BP - Earnings Call - Q2 2025 (Q&A)

Transcript

Speaker 2

Welcome everyone to BP's second quarter 2025 results call. We'll be focusing today's call on the second quarter and first half performance and the contents of the video that I hope many of you will have seen by now. As a reminder, please queue for a question by raising your hand on Teams or queue for a question on the telephone if you're joining by that means. Let me first then hand over to Murray for a few brief opening remarks.

Speaker 4

Thanks Greg. Hi everyone. This has been another strong quarter for BP operationally and strategically. We're delivering our plan to grow the upstream and focus the downstream with reliability across both greater than 96% year to date. Across the upstream, we've brought five new oil and gas major projects on stream, sanctioned four more, and made 10 exploration discoveries. The best year for discoveries in recent memory, including the significant discovery in the Boomerang block in Brazil, with lots of interest and commentary over the past 24 hours. Underlying earnings in our customers business are up around 50% compared to a year ago, and trading has delivered well quarter on quarter despite challenging conditions. Expected proceeds from completed or announced divestments have reached around $3 billion for the.

Year, and we now have delivered around.

$1.7 billion of structural cost reductions since the start of our program in early 2024. We've also announced a dividend per ordinary share of $0.0832, an increase of 4%, and a further $750 million share buyback for the second quarter. We are 2/4 into a 12 quarter plan, and while we're encouraged by our early progress, we know there is much, much more to do. Gordon and Emeka are also here with Kate and I today, so please feel free to ask any questions of them both too. There's certainly a lot going on in digital and technology and of course across all of the upstream. With that, over to Q&A, and Craig can get us started. Super.

Speaker 2

Thanks, Marie. We're going to take the first question from Michele Della Vigna at Goldman Sachs, and as a reminder, please, to everybody, the usual two questions only so everybody gets a chance to ask the questions they need. Michele, over to you first, please.

Speaker 4

Thank you very much.

Speaker 0

Congratulations on not just a strong quarter but also what has been a very impressive discovery and the set of startups. I wanted to concentrate on those two if I may. On the Brazilian discovery, just wanted to understand from you how concerning is the CO2 content of the discovery. It's clearly giant, but we've seen in the past discoveries like Jupiter, for instance, with a lot of CO2 content that didn't get ultimately developed in Brazil. Just wanted to understand what was your thinking of that, even though clearly it's very early in the appraisal of that discovery. On the startups, again, very exciting. Alpha, Mexico, Trinidad, Egypt. I'm wondering if you could perhaps give us a view of where you think production could be by the end of the year after we go through the potential hurricanes.

Speaker 4

Thank you. Great, Michele, thanks for the kind words. You know, on exploration we've had a fantastic year, the best in a decade. That's really in recent memory. 10 commercial exploration discoveries across the patch, including big discoveries in Namibia and now in Brazil. We're very excited about that. Why don't I hand over to Gordon, who I think will have a lot of attention this call, to talk about the Boomerang block and thoughts on production as well. Yeah.

Speaker 0

Hi Michele and hello everyone. Good morning, good afternoon wherever you are. Thanks for the question, Michele. As you can imagine we're pretty excited about this discovery. The petrotechnical community is pretty excited about this discovery. Just to set the scene before I specifically answer your question, we have the Boomerang (Bumerangi) block 400 kilometers offshore from Rio. We have a large structure greater than 300 square kilometers. We drilled about 500 meters off crest to de-risk the drilling program. We're off crest, we encountered a column of confirmed hydrocarbon and that column is 500 meters. It's high quality pre-salt carbonate reservoir. We're pretty excited by that. There was an elevated measure of CO2, of course, on the measurement we made on the rig and I would emphasize that we've sent samples away to a certified lab. We do need full compositional analysis to come back.

However, we're pretty excited by it. Are we worried about elevated CO2? Not particularly. We need to find exactly what that level is. The industry knows how to handle elevated levels of CO2 and we as a company have quite a bit of experience through various projects over many years of handling CO2. We need to understand it before we get to full resource in place. However, not overly worried by CO2.

If.

I can move on to your second question. We've now started up. We promised at Capital Markets Day 10 major project startups by 2027. We've now started up five, including Argos Southwest extensions, which started up on Monday. We've probably got one more this year and then four next year. Out of a ramp up, we brought on roughly 125,000 barrels per day of production, which of course was in our plan full year. We're on plan with the ramp up from these major projects. I think you'll see us sticking on plan, maybe slightly ahead of plan through this year. We've had a good start to the year. Strong production across the patch. We've got a few turnarounds in the second half of the year and weather, of course, in the Gulf of Mexico. However, we think we're having a strong production year, which we would expect to continue.

Speaker 4

Thanks, Gordon. Craig.

Speaker 2

Thanks, Michele. We'll go next to Irene Himona, Bernstein.

Irene.

Speaker 3

Thank you very much. Good afternoon and congratulations on the numbers. My first question also on the Brazilian discovery, if I may, can you share the gas to oil ratio and talk around how you see timing for further drilling of this discovery, please? My second question on TA in downstream, Mari, you state somewhat that the results were not what you expect. Obviously you don't disclose the details. Can you perhaps elaborate on, you know, some of the disappointing data points you're seeing and how you're tackling them? Thank you.

Speaker 4

Great. Thanks, Irene. I'll tackle the first one and I'll pass over to Gordon to talk about the second. The first question on Brazil, I think on travel centers of America, maybe just to talk about MNC as a whole. First, we've had a very good run in MNC now for the first half of 2025 versus the first half of 2024. We're up about 50% in profitability across the two half years. The second quarter in MNC was the best on record since we started talking about MNC back in 2012. That's a fantastic result for M and the teams. The particular challenge that we have in TA is that we're seeing diesel margins across that business quite tight and not making as much on diesel as we would like.

We think we're taking some actions to fix that, but that's a particular area of concentration for the midstream trading and TA business itself to try to drive diesel margins to a better place and to get more customers into the business. That's really the area of focus we have. Across the rest of MNC, very, very strong performance, both capturing customers, capturing margin, driving costs out of the system. I'm really proud of the result across the retail fleet as well as aviation as well as Castrol. Just a tremendous quarter for the team. Congrats to the team. Gordon, over to you on Brazil.

