BP Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 7, 2024

Key Takeaways

  • Resilient Q1 performance: Adjusted EBITDA was $10.3 billion, underlying earnings $2.7 billion, and operating cash flow $7.4 billion after accounting for seasonal working capital build.
  • Whiting refinery outage: A full electrical outage caused a six-week shutdown, but the plant was safely brought back online and a lessons-learned review is underway.
  • Major project startups: Azeri Central East safely began production, BPX’s third processing facility “Checkmate” came online, Arkea commissioned its largest RNG plant with five more in progress, and JV Azul farmed into an offshore Namibia exploration block.
  • Cost-saving target set: BP aims to deliver at least $2 billion of cash cost savings by the end of 2026 through portfolio focus, digital transformation, strategic alliances, and global capability hubs.
  • 2025 EBITDA guidance reiterated: The company reaffirmed $3–$4 billion EBITDA from its Transition Growth Engines, citing full-year TA, Arkea expansion, EV breakeven progress, hydrogen prioritization, and bio/convenience growth despite market skepticism.
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Earnings Conference Call
BP Q1 2024
00:00 / 00:00

There are 18 speakers on the call.

Operator

Thanks, everyone, for joining BP's Q1 2024 results call today. As you'll be aware, we introduced our quarterly trading statement this quarter. And this morning also published the slides and script along with a video presentation in conjunction with our stock exchange announcement. Alongside this, the results call has moved to early afternoon U. K.

Operator

Time, and we hope together these updates around our process and disclosures has been helpful to everyone. And you've had a chance to review everything this morning and this afternoon. So we're going to aim to finish the call at 2 p. M. U.

Operator

K. Time. As some of you will be aware, we understand our counterparts at Saudi Aramco start their call around that time, and we want to give you a chance to join that as required. So let me start there. And on that note, hand over to Murray for a few brief opening remarks.

Speaker 1

Good. Thanks, Craig, and thanks, everyone, for joining Kate and I on the call today. To recap today's results, we delivered resilient financial performance despite the unplanned outage at our Whiting Refinery. First quarter adjusted EBITDA was $10,300,000,000 and underlying earnings were $2,700,000,000 Adjusting for the expected seasonal working capital build, operating cash flow was $7,400,000,000 in the quarter. We continue to make good strategic progress and this quarter saw the safe startup of the Azeri Central East project in the Caspian Sea.

Speaker 1

BPX also brought online Checkmate, our 3rd central processing facility and in biogas, Arkea brought online its largest modular RNG plant to date and has 5 in commissioning. Last week, our JV Azul announced a 42.5% firm in into an exploration block in the Aranji Basin offshore Namibia. You've also heard about how we are simplifying, removing complexity across