billion dollars, and there are four big areas of growth that we're aiming for. The first one is continued performance and convenience.

Speaker Change #111: Thank you.

Speaker Change #113: I just have a question for Emma about the marketing business. If you could give some picture on globally what you're seeing in same-store sales.

Speaker Change #114: You know, particularly how maybe that shifts between or splits between footfall and basket size. And particularly within actually the US, given that you did call out on previous quarters, you're seeing signs of consumer recession in the US.

Emma: Yeah, I'm in the...

Emma: So in the marketing business, in terms of, if I think about,

Speaker Change #115: We did four and a half billion dollars last year.

Speaker Change #116: and Aiming towards the $7 billion, and there are four big areas of growth that we're aiming for. The first one is in continued performance and convenience. We saw 6% margin growth.

Emma Delaney: We saw 6% margin growth in the first half of this year versus the first half of last year. Your question specifically on what of the growth is made up of like-for-like versus store revamps; it depends on the market. So in the U.S. specifically, it's probably about a third like-for-like and two-thirds store revamps. And each market is different depending on whether you have a program of store revamps. So, for example, we have store revamps currently underway in Poland. There's more on the store revamps.

Speaker Change #116: first half this year versus first half last year. To your question specifically on what is the growth is made up of like for like versus

Speaker Change #117: Store revamps, it depends on the market. So in the U.S. specifically, it's probably about a third like-for-like and two-thirds store revamps.

Speaker Change #117: and each market is different depending on whether you have a program of store revamps. So for example we have store revamps currently underway in Poland, there's more on the store revamp side.

Emma Delaney: So, continued performance and convenience will be a big part of our growth in the marketing businesses as we look through 2024 and 2025. In our base business, you know, when I think about the base business, Castrol has now had six quarters of momentum. We had a record quarter in aviation this year, and our cost program that I talked about earlier will continue to give some growth engine to the base business. I talked as well about UV earlier, and Bunga will also contribute to that.

Speaker Change #117: So, continued performance and convenience will be a big part of our growth in the marketing businesses as we look through 24 and 25.

Speaker Change #117: In our base, you know, when I think about the base business, Castrol has now had six quarters of momentum. We had a record quarter in aviation this year. And our cost program that I talked about earlier will continue to give some growth engine to the base business.

Emma Delaney: So, as I look at sort of the big picture for the marketing business, I think we're well on track, and it's made up of, I mean, literally 20,000 sites on the retail side. We work them top-line, bottom-line, and we work all the other B2B businesses as well. So, really, a big, diverse portfolio there to get after. Thank you, Chris Kuplent from Bank of America. Two questions.

Speaker Change #117: I talked as well about V already and Bunga will also contribute in that. So if I look at sort of the big picture for the marketing business.

Speaker Change #118: I think we're well on track and it's made up of a whole, I mean, literally 20,000 sites on the retail side. We work them top line, bottom line, and we work all the other B2B businesses as well. So really a big, diverse portfolio there too.

Christopher Kuplent: The first one is on your 2025 targets again, and I think, Emma, you refer to 2223 as a remarkable year in many respects, in terms of achieved refining margins. So I wonder, can you add a little bit more subtlety around what I thought was a very subtle change already, suggesting that these EBITDA targets are to be achieved at 2023 prices. And I recall that they used to be based on midsize cycle assumptions way back in 21, when we didn't have RMMs above 20. And yet, they were above 20 in both 23, as well as in H1.

Speaker Change #118: to get after. Amazing. We're number five in convenience in the United States. Who'd have thought?

Christopher Kuplent: Thank you. Chris Kuplent from Bank of America. Two questions. First one is on your 2025 targets again, and I think, Emma, you refer to 2022-23 as remarkable years in many respects in terms of achieved refining margins.

Speaker Change #120: So I wonder, can you add a little bit more subtlety around what I thought was a very subtle change already?

Speaker Change #121: Suggesting that these EBITDA targets are to be achieved at 2023 prices.

