BP Regulatory News (BP.)

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"For a printer friendly version of this announcement please click on the link below to open a PDF version of the announcement"

http://www.rns-pdf.londonstockexchange.com/rns/9845J_1-2022-5-2.pdf 

(a) Divestment proceeds are disposal proceeds as per the condensed group cash flow statement. See page 3 for more information on divestment and other proceeds.

(b) See Note 10 for more information.

RC profit (loss), underlying RC profit (loss), surplus cash flow and net debt are non-GAAP measures. Inventory holding (gains) losses and adjusting items are non-GAAP adjustments.

* For items marked with an asterisk throughout this document, definitions are provided in the Glossary on page 33.

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Financial results

At 31 December 2021, the group's reportable segments were gas & low carbon energy, oil production & operations, customers & products and Rosneft. For the period from 1 January 2022 to 27 February 2022, any net income from Rosneft is classified as an adjusting item. The group has ceased to report Rosneft as a separate segment in the group's financial reporting for 2022. From the first quarter of 2022, the group's reportable segments are gas & low carbon energy, oil production & operations and customers & products. For more information see note 2 - Investment in Rosneft.

In addition to the highlights on page 2:

• Loss attributable to bp shareholders in the first quarter was $20.4 billion compared with a profit of $4.7 billion in the first quarter of 2021.

• Adjusting items* in the first quarter were an adverse pre-tax impact of $30.8 billion compared with a favourable pre-tax impact of $0.7 billion in the same period of 2021.

• As a result of bp's two nominated directors stepping-down from the Rosneft board on 27 February, bp determined that it no longer meets the criteria set out under IFRS for having "significant influence" over Rosneft. bp therefore no longer equity accounts for its interest in Rosneft from that date, treating it prospectively as a financial asset measured at fair value. Combined with bp's decision to exit its shareholding in Rosneft and the market impact on Russian assets, an impairment assessment was undertaken. Within the first quarter results, the loss of significant influence and the impairment assessment led to a net pre-tax charge of $24.0 billion classified as an adjusting item, reducing equity by $14.4 billion. The adjusting item is made up of(a):

◦ A $13.5 billion pre-tax impairment charge, representing the full carrying value of the Rosneft investment at 27 February 2022 as, due to sanctions and geopolitical challenges the level of uncertainty as to the value of our shareholding means that, under IFRS, it is not currently possible to estimate any value other than zero.

◦ A $11.1 billion pre-tax charge, principally arising from foreign exchange losses accumulated from the date of the initial investment in 2013 to 27 February 2022, that under IFRS, to that date, were recorded directly in equity rather than in the income statement. Of this $1.4 billion has an incremental impact on equity with $9.7 billion recorded as at 31 December 2021.

◦ These charges are partly offset by $0.5 billion representing bp's estimated share of Rosneft's post-tax income in the first quarter until 27 February 2022.

• Following bp's decision to exit its other businesses with Rosneft in Russia, adjusting items within the first quarter 2022 results also include a $1.5 billion pre tax charge. This comprises a $1.0 billion pre-tax charge representing the impairment of the entire carrying value of these businesses and a further $0.5 billion of foreign exchange losses which were recorded directly in equity since the date of initial investment has also been moved to the income statement. These charges reduced equity in the first quarter by $1.2 billion.

• Adjusting items for the first quarter 2022 also include the reversal of a $1.1 billion deferred tax liability relating to Russian withholding tax on bp's share of Rosneft's undistributed profit. A further $0.2 billion deferred tax charge has been reversed through equity. No further tax impacts are expected as a result of the above pre-tax charges.

• Adjusting items for the first quarter 2022 also include adverse fair value accounting effects* of $5.8 billion, primarily due to further increases in forward gas prices compared to the end of the fourth quarter 2021.

• Pre-tax inventory holding gains of $3.5 billion for the first quarter 2022 arose due to significant increases in most crude and product prices during the quarter.

