BP Regulatory News (BP.)

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Performance with purpose:

protecting our people, supporting our communities, strengthening our finances

First quarter 2020 results

- Underlying replacement cost profit for the first quarter was $0.8 billion, compared with $2.4 billion for the same period a year earlier. The result reflected lower prices, demand destruction in the Downstream particularly in March, a lower estimated result from Rosneft and a lower contribution from oil trading. It was also impacted by $0.2 billion non-cash underlying foreign exchange (FX) effects in other businesses and corporate, including FX translation impacts of finance debt in the BP Bunge Bioenergia joint venture.

- Replacement cost loss for the first quarter was $0.6 billion, compared with a profit of $2.1 billion for the same period a year earlier, including a $1.4 billion net adverse impact of non-operating items and fair value accounting effects.

- Inventory holding losses of $3.7 billion, as a result of the dramatic drop in oil prices at the quarter end, were the main driver of the reported historical cost loss of $4.4 billion.

- Operating cash flow for the first quarter, excluding Gulf of Mexico oil spill payments, was $1.2 billion, including a $3.7 billion working capital build (after adjusting for net inventory holding losses) driven by higher Downstream product balances and trading mark-to-market receivable balances at the end of the quarter. Gulf of Mexico oil spill payments in the quarter were $0.3 billion on a post-tax basis.

- Receipts from divestments and other proceeds were $0.7 billion in the first quarter.

- Net debt at the end of the quarter was $51.4 billion, $6.0 billion higher than a quarter earlier. Also reflecting lower equity including FX impacts, gearing at quarter end was 36.2%.

- At the end of the quarter BP had around $32 billion of liquidity available.

- A dividend of 10.5 cents per share was announced for the quarter.

See chart on pdf

RC profit (loss), underlying RC profit, operating cash flow excluding Gulf of Mexico oil spill payments, working capital, organic capital expenditure, net debt and gearing are non-GAAP measures. These measures and inventory holding gains and losses, non-operating items, fair value accounting effects, underlying production, Upstream plant reliability and refining availability are defined in the Glossary on page 30.

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Outlook

- The economic impact of the COVID-19 pandemic coupled with pre-existing supply and demand factors have resulted in an exceptionally challenged commodity environment. Product demand has sharply reduced, notably for mobility, contributing sharp falls in refining margins and utilization. The resulting reduction in demand for crude oil has begun to put severe pressure on storage and logistics, with a substantial effect on prices and has promoted volatility. In April, OPEC and its partners agreed to significant supply cuts that are expected to help reduce the imbalance but are unlikely to prevent material supply shut ins by oil producers in the near-term, some of which may be difficult to reverse. Challenges in gas markets, following significant growth in supply over recent years, have been compounded by the pandemic, lowering LNG demand.

- In March, Brent crude marker prices and BP's refining marker margin touched levels not seen for well over a decade, while Henry Hub gas price hit multi-year lows and prices and margins have continued to remain depressed.

- Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand, particularly while many economies remain under lockdown. There is the risk of more sustained consequences depending on the efforts of governments and the public and private sectors to manage the health, economic and financial stability effects of the pandemic.

- Upstream second-quarter reported production is expected to be lower compared to the first quarter. There are significant uncertainties with regard to the implementation of OPEC+ restrictions, price impacts on entitlement volumes, divestments, market restrictions given lack of demand for oil and COVID-19 operational impacts.

- In Downstream, material impacts from COVID-19 are expected in the second quarter. Product demand in fuels marketing is expected to be significantly lower in BP's key European and North America businesses. In refining, reduced utilization is expected due to the overall product demand declines, as well as significantly lower refining margins. In addition, a lower level of North American heavy crude discounts is expected.

- During the second quarter BP also expects to make the annual payment of around $1.2 billion relating to the Gulf of Mexico spill settlement.

- Gearing is expected to remain above the 20 to 30% target range into 2021. It is expected to trend down over time reflecting receipt of divestment proceeds and reversal of first quarter working capital impacts, and as BP's financial interventions take effect.