Christopher Kuplent: And if I extrapolate H1 earnings, I kind of struggle to get to that EBITDA figure, even if I give you full credit for these EV and low carbon growth numbers coming through. So I wonder what you can talk us through about that. I thought there was quite a subtle change in the underlying assumptions behind these 2025 targets. And then just to follow up for you, Kate, on the networking capital, is it appropriate to think about the Q2 as a roughly 1.5 billion roughly reversal because the headline of 500 million or so includes the Gulf of Mexico spill payment?

Speaker Change #122: and I recall that they used to be based on mid-cycle assumptions way back in 21 when we didn't have RMMs above 20.

Speaker Change #123: and yet they were above 20 in both 23 as well as in H1. And if I extrapolate H1 earnings, I kind of struggle.

Speaker Change #124: to get to that EBITDA figure, even if I give you full credit for these EV and low carbon growth numbers coming through. So I wonder what you can talk us through about that, I thought, quite subtle change in underlying assumptions behind these 25 targets.

Christopher Kuplent: And are you confident that the remainder of the Q1 build is going to reverse in Q3? Or what more color can you give us around that? Thank you.

Speaker Change #124: and then just a follow-up for you Kate on the network and capital.

Kate: Is it appropriate to think about the Q2 as a 1.5 billion roughly reversal?

Speaker Change #125: because the headline of...

Speaker Change #126: 500 million or so includes the Gulf of Mexico spill.

Speaker Change #127: Are you confident that the remainder of the Q1 build is going to reverse in Q3, or what more color can you give us around that? Thank you.

Katherine Thomson: Yeah, we had a 2.4 billion capital build, working capital build, in the first quarter. Yeah, it's about one and a half that's come back this quarter. So we've got about another one to come. So, as I said earlier, we are expecting net working capital release in the third quarter. So my expectation, based on our current forecast, is that net debt will trend down in the third quarter prior to acquisitions that will consolidate acquired debt rates.

Speaker Change #128: Yes, so maybe if I take that one first. Yeah, we had a 2.4 billion capital build, working capital build in the first quarter. Yeah, it's about one and a half that's come back this quarter, so we've got about another one to come.

Speaker Change #129: So as I said, I think earlier, we are expecting net working capital release in the third quarter. So my expectation based on our current forecast is that net debt will trend down in the third quarter.

Katherine Thomson: On the assumptions, I think at 1Q, Murray, it might have been 4Q, when we were talking, we made it very clear, we were building from the 2023 delivery to how you get confident in the 2025 targets. And we said, okay, at these prices, with these buckets of growth that we've got line of sight to in the underlying business, that's how you get to your 46 to 49. And we asked you to triangulate back to that, I think, and maybe Craig and the IR team can follow up afterwards. When the original slide was put out, there was a footnote that talked about 2021 planning assumptions. So maybe Craig, you can pick that up with Chris after the call.

Speaker Change #129: Prior to acquisitions that will consolidate a quad debt rate.

Speaker Change #129: On the assumptions, I think it's...

Maria: One cue, Murray, it might have been four cue.

Maria: When we were talking, we made it very clear we were building from the 2023 delivery.

Speaker Change #131: to how you get confident in the 2025 targets. And we said, okay, at these prices, with these

Speaker Change #132: buckets of growth that we've got line of sight to in the underlying business. That's how you get to your 46 to 49. And we asked you to triangulate back to that. I think and maybe Craig and the IR team can follow up afterwards when the original slide was put out, there was a footnote.

Speaker Change #132: which talked about 2021 planning assumptions.

Speaker Change #132: So maybe, Craig, you can pick that up with Chris after the call.

Murray Auchincloss: Good. Thanks. It's Josh Stone here from UBS. First, I want to pick up on the decision to fully consolidate Boongi and LightSource BP because it seems like there are some companies in the sector choosing to separate out those businesses, and you've gone out your way to fully consolidate them back into the BP balance sheet. Can you talk about the benefits of those businesses being part of BP versus a standalone entity? So that's the first question.

Josh: Good, yeah Josh.