Speaker 0

Yeah, thanks for the question. I think it's just too early to be precise on gas oil ratios. We need to have that full compositional analysis back from the labs. We took samples right across the column, so we should get the different compositional analysis at different depths in the column, and that will be very, very telling when we get these results back. I won't speculate on the gas oil ratio in terms of timing. We're going to go through an appraisal program with agreement with the regulator, of course, which will probably involve some sort of drill stem test to get some dynamic data. It'd be great to get some dynamic data from this well as we plan the development scheme. We will move at pace, Irene, if this turns out as good as we think it's going to be, we will absolutely move at pace.

Speaker 4

Thanks, Irene.

Speaker 2

Thank you, Irene. We'll go next on Teams to Lydia Rainforth at Barclays, please.

Speaker 3

Thanks, Craig, and good afternoon. Two questions if I could. Murray, in the stock exchange announcement you do talk about a thorough review of the portfolio, a further cost review. Can you just talk through about where, why that's different to where you were six months ago and what you're seeing that kind of gives you confidence that there is more value to come? Then, Kate, I mean certainly to other link, but clearly you've done brilliantly well on the cost side and perhaps Emeka, Gordon, could you go through some examples of where you're seeing some of those savings and particularly the AI side? It does feel like that stream is really good and probably leading the pack there, but there's more to do downstream and corporate.

Speaker 4

I don't know if that's a fair sort of analysis for that. Super, thanks Lydia. Look, I think on the portfolio side first and then I'll hand to Kate and I'll ask Emeka to talk about the digital and AI side of things. On the portfolio, we've had a tremendous year for access inside the upstream with access in Azerbaijan, in Iraq and Libya, in Abu Dhabi and India. Very excited about all that. You never really plan to have 10 exploration successes that are commercial. You just don't see that in history, and they're pretty big. Namibia is pretty big and obviously Brazil, as Gordon's described, is pretty big as well. We constantly think about the portfolio, we're constantly churning the portfolio. We want to drive absolute discipline into this and be driven by value and returns more than anything else.

It's time to take stock as Albert joins as a new Chair and work together on this conundrum of lots of great opportunities, but you can only choose so many in life. You know we're doing it live as we speak. If you look back across the past three to six months, we've dropped three rigs across the portfolio as not competitive inside our capital frame. We have decided to shut down a program in Australia on green hydrogen. We've decided to shut down some programs in the U.S. on blue hydrogen and CCS. We just constantly challenge ourselves to drive to the highest quality inside the portfolio. Now with the extreme success that we've seen inside the upstream, it's the right moment in time to do that as well. Kate, over to you on cost and Emeka.

Speaker 3

Yeah, thank you. Hi Lydia, good to see you. Your description of our cost progress as doing brilliantly well, I think I might describe it as decent progress. Why do I say that? I say that because there's a lot more to do. We set out the $4 to $5 billion target in May last year against the $22.6 billion. Delivering $1.7 billion of structural cost reductions to date I think is pretty good progress. As you look at what we're doing quarter on quarter, you can see we do now have some momentum, which is great. I want to keep seeing this driving all the way down to the bottom line. We've reduced absolute costs by about half a billion. Good progress, more to do.

As I think about the $4 to $5 billion internally, we've always held that that's taking ourselves across most of our businesses and functions to top quartile. We have to keep challenging, as you've heard me say before, I want to accelerate and exceed that wherever we can. It's only right that we should be challenging ourselves to see how much further we can go. Can we hit best in class in certain parts of our portfolio and understand what it takes to do that? I'm pleased with the progress to date, but more to do. Amica.

Speaker 4

Yeah.

Speaker 1

I'll just touch on three quick things: technology, supply chain, and data. On the technology side, what we have done, and this is inside of the technology organization, is we're actually looking at reducing, or we have been reducing, our costs both through a process of digitalization, but also we have reduced the number of contractors and the number of staff that we have in the technology organization. While we're reducing our own costs, we've been looking at streamlining applications and streamlining the partners that we work with to a small set now of world-class tech partners. That's a lot of what we're doing in technology for the organization. Supply chain is one of the big places that we're focusing in terms of how we can access and leverage savings on costs. The total resource management program, which Kate talked about, is around our third-party contractors.

So far we've had 3,200 exits. We've got another 1,200 to exit, and we're continuing to now optimize and focus this using our Palantir system that we're using to track our costs. We're connecting that to our ERP system and another people tracking system in our offshore platforms. We're looking at invoices and contract value leakage to make sure the invoices we pay are the right amounts for the pieces of work we do. AI is all over this. We're leveraging Palantir and our own AI systems to do this. The last thing I'll touch on is data across the company. We're currently managing about 100,000 pipelines of data across BP.

We see this is costing us money, costing us more than it should do, and it's actually preventing people in the team from being able to use AI in a consistent way across the company, both for growth and for a reduction in costs. We're partnering with Databricks and Palantir to implement a new unified data platform across the whole company that will both reduce cost and actually provide us a lot better transmission of data across the whole company and reduce that 100,000 pipelines into a single one. This project typically could take up to five years.

Speaker 4

We're going to be done with it.

Speaker 1

By the middle of next year, in less than two. These are some of the things we're doing to impact cost across the company.

Speaker 4

Thanks, Amica. I think when we talk to our partners about how far we're going on that data management, the answer is cutting edge. Cutting edge is right, cutting edge globally. We're really looking forward to it. Lydia, as we've said in the past, we're looking forward to taking all the hard work we've done with Palantir and the upstream into the downstream as well. We can update you on that if anybody wants to ask. Craig, back to you. Super.

Speaker 2

Thanks, Lydia. We are going to jump to the phones for a couple of questions now. I will take the first question from Guy Levy. It is Morgan Stanley Guy.