- BP's future financial performance, including cash flows, net debt and gearing, will be impacted by the extent and duration of the current market conditions and the effectiveness of the actions that it and others take, including its financial interventions. It is difficult to predict when current supply and demand imbalances will be resolved and what the ultimate impact of COVID-19 will be.

Taking decisive action

- BP is taking a series of interventions to strengthen its finances.

- BP has strengthened its balance sheet, with around $32 billion of liquidity at quarter end, including a new $10 billion revolving credit facility. In April BP has issued around $7 billion of new bonds.

- 2020 organic capital spending is expected to be around $12 billion, a reduction of around 25% on full-year guidance given in February. In the Upstream, most of the interventions are being made in areas not expected to have a significant impact on 2020 cash generation at lower prices. These include delaying exploration and appraisal activities and curtailing development activities in lower margin areas, as well as rephasing or minimizing spend on projects in the early phases of development. These interventions are expected to reduce 2020 underlying production by around 70mboe/d compared with 2019. In Downstream, the capital expenditure reduction contribution is expected to be around $1 billion in 2020. Interventions are primarily related to growth projects and are also not expected to have a significant impact on operating cash in the short term. BP expects to continue to invest around $500 million in low-carbon activities in 2020.

- BP plans to reduce cash costs by $2.5 billion by the end of 2021 relative to 2019. The reduction is expected to result both from cost-saving measures across BP's business as well as an important contribution from actions including increased digitisation, further integration and removing duplication, and new ways of working. Some of these cost savings may have associated restructuring charges.

- The programme to deliver $15 billion of announced transactions by mid-2021 remains on track, although the current market environment remains challenging. BP has delivered $10.1 billion of announced transactions since the start of 2019. The phasing of receipt of $10 billion of divestment proceeds by the end of 2020 will be revised as transactions complete. BP has reconfirmed its commitment to completing the sale of its Alaska business to Hilcorp in 2020, subject to regulatory approvals. The total consideration of $5.6 billion is unchanged but the structure of the consideration and phasing of payments have been revised to respond to the current environment.

- BP will continue to review these actions, and any further actions that may be appropriate, in response to changes in prevailing market conditions.

Maintaining safe operations

- BP continues to monitor the impact of COVID-19 on our global operations and to date there has been no significant operational impact. This could change through the rest of the second quarter.

- Despite significant challenges of the environment, BP's operations continued to perform safely and reliably in the quarter. BP-operated Upstream plant reliability was 93.0% and refining availability was strong at 96.1%.

- BP is taking significant steps to protect and support its staff through the pandemic. These include reducing manning levels where possible and changing working patterns to support social distancing; introducing testing to reduce spread of virus in offshore installations; requesting all staff who are able to do so to work from home since mid-March; and deploying personal protective equipment (PPE), enhanced cleaning and social distancing measures in retail sites.

- BP is also providing enhanced support and guidance on safety, health and hygiene, homeworking and mental health to all staff. In March BP informed staff that for three months no BP employees would lose their jobs as a result of virus-related cost reductions.

Supporting communities

- BP is offering support across the world to the communities in which it works in their response to the pandemic.

- These actions include: providing free fuel and discounts to emergency services vehicles and workers in a number of countries; donating PPE to health services; donating access to our supercomputer in Houston to aid researchers investigating the pandemic; donating ethanol from our biofuels production for sanitizers; donating to MIND, the mental health charity, and the World Health Organization's response fund; supporting all staff in volunteering efforts and matching employee donations to charities.

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* For items marked with an asterisk throughout this document, definitions are provided in the Glossary on page 30.

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Analysis of underlying RC profit* before interest and tax

Reconciliations of underlying RC profit or loss attributable to BP shareholders to the nearest equivalent IFRS measure are provided on page 1 for the group and on pages 6-11 for the segments.

Analysis of RC profit (loss)* before interest and tax and reconciliation to profit (loss) for the period

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(a) Represents dividend announced in the quarter (vs. prior year quarter).

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Upstream

(a) See page 7 for a reconciliation to segment RC profit before interest and tax by region.