• The effective tax rate (ETR) on RC profit or loss* for the first quarter was -8%, compared with 26% for the same period in 2021. Excluding adjusting items, the underlying ETR* for the first quarter was 33%, compared with 30% for the same period a year ago. The higher underlying ETR for the first quarter reflects the absence of equity-accounted earnings from Rosneft. ETR on RC profit or loss and underlying ETR are non-GAAP measures.

• Operating cash flow* for the first quarter 2022 was $8.2 billion compared with $6.1 billion for the same period last year. The increase is driven by the increased underlying replacement cost profit, offset by working capital movements.

• Capital expenditure in the first quarter 2022 was $2.9 billion, compared with $3.8 billion in the first quarter of 2021 which included a $0.7 billion payment in respect of the strategic partnership with Equinor.

• Total divestment and other proceeds for the first quarter were $1.2 billion, compared with $4.8 billion for the same period in 2021. This includes divestment proceeds from the disposal of bp's Swiss retail assets, the disposal of bp's interest in the Pike oil sands assets and receipt of deferred consideration related to the 2020 divestment of bp's Alaska business to Hilcorp. Other proceeds for the first quarter consists of $0.2 billion of proceeds from the disposal of a loan note related to the Alaska divestment. See page 31 for further information.

• At the end of the first quarter, net debt* was $27.5 billion, compared with $30.6 billion at the end of the fourth quarter 2021 and $33.3 billion at the end of the first quarter 2021.

(a) Because of rounding, the total does not agree exactly with the sum of its component parts.

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

Analysis of underlying RC profit (loss) before interest and tax

Reconciliations of underlying RC profit attributable to bp shareholders to the nearest equivalent IFRS measure are provided on page 1 for the group and on pages 6-15 for the segments.

(a) From first quarter 2022 the results of Rosneft, previously reported as a separate segment, are also included in other businesses & corporate. Comparative information for 2021 has been restated to reflect the changes in reportable segments. For more information see Note 2 Investment in Rosneft.

Operating Metrics

(a) See Operational updates on pages 6, 9 and 11.

(b) Reflecting higher volumes and lower costs including phasing impacts.

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Outlook & Guidance

Macro outlook

• bp expects an ongoing elevated risk of oil price volatility. This reflects uncertainties around the level of disruption to Russian supply, the capacity for increased OPEC+ supply, the ongoing impact of COVID-19 on demand and the impact of the conflict in Ukraine on economic growth.

• bp expects the short-term outlook for gas prices to remain heavily dependent on Russian pipeline flows to Europe.

• In the second quarter of 2022, bp expects industry refining margins to remain elevated due to ongoing supply disruptions, particularly in Russia and Europe.

2Q22 guidance

• Looking ahead, we expect second-quarter 2022 underlying upstream* production to be lower than first-quarter 2022, primarily in gas & low carbon energy, reflecting base decline and seasonal maintenance. On a reported basis, second-quarter production will reflect additional impacts from the absence of production from our Russia incorporated joint ventures.

• In our customers & products business, there is an elevated level of uncertainty due to the developing impacts from the conflict in Ukraine and ongoing COVID-19 restrictions. In addition, in Castrol, additive supplies are expected to remain under pressure. In refining, we expect higher industry refining margins, although the increase in realized margins may differ due to market dislocations. In addition, energy prices are expected to remain elevated and turnaround costs to be higher.

2022 Guidance

In addition to the guidance on page 2:

• For full year 2022 we continue to expect reported upstream production to be broadly flat compared with 2021 despite the absence of production from our Russia incorporated joint ventures. On an underlying basis, we expect production from oil production & operations to be slightly higher and production from gas & low carbon energy to be broadly flat.  

• bp continues to expect the other businesses & corporate underlying annual charge to be in a range of $1.2-1.4 billion for 2022. The charge may vary from quarter to quarter.

• bp continues to expect the depreciation, depletion and amortization to be at a similar level to 2021.

• As updated in bp Annual Report and Form 20-F 2021, the underlying ETR* for 2022 is expected to be around 40% but is sensitive to the impact that volatility in the current price environment may have on the geographical mix of the group's profits and losses. The increase from prior guidance of around 35% reflects the exclusion of Rosneft from bp's underlying result effective 1 January 2022.