The first one. Just going back to the Boomerang block, the Brazilian Oil Agency a couple years ago at the time of the bid round, they published some studies pointing out to a potential of 2 billion boe of oil in place. Do you recognize this number? Is that sort of the level that you have in mind at the moment? The second one, just if you can provide us an update on the disposal process of Castrol. At what stage are we at the moment, any specific expectations in terms of timing, and anything that you can possibly share with us in terms of valuation at this point, that would be great. Thank you.

Speaker 4

Steve, just to clarify your first question on Brazil, is there a number that you're referencing? We couldn't understand what number you said.

Yes, there was a number in a specific report from the IR agency of BP of oil in place, but admittedly I'm not sure if that number has been updated or if that's something that you have in mind at the moment.

Thanks, Guy. Gordon, why don't you take the first one, and I'll take the second one.

Speaker 0

Yeah, thanks, Guy. I don't recognize the 2 billion barrels. I would just emphasize the scale of the structure: 300 kilometer square with a 500 meter column, and that's off crest. That 2 billion doesn't resonate with me, to be specific.

Speaker 4

We have declared that it's the largest discovery in 25 years, dating back to Kashagan and Chabanese, I think, were the analogies that we put together. That should help you understand it a little bit. I think on Castrol, look, I'm not going to say much. It's a commercial process. There's a lot of interest in it, and we're moving at pace. It's a complicated business, operates in 120 countries, and there's a lot of interest in it. We will update you when we can. We will transact for value. Craig, back to you.

Speaker 2

Thanks, Murray. Okay, we'll stay on the phones and take the next question from Matthew Lofting at J.P. Morgan Chase. Matt.

Hi. Thanks for taking the questions. Two if I could please. First, I just wanted to follow up on the earlier comments you made around the further cost review. Specifically, I think you referred in the press releases to targeting sort of best. I wondered if you could just expand on how you think about defining best in class in the context of the moving parts in the industry, technology, the evolution there, and also the fact that cost and fiscal regimes tend to vary across different geographies. Second, I just wanted to ask you about trading performance. Seemed good in the second quarter versus wider industry comps.

What's your outlook from here regarding the broader conditions for trading and optimization when you look through to the sort of second half of the year, and if you were to continue to see a, let's say, a sort of a moderated baseline as we've seen at times in the first half of the year, is Q2 seen within the company as a good approximate baseline. Thanks.

Speaker 4

Super. I'll take trading. Kate, if you want to talk about best in class, please. Look, I think on trading first, an average quarter for the gas business and a strong quarter for the oil trading business as we look out to conditions moving forward. I think the things I'd say on the oil rpt side is that inventories from a physical basis are quite tight, so there's likely to be a fair bit of volatility in the event that there are outages occurring. That's probably true through the third quarter and into the start of the fourth quarter. In the fourth quarter on the oil side, we see more production coming online from outside of OPEC, and trading conditions will highly depend upon what OPEC does, what happens with sanctions on Russia, what happens with sanctions on Iran. I would expect continuing volatility in that space.

On diesel and gasoline, we move into a heavy tar season in October as well, so that should provide conditions for volatility. I think on the gas side from our perspective, we trade optionality. That's how we've designed the gas books. We don't necessarily try to link to a particular index. We don't try to do point to point sales. Instead, we look for opportunities to arbitrage between price differences on the spot or across time. It feels in a market where natural gas becomes oversupplied as you move into late 2026, 2027, that we're well positioned to be able to arbitrage between these things. I think what you should expect moving forward is as we've guided in the past, which is 4% to returns of the corporation from trading. Assume it's half oil, assume it's half gas, and assume it's ratable across each quarter.

It won't be right in any one quarter, but it durably is what we have done over the past four and a half years. Thank you for that question, Matt. Over to you, Kate, on the cost investing class.

Speaker 3

Yeah, yeah. Hi Matt. I'll maybe start with the areas of the group that are slightly easier to benchmark and understand than I would put into that category. The sort of central functions like Finance, like People and Culture, like Technology. I think we've got a pretty good sense of where we probably stack up against our peer group with regard to that. Customers is similar. I think it's fairly straightforward to benchmark as we step through the refining and the upstream part of the portfolio. It gets more complicated with refining. We have been using the Solomon benchmarking very regularly, and as I said, we're waiting for the updated benchmarks to come in over the summer to get a sense of where we stack up across our refining portfolio versus our peer group.

With the upstream, we go basin by basin because, to your point, you need to understand the construct of the businesses inside your basin. You can't just look at the unit production cost, and that takes into consideration various component parts, whether it's PSAs or tax and royalties. It's going down to a basin level so that you can understand within that basin how you're tracking against your peer group. That's the piece of work that we're going to get into at pace as we get these data points in over the summer, and as we get a sense of where there are gaps versus what we consider to be best in class, we'll update you as we go.

I guess the only other thing I would say that is worth remembering is we've been pretty explicit that the $4 to $5 billion of structural cost reductions doesn't take into consideration any transactions with regard to Castrol and Gels and Kirk. As and when we reach a conclusion on those 2 transactions, we'll update the market on those 2 elements and how that would impact the $4 to $5 billion cost target as well.

Speaker 4

Thank you, Kate. Thanks, Kate. Thank you, Matt.

Speaker 2

We'll come back to teams and I'll let it do my hard work. We'll start with the first hand up, which is Joshua Stone. Joshua at UBS, please.

Speaker 4

Yeah, thanks and good afternoon. Two questions please. If we could follow up on trading. You clearly had very good performance for oil trading this quarter, and it goes against some of the trends we've seen elsewhere in the market. You made some comments in the press around shortening the duration of trades. I was hoping that you could just elaborate on this and speak to if there's any other drivers that are resulting in this sort of relative strength you're seeing versus some others. Whether that's maybe access to data or appetite to take on risks or any comments there would be helpful. Secondly, on impairments, there were another lump of an impairment this quarter, about $1.2 billion. You've given us the divisions, but are you able to elaborate on which assets are actually driving these impairments? Thanks. Great, thanks, Josh.