Joshua Eliot Dweck Stone: Thanks, it's Josh Stone here from UBS. First I want to pick up on the decision to fully consolidate Boongi and LightSource BP because it seems like there are some companies in the sector choosing to separate out those businesses and you've gone out your way to fully consolidate them back into the BP balance sheet. Can you talk about the benefits of those businesses being part of BP versus a standalone entity?

Joshua Eliot Dweck Stone: Second one, I did want to follow up on sort of surplus cash flow and buybacks because, looking at the first half of the year, surplus cash flow has underperformed where your buyback level is, and so it looks like you've been using debt to help pay the buyback. But when you decided to maintain the buyback flat, clearly using the outlook, and you've mentioned a lot of the positives of the outlook you're using to maintain that buyback.

Speaker Change #135: So that's the first question. Second one, I did want to follow up on sort of surplus cash flow and buybacks.

Speaker Change #136: Because if you look at the first half of the year, surplus cash flow has underperformed where your buyback level is.

Speaker Change #137: It looks like you've been using debt to help pay the buyback.

Speaker Change #138: But when you decided to maintain the buyback flat, clearly using the outlook, and you've mentioned a lot of the positives of the outlook you're using to maintain that buyback. So maybe just go through some of the key building blocks in that improvement of surplus cash, and how much of an outlook are you using? Is it just the second half of this year, or are you also...

Joshua Eliot Dweck Stone: So maybe just go through some of the key building blocks in that improvement in surplus cash and how much of an outlook are you using? Is it just the second half of this year, or are you also counting on 2025 growth to help maintain the buyback? Thank you. Sure, I'll start with LightSourceBP, then Emma, you want to handle Bungay Consolidation, and then Kate.

Murray Auchincloss: I think on LightSourceBP, look, we had a partner when we put it off balance sheet back in 2017, a fabulous entrepreneur, helped us grow the business up to 4 or 5 gigawatts development per year, but they hit the end of when they wanted to continue doing that. So, now is the time where if they wanted to cash out, it was convenient for us to go in and take control of it 100%. It's a fabulous vehicle to go and help Carol build out her business.

Speaker Change #139: Counting on 2025 growth to help maintain the buyback. Thanks.

Speaker Change #140: Sure, I'll start with LightSourceBP, then Emma, you want to handle Bunge, Consolidation, and then Kate.

Speaker Change #140: Look, we had a partner when we put it off balance sheet back in 2017. Fabulous entrepreneur, helped us grow the business up to four or five gigawatt development per year, but hit the end of when they wanted to continue doing this.

Speaker Change #140: So now is the time where if they wanted to cash out it was convenient for us to go in and take control of it a hundred percent.

Murray Auchincloss: So many customers around the world want natural gas coupled with power, clean power, to start to decarbonize their own energy system, and with the growth of hyperscalers, we're seeing just increased demand after demand after demand. So taking 100% control of that entity, given that incredible native demand we see for energy, especially from hyperscalers now and the desire of nations to transition, makes an awful lot of sense. At the same time, once you've taken that control, you've restructured it, done some stuff to the portfolio based on where your customers sit, etc., you will then think about bringing a passive partner into this. You'll think about giving it to a passive partner, and arbitraging the price over.

Speaker Change #140: It's a fabulous vehicle to go and help Carol build out her business.

Speaker Change #140: So many customers around the world want natural gas coupled with power, clean power, to start to decarbonize their own energy systems.

Speaker Change #140: And with the growth of hyperscalers, we're seeing just increased demand after demand after demand.

Speaker Change #140: So taking 100% control of that entity, given that incredible native demand we see for energy, especially from the hyperscalers now and the desire of nations to transition, makes an awful lot of sense.

Speaker Change #140: At the same time, once you've taken that control, you've restructured it.

Speaker Change #141: done some stuff to the portfolio based on where your customers sit, etc. You will then think about bringing a passive partner into this. You'll think about giving a passive partner it. They've got a very different cost of capital than we have. And so that should offer the chance to

Emma Delaney: Well, let's see when we complete, and then probably over 12 to 18 months, we'd bring somebody else in. So that's why we think it was a really good time, both given where the partner was, the opportunity we see in the market, and how we see that business moving forward. So that's how we think about LightSource BP. Emma, on Bungay?