• bp continues to expect divestment and other proceeds for the year of $2-3 billion. Against a target of $25 billion of divestment and other proceeds between the second half of 2020 and 2025 bp has now received almost $14.0 billion of proceeds.

• bp continues to expect Gulf of Mexico oil spill payments for the year to be around $1.4 billion pre-tax and during the second quarter expects to make a pre-tax cash payment of $1.2 billion.

• For 2022, and subject to maintaining a strong investment grade credit rating, bp remains committed to using 60% of surplus cash flow* for share buybacks and intends to allocate the remaining 40% to further strengthen the balance sheet.

• On average, based on bp's current forecasts, at around $60 per barrel Brent and subject to the board's discretion each quarter, bp continues to expect to be able to deliver share buybacks of around $4.0 billion per annum and have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025.

• In setting the dividend per ordinary share and the buyback each quarter, the board will take into account factors including the cumulative level of and outlook for surplus cash flow, the cash balance point* and the maintenance of a strong investment grade credit rating.

Adjusted EBITDA* targets and aims(a)

• As a result of the decision to exit its shareholding in Rosneft and excluding Rosneft from base year and future periods, on 27 February bp outlined an expectation that 2025 adjusted EBITDA from resilient hydrocarbons and group will be around $2 billion lower than bp's previous targets, at around $31 billion and $38 billion respectively. In addition, bp has now revised its 2030 adjusted EBITDA aims for resilient hydrocarbons and group by lowering both by around $2 billion, to a range of $28-33 billion and $39-46 billion respectively.

(a) At $60/bbl Brent (2020 $ real) and $3/mmBtu Henry Hub (2020 $ real) and RMM $12/bbl (2020 $ real).

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gas & low carbon energy

Financial results

• The replacement cost loss before interest and tax for the first quarter was $1,524 million, compared with a profit of $3,430 million for the same period in 2021. The first quarter includes an adverse impact of net adjusting items* of $5,119 million, compared with a favourable impact of net adjusting items of $1,160 million for the same period in 2021.

• After excluding adjusting items, the underlying replacement cost profit before interest and tax* for the first quarter was $3,595 million, compared with $2,270 million for the same period in 2021. Adjusting items include adverse fair value accounting effects* of $5,015 million, primarily arising from the increase in forward gas prices during the quarter. Under IFRS, reported earnings include the mark-to-market value of the hedges used to risk-manage forward LNG contracts, but not of the LNG contracts themselves. The fair value accounting effect reduces this mismatch.

• The underlying replacement cost profit for the first quarter, compared with the same period in 2021, reflects higher realizations, offset by a higher depreciation, depletion and amortization charge, and an exceptional gas marketing and trading result, albeit lower than in 2021.

Operational update

• Reported production for the quarter was 966mboe/d, 6.2% higher than the same period in 2021, mainly due to major project* start-ups during 2021, partially offset by base decline and the partial divestment in Oman at the end of the first quarter 2021.

• Underlying production* was also higher, by 10.9% for the quarter, mainly due to major project start-ups during 2021, partially offset by base decline.

• Renewables pipeline* at the end of the quarter was 24.9GW (bp net). The renewables pipeline increased by 1.8GW during the quarter, primarily as a result of bp and its partner EnBW being awarded a lease option off the east coast of Scotland to develop an offshore wind project with a total generating capacity of around 2.9GW (1.45GW bp net).

Strategic progress

gas

• On 18 March bp announced it had been successful in a bid for operatorship of deepwater offshore exploration blocks Agung I and II offshore Indonesia. Agung I covers an area of 6,656 square kilometres off the coast of Bali and East Java, while Agung II spans 7,970 square kilometres offshore South Sulawesi, West Nusa Tenggara and East Java.

• In February 2022 bp increased its shareholding in the Shah Deniz gas project in the Caspian Sea, offshore Azerbaijan, by 1.16% to 29.99%.