I think on trading, without giving away commercial advantage, I'd just say on the oil trading side, they shorten the duration. Normally you trade 3, 6, 9 months in duration for time spreads, etc., but there's a lot of path risk around that when there's macro volatility and headline volatility. You move to shorter duration trades to manage that risk. That's what the teams were doing through April. I think I'll stop there for fear of giving up any commercial advantage beyond that and pass over to Kate on the question on impairments.

Speaker 3

Yeah, hi, Josh. Thanks for the question. We have taken a number of impairments across the businesses this quarter, and I think the first thing I'd say is that we're never happy to impair assets. It was capital one, so we're very cognizant of that, which is why Murray and I are driving so hard on improving and increasing our capital productivity in every part of the business. Maybe a couple to call out, which may be helpful in the customer and products space. We impair assets where we are working through a sales process as an accounting approach that we have to take based on the value that we expect to see versus the value at which we hold those assets.

We took decisions, as Murray referenced a little bit earlier on the call, with regard to hydrogen and biofuels down in Australia, and as a consequence, we've taken an impairment on that. That's all about quality of choice and making the right decision for us as a company moving forward as we execute on our strategy. Maybe the only other one that's probably worth highlighting is in the gas and low carbon space where we've taken a further impairment with regard to M and S. We're now lifting cargoes into our trading organization from that business, and that's where we see significant future value coming. We've now loaded, finished loading our seventh cargo so far this year as it continues to ramp up. M and S is performing well now. It started up and it's ramping up.

That's probably as much as it's worth sharing with you, Ruth, with regard to impairments. It remains an area of focus for us, Josh. Please be clear on that.

Speaker 4

Thanks, Craig.

Speaker 2

Thank you, Josh. I am going to just jump quickly to the web. We've got a question from, I think, Alejandro Vigil at Santander. Alejandro, you've got three questions. I think two of them have been covered, but I'll take maybe the last question. Read it out. Probably one for you, Kate. What are our expectations of net debt by the end of the year? That's from Alejandro.

Speaker 3

Yeah. Thank you, Alejandra. Third question. Net debt was down $1 billion this quarter versus 1Q, which is good to see, quite a lot of moving parts. You can see there's been a pretty sizable working capital build through the first half. We end the first half with a total working capital build of $4.7 billion. If you think back to 1Q, we had $3.4 billion of working capital build, and I said the majority of that we should expect to reverse through the remainder of the year. We saw about $600 million of that reverse in 2Q, but it was more than offset by other moving parts. You'll recall the Deepwater Horizon payment we make every 2Q. There's also, in the first half, been payments with regard to assets held for sale. If they were not held for sale, they'd be accounted for as capital.

We are forced to account for them as working capital because of accounting rules. There's been about $200 million of decommissioning payments as well in the first half. As I look at all of that, the reason I'm stepping you through that is I think there's about $2 billion of permanent working capital build to date. With regard to the group, as I look forward, my best estimate of the level of reversal still to come through the third and fourth quarter is between $1.5 billion and $2 billion. Other moving parts that we've been clear around is the $1.2 billion of redemption of hybrid that we will redeem in 3Q. Then you've got, of course, operational performance and price, which will move around.

I would say if you assume flat price, all these other moving parts and the level of working capital unwind I've just stepped through, my expectation is we should see net debt continue to slightly trend down towards the back end of the year. That's helpful.

Speaker 2

Thank you, Kate. Okay, back to Teams. We'll take the next question from Ryan Todd at Piper Sandler.

Ryan.

Speaker 4

Good, thanks. Maybe one more on exploration, congratulations on the great results here today. 10 discoveries. Maybe you can talk about how the approach has your approach to exploration changed at all or just increased allocation of resources? Good luck. Outside of Brazil, what have you seen that excites you the most? Maybe a second question on much better refining performance this quarter, both operationally and in terms of margins. Can you talk through what's gone well and how you think about the refining environment into the back half of this year and into 2026? Great. I think on refining environment, I'll take that refining performance over to Gordon and then you guys transition on exploration and technology. Gordon and Emma could trade that off. On refining environments, Ryan, I think relatively tight is what I'd say right now. Diesel margins, gasoline margins, jet. Sorry, diesel, gasoline, jet.

Stocks are quite low relative to history as well. All of the additions we've seen in Dos Bocas and Dangote have now been offset by refinery closures around the world. From the announcements you saw at Prax, the California refinery shutting down and other ones that have shut down. Instead of adding capacity to the non-Chinese refining fleet, we're basically flat while overall demand for energy continues to grow at 1%. Fairly tight is our sense. We expect to build as we move through the driving season as all the refineries are working, and we expect it to become quite tight again as we move into tar season.

I think I would say that extends into 2026 as well, where if we do see the increasing demand we see for product and we're not getting refinery expansions, we expect it to be tight as we work our way through into the early days of 2026. I won't really forecast anything beyond the early days of 2026, so I think that would be the structure of the refining markets as we see it today. Gordon, over to you on refining performance.

Speaker 0

Yeah, thank you for the question, Ryan. I'm very pleased with refining availability. We've just delivered the quarter at 96.4% availability, which is the best quarter we've had since 2006. We've just delivered the first half of the year at 96.3%, which is the best first half since we started recording on this metric. The refineries are actually running really well right now. You know what's gone well? I think the vulnerability management was taking a process that was running upstream for many years and implementing. It's not finished implementing it in refining. We manage our vulnerabilities, which basically means we intervene before a piece of kit falls over, before it trips to prevent it tripping, keeps it online longer. We've got centralized maintenance, centralized TARs, we have common processes being deployed, and of course we're starting the process of digitalization in refinery.

All that adds up to a more systematic and controlled refining portfolio, which shows up as better availability. If I could transition, Ryan, into exploration, the success, I think a couple of things I would highlight. One, we're data led, so it's not just luck and working with Emeka's team. The quality of seismic and the lighting up of the subsurface on seismic images we get now is quite remarkable. That de-risks drilling, exploration drilling to some degree. You'll never completely de-risk exploration drilling, but to some degree data led using good quality seismic, using AI algorithms to.