Speaker Change #141: arbitrage the price over time.

Speaker Change #142: I'm on it.

Speaker Change #142: Well, let's see when we complete and then probably over 12 to 18 months we'd bring somebody else in.

Speaker Change #142: So that's why we think it was a really good time, both given where the partner was, the opportunity we see in the markets, and how we see that business moving forward. So that's how we think about LightSource BP. Emma, on Bungay?

Emma Delaney: Yeah, sort of a very short answer on Bungay. We've been in the joint venture since 2019, so we actually understand the operational performance metrics now quite well, and we saw the opportunity to take the 50% to then consolidate to 100% because the two biggest sources of value are inaccessible to us as just a 50%. Namely, the first one is about integrating with Carol's business on the trading side. So that's a big source of value there. They're very difficult to do when you're 50-50.

Emma: Yeah, sort of a very short answer on Bungay.

Emma: We've been in the joint venture since 2019, so we actually understand the operational performance metrics now quite well.

Emma Delaney: And then the other source of value is applying, Murray, you mentioned it earlier, some of the science, but also some of our techniques from refining on automated control systems, for example. We see the opportunity to increase mill uptime. And so again, difficult to do when it's in a joint venture 50-50. So I think the source of the value is that we can see it immediately ahead of us in the near term, and then there's tons to do long-term.

Emma: I saw the opportunity to take the 50% to then consolidate to 100% because the two biggest sources of value are inaccessible to us as just a 50%, namely the first one is about integrating with Carol's business on the trading side.

Emma: So that's a big source of value there, very difficult to do when you're 50-50.

Emma: And then the other source of value is applying, Murray, you mentioned it earlier, some of the science.

Murray: but also some of our techniques from refining on automated control systems, for example, we see the opportunity to increase the mill uptime.

Emma: And so again, difficult to do when it's in a joint venture 50-50.

Emma Delaney: There is a lot to do on the biogas side. We can use the waste from the mills. We'll take a relatively small investment, waste from the mills, to be able to then convert it into digested biogas, and then either use in our own vehicle network, there's a massive vehicle network there. We have 1,500 vehicle combine harvesters in the field, either to use your own fleet over time or to sell into the grid. That's a big opportunity for me.

Murray: So I think the source of the value.

Speaker Change #143: We can see them immediately ahead of us in the near term, and then there's tons to do long term, a lot to do on the biogas side, we can use the waste from the mills.

Speaker Change #143: will take a relatively small investment.

Speaker Change #143: waste from the mills to be able to then convert into biogas, digest biogas, and then either use in our own vehicle network, the massive vehicle network there, we have 1500 vehicles, combine harvesters in the in the field.

Katherine Thomson: Again, hard to do when you're 50-50, and you have different objectives for the joint venture. And then there's more to do in the future on next-generation ethanol. So I think those things we see both near-term sources of value, and then in the medium to long term, opportunities for investment to really bring this to life. So our decisions are driven by how do we create the maximum value for shareholders? That's how we drive, and those are the two examples in that case.

Speaker Change #143: either to use your own fleet over time or to sell into the grid. That's a big opportunity. Again, hard to do when you're 50-50 and you have different objectives for the joint venture. And then there's more to do in the future on...

Kate: on next generation ethanol. So I think those things we see both near term sources of value and then in the long in the medium to long term opportunities for investment to really bring this to life. So our decisions are driven by how do we create the maximum value for shareholders? That's how we drive. And that's two examples in that case. Kate, over to you on the other question.

Katherine Thomson: Kate, over to you on the other question. Yeah, so when we updated the fin frame in the fourth quarter. We deliberately stepped away from the quarter-on-quarter calculation of surplus cash because it was creating an awful lot of volatility and perhaps an unhelpful focus on what your absolute surplus cash is in any one quarter. So we wanted to provide predictability and a level of certainty to the market with regard to the forward share buyback.

Kate: Yep, so when we update the fin frame at the fourth quarter.