• On 1 February construction started on the Gas Natural Acu (GNA) 2 power plant at the Port of Acu, Rio de Janeiro state, Brazil. GNA 2 is expected to have an installed capacity of 1.7GW. GNA is a joint venture among bp, Prumo, Siemens and SPIC Brasil. bp is the exclusive LNG supplier for GNA 1 and GNA 2 which, together, are expected to achieve 3GW of installed capacity.

• In April bp and the Korea Gas Corporation (KOGAS) signed a long-term agreement to supply 1.58 million tonnes of liquified natural gas (LNG) per year from 2025 to KOGAS through a new 18-year contract.

low carbon energy

• On 23 March bp announced it is partnering with Marubeni to explore a selected offshore wind development opportunity in Japan. We have agreed to form a strategic partnership for offshore wind and potentially other decarbonization projects. In the first phase of the agreement bp will acquire a 49% interest in a project to jointly bid in the Ishikari licence round.

• On 11 March bp announced that it signed an agreement to form a joint venture with the Aberdeen City Council that aims to deliver a scalable green hydrogen production, storage and distribution facility in the city powered by renewable energy.

• On 1 February bp and partner HyCC announced plans to develop H2-Fifty, a 250MW green hydrogen production plant in the port area of Rotterdam. The facility could supply bp's refinery in the city and has the potential to reduce CO₂ emissions up to 350,000 tonnes per year.

• On 25 January bp submitted bids for our H2Teesside hydrogen project and Net Zero Teesside Power project as part of the UK government's Phase 2 of cluster sequencing for carbon capture, usage and storage (CCUS) deployment.

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gas & low carbon energy (continued)

(a) First quarter 2021 includes $712 million in respect of the remaining payment to Equinor for our investment in our strategic US offshore wind partnership and $326 million as a lease option fee deposit paid to The Crown Estate in connection with our participation in the UK Round 4 Offshore Wind Leasing together with our partner EnBW.

(b) Includes bp's share of production of equity-accounted entities in the gas & low carbon energy segment.

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

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gas & low carbon energy (continued)

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

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oil production & operations

Financial results

• The replacement cost profit before interest and tax for the first quarter was $3,831 million, compared with $1,479 million for the same period in 2021. The first quarter includes an adverse impact of net adjusting items* of $852 million, which includes an adverse impact of $1,487 million related to the planned exit from our incorporated joint ventures in Russia, compared with an adverse impact of net adjusting items of $86 million for the same period in 2021.

• After excluding adjusting items, the underlying replacement cost profit before interest and tax* for the first quarter was $4,683 million, compared with $1,565 million for the same period in 2021.

• The higher underlying replacement cost profit for the first quarter, compared with the same period in 2021, primarily reflects higher liquids and gas realizations.

Operational update

• Reported production for the quarter was 1,286mboe/d, 1.7% lower than the first quarter of 2021. Underlying production* for the quarter was flat compared with the first quarter of 2021.

Strategic progress

• On 22 February bp announced the start-up of the Herschel Expansion major project* in the deepwater Gulf of Mexico. Phase 1 of the project comprises development of a new subsea production system and the first of up to three wells tied to the Na Kika platform (bp 50% operator, Shell 50%).

• On 11 March bp and Eni signed an agreement to form a new 50:50 independent company, Azule Energy, a bp and Eni company, through the combination of the two companies' Angolan businesses. The agreement follows the memorandum of understanding between the companies agreed in May 2021. The creation of Azule Energy is subject to customary governmental approvals, and the transaction is expected to complete in the second half of 2022.

• On 1 April, our partner Petrobras announced the discovery of a new oil accumulation in the southern portion of the Campos Basin, offshore Brazil. Evaluation is ongoing (bp 50%, Petrobras operator 50%).

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oil production & operations (continued)

(a) Includes bp's share of production of equity-accounted entities in the oil production & operations segment.

