BP Q3 2024 Earnings Report

BP EPS Results

• Actual EPS: $0.83
• Consensus EPS: $0.78
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $1.15

BP Revenue Results

• Actual Revenue: $47.25 billion
• Expected Revenue: $52.05 billion
• Beat/Miss: Missed by -$4.80 billion
• YoY Revenue Growth: -11.30%

BP Announcement Details

• Quarter: Q3 2024
• Date: 10/29/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, October 29, 2024
• Conference Call Time: 3:00AM ET

BP (NYSE:BP) is a global integrated energy company headquartered in London, United Kingdom. Its operations span the exploration, development and production of oil and natural gas, as well as the processing, refining, transportation and marketing of energy products.

Through its businesses, BP supplies fuels for road transportation, aviation and marine use, along with lubricants marketed under the Castrol brand. The company also operates retail fuel and convenience locations and provides energy products and services to commercial and industrial customers.

BP has expanded its activities beyond traditional hydrocarbons to include lower-carbon businesses such as renewable power, bioenergy, electric-vehicle charging and hydrogen. The company serves customers and operates assets across multiple regions, including Europe, North America, South America, Asia, Africa and Australia. BP traces its history to the formation of the Anglo-Persian Oil Company in 1909 and adopted the BP name in 1954.

BP Q3 2024 Earnings Call Transcript

Key Takeaways

• Upstream production rose 3% year-on-year (liquids +5%) and refinery availability was 96%, supporting an underlying profit of $2.3 billion in Q3.
• BP paused or stopped 24 lower-value projects and is divesting non-core assets to free up capital for higher-return opportunities.
• Q3 underlying replacement cost profit fell from $2.8 billion to $2.3 billion quarter-on-quarter, driven by weaker refining margins and lower liquids realizations.
• The company announced a $1.75 billion share buyback program for Q4 and reaffirmed its commitment to at least €14 billion of buybacks through end-2025.
• Net debt increased by $1.7 billion to $24.3 billion in Q3 due to higher capex and lower-than-expected divestment proceeds, despite raising full-year divestment guidance to over $3 billion.

Presentation

[Operator]

Hello, everyone, and thank you for your interest in BP's third quarter twenty twenty-four results. Today's video presentation features Murray Auchincloss, Chief Executive Officer, and Kate Thomson, Chief Financial Officer. Before we begin today, let me draw your attention to our cautionary statement. In this presentation, we will make forward-looking statements that refer to our estimates, plans, and expectations. Actual results and outcomes could differ materially due to factors we note on this slide and in our U.K. and SEC filings. Please refer to our annual report, stock exchange announcement, and SEC filings for more details. These documents are available on our website. Let me now hand over to Murray.

[Murray Auchincloss, CEO at BP]

Thanks, Greg. Since I became CEO, we've been driving focus into the business, simplifying how we work to deliver efficiencies, all in pursuit of growing cash flow and value. These actions are creating change in BP, and I want to thank our teams for their continued hard work as we deliver on the plans we've laid out. Our hard work is showing up in the progress we've made so far this year. Starting with safety, our goal is to eliminate Tier 1 events and life-changing injuries. Process safety Tier 1 events are down from previous years. However, we sadly had one life-changing injury through September. We remain focused on our safety goals through the rigorous execution of our operating management system. Our operations are running well.

[Murray Auchincloss, CEO at BP]

Upstream production is up 3% year on year, with liquids production up 5%, and refining availability was 96% in the third quarter, supporting delivery of an underlying profit of $2.3 billion in the quarter. Kate will provide further details shortly. But before I hand over to Kate, I want to highlight some examples of how our six priorities are enabling us to focus and drive efficiency to deliver near-term performance improvement, as well as reshape our portfolio to set up BP to grow value and returns. Starting with driving focus, we are moving from what has been a period of origination to one now of delivery and execution. We have worked across all our businesses to review the projects in our hopper, including those from early concept selection through to pre-FID.

[Murray Auchincloss, CEO at BP]

a result, we have stopped or paused twenty-four potential projects, allowing our teams to now focus on delivering the highest value projects. This work to prioritize our next wave of growth will continue through 2025, setting us up well for the high-quality growth through the rest of the decade. Furthermore, we continue to divest assets that won't compete for capital. For example, we recently announced our plan to divest our U.S. onshore wind business, as well as the sale of four mature fields in Trinidad. These actions generate value today, reduce operating costs, and enable future capital to be allocated to projects with higher returns. We have also taken further steps this quarter to deliver the next wave of efficiencies to simplify BP. Kate will cover much of this in her section, but I would like to discuss our next wave of action in digital.