Kate: We deliberately stepped away from the quarter-on-quarter calculation of surplus cash because it was creating an awful lot of volatility and perhaps unhelpful focus on what's your absolute surplus cash in any one quarter. So we wanted to provide predictability and a level of certainty into the market with regard to the forward share buyback.

Katherine Thomson: In 1Q, we had a whiting outage that was significant, as you know, so the surplus cash was lower than we might have expected. In 2Q, the level of share buyback compared to surplus cash was down to 59%.

Kate: 1Q, we had a whiting outage that was significant, as you know, so the surplus cash was lower than we might have expected. At 2Q, the level of share buyback compared to surplus cash is down to 59%.

Katherine Thomson: So what we're saying is 80% over time, at least 80% over time to surplus cash. And as the board makes its decisions, and as we had the conversation last week with regard to the second half of 2024, we take into consideration what's come today and what's coming forward. And we're confident in the delivery of the business. We're confident in our improved performance. There's a lot of discipline that we're putting into the capital frame.

Kate: So what we're saying is 80% over time, at least 80% over time surplus cash.

Kate: And as the board makes its decisions, and as we had the conversation last week with regard to the second half of 2024, we take into consideration what's come today and what's coming forward.

Katherine Thomson: As you know, we've tightened that right down to around 16 for the year, and we're bang on that in the first half. Diversions are slightly higher than 2023 at 2 to 3. We've probably got between 1 and 2 billion more to come on that.

Kate: And we're confident in the delivery of the business. We're confident in the improved performance. There's a lot of discipline that we're putting into the capital frame. As you know, we've tightened that right down to around 16 for the year, and we're bang on that at the first half.

Katherine Thomson: And we've got a full year of cash flow from TA to take into consideration. So we're confident in our delivery and our outlook for the remainder of 2024. Thanks, Kate.

Kate: Divestments are slightly higher than 2023 at 2 to 3. We've probably got between 1 and 2 billion more to come on that. And we've got a full year of cash flow from TA to take into consideration. So we're confident in our delivery and our outlook for the remainder of 2024.

Doug Leggett: I realize that we're overrunning, so I'm going to take one more call on the phone. Apologies for that with Doug Leggett at Wolf, and then I'm going to have to close it down, and we'll follow up with any other questions out there. Doug, over to you. Thank you, Murray. Can you hear me OK?

Speaker Change #145: Thanks, Kate. I realize that we're overrunning, so I'm going to take one more call on the phone. Apologies for that with Doug Leggett at Wolf, and then I'm going to have to close it down, and we'll follow up with any other questions out there. Doug, over to you.

Doug Leggett: Yeah, I hear you are great. Thanks, Doug. So I'll try two quick ones, hopefully.

Doug Leggett: I wanted to try and maybe circle back on the longer term production outlook. A couple of quarters ago, you talked about 2 million barrels a day at the stabilized level. You're well above that, and you're now sanctioning new projects. I don't want to front run January or February when you report, but is 2 million still the right number? Okay. Did you have another question, Doug, or was that it?

Kate: Thank you, Murray. Can you hear me okay? Yeah, I hear you great. Thanks, Doug.

Doug Leggett: So I'll try two quick ones hopefully. I wanted to try and maybe circle back on the longer term production outlook. A couple of quarters ago you talked about 2 million barrels a day.

Doug Leggett: been the stabilised level. You're well above that and you're now sanctioning new projects. I don't want to front run January or February when you report but is two million still the right number?

Doug Leggett: Yeah, my follow-up is I wanted to come up with the goodbye question. I've had the pleasure of covering many of your peers for three decades, and the big difference between those buying back stock and yourselves is a much, much stronger balance sheet. And if I look at your share performance since you started the buyback, you really haven't had any benefit. Your share price is down, and you've bought back a fifth of your stock, but your net debt remains relatively high if you include the hybrids. I'm just curious why you believe that the method of cash return is still the optimal way to maximize value for shareholders. Okay, great.

Doug Leggett: Okay, did you have another question Doug or was that it?

Doug Leggett: Yeah, my follow-up is I wanted to come up to the bye-bye question.

Doug Leggett: I've had the pleasure of covering many of your peers for three decades and the big difference between those buying back stock and yourselves.