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

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customers & products

Financial results 

• The replacement cost profit before interest and tax for the first quarter was $1,981 million, compared with $934 million for the same period in 2021. The first quarter included an adverse impact of net adjusting items* of $175 million, compared with a favourable impact of net adjusting items of $278 million for the same period in 2021.

• After excluding adjusting items, the underlying replacement cost profit before interest and tax* for the first quarter was $2,156 million, compared with $656 million for the same period in 2021.

• The customers & products result for the first quarter reflects a significantly stronger performance compared with the same period in 2021, with higher results in both refining and oil trading.

• customers - convenience and mobility result, excluding Castrol, for the quarter was marginally lower than the same period in 2021. The benefits of both a strong convenience performance and higher volumes were more than offset with the impact of a volatile environment, with increasing commodity costs and adverse foreign exchange impacts.

Castrol result in the quarter was lower than the same period in 2021 due to ongoing additive supply shortages and higher input costs.

• products - the products result for the quarter was higher compared with the same period in 2021, with refining returning to a profit and an exceptional oil trading result. In refining, the result included the benefit of higher realized refining margins and utilization. This was partially offset by increased energy costs.

Operational update 

• Utilization for the quarter was around 6 percentage points higher than the same period in 2021 mainly due to lower COVID related demand impacts. bp-operated refining availability* for the first quarter was 95.0%, broadly in line with 94.8% for the same period in 2021.

Strategic progress

• In support of our leading convenience offers, we signed a global convenience partnership with Uber, aiming to make more than 3,000 retail locations available on Uber Eats by 2025. Additionally, to bring a more seamless store experience to our customers, we announced the pilot of Mashgin's checkout-free technology at our US convenience sites.

• bp completed the sale of its retail assets in Switzerland to Oel Pool AG, who will continue to operate the retail sites under the bp brand.

• In support of accelerating our EV charging ambition:

• in April, bp and Volkswagen Group launched their strategic partnership to roll-out an EV fast charging network in Europe and UK, with the potential for up to 8,000 new charge points by end 2024. bp's growing charging network will be integrated into Volkswagen, Skoda and Seat in-car dashboards, helping drivers seamlessly find their nearest charger;

• bp announced plans to invest £1 billion over the next 10 years to support the roll-out of fast, convenient charging infrastructure across the UK and to nearly triple our number of UK public charge points.

• In biofuels, we entered into a 10-year strategic agreement with Nuseed with plans to accelerate market adoption of Nuseed Carinata as a sustainable low-carbon biofuel feedstock for use in our refineries, as well as onward marketing.

• bp's Lingen refinery in Germany became the country's first production facility to use co-processing on an industrial scale to produce sustainable aviation fuel (SAF), using biomass derived from used cooking oil.

• bp acquired a 30% stake in Green Biofuels Ltd, the UK's largest provider of low emission hydrogenated vegetable oil fuels. This investment will expand bp's global biofuels portfolio and its lower carbon solutions for UK customers.

• Air bp signed a strategic collaboration agreement with DHL Express to supply SAF until 2026, and also signed a SAF supply contract with Rolls-Royce in the UK and Germany.

• Castrol and BYD, a leading new energy vehicle brand in China, signed a strategic cooperation agreement for the supply of the Castrol ON range of EV fluids. Additionally, Castrol signed a new commercial agreement with Tesco, the UK's largest supermarket chain, to stock a range of Castrol products.

• On 5 April 2022, bp completed the previously announced acquisition of the public units of BP Midstream Partners LP (BPMP) which has resulted in BPMP becoming a wholly-owned subsidiary of bp.

• SAPREF shareholders (bp and Shell) announced that refinery operations in South Africa will be paused for an indefinite period from the end of March 2022. Additionally, in April, the New Zealand Whangarei refinery, in which bp holds a share, converted to an import-only terminal.

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customers & products (continued)

(a) A reconciliation to RC profit before interest and tax by business is provided on page 31.

(b) A reconciliation to RC profit before interest and tax by business is provided on page 31.

(c) Reported to the nearest 50.