[Murray Auchincloss, CEO at BP]

Over the past ten years, we have made significant investment in our oil and gas business to create a highly advantaged global analytics platform. The advent of the next generation of AI is allowing us to once again team up with our partner, Palantir, to take this to the next level. AI boot camps have been held with our engineers and use cases are being progressed. Already, we can see ways to drive a meaningful improvement in efficiency across many of our core engineering processes. Additionally, we're working with Palantir and teaming up with Infosys to accelerate the digitization of our refining operations.

[Murray Auchincloss, CEO at BP]

We will update you on progress as we move forward, and I'm very excited about this opportunity, as I firmly believe companies with well-managed data or digital ontology, as it's known, can use this technology to be safer, faster, more efficient, and create a lot of value for you, our shareholders. Turning to growth and access, last quarter, we announced FID at Kaskida, the first step of unlocking around 10 billion barrels of discovered resources in the Paleogene. We have made great progress in a short period of time, completing FEED on the hull, progressing engineering on top sides, selecting the EPC contractor for the floating production unit, awarding contracts for subsea equipment, securing ultra-deep water 15K and 20K rigs, and executing key export agreements, just to name a few.

[Murray Auchincloss, CEO at BP]

We continue to progress other opportunities in the Paleogene and continue to expect to take FID on Tiber next year. We've also taken a number of other key FIDs this year, as can be seen on this slide, and focused on what we do best, constructing large, high-value projects, and at the same time, by leveraging our long-standing relationships and key partnerships, we are organically accessing exciting new resource opportunities, such as our recent MoU in Azerbaijan and Kirkuk. In transition, we remain disciplined and are continuing to prioritize businesses that deliver earnings today with returns that compete across our portfolio. A great example is in bioenergy, where we recently completed the acquisition of the remaining 50% of BP Bunge Bioenergia, a business that delivers earnings and free cash flow today with material integration upside, especially in trading.

[Murray Auchincloss, CEO at BP]

Together, our actions are improving BP today and setting BP up for the future. Let me now hand over to Kate to cover our results and an update on actions underway to deliver our cost savings program.

[Kate Thomson, CFO at BP]

... Okay, thanks, Murray. So in the third quarter, we reported group underlying replacement cost profit of $2.3 billion, compared with $2.8 billion in the second quarter. Our group underlying replacement cost profit before interest and tax was $5.2 billion, around $200 million lower than the second quarter. Now, looking at the segments in more detail and compared to the previous quarter, in the gas and low-carbon energy segment, underlying profit was around $400 million higher, largely driven by higher gas realizations. The gas marketing and trading result was average. In oil production and operations, the underlying profit was around $300 million lower, reflecting lower liquids realizations and higher exploration write-offs. In the customers and product segment, the underlying profit was $770 million lower.

[Kate Thomson, CFO at BP]

In Customers, the underlying profit was around $100 million higher than the previous quarter, reflecting broadly flat fuels margins, seasonally higher volumes, partly offset by costs. In Products, the underlying result was around $880 million lower compared to the previous quarter. The result mainly reflects weaker realized refining margins and a weak oil trading contribution, which was lower than the previous quarter. Our underlying effective tax rate in the third quarter was 42%. We recorded net adverse adjusting items of $1.2 billion after tax, primarily related to impairments, which are across all three segments. On an IFRS basis, our headline profit was $200 million. Now, turning to cash flow and the balance sheet. Operating cash flow was $6.8 billion in the third quarter.

[Kate Thomson, CFO at BP]

This included a working capital release of $1.4 billion, reflecting the unwind of the working capital build in the first quarter, as well as impact to the price environment and the timing of various payments. Capital expenditure in the quarter increased by $900 million to $4.5 billion, largely driven by the scheduled initial payment for our two offshore wind projects in Germany. Divestments and other proceeds were around $300 million in the quarter and were around $900 million lower than anticipated due to rephasing of receipts. So these factors, combined with a lower price environment, drove net debt higher by $1.7 billion to $24.3 billion. So moving now to our financial frame. Our five priorities and guidance remain unchanged.

[Kate Thomson, CFO at BP]

Our first priority remains a resilient dividend, and today we've announced a dividend of $0.08 per ordinary share for the third quarter. It's underpinned by a cash balance point of $40 per barrel Brent, $11 RMM, and $3 Henry Hub. Our second priority is a strong balance sheet, and we remain committed to maintaining credit metrics within an A range. We remain confident our balance sheet can comfortably accommodate the 3.7 billion of reported financed debt expected to be consolidated from the recently completed BP Bunge Bioenergia and Lightsource BP transactions. Now, in respect of the BP Bunge Bioenergia transaction, it improves our credit metrics. In respect of Lightsource BP, the impact of the acquired debt is expected to be temporary, as we expect to unlock value through bringing in a strategic partner in due course.