Financial results

The replacement cost profit before interest and tax for the first quarter was $1,023 million, compared with $2,884 million for the same period in 2019. The first quarter included a net non-operating charge of $1,071 million, which principally relate to impairments, compared with a net charge of $4 million for the same period in 2019. Fair value accounting effects in the first quarter had a favourable impact of $223 million, compared with an adverse impact of $40 million in the same period of 2019.

After adjusting for non-operating items and fair value accounting effects, the underlying replacement cost profit before interest and tax for the first quarter was $1,871 million, compared with $2,928 million for the same period in 2019. The result for the quarter mainly reflected lower liquids and gas realizations, partly offset by lower depreciation, depletion and amortization, lower exploration write-offs, and very strong gas marketing and trading.

Production

Production for the quarter was 2,579mboe/d, 2.9% lower than the first quarter of 2019. Underlying production* for the quarter increased 0.7%, mainly due to reduced turnaround activities.

Key events

During the first quarter, BP executed a gas sale and purchase agreement with partners in the Greater Tortue Ahmeyim (GTA) project. GTA operations are severely affected by COVID-19 and the 2020 weather window for installation works can no longer be met resulting in a delay of around one year. BP is working with stakeholders to agree a revised work plan. A force majeure (FM) notice was issued under the lease and operate agreement with Golar LNG over the provision of a floating liquified natural gas vessel, where due to the FM event the lessee is not able to meet the connection date (BP operator 56%, Kosmos 27%, Petrosen 10%, SMHPM 7%).

In February, BP confirmed notification from the Brazilian National Petroleum Agency (ANP) of its approvals to postpone the deadline for declaring commerciality of the Wahoo (BP operator 35.7%, IBV Brasil Petróleo 35.7% Total 20%, Anadarko 8.6%) and Itaipu (BP operator 60%, Total 26.7%, Anadarko 13.3%) pre-salt discoveries offshore Brazil in the Campos basin, until June 2022.

On 29 March, BP confirmed completion of the restructuring of contractual arrangements for the Petrojari Foinaven floating production, storage and offloading vessel on the Foinaven field to the west of the Shetlands (BP operator 72%, RockRose Energy 28%).

In late March, BP started to relocate personnel from the remote Tangguh expansion project in Indonesia, as part of a COVID-19 response plan. BP continues progressing the major project* and anticipates a delay to start-up (BP operator 40.22%, MI Berau B.V. 16.30%, CNOOC Muturi Ltd. 13.90%, Nippon Oil Exploration (Berau) Ltd. 12.23%, KG Berau Petroleum Ltd 8.60%, Indonesia Natural Gas Resources Muturi Inc 7.35%, KG Wiriagar Overseas Ltd 1.40%).

Outlook

Looking ahead, we expect second-quarter reported production to be lower compared to the first quarter, and will be subject to significant uncertainties with regard to the implementation of OPEC+ restrictions, price impacts on PSA* and TSC* entitlement volumes, divestments, market restrictions given lack of demand for oil and COVID-19 operational impacts.

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Upstream (continued)

(a) First quarter 2020 includes impairment charges and loss principally related to the disposal of our Alaska business, BPX Energy assets and oil price impacts in the UK North Sea. Fourth quarter 2019 includes impairment charges which principally related to the disposal of heritage BPX Energy assets and our Alaska business. See Note 3 for further information.

(b) Includes BP's share of production of equity-accounted entities in the Upstream segment.

(c) Because of rounding, some totals may not agree exactly with the sum of their component parts.

(d) Realizations are based on sales by consolidated subsidiaries only - this excludes equity-accounted entities.

(e) Includes condensate, natural gas liquids and bitumen.

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Downstream

(a) See page 9 for a reconciliation to segment RC profit before interest and tax by region and by business.

Financial results

The replacement cost profit before interest and tax for the first quarter was $664 million, compared with $1,765 million for the same period in 2019.

The first quarter includes a net non-operating gain of $2 million, compared with a charge of $4 million for the same period in 2019. Fair value accounting effects in the first quarter had an adverse impact of $259 million, compared with a favourable impact of $36 million in the same period in 2019.

