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/9813X_1-2023-5-1.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 9 for more information.

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

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

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(a) "fast charging" includes rapid charging ≥50kW and ultra-fast charging ≥150kW.

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Financial results

In addition to the highlights on page 2:

• Profit attributable to bp shareholders in the first quarter was $8.2 billion, compared with a loss of $20.4 billion in the same period of 2022.

- After adjusting profit attributable to bp shareholders for inventory holding losses* and net favourable impact of adjusting items*, underlying replacement cost profit* for the first quarter was $5.0 billion, compared with $6.2 billion for the same period of 2022. This reduction in underlying replacement cost profit reflects lower oil and gas realizations, portfolio changes and lower oil trading contribution, partly offset by higher refining margins and an exceptional gas marketing and trading result.

- Adjusting items in the first quarter had a net favourable pre-tax impact of $3.9 billion, compared with an adverse pre-tax impact of $30.8 billion in the same period of 2022.

- Adjusting items for the first quarter of 2023 include a favourable impact of pre-tax fair value accounting effects*, relative to management's internal measure of performance, of $4.3 billion, compared with an adverse pre-tax impact of $5.8 billion in the same period of 2022. This is primarily due to a decline in the forward price of LNG compared to the fourth quarter of 2022, but an increase in the comparative period. Under IFRS, reported earnings include the mark-to-market value of the hedges used to risk-manage LNG contracts, but not of the LNG contracts themselves. The underlying result includes the mark-to-market value of the hedges but also recognizes changes in value of the LNG contracts being risk managed.

- Adjusting items for the first quarter of 2022 include a pre-tax charge of $24.0 billion relating to bp's decision to exit its 19.75% shareholding in Rosneft. A further $1.5 billion pre-tax charge relating to bp's decision to exit its other businesses with Rosneft in Russia is also included.

• The effective tax rate (ETR) on RC profit or loss* for the first quarter was 29%, compared with -8% for the same period in 2022. Excluding adjusting items, the underlying ETR* for the first quarter was 39%, compared with 33% for the same period a year ago. The higher underlying ETR for the first quarter reflects the UK Energy Profits Levy on North Sea profits and other items. ETR on RC profit or loss and underlying ETR are non-IFRS measures.

• Operating cash flow* for the first quarter was $7.6 billion, compared with $8.2 billion for the same period in 2022.

• Capital expenditure* in the first quarter was $3.6 billion, compared with $2.9 billion in the same period of 2022.

• Total divestment and other proceeds for the first quarter were $0.8 billion, compared with $1.2 billion for the same period in 2022. There were no other proceeds for the first quarter of 2023. Other proceeds for the first quarter of 2022 consist of $0.2 billion of proceeds from the disposal of a loan note related to the Alaska divestment.

• At the end of the first quarter, net debt* was $21.2 billion, compared with $21.4 billion at the end of the fourth quarter 2022 and $27.5 billion at the end of the first quarter 2022.

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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 6-14 for the segments.

Operating Metrics

(a) See Operational updates on pages 6, 9 and 11. Because of rounding, upstream production may not agree exactly with the sum of gas & low carbon energy and oil production & operations.

(b) Mainly reflecting impact of portfolio changes.

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Outlook & Guidance

Macro outlook

• For the second quarter, bp expects oil prices to remain elevated as the recent decision by OPEC+ to restrict production, combined with strengthening Chinese demand, tightens supply/demand balances.

• During the second quarter, bp expects European gas and Asian LNG prices to be supported by recovering Chinese gas demand, re-stocking of European storage capacity and coal-to-gas switching. In the US, Henry Hub gas prices are also expected to find support from coal-to-gas switching in the power sector.

• In the second quarter, bp expects industry refining margins to be lower than the first quarter due to weaker middle distillate margins.

2Q23 guidance

• Looking ahead, bp expects second-quarter 2023 reported upstream* production to be lower compared to first quarter 2023, in both oil production & operations and gas & low carbon energy, including the effects of seasonal maintenance, with the impact predominantly in higher margin regions.

• In its customers business, bp expects higher marketing margins and seasonally higher volumes compared to the first quarter. In refining, bp expects realized margins to be lower compared to the first quarter, mainly driven by weaker middle distillate margins and narrower North American heavy oil crude differentials. In addition, bp expects a higher level of turnaround activity compared to the first quarter.

2023 guidance

In addition to the guidance on page 2:

• bp continues to expect both reported and underlying upstream production to be broadly flat compared with 2022. Within this, bp expects underlying production* from oil production & operations to be slightly higher and production from gas & low carbon energy to be lower.

• bp continues to expect the other businesses & corporate underlying annual charge to be in a range of $1.1-1.3 billion for 2023. The charge may vary from quarter to quarter.