[Kate Thomson, CFO at BP]

Our third and fourth priorities are to invest with discipline driven by value and focusing on the highest-returning projects across our businesses, as you heard from Murray earlier. And then turning to our fifth priority, buybacks. Today, we announced a further $1.75 billion share buyback program to be executed by the time of our fourth quarter results. And as we look ahead to the fourth quarter, we remain committed to announcing a $1.75 billion share buyback, subject, of course, to board approval. In addition, our previous guidance for at least $14 billion of share buybacks through 2025 is currently unchanged. Although, as part of the update to our medium-term plans in February 2025, we intend to review elements of our financial guidance, including our expectations for 2025 share buybacks. Now, turning to our fourth quarter guidance.

[Kate Thomson, CFO at BP]

We expect upstream production to be lower compared with the third quarter. In customers, we expect seasonally lower volumes and fuel margins to remain sensitive to movements in the cost of supply. In products, we expect realized refining margins to remain low and to continue to remain sensitive to relative movements in product cracks. Turning to full-year guidance, there are a couple of points I wanted to highlight. We now expect the annual charge in other businesses and corporate to be in the range of $0.3-$0.4 billion. And as for divestments and other proceeds, we now expect that to be greater than $3 billion, and that's above our previous guidance. All our other full-year guidance remains unchanged.

[Kate Thomson, CFO at BP]

Before I hand back to Murray to close, I just wanted to provide an update on the cost target we laid out earlier this year to deliver at least $2 billion of sustainable cash cost savings, underpinned by 4 key factors: focusing our portfolio, working with our suppliers to improve efficiencies, transforming our organization through expanding our business and technology centers, and driving continued digital transformation into the business. Starting with portfolio focus, we are already starting to realize cash cost savings from the actions we've taken. For example, across renewables and hydrogen, we expect to benefit from around $200 million reduction in annual cash costs as a result of focusing our portfolio.... In EV charging, our focus on our highest value markets means we're delivering cost efficiencies of around 10%, while growing gross margin by more than 60% this year.

[Kate Thomson, CFO at BP]

Moving to the supply chain, we're enhancing our procurement process and policy to drive sustainable and material efficiencies. And for example, we're managing our third-party resource differently through our BP-wide transformation program we're calling Total Resource Management. This provides detailed visibility to our contractor population and is leading to more than $200 million of cost savings through reduced and optimized use of third-party staff. And on our organizational transformation, here we are expanding our business and technology center model, which is focused on bringing together high-value, highly skilled teams in competitive locations. We have already announced plans for gas and low carbon energy, customers and products, engineering, finance, procurement, digital, people and culture, and communications. These plans either reduce or transition roles to business and technology centers and are resulting in savings of around $230 million per year.

[Kate Thomson, CFO at BP]

In addition, we have combined our business development and M&A organizations to remove interfaces and deploy expertise globally. This is just one of the examples of how we will continue to transform our ways of working to become more cost efficient and enable faster decision-making. So these examples, together with Murray's on digital transformation, are just a few that demonstrate how we will deliver over $500 million of cash cost savings in 2025, and our target of at least $2 billion by the end of 2026. We believe there could be a bigger prize here, and we're working options that are nearly twice this. We will update our progress in terms of the savings actually delivered by business with our 4Q results in February. So let me now hand over to Murray to summarize.

[Murray Auchincloss, CEO at BP]

Thanks, Kate. To summarize, as you have heard, we have made significant progress year to date since we laid out our six priorities that support making BP a simpler, more focused, higher-value company. We are firmly focused on continuing to improve the underlying performance of the business and, at the same time, are taking important and pragmatic steps, positioning BP to be more competitive in the future. I am absolutely clear that the actions we are taking will continue to grow the value of BP. We continue to see energy demand growing as we look through the next few decades, with hydrocarbons remaining central to the energy system as the world decarbonizes. With the significant optionality in our oil and gas resource base, the new access we are progressing, and the new FIDs taken, we see the potential to grow through the decade.

[Murray Auchincloss, CEO at BP]

We will be value and returns focused as we make decisions or value over volume, to borrow a term from our past. At the same time, we have a deep belief in the opportunity afforded by the energy transition and have grown many leading positions over the last several years. And as you can see through the actions we've taken, we are continuing to focus our investments in these businesses around returns and value, ensuring they durably grow and compete with the rest of our business. We are also focused on driving cost and capital efficiency into our business, and this is all underpinned by our financial frame, focused on a resilient and growing dividend, a strong balance sheet, disciplined capital investment, and competitive distributions to shareholders.

[Murray Auchincloss, CEO at BP]

Looking forward, I firmly believe we are one of only a few companies who can deliver unique, integrated energy solutions for nations, companies, and customers alike, and in doing so, delivering the next generation energy system while growing long-term value for you, our shareholders. In closing, we look forward to updating you on our medium-term plans in February twenty twenty-five, where we will be broadcasting from New York. Thank you for watching and for your interest in BP.

Participants

Executives

• Kate Thomson, CFO
• Murray Auchincloss, CEO