Speaker 4

Light up the rock in a way.

Speaker 0

We never could before, has made a difference. I think the exploration team have a mission. Their mission is to fill up our hopper with great resource that we can then bring forward to invest in as major projects. The one thing we're not doing is just throwing money at it. It's quality through choice. We actually haven't increased our exploration budget very much in the last 12 months. We're forcing the teams to select the very, very best opportunities that we have, the most material and those that we think are going to come in. There are many, many things that excite me outside Brazil in the exploration world. If I could just highlight West Africa and particularly Angola and Namibia, where of course we invest under the Azul joint venture with Eni. We've recently had a discovery in Namibia with the Capricornis well. There's more to come there.

We've just studied the next well called Volans in Namibia. Again under the Azul brand, we had a discovery in Gajajira in Block 114, pretty close to shore. Very developable. West Africa remains an exciting area for us in terms of exploration.

Speaker 1

What I'll add is in seismic, we are one of the leaders in seismic technology. We have been for a number of years and we're continuing to invest to build on that lead. Some of the investments that we're looking at are both investments in compute and investments in the seismic algorithms. These two things go together. On the compute side, what we have done is we have quadrupled this capacity of our high performance computing center. This has allowed us to increase the speed at which we can do our algorithm processing by about 5 to 10 times, and some steps actually are increased by 50 times. What all of this does put together is it actually helps the subsurface teams to increase the speed at which they can build a hopper. It helps to better exploit the resources that we have right now.

It helps the teams actually build quality through choice, as Gordon is talking about, and we're using a lot of this. We're doing both in partnership with Nvidia and with the deep technical expertise our teams have built over time. That's some of the contribution I think I would add from seismic from the technology perspective.

Speaker 4

Super, guys. A bit of a long answer to a complicated question, but I'd round it off, Todd, by saying we got fantastic petrotechnical capability. It has always been strong and remains strong, and we're really proud of the results. So well done, guys.

Craig, thank you.

Speaker 2

Thanks, Ryan. We'll move next to Peter Lowe at Redburn.

Speaker 4

Peter, hi. Yeah, thanks. Perhaps just on BPX, there was a step up in production this quarter and you've now brought online your fourth and final delivery center in the Permian. What should we expect further production trajectory from here for that business?

Speaker 1

The second question was just.

Speaker 4

To go back to convenience and mobility. As you say, it's particularly strong results. I think the strongest for quite some time. It sounds like that's not coming from TA. Can you perhaps elaborate where that improvement is coming from? Thanks. Yep. Great. I'll let Gordon think about BPX while I answer C&M. C&M's performance is very broad based. We've seen exceptionally strong results across C&M Americas, C&M Europe, C&M Asia. It's coming from all the convenience and mobility businesses there. That's tight cost control, management of product, and managing margin effectively. We're near record levels of profitability in aviation. Of course, you can see the eight great quarters in a row for Castrol. I think the last thing to say is the midstream and supply teams are really looking hard at optimizing our value chains.

We're pushing further down value chains to try to optimize margin, bringing trading and midstream closer and closer together as we work together to drive real outcomes. That's another source of brilliant performance from the teams. I look forward for continuing strength in this space especially. I hope that helps. Peter and Gordon, over to you on BPX production trajectory.

Speaker 0

Yeah, hi Peter. BPX production, our strategy laid out during Capital Markets Day remains the same, which is 7% CAGR through to 2030, growing the business to 650,000 barrels per day by 2030. That stays on plan. Of course, it won't be a perfectly straight line through 2030, but the overall strategy remains the same. 1Q to 2Q production was particularly strong, 16% quarter-to-quarter growth, 1Q to 2Q, and really strong production efficiency is coming through strongly. That's what I observe in BPX under the leadership of Kyle Koontz and his team. Some of the capital productivity metrics continue just to improve. On the NPV per section metric, we're 1, 2, or 3 across the three basins that we operate in. On reserves per foot drilled, we're top quartile across our three basins that we drill in, and we're number one in the Black Hawk and the Haynesville.

These metrics just keep improving as the team focused on them. Production is strong, and we expect it to continue to be strong through this year.

Speaker 2

Thanks, Gordon. Thank you, Peter. We'll go next to Doug Leggate, Wolfe, in the U.S. Morning, Doug.

Speaker 0

Morning, Craig.

Speaker 4

Morning, everybody. Thanks for taking my question. I actually have a follow-up on BPX. Maybe I'll direct it to Gordon given he answered the last one. Gordon, you had the reorientation of the partnership with Devon Energy and my understanding is you got a disproportionate share of wells in progress that probably helped your volume in Q2. I'm just wondering if apples are one over if you expect that to be the new baseline to grow off. We did have a chance to talk to Kyle about this and it seemed to us that there was some upside risk to that longer-term growth target. That's my first one and my second one is for Murray or maybe Kate.

If I look at slide 15 in your deck when you're talking about the structural cost cutting, the cost savings, you've got $900 million this year to date, but an offset is $800 million of the growth and the organic, the acquisition piece. My question is how much of the $4 to $5 billion over the 2027 timeline would you expect to also have offsets? In other words, how much would actually flow through to the bottom line?

Thank you.

Super. I'll let Kate take the structural cost conversation, and then Gordon to take Devin.

Go ahead, Kate.

Speaker 3

Yeah. Hello, Doug. Good morning. Yeah. With regard to the structural cost reduction, so $1.7 billion so far since we announced the $4 to $5 billion of structural cost reductions. As I look through the first half in particular of this year, you can see the bricks that we're trying to be as explicit as we can in terms of what are the costs that are going up in our organization versus how is the structural cost reduction offsetting those? We said we were going to grow the upstream. That's a key part of our strategy and we're doing that. That brings cost with it. As you can see, from the first half results, we've added about $200 million of costs associated with higher production in BPX Energy and bringing major projects online.