• bp continues to expect the depreciation, depletion and amortization to be slightly above 2022.

• bp continues to expect the underlying ETR* for 2023 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.

• Having realized $16.7 billion of divestment and other proceeds since the second quarter of 2020, bp continues to expect divestment and other proceeds of $2-3 billion in 2023 and continues to expect to reach $25 billion of divestment and other proceeds between the second half of 2020 and 2025.

• bp continues to expect Gulf of Mexico oil spill payments for the year to be around $1.3 billion pre-tax including $1.2 billion pre-tax to be paid during the second quarter.

• bp continues to expect capital expenditure* of $16-18 billion in 2023 including inorganic capital expenditure*.

• bp is committed to maintaining a strong investment grade credit rating, targeting further progress within an 'A' grade credit rating. For 2023 bp continues to intend to allocate 40% of surplus cash flow to further strengthening the balance sheet.

• For 2023 and subject to maintaining a strong investment grade credit rating, bp remains committed to using 60% of surplus cash flow for share buybacks.

• 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, at the lower end of its $14-18 billion capital expenditure range, and have capacity for an annual increase in the dividend per ordinary share of around 4%.

• In setting the dividend per ordinary share and buyback each quarter, the board will continue to 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.

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gas & low carbon energy*

Financial results

• The replacement cost (RC) profit before interest and tax for the first quarter was $7,347 million, compared with a loss of $1,524 million for the same period in 2022. The first quarter is adjusted by a favourable impact of net adjusting items* of $3,891 million, compared with an adverse impact of net adjusting items of $5,119 million for the same period in 2022. Adjusting items include impacts of fair value accounting effects*, relative to management's internal measure of performance, which are a favourable impact of $3,934 million for the quarter and an adverse impact of $5,015 million for the same period in 2022. Under IFRS, reported earnings include the mark-to-market value of the hedges used to risk-manage LNG contracts, but not of the LNG contracts themselves. The underlying result includes the mark-to-market value of the hedges but also recognizes changes in value of the LNG contracts being risk managed, which decreased as forward prices fell during the first quarter.

• After adjusting RC profit before interest and tax for adjusting items, the underlying RC profit before interest and tax* for the first quarter was $3,456 million, compared with $3,595 million for the same period in 2022.

• The underlying RC profit for the first quarter, compared with the same period in 2022, reflects lower realizations and a higher depreciation, depletion and amortization charge, offset by an exceptional gas marketing and trading result.

Operational update

• Reported production for the quarter was 969mboe/d, 0.4% higher than the same period in 2022. Underlying production* was 1.1% lower, mainly due to unplanned outages offset by lower seasonal maintenance.

• Renewables pipeline* at the end of the quarter was 38.8GW (bp net), including 15.5GW bp net share of Lightsource bp's (LSbp's) pipeline. The renewables pipeline increased by 1.6GW during the quarter due to additions to LSbp's portfolio. In addition, there is 19.8GW (9.9GW bp net) of early stage opportunities in LSbp's hopper.

Strategic progress

gas

• The KGD6-MJ project offshore India is in the final stages of commissioning (Reliance 66.67% operator, bp 33.33%). Two wells have been opened to flow gas through the integrated production system. Full start-up is expected later in the second quarter.

• On 28 April bp signed an agreement with Shell to purchase Shell's 27% interest in the Browse project, offshore Australia. The transaction is subject to regulatory and partner approvals and on completion would increase bp's interest to 44.33%.

• On 27 February bp and its partners confirmed the development concept for the second phase of the bp-operated Greater Tortue Ahmeyim (GTA) liquefied natural gas project, with total capacity of between 2.5-3.0 million tonnes per annum, that they will take forward to the next stage of evaluation. 

• On 29 March bp and our co-venturers in the Shah Deniz Consortium have secured additional capacity in the Trans Adriatic Pipeline (TAP).

• On 28 February bp announced that it had completed the sale of its upstream business in Algeria to Eni after successfully securing the required approvals.

• On 28 March bp confirmed that, together with ADNOC, it has made a non-binding offer to take NewMed Energy private through an acquisition of the free float and a partial acquisition of Delek's stake, which would result in bp and ADNOC holding 50% of NewMed Energy. bp and ADNOC intend to form a new joint venture that will be focused on gas development in international areas of mutual interest including the East Mediterranean. The proposed transaction with NewMed Energy would be a significant first step in establishing this joint venture.

low carbon energy

• Hydrogen and CCS

◦ On 30 March it was announced that three bp-led hydrogen and CCS projects in north-east England - Net Zero Teesside Power gas-fired power station and CCS, H2Teesside blue hydrogen* and HyGreen Teesside green hydrogen* - have been chosen by the UK government to go to the next stage of development.

