Q2 2024 Earnings Summary
- BP expects to grow cash flows by 3-4% per annum moving forward, driven by a strong pipeline of projects, including significant upstream developments like Kaskida and potential projects like Tiber in the Paleogene basin, along with a $2 billion cost efficiency program targeting savings by 2026. ,
- BP is strategically consolidating key assets like Bunge and Lightsource BP to unlock additional value, enhance integration, and capitalize on growth opportunities in biofuels and renewable energy, which could lead to higher returns for shareholders. ,
- BP provides sector-leading distributions to shareholders through dividends and share buybacks, supported by strong cash flow and a solid balance sheet, which is appreciated by investors and indicates confidence in future performance. ,
- High impairment charges continue to impact BP's financial results, with ongoing significant impairments in refining and potential for further charges due to IFRS accounting rules, which may erode profitability.
- Challenges in achieving Transition Growth Engine (TGE) EBITDA targets, as first-half TGE EBITDA has halved year-on-year, and biofuels, convenience, and renewables are all down. There is skepticism whether BP can meet its $3-4 billion TGE EBITDA target for next year despite management assurances.
- BP's high net debt and interest expenses remain a concern, especially as net interest is at 80% of dividend payments, and lease payments have increased by 40% over the last couple of years. This raises questions about the sustainability of returning 80% of surplus cash flow to shareholders through buybacks rather than strengthening the balance sheet.
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Balance Sheet and Buybacks
Q: Why maintain high buybacks over debt reduction?
A: We believe our sector-leading distributions strike the right balance between rewarding shareholders and maintaining a strong balance sheet. Net debt has reduced by $29 billion since 2020 , and our credit ratings are strong at A+. Share buybacks increase earnings per share and support future dividend growth. -
Production Outlook
Q: Is 2 million barrels per day still the right production target?
A: While current production is around 2.3 million barrels per day, upcoming divestments will reduce this. We're focused on growing cash flow and returns rather than just volumes. Projects like Kaskida and Tiber will underpin cash flow growth this decade. -
Focus on Drive to 2025
Q: How focused are you on the Drive to 2025 given recent acquisitions?
A: We're concentrating efforts to deliver our targets. Acquisitions like Bunge enhance value creation and align with our strategic focus. We're committed to exceeding our $2 billion cost reduction target and accelerating delivery. -
Production Profile and Impairments
Q: Can you update on the production profile and impairments outlook?
A: We're prioritizing cash flow and returns over production volumes. Impairments this quarter were $1.5 billion, mainly due to refining decisions. Future impairments depend on business decisions and market conditions. -
Refining Margins and Capital Allocation
Q: What's the earnings power of refining, and will capital allocation to transition change?
A: Refining margins have been volatile; we're focused on safe operations and optimizing commercial value. We expect refining turnaround intensity to decrease from 2025. We're reviewing capital allocation in areas like hydrogen and offshore wind to optimize returns. -
Consolidation of Bunge and Lightsource BP
Q: Why fully consolidate Bunge and Lightsource BP?
A: Full ownership allows us to unlock value through integration and operational improvements. With Bunge, we can enhance trading and operational efficiencies. For Lightsource BP, controlling interest enables strategic alignment and potential partnerships. -
Cash Returns and Catalysts
Q: What events would lead to increased cash payouts?
A: As we deliver projects and grow cash flow, we will assess distributions. Progress on construction and cost efficiencies will support cash flow growth of 3–4% per annum. -
Cost Reduction and Transition EBITDA
Q: Is the $2 billion cost reduction target on track?
A: Yes, we're aiming to deliver $0.5 billion in savings in 2025 and hope to exceed the $2 billion target. Transition growth engine EBITDA remains on track to reach $3–4 billion next year, supported by acquisitions and business growth. -
Gas Trading Outlook
Q: Can gas trading growth continue amid market changes?
A: Our trading platform remains strong; we've delivered an average uplift of 4% to group ROACE over four years. We continue to optimize our portfolio and invest in opportunities to maintain consistent performance. -
Unit Production Costs and BPX Activity
Q: What's behind increased unit costs and BPX activity?
A: The 4% increase in unit production cost is due to portfolio mix; we're on track for around $6 per barrel by mid-2025. BPX is focusing on liquids growth in the Permian, achieving drilling efficiencies and adapting to market conditions.