After adjusting for non-operating items and fair value accounting effects, the underlying replacement cost profit before interest and tax for the first quarter was $921 million, compared with $1,733 million for the same period in 2019.

Replacement cost profit before interest and tax for the fuels, lubricants and petrochemicals businesses is set out on page 9.

Fuels

The fuels business reported an underlying replacement cost profit before interest and tax of $689 million for the first quarter, compared with $1,292 million for the same period in 2019.

The result for the quarter reflects strong refining operational performance and a lower level of turnaround activity, more than offset by a significantly weaker contribution from supply and trading, and adverse COVID-19 related impacts.

The refining result for the quarter reflects wider North American heavy crude oil discounts and lower turnaround activity, more than offset by lower refining margins. Operational performance across our refining portfolio was strong, with Solomon availability* of 96.1%, albeit with some reduction in utilization towards quarter-end due to reducing fuel demand.

The fuels marketing result for the quarter reflects the impact of fuels demand destruction, initially in China, and more recently across our US and European businesses. In recent weeks we have seen our retail fuel volumes in North America and Europe fall by around 50%, and demand for aviation fuel in our key markets fall by around 80%.

Despite these fuel volume declines our store sales have remained resilient, demonstrating the strength of our convenience retail offer which we continue to expand, with the recently announced plans to grow our convenience partnership with Albert Heijn in the Netherlands.

Lubricants

The lubricants business reported an underlying replacement cost profit before interest and tax of $167 million for the first quarter, compared with $272 million for the same period in 2019. The result reflects significantly weaker demand, primarily driven by the impact of COVID-19 which has been particularly evident in China where we saw demand fall by more than 50% for the quarter. In recent weeks demand has begun to recover in China but has continued to fall in Europe, the US and India where volumes are currently down 50-90% compared to the same period last year.

Petrochemicals

The petrochemicals business reported an underlying replacement cost profit before interest and tax of $65 million for the first quarter, compared with $169 million for the same period in 2019. The result primarily reflects a weaker margin environment across both aromatics and acetyls.

Outlook

Looking to the second quarter of 2020, we expect material impacts from COVID-19. In our marketing businesses we expect product demand to be significantly lower due to the actions taken by countries to limit the spread of COVID-19, and in refining we expect reduced utilization due to the lower demand, as well as significantly lower industry refining margins. In addition we expect a lower level of North American heavy crude oil discounts.

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Downstream (continued)

(a) For Downstream, fair value accounting effects arise solely in the fuels business. See page 26 for further information.

(b) Segment-level overhead expenses are included in the fuels business result.

(c) Results from petrochemicals at our Gelsenkirchen and Mülheim sites in Germany are reported in the fuels business.

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Rosneft

Financial results

Replacement cost (RC) loss before interest and tax for the first quarter was $17 million, compared with a profit of $486 million for the same period in 2019.

After adjusting for non-operating items, the underlying RC loss before interest and tax for the first quarter was $17 million, compared with a profit of $567 million for the same period in 2019. There were no non-operating items in the first quarter of 2020.

Compared with the same period in 2019, the result for the first quarter primarily reflects lower oil prices, unfavourable foreign exchange and duty lag effects partially offset by certain one-off items.

Key events

On 28 March 2020, Rosneft concluded an agreement with a company owned by the Government of the Russian Federation, to sell all of its interest and cease participation in its Venezuelan businesses. On completion, the transaction and the sale of assets will result in Rosneft receiving as a settlement payment a 9.6% share of Rosneft's equity, which will be held by a 100% subsidiary of Rosneft and accounted for as treasury shares. Furthermore, Rosneft has an approved programme of share buybacks under which shares have been purchased by a Rosneft subsidiary during March and April. These will also be accounted for as treasury shares.

BP will retain 19.75% of the voting rights at meetings of Rosneft shareholders and will continue to be entitled to dividends based on its current shareholding. BP's economic interest, however, will increase as a result of its indirect interest in the shares held by the subsidiary of Rosneft. BP's share of profit or loss of Rosneft reflects its economic interest.