(d) An amendment of 22mb/d has been made to amounts presented for the first quarter 2021.

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customers & products (continued)

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other businesses & corporate

Other businesses & corporate comprises innovation & engineering, bp ventures, Launchpad, regions, cities & solutions, our corporate activities & functions and any residual costs of the Gulf of Mexico oil spill. From first quarter 2022 the results of Rosneft, previously reported as a separate segment, are also included in other businesses & corporate. Comparative information for 2021 has been restated to reflect the changes in reportable segments. For more information see Note 2 Investment in Rosneft.

Financial results

• The replacement cost loss before interest and tax for the first quarter was $24,719 million, compared with a loss of $315 million for the same period in 2021. The first quarter included an adverse impact of net adjusting items* of $24,460 million, compared with an adverse impact of net adjusting items of $508 million for the same period in 2021. The adjusting items for the first quarter of 2022 mainly relate to Rosneft:

◦ A $13.5 billion pre-tax impairment charge, representing the full carrying value of the Rosneft investment at 27 February 2022 as, due to sanctions and geopolitical challenges the level of uncertainty as to the value of our shareholding means that, under IFRS, it is not currently possible to estimate any value other than zero.

◦ A $11.1 billion pre-tax charge, principally arising from foreign exchange losses accumulated from the date of the initial investment in 2013 to 27 February 2022, that under IFRS, to that date, were recorded directly in equity rather than in the income statement. Of this $1.4 billion has an incremental impact on equity with $9.7 billion recorded as at 31 December 2021.

◦ These charges are partly offset by $0.5 billion representing bp's estimated share of Rosneft's post-tax income in the first quarter until 27 February 2022.

• Fair value accounting effects* for the first quarter had an adverse impact of $425 million, compared with an adverse impact of $447 million for the same period in 2021.

• After excluding adjusting items, the underlying replacement cost loss before interest and tax* for the first quarter was $259 million, compared with a profit of $193 million for the same period in 2021.

• For other businesses & corporate excluding Rosneft, after excluding adjusting items, the underlying replacement cost loss before interest and tax for the first quarter was $259 million, compared with a loss of $170 million for the same period in 2021, reflecting lower valuation gains from bp ventures.

(a) Includes fair value accounting effects relating to the hybrid bonds that were issued on 17 June 2020. See page 34 for more information.

other businesses & corporate (excluding Rosneft)

Strategic progress

• On 8 April bp and AENA signed an agreement to work on the decarbonization of the energy and mobility system of the airports operated by AENA, starting with Valencia airport.

• On 19 April 2022 the Australian Federal Government announced that bp's Kwinana Integrated Clean Energy Hub project in Perth, Western Australia had been awarded up to A$70 million (US$52 million) of grant funding.

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other businesses & corporate (Rosneft)

(a) First quarter 2022 reflects bp's estimated share of Rosneft production for the period 1 January to 27 February, averaged over the quarter (see Note 2).

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Financial statements

Group income statement

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Condensed group statement of comprehensive income

(a) First quarter 2022 principally affected by movements in the Russian rouble against the US dollar.

(b) See Note 2 - Investment in Rosneft.

(c) See Note 1 - Basis of preparation - Pensions and other post-retirement benefits for further information.

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Condensed group statement of changes in equity

(a) In 2022 $9.2 billion of the opening foreign currency translation reserve has been moved to profit and loss account reserve as a result of bp's decision to exit its shareholding in Rosneft and its other businesses with Rosneft in Russia. For more information see Note 2.

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Group balance sheet

(a) See Note 2 - Investment in Rosneft.

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Condensed group cash flow statement

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Notes

Note 1. Basis of preparation

The interim financial information included in this report has been prepared in accordance with IAS 34 'Interim Financial Reporting'.