Doug Leggett: is a much, much stronger balance sheet. And if I look at your share performance since you started the buyback,

Speaker Change #146: You really haven't had any benefit. Your share price is down and you've bought back a fifth of your stock, but your net debt remains relatively high if you include the hybrids. I'm just curious why you believe that method of cash return is still the optimal way to maximize value for shareholders.

Murray Auchincloss: On long-term production, yes, we're running about 2.3 right now, but, of course, we've got some divestments. We announced the divestment of Egypt into a joint venture that will take effect in the fourth quarter, I think, which should drop production by about 50 KBD, so it'll be down at 2250. And then we have some other divestments that we continue to pursue, low-margin, high-volume assets that may or may not happen, but if they were to happen, that would drop their production to around 2-ish.

Speaker Change #147: Okay, great. On long-term production, yes, we're running about 2.3 right now, but of course we've got some divestments. We've announced the divestment of Egypt into a joint venture that will take effect in

Speaker Change #148: The fourth quarter, I think, which should drop production about 50 KBD.

Speaker Change #148: So you'll be down at 2250 and then we have some other divestments that we

Speaker Change #149: Continued to pursue low margin, high volume assets that may or may not happen, but if they were to happen, that would drop their production to around two-ish. As far as what the production outturn looks like.

Murray Auchincloss: As far as what the production outturn looks like for the back end of the decade, of course, we'll update you on February and where that is, and I'll just repeat what I said earlier. I'm focused on cash flow and returns, and production will be an outcome of that, but I'm really, really focused on growing cash flow. If I just wanted to grow volume, I could plow all the money in the world into Haynesville, and I could grow volumes like crazy, but that's not the right thing to do for shareholders, to create cash flow and returns, and so that's why I'm focused so much on that. So, I hope that helps you. And Kate, over to you. We've already had one debate with regard to share buybacks versus debt. I'm sure we'll have others by the sound of it.

Speaker Change #149: for the back end of the decade of course we'll update you on February and where that is and I'll just repeat what I said earlier I'm focused on cash flow and returns.

Speaker Change #149: and production will be an outcome of that, but I'm really, really focused on growing cash flow. If I just wanted to grow volume, I could plow all the money in the world into the Haynesville, and I could grow volumes like crazy, but that's not the right thing to do for shareholders, is to create cash flow and returns.

Speaker Change #149: and so that's why I'm focused so much on that, so much on that Doug.

Kate: So I hope that helps you, and Kate over to you. Thanks Murray. Doug Hyde, nice to hear your voice. We've already had one debate with regard to share buybacks versus debt. I'm sure we'll have others by the sound of it. Look, I think I said earlier on the call,

Katherine Thomson: Look, I think I said earlier in the call that the investors that we talk to like the balance of the financial framework as we've currently got it structured. As I said, it's sector-leading distributions, and the balance sheet's in good shape. It is strong.

Speaker Change #150: The investors that we talked to, they like the balance of the financial frame as we've currently got it structured. As I said, it's sector-leading distributions.

Katherine Thomson: We have brought it down a significant amount since 2020. And the flywheel that the share buybacks give us to be able to continually increase dividends, as we've seen in the last three years, have done 10% each of the second quarters. It creates a flywheel for that and increasing earnings per share.

Speaker Change #150: and the balance sheet is in good shape.

Speaker Change #151: It is strong. We have brought it down a significant amount since 2020.

Kate: And the flywheel that the share buybacks give us to be able to continually increase dividends, as we've seen in the last three years have done 10% each of the second quarters. It creates a flywheel for that and the increasing earnings per share. So for now we're comfortable with where that sits and we like the balance and so do our investors.

Murray Auchincloss: So, for now, we're comfortable with where that sits, and we like the balance, and so do our investors. Great. Thanks very much, everybody. Thanks for listening. Sorry we overran a bit. And I hope everybody has a nice summer. Take care.

Speaker Change #152: Great. Thanks very much, everybody. Thanks for listening. Sorry we overran a bit, and I hope everybody has a nice summer. Take care.