◦ On 11 April bp signed an agreement with Harbour Energy to take a 40% stake in the Viking carbon capture and storage (CCS) project in the North Sea.

◦ On 28 February bp launched plans for low-carbon green hydrogen cluster in Spain's Valencia region. The cluster is intended to include hydrogen production at bp's Castellón refinery of up to 2GW of electrolysis capacity by 2030.

• Offshore wind 

◦ On 24 March bp announced a successful bid in the Innovation and Targeted Oil and Gas (INTOG) Scottish offshore wind leasing round, bp's first step in floating offshore wind.

◦ On 15 February bp and Deep Wind Offshore announced the formation of a joint venture to develop offshore wind opportunities in South Korea, which includes four projects across the Korean peninsula with a potential generating capacity of up to 6GW.

• Onshore renewables

◦ On 1 March Lightsource bp announced that it had obtained environmental approval for 19 solar projects in four provinces in Spain for a total 1.6GW and investment of ~$1.3 billion by 2025.

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gas & low carbon energy (continued)

(a) Fourth quarter 2022 include $504 million in respect of the acquisition of EDF Energy Services. Power trading is reported under low carbon energy.

(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)

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

(e) 31 March 2023 and 31 December 2022 include 10.3GW of onshore wind and solar pipeline in support of hydrogen.

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oil production & operations

Financial results

• The replacement cost (RC) profit before interest and tax for the first quarter was $3,317 million, compared with $3,831 million for the same period in 2022. The first quarter is adjusted by an adverse impact of net adjusting items* of $2 million, compared with an adverse impact of net adjusting items of $852 million for the same period in 2022.

• After adjusting items, the underlying RC profit before interest and tax* for the first quarter was $3,319 million, compared with $4,683 million for the same period in 2022.

• The underlying RC profit for the first quarter compared to the same quarter in 2022, reflects lower oil and gas realizations and portfolio changes partly offset by higher production.

Operational update

• Reported production for the quarter was 1,360mboe/d, 5.8% higher than the first quarter of 2022. Underlying production* for the quarter was 6.1% higher compared with the first quarter of 2022 reflecting bpx energy performance and improved base performance.

Strategic Progress

• bp was the apparent high bidder on 37 lease blocks in the Gulf of Mexico lease sale 259 held on 29 March 2023.

• The Canadian regulator has issued a licence to Equinor for the 385 million-barrel Cappahayden K-67 discovery east of St John's, Newfoundland and Labrador (Equinor 60% operator, bp 40%).

• Azule Energy (bp and Eni's 50:50 joint venture in Angola) has taken the final investment decision for the Agogo Integrated West Hub Development oil project.

• MiQ, the non-profit global leader in methane certification, announced that it has independently audited and certified bp as the first energy major in the US to verify the methane intensity of its entire US onshore portfolio of natural gas.

• On 13 April bp announced start-up of the Mad Dog Phase 2 Argos platform. bp expects to safely and systematically ramp up production through 2023 (bp 60.5% operator, Woodside Energy 23.9% and Union Oil Company of California, an affiliate of Chevron U.S.A. Inc. 15.6%).

• Moving forward with concept selection for a bp-operated Kaskida development project in the Gulf of Mexico.

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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.

(c) Realizations calculation methodology has been changed to reflect gas price fluctuations within the North Sea region. First quarter 2022 was restated. There is no impact on financial results.

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customers & products

Financial results

• The replacement cost (RC) profit before interest and tax for the first quarter was $2,680 million, compared with $1,981 million for the same period in 2022. The first quarter is adjusted by an adverse impact of net adjusting items* of $79 million, compared with an adverse impact of net adjusting items of $175 million for the same period in 2022. Adjusting items include impacts of fair value accounting effects*, relative to management's internal measure of performance, which are a favourable impact of $77 million for the quarter and an adverse impact of $377 million for the same period in 2022.

• After adjusting items, the underlying RC profit before interest and tax* for the first quarter was $2,759 million, compared with $2,156 million for the same period in 2022.

• The customers & products result for the first quarter was higher than the same period in 2022, primarily reflecting a higher refining performance.

• customers - the convenience and mobility result, excluding Castrol, for the first quarter was lower than the same period in 2022. Stronger performance in biofuels, aviation and convenience was offset by higher costs, which included expenditure in our transition growth engines and the impact of inflation.

Castrol result for the first quarter was lower than the same period in 2022, primarily due to higher costs, including employee costs, partially offset by higher margins.