The results for the interim periods are unaudited and, in the opinion of management, include all adjustments necessary for a fair presentation of the results for each period. All such adjustments are of a normal recurring nature. This report should be read in conjunction with the consolidated financial statements and related notes for the year ended 31 December 2021 included in BP Annual Report and Form 20-F 2021.

bp prepares its consolidated financial statements included within BP Annual Report and Form 20-F on the basis of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), IFRS as adopted by the UK, and European Union (EU), and in accordance with the provisions of the UK Companies Act 2006 as applicable to companies reporting under international accounting standards. IFRS as adopted by the UK does not differ from IFRS as adopted by the EU. IFRS as adopted by the UK and EU differ in certain respects from IFRS as issued by the IASB. The differences have no impact on the group's consolidated financial statements for the periods presented.

The financial information presented herein has been prepared in accordance with the accounting policies expected to be used in preparing BP Annual Report and Form 20-F 2022 which are the same as those used in preparing BP Annual Report and Form 20-F 2021. There are no new or amended standards or interpretations adopted from 1 January 2022 onwards that have a significant impact on the financial information.

Significant accounting judgements and estimates

bp's significant accounting judgements and estimates were disclosed in BP Annual Report and Form 20-F 2021. These have been subsequently considered at the end of this quarter to determine if any changes were required to those judgements and estimates.

Investment in Rosneft

Following bp's announcement on 27 February 2022, the significant judgement on significant influence over Rosneft has been reassessed and a new significant estimate has been identified for the fair value of bp's equity investment in Rosneft. bp's segmental reporting has also changed and comparatives have been restated to reflect the segmental changes. See Note 2 for further information.

Pensions and other post-retirement benefits

The group's defined benefit plans are reviewed quarterly to determine any changes to the fair value of the plan assets or present value of the defined benefit obligations. As a result of the review during the first quarter of 2022, the group's total net defined benefit plan surplus as at 31 March 2022 is $6.2 billion, compared to a surplus of $4.1 billion at 31 December 2021. The movement for the quarter principally reflects net actuarial gains reported in other comprehensive income arising from increases in the UK, US and Eurozone discount rates, partly offset by negative asset performance and increases in inflation rates.

Other accounting judgements and estimates

All other significant accounting judgements and estimates disclosed in BP Annual Report and Form 20-F 2021 remain applicable and no other new significant accounting judgements or estimates have been identified.

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Note 2. Investment in Rosneft

On 27 February 2022, following the military action in Ukraine, bp announced that it will exit its 19.75% shareholding in Rosneft Oil Company (Rosneft), a Russian oil and gas company. As of 27 February 2022, bp chief executive officer Bernard Looney also stepped down from the board of Rosneft with immediate effect and has submitted a letter of resignation as did the other Rosneft director nominated by bp, former bp group chief executive Bob Dudley.

As a result of bp's nominated directors stepping down from the Rosneft board, bp has determined that as of 27 February 2022, the group no longer has significant influence over Rosneft taking into account the criteria set out in IAS 28 'Investments in Associates and Joint Ventures'. bp therefore no longer equity accounts for its interest in Rosneft as of that date, treating it prospectively as a financial asset measured at fair value within 'Other investments'. In response to sanctions imposed on Russia by a number of countries, Russia has implemented a number of counter-sanctions including restrictions on the divestment from Russian assets by foreign investors and a reported temporary prohibition on registrars and depositories from making payments on Russian securities in favour of foreign investors. Further details including application of these counter-sanctions are not yet fully known. In addition, bp is not able to sell its Rosneft shares on the Moscow Stock Exchange and is unable to ascribe probabilities to possible outcomes of any exit process. As a result, it is considered that any measure of fair value, other than nil, would be subject to such high measurement uncertainty that no estimate would provide useful information even if it were accompanied by a description of the estimate made in producing it and an explanation of the uncertainties that affect the estimate. Accordingly, it is not currently possible to estimate any carrying value other than zero when determining both the measurement of the impairment charge and remeasurement as at 31 March 2022.