The other thing that's gone on with regard to growing the organization is the acquisition costs associated with Lightsource BP and BP Bioenergy. We also have environment. Inflation around $400 million, $300 million of that was inflation in the first half of the year. More than offsetting that is the $900 million of reductions going the other way to deliver the absolute cost reduction. As I look forward of the $4 to $5 billion, I want to see material cost reductions flowing all the way down to the bottom line. That's good for us, it's good for our shareholders. In terms of quantification, it's very hard to call it, Doug, because it's very hard to see what's going to go on with regard to inflation in the environment. We've seen wicked inflation in the last three or four years.

I don't want to box myself in by predicting what that's going to do. You can hear, I think, from the tone of what we're saying today that we are relentless in our drive to get as competitive and as lean as we can within the boundaries of safe operations and growing our organization for long term shareholder value.

Speaker 0

Hi Doug, thanks for the question. The first thing I would say is we're very happy with the value uplift from the Devon transaction. Devon had been a tremendous partner for many years. We worked well with them in that part of the lower 40s, but it was time to simplify and do our own thing. We are very pleased with the value uplift. We are very pleased with the transaction. To be specific on your question, the amount of production that came with the transaction is very, very small. It will grow as we bring some of the drilled, uncompleted wells online, but it doesn't represent a massive new baseline for our growth. It's a relatively small, a relatively small well.

All right, thank you.

Speaker 2

Thanks, Doug. We'll take the next question from Biraj Borkhataria at RBC.

Speaker 4

Hey, thanks for taking my question. I wanted to go back to the comments around the strategic review or thorough review of the portfolio because you obviously did a thorough review ahead of the CMD. Does this mean you start with a blank sheet of paper again and start over, or should investors assume this review is for things over and above what you've already announced and the question relates to cash flow? If you're doing a thorough review of capital allocation, would it make sense to do a big transaction like that, or would you wait for it to finish the process? The second question, just on the financial frame and net debt, as you reported, net debt going down, but the lease stack is going up, and also the lease costs are creeping higher.

Again, could you just talk about from here whether you'd expect the total leases to be stable from here or move up or down or what exactly is driving that? Thank you, Biraj. On the first one, we obviously are starting our portfolio review from where we stand now. We made a bunch of decisions back in February, and we've had a whole bunch of additions to the portfolio from the upstream that I talked about. Within a $13 to $15 billion frame, we now need to think what's the right priority driving for value and returns on behalf of shareholders. There's no change to the divestment program. We continue to have a $20 billion divestment program, and we continue pushing Castrol forward.

Rest assured, this is all about trying to stay within the strategy, accelerate the delivery of it, but of course, continuing to drive quality through choice, which we live and breathe each and every day. Kate, over to you on the other question.

Speaker 3

Yeah, hi, Biraj. Just on leases. The way that we think about leases is pretty different from the way that we think about debt. At the end of the day, we're incurring leases directly to drive value in terms of production, et cetera. As you look at what's happened year on year, our lease liability has grown by about $4 billion from this time last year. Just over $2 billion of that is the accounting for the floating LNG in Mauritania and Senegal. To my point, it's about driving production. Offsetting that is about $900 million of recoverable which we'll receive from our partners in respect of those lease costs. There are a couple of other moving parts. We brought onto our books about $600 million of leases associated with the BP Bioenergy acquisition.

There was a lease renewal of about $400 million in one of our refineries in the U.S., and then there's some trading around lease opportunities, which I won't disclose because that's commercially sensitive. Leases are an area that we step into deliberately to drive value for shareholders, and I think they're appropriate. We, of course, are testing them to make sure they are of value to us. With regard to the forward shape of it, it will depend very specifically on some of the big moving parts, particularly in our upstream portfolio. We've been talking a lot about Brazil and Boomerang on this call. If that moves at pace, I can foresee a number of lease situations potentially around FPSOs over in Brazil that will be added to that and rightly so with regard to our lease liability on our balance sheet. It's very difficult to guide going forward.

It depends on the resource allocation decisions that we set through as we get to each final investment decision.

Speaker 4

Thanks, Bharaz.

Speaker 2

Thank you, Biraj. I'm going to jump back onto the telephones now for two questions. First one from Paul Cheng at Scotiabank.

Speaker 4

Paul.

Thank you. Good morning or good afternoon, Gordon. Want to go back into the BPX? The second quarter, the production increase is quite impressive. Is it all coming from Permian? Also, can you give us some idea how the Haynesville, your drilling and development plan, is going to look like for the remainder of the year into next year? Are you adding any rate over there? The second question, want to go back into the seal. Can you give us some kind of idea? Let's assume that you're going to take multiple boats for the development because the rest of it is very big, and from a cost recovery standpoint, is all the costs in one pool or is that individual project bases? Can you give us some idea of the timeline? I will assume to fully delineate that you may need at least, say, three or four phases.

Is that the earliest that, even if it goes according to plan, maybe a late 2027 or early 2028 F.I.D.?

Thank you, Gordon. I'll let you do Brazil, and I'll answer BPX to give you a bit of relief. Why don't you start off with Brazil? Yeah.

Speaker 0

Thank you. Hey Paul, thanks for the question. I'll answer the easy one first. The terms of the lease that we have in Brazil are public knowledge, and it's one cost pool. Everything is funded through a single cost recovery pool. I would expect we need to get the results back from the lab on the full compositional analysis, which will inform the hydrocarbon that we have in the column, and that will then inform the detail of the appraisal program. We have more work to do to plan it. I would expect, as you say, a three-year or four-well appraisal program to allow us then to move to a full field development. I wouldn't speculate exactly when we would have that appraisal program done, but we will move at pace as soon as we get these results back.

In fact, of course, we've done some pre-drill work already on what an appraisal program would be. We're not starting from scratch, but we'll move at pace on appraisal.

Speaker 4

Fantastic. Thanks, Gordon. On BPX, just to step into Gordon's space a bit, the growth between 1Q and 2Q is principally the Permian with a ramp up of Crossroads as well as an awful lot of work on refracs and infill drilling in the Eagle Ford. Just to remind you, the refracs are working fabulously and the infill program on wells drilled a decade ago are twice as productive as the original wells. That's just the changing technology on FRAC over time. We're seeing a lot of growth out of the Eagle Ford. You should expect liquids, assuming prices stay relatively stable. You should expect liquids production out of BPX to continue to grow through the decade. Of course, if price moves up or down, we may change that capital allocation. That's our sense right now.