• products - the products result for the first quarter was higher compared with the same period in 2022, primarily due to higher realized refining margins, which included the benefit of wider North American heavy crude differentials. The quarter also benefited from a very strong contribution from oil trading, however this was lower than the same period last year which benefited from an exceptional performance.

Operational update 

• bp-operated refining availability* for the first quarter was 96.1%, higher compared with 95.0% for the same period in 2022. Utilization was lower than the same period in 2022, primarily due to the Toledo refinery shutdown.

Strategic progress

• In February, bp announced an agreement to purchase TravelCenters of America, one of the biggest networks of highway travel centres in the US. The deal is expected to add around 280 sites to our retail network and nearly double our convenience gross margin*. The deal is expected to close in the second quarter, subject to shareholder approval.

• In March, bp signed a new agreement with Rontec, one of the UK's largest roadside retail networks, to supply around two billion litres of fuel over the next five years to more than 60 of Rontec's sites. The two companies will also explore opportunities to deploy bp pulse electric vehicle (EV) charging infrastructure to Rontec's forecourts.

• In March, bp pulse:

◦ signed a strategic collaboration agreement with Iberdrola to accelerate EV charging infrastructure roll-out in Spain and Portugal. bp and Iberdrola intend to form a joint venture with plans to invest up to €1 billion and install 5,000 fast(a) EV charge points* by 2025 and around 11,000 by 2030. The formation of the joint venture is subject to regulatory approval.

◦ announced a new global mobility agreement with Uber, which will see the companies work together to help accelerate Uber's commitment to become a global zero-tailpipe emissions mobility platform by 2040.

• In March, Air bp announced the first sale of International Sustainability and Carbon Certification (ISCC) EU sustainable aviation fuel produced at bp's Castellon refinery in Spain, to the LATAM Group, one of Latin America's largest airlines.

• In April, bp's Rotterdam refinery in the Netherlands, became the first bp refinery to co-process Nuseed Carinta Oil as part of our partnership with Nuseed. Nuseed Carinata Oil is a sustainable low-carbon biofuel feedstock which we plan to use in our refineries, as well as onward marketing.

• In February, bp and BHP, one of the world's largest iron ore producers, announced a partnership to trial the use of blended diesel with hydrogenated vegetable oil (HVO) to assist BHP to reduce carbon emissions from its iron ore operations in Western Australia.

• On 28 February 2023, bp completed the sale of its 50% interest in the bp-Husky Toledo refinery in Ohio, US, to Cenovus Energy, its partner in the facility.

(a) "fast charging" includes rapid charging ≥50kW and ultra-fast charging ≥150kW.

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customers & products (continued)

(a) A reconciliation to RC profit before interest and tax by business is provided on page 28.

(b) A reconciliation to RC profit before interest and tax by business is provided on page 28.

(c) Fourth quarter 2022 includes $3,030 million in respect of the Archaea Energy acquisition.

(d) Reported to the nearest 50.

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customers & products (continued)

(e) The RMM in the quarter is calculated based on bp's current refinery portfolio. On a comparative basis, the fourth quarter and first quarter 2022 RMM would be $32.2/bbl and $19.3/bbl respectively.

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other businesses & corporate

Other businesses & corporate comprises innovation & engineering, bp ventures, Launchpad, regions, corporates & solutions, our corporate activities & functions and any residual costs of the Gulf of Mexico oil spill. It also includes Rosneft results up to 27 February 2022.

Financial results

• The replacement cost (RC) loss before interest and tax for the first quarter was $90 million, compared with $24,719 million for the same period in 2022. The first quarter is adjusted by a favourable impact of net adjusting items* of $206 million, compared with an adverse impact of net adjusting items of $24,460 million for the same period in 2022. Adjusting items include impacts of fair value accounting effects* which are a favourable impact of $245 million for the quarter and an adverse impact of $425 million for the same period in 2022. The adjusting items for the first quarter of 2022 mainly relate to Rosneft.

• After adjusting RC loss for net adjusting items, the underlying RC loss before interest and tax* for the first quarter was $296 million, compared with $259 million for the same period in 2022.

Strategic progress

• In April, bp ventures invested $11 million in Magenta Mobility, one of India's largest providers of electric mobility for last-mile delivery, the journey from hub to customer.

(a) Includes fair value accounting effects relating to the hybrid bonds that were issued on 17 June 2020. See page 31 for more information.

other businesses & corporate (excluding Rosneft)

other businesses & corporate (Rosneft)

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Financial statements

Group income statement

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Condensed group statement of comprehensive income

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

(b) First quarter 2022 predominantly relates to the loss of significant influence over Rosneft.

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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 the 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.

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Group balance sheet

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Condensed group cash flow statement