The loss of significant influence over Rosneft combined with the market impacts on Russian assets has led to an impairment charge of $13,479 million including $528 million which relates to estimated earnings in the quarter prior to the loss of significant influence. In addition, accumulated exchange losses of $10,372 million, a cash flow hedge reserve of $651 million relating to the original acquisition of Rosneft shares and bp's cumulative share of Rosneft's other comprehensive income of $59 million which were previously charged to equity were reclassified to the income statement in the quarter in the aggregate amount of $11,082 million. The change in accounting treatment also means that bp no longer recognizes a share in Rosneft's net income, production and reserves from 27 February 2022.

As a result of bp's decision to exit its shareholding in Rosneft, the group has ceased to report Rosneft as a separate segment in the its financial reporting for 2022. Rosneft results up to 27 February 2022 are included within other businesses & corporate (OB&C), and 2021 comparatives have been restated to include the Rosneft segment as per the table below.

Also, as of 27 February 2022, bp decided to exit its other businesses with Rosneft within Russia, which are included in the oil production & operations segment. These businesses are also determined to have a fair value of nil. This decision resulted in an impairment charge of $1,043 million, including $35 million which relates to estimated earnings in the quarter, and accumulated exchange losses of $479 million previously charged to equity and taken to the income statement. As with Rosneft, bp no longer recognizes a share in these businesses' net income, production and reserves.

The total pre-tax charge in the first quarter of 2022 relating to bp's investment in Rosneft and other businesses with Rosneft in Russia is $25,520 million.

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Note 3. Non-current assets held for sale 

The carrying amount of assets classified as held for sale at 31 March 2022 is $7,272 million, with associated liabilities of $2,567 million.

On 11 March 2022, bp and Eni signed an agreement to form Azule Energy, an independent incorporated 50:50 joint venture, through the combination of the two companies' Angolan businesses. Subject to all customary governmental and other approvals, the transaction is expected to complete during the second half of 2022. Assets of $5,514 million and associated liabilities of $2,202 million have been classified as held for sale in the group balance sheet at 31 March 2022.

As announced in August 2021, bp and PetroChina have agreed to establish Basra Energy Company, an incorporated joint venture, intended to own and manage the companies' interests in the Rumaila field in Iraq. Subject to regulatory and other approvals, the transaction is expected to complete during the second quarter of 2022. Assets of $1,162 million and associated liabilities of $366 million are classified as held for sale in the group balance sheet at 31 March 2022.

On 21 December 2021, Aker BP, an associate of bp, announced the proposed acquisition of Lundin Energy for consideration in cash and new Aker BP shares. Subject to regulatory and other approvals, the transaction is expected to complete mid-year 2022. bp currently holds a 27.9% interest in Aker BP. Following the transaction this is expected to become a 15.9% interest in the combined company. $595 million of bp's investment in Aker BP is classified as held for sale in the group balance sheet at 31 March 2022.

Note 4. Impairment and losses on sale of businesses and fixed assets(a)

Net impairment charges net of losses on sale of businesses and fixed assets for the first quarter 2022 were $26,031 million (charges of $373 million for the comparative period in 2021) and include net impairment charges for the first quarter of 2022 of $14,386 million (charges of $220 million for the comparative period in 2021). 

gas & low carbon energy segment

In the gas & low carbon energy segment there was a net impairment charge of $252 million for the first quarter 2022 (charges of $122 million for the comparative period in 2021).

oil production & operations segment

In the oil production & operations segment there was a net impairment charge of $624 million for the first quarter 2022 (charges of $99 million for the comparative period in 2021).

Impairment charges for the first quarter 2022 principally related to the decision to exit other businesses with Rosneft within Russia. They were offset by impairment reversals related to producing assets due to reserves additions.

other businesses and corporate

In the other businesses and corporate segment there was a net impairment charge of $13,479 million for the first quarter 2022 (reversal of $3 million for the comparative period in 2021) and a loss on sale of businesses and fixed assets of $11,082 million.

The impairment charge and the loss on sale of businesses and fixed assets for the first quarter mainly relates to bp's investment in Rosneft - see Note 2.

(a) All disclosures are pre-tax.

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Note 5. Analysis of replacement cost profit (loss) before interest and tax and reconciliation to profit (loss) before taxation