As far as the gas basins, the first thing I'd say is capital productivity is really improving. We're about 10% year on year improvement in capital productivity right now. In Haynesville, they just drilled their first U well. That's a vertical well and a big U with fracs on the straight sides of the U. Obviously, you don't frack into the U. We were getting tremendous productivity out of that. We're seeing from three well pads 160 million scuffs a day out of three well pads, with the capacity to get up to 180 if we can solve certain metallurgy issues. I think productivity is fantastic and the business is actually holding gas production relatively flat around two to three rigs. That's across the Permian, the Haynesville, the Eagle Ford, the Hawkville, etc. The team's doing a very, very good job in that space.

As far as what we'll do with 2026 and 2027 ramp up, that's still something that we're thinking about. We're watching gas prices. We have started hedging out 2026 and 2027 and that'll determine how much we lean into that space by adding rigs. That's a decision we'll make in the fall as we head towards our 2026 gap allocation. Ask me again next quarter and we can answer that question.

Thank you, Paul. Thank you.

Speaker 2

Thanks, Murray. Thank you, Paul. We'll stay on the phones and go to Christopher Kuplent at Bank of America. Chris.

Thank you. Hope you can hear me. Okay, two quick questions from you remaining. First, one for you, Kate. Can you square the circle for us a little bit on disposal proceeds and your net debt guidance for the end of the year? I noticed TANAP has been structured as an equity raise. How does that relate eventually to a net debt reduction in the way you consolidate it and other niggles for us to be aware of in terms of how you structure some of these disposals that have been announced? The second one back to Murray or perhaps Gordon, on the topic of strategic review and what else you might think of around your portfolio. One of the last super majors was UK North Sea Assets. Not in some sort of EU Joyd. You've pioneered the structure. You've kicked off with Akabiti in Norway.

Is the UK a particular focus for yourself as you review potential portfolio changes? Maybe you can comment on the value of that in your portfolio. Thank you.

Speaker 4

Great, thanks, Chris. Gordon, why don't you tackle North Sea, and then I'll hand over to Kate on divestment first, please?

Speaker 0

Yeah, thanks, Chris. You know, the North Sea, we have a proud history and we're proud of the team up there producing for over 60 years now, and it's been a tremendous piece of business. The reason we haven't jumped into a joint venture is we believe we've got the best portfolio up there, and that's been our view for quite a while. However, we're also monitoring any potential changes to the fiscal situation in the North Sea, which we expect to get some clarity on at some point this year. I think once we get clarity on the fiscal situation, we'll then make decisions. It's just too early. We've got to get a little bit more information on the North Sea.

I would say North Sea performance this year in terms of safety and production cost has been tremendous, and so they really have stepped up and the plant has been. The production facilities have been much more reliable than they were the last couple of years. Kudos to the team up there. We stay and we watch and we see what happens with the review of the fiscals.

Speaker 3

Yeah. Hi, Chris. In terms of net debt guidance, firstly, I'd say that we are expecting our strong operations to continue. Gordon's doing a great job of the kit staying up and available, so we plan on that continuing. I've talked you through a level of working capital release through the second half of the year that we expect to come through. The other major moving part is around divestment proceeds. We've signed three, we've had divestment proceeds in the door of $1.7 billion. Your specific question with regard to this decapitalization of pipelines I think is a sensible way to approach our infrastructure. We don't need to own them, but we do need to have control over the ability to move our equity production to market. The way we account for it is proceeds. We receive the cash but then it's accounted for through non-controlling interest.

You see that line going through the balance sheet and you'll see it going through the income statement as well, each quarter.

Speaker 4

Thank you, Kate. Craig, thanks, Chris.

Speaker 2

We'll come back to Teams and take the next question from Kim Fustier, HSBC. Kim.

Speaker 3

Hi, good afternoon. Thanks for taking my questions. I had two, please. Firstly, I wanted to ask about the strength in underlying cash flow ex working capital over $7.5 billion, which was quite impressive. I noticed that the quarter-on-quarter increase was sort of $0.5 billion more than the increase in net income this quarter. Could you maybe talk about the moving parts there? Was there anything unusually strong about this quarter? Any larger dividends from associates, for instance, or lower cash tax payments? My second question is on the Gulf of America. I believe you're now in a farm down process on your Paleogene assets, Cascadia and Tiber. What's the level of interest from industry and what do you think would be the best time to farm down?

Would it be at the point of FID for Tiber and when might that be, or would it be later during the development phase? Thank you.

Speaker 4

I'll take Gulf of America to give Gordon a break, and I'll pass over to Kate on underlying. I think tax is the answer as far as Gulf of America goes. We're in conversations with counterparts on Caskita. We will continue doing that and see what's possible. If we can get value for shareholders, great. If we can't, then we're happy to carry on for 100%. Tiber we expect to bring to sanction this year, just waiting for that to be brought up to the resource committee and to the board, and clearly we won't do anything until we've FID that. Given that we have 100% in both, we can consider bringing in a partner. The only question is at what time do we think we can maximize value for shareholders. We're in conversations with counterparts. There's lots of interest for premium assets such as this.

We just need to make sure we get the right value for shareholders as we move through that conversation. Paige, underlying EBITDA and earnings, I guess.

Speaker 3

Yeah. Hi Kim. Excluding working capital, our ops cash effectively grew by $1.5 billion quarter on quarter. Around $1 billion of that is due to underlying earnings, and in particular I'd call out better trading, better gas trading, and better oil trading. The other major component is lower cash taxes, over $200 million quarter on quarter. There's another slew of various smaller drivers, but nothing worth calling out.

Speaker 4

Strong underlying performance, Kim, I think is the core message. Really strong underlying performance, and well done to the teams for delivering it. Yeah.