On 21 April 2020, Rosneft announced that the board of directors had recommended the annual general meeting (AGM) adopts a resolution to pay dividends of 18.07 roubles per ordinary share, bringing the total dividend for 2019 to 33.41 roubles per ordinary share, which constitutes 50% of the company's IFRS net profit. In addition to the dividend received in November 2019 in relation to the results for the first half of 2019, BP expects to receive later this year a dividend of 34 billion roubles, after the deduction of withholding tax, subject to approval at the AGM.

(a) The operational and financial information of the Rosneft segment for the first quarter is based on preliminary operational and financial results of Rosneft for January and February 2020, and estimated results for March 2020. Actual results may differ from these amounts and adjustments will be made as necessary in our second-quarter reporting.

(b) The Rosneft segment result includes equity-accounted earnings arising from BP's 19.75% economic interest in Rosneft for the first quarter 2020 as adjusted for accounting required under IFRS relating to BP's purchase of its interest in Rosneft and the amortization of the deferred gain relating to the divestment of BP's interest in TNK-BP. These adjustments increase the segment's reported profit before interest and tax, as shown in the table above, compared with the amounts reported in Rosneft's IFRS financial statements.

(c) BP's adjusted share of Rosneft's earnings after Rosneft's own finance costs, taxation and non-controlling interests is included in the BP group income statement within profit before interest and taxation. For each year-to-date period it is calculated by translating the amounts reported in Russian roubles into US dollars using the average exchange rate for the year to date.

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Other businesses and corporate

Other businesses and corporate comprises our alternative energy business, shipping, treasury, BP ventures and corporate activities including centralized functions, and any residual costs of the Gulf of Mexico oil spill.

Financial results

The replacement cost loss before interest and tax for the first quarter was $698 million, compared with $546 million for the same period in 2019.

The result included a net non-operating charge of $137 million for the first quarter, compared with a charge of $128 million for the same period in 2019.

After adjusting for non-operating items, the underlying replacement cost loss before interest and tax for the first quarter was $561 million, compared with $418 million for the same period in 2019, reflecting foreign exchange impacts on finance debt and other non-US dollar balances.

Alternative Energy

BP's net share of ethanol-equivalent production (which includes ethanol and sugar) for the first quarter was 9.8 million litres, compared with 14 million litres for the 100% BP-owned business for the same period in 2019. In order to optimize the sugar recovery curve, the BP Bunge Bioenergia joint venture (BP 50%) had fewer harvest days in March compared with the previous year.

Net wind generation capacity* was 926MW at 31 March 2020, compared with 1,001MW at 31 March 2019. BP's net share of wind generation for the first quarter was 777GWh, compared with 773GWh for the same period in 2019.

Lightsource BP had an operating portfolio of 2GW of solar projects under its management at 31 March 2020 and remains on track to deliver 10GW of developed assets by the end of 2023.

In February, Lightsource BP signed a multi-year module supply agreement with Canadian Solar Inc., one of the world's largest solar power companies, to deliver 1.2GW of high-efficiency polycrystalline solar modules for projects in the US and Australia.

In March, Lightsource BP successfully closed on a $250 million financing package for its Impact Solar project located in Lamar County, Texas, USA.

Outlook

Other businesses and corporate average quarterly charges, excluding non-operating items and foreign exchange volatility impact, are expected to be around $350 million although this will fluctuate quarter to quarter.

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Financial statements

Group income statement

(a) The financial information of the Rosneft segment for the first quarter is based on preliminary financial results of Rosneft for January and February 2020, and estimated results for March 2020. Actual results may differ from these amounts and adjustments will be made as necessary in our second-quarter reporting.

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Condensed group statement of comprehensive income

(a) First quarter 2020 was principally affected by the weakening of the Russian rouble against the US Dollar.

(b) See Note 1 for further information.

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Condensed group statement of changes in equity

(a) See Note 1 in BP Annual Report and Form 20-F 2019 for further information.

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Group balance sheet

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Condensed group cash flow statement