Speaker 2

Thank you, Kim. We'll go to the next question from Lucas Herrmann at BNP Paribas.

Speaker 4

Lucas Craig, thanks very much and nice to see some momentum returning to the business. A couple if I might, Kate, Murray, one big beautiful bill, fiscal implications for you. You know, corporate tax in particular, if I could start there. The second really just probably is Gordon. Going back to refining, the last two, three years we have seen a lot of five-year turnarounds, a lot of downtime production. The run rates, as you highlight, have been very good, but they've been very good on, should we say, muted available capacity. As we look forwards over the next year or two, how should we think about availability within that business, let alone uptime? Thank you. Gordon, you want to lead off on refining or pick up the tax?

Speaker 0

Yeah, absolutely. Hi Lucas, thanks for the question. You know, just as a reminder, the 2022-2023 time frame, we were catching up on TARs from the backlog during COVID. I'd say 2024-2025, a more normal period of turnarounds. However, 2Q 2025 was particularly high, and we've guided through to be slightly lower TARs for lowest TAR outages for the balance of 2025. As we go forward into 2026, 2027, we should see lower turnarounds relative to 2024-2025, Lucas. We'll be on the ramp down on TAR days relative to 2024-2025 as we go into 2026-2027. I hope, I believe we can hold on to the availability that we've been delivering this half as we go through 2026-2027. That's the mission.

Speaker 4

I think on the U.S. legislation we're very positive on it. The U.S. is a very big operation for us. 60% of our profitability and cash flow comes from the United States. We invest 50% to 60% of our capital there as well. It's a massive business for us. We're very proud to support the United States in growing their energy production. We look forward to growing production out of both the Gulf of America and BPX by, I think, it's 10% per annum out through the end of the decade. We're pleased with that. The tax bill that came through was very favorable to us. It sustained the corporate tax rate at 21% and the immediate expensing really helps offset any pressure from tariffs as well. It was very positive for us, Lucas, and it's very positive for us in the United States.

We're excited and happy to be continuing to drive in U.S. Murray, is there any quantifiable benefit you can think about at this stage? Sorry for the echo. From a financial perspective, it wasn't like we were accruing a higher tax rate or anything like that. It's just a continuation of the 21%. Cash taxes would offset anything in tariffs, I think, is all I would say at this stage. Although tariffs are highly variable, I think it's not material. It's very positive for us, Lucas. I can't really say more than that right now. Okay, thank you.

Speaker 2

Thanks, Lucas. We'll take the next question from Henry Tarr at Berenberg.

Henry.

Speaker 4

Hi there and thanks for taking my questions. I had two. There was a strong.

Speaker 2

Rebound in the gas and low carbon.

Speaker 4

Business in the quarter. How do you think about that as you look into the second half and into next year? One of your peers pointing for some different reasons perhaps, but to a slightly lighter outlook as we look into 2026. How you see that business. The second question, in your sort of early interactions with the new Chairman, what have the discussions mainly been focused on? Clearly there's the change around the portfolio and looking into that. Which areas do you think he might have the most impact on in the organization? Thank you. Super, Henry. First, I'm really excited for Albert to come on board. He's got a tremendous track record at CRH, 10 years of fantastic delivery, experiencing many of the industrial challenges that we face in an oil and gas company as well. It'll be fantastic to have Albert on board full time.

We've been in conversations early on and the question is how do you drive shareholder value as much as you can? How do you get really, really disciplined with capital investing for returns and value as much as you can? How do you drive real competitive cost tension into the business? Make sure that we challenge ourselves day in and day out to be the very best in the basins in which we operate, which Kate unpacked a little bit earlier. It's a hard performance drive. I think from a portfolio perspective, too early to judge anything. We just need to go through this and work together to see what makes the most sense for us across the portfolio, given the richness of the opportunity set that sits with us. We'll look forward to updating you in due course on that space.

I think on gas and low carbon, maybe you were asking a gas trading question. Maybe that's what that was. I'm not sure, Henry, if that's what you were really asking. Partly gas trading, yes. Partly gas trading. Yeah, I think it's mostly gas trading. No change of assumptions for us. We run our business differently than other corporations do. We run our gas trading business for optionality and whether the market is oversupplied or undersupplied. What we look for is volatility where we can redirect. As Carol talked about in February, 50% of our LNG business is redirectable in 2025, going to 60% in 2026. If you have a geographic arbitrage, if you have a time arbitrage, we don't really slave ourselves to a percentage point of some slope. We don't do point to point. We try to get this optionality.

There shouldn't be any change in what our assumptions are for trading. In the past, we've delivered 4% across the past five years, and we would expect that to continue in the future. No change to our viewpoints on how our gas trading business will do. Of course, we've got exciting new things that have been brought online recently. Obviously, ventures flowing to us now, Mauritania, Senegal is flowing to us now. Something that doesn't get many headlines is we started up GNA Phase 2 in Brazil, where we've got a 3 gigawatt power plant in Brazil with a 1 to 3 million, 1 to 3 NCPA short into Brazil model that we have exclusive access to. An interesting new addition to the leg of trading moving forward. Hopefully, that answers your question on gasoline carbon.

Henry.

Super.

Speaker 2

Henry, we are five minutes over time, so I appreciate, I think there's a couple of questions pulling for a second time. Please, you know, relay those questions back to Investor Relations. We'll certainly get answers back to you. My thanks to everybody on the panel, and maybe I can just hand back over to Murray to close the call.

Speaker 4

Super well, thanks to Gordon, Emeka, Kate, and thanks the entire BP team for delivery. It was another strong quarter for BP operationally and strategically, and encouraging progress. As I've said, this is two quarters in of a 12 quarter program, and there's a lot more to do across the next trend quarters. We are fully focused on delivering safely, reliably investing with discipline, and driving performance improvements across all parts of the business, all in service of delivering our four key targets and in maximizing long term shareholder value. We can and will do better. Thanks for listening. For those taking vacation, I wish you a peaceful and relaxing break, and we look forward to talking with you soon. Thank you.

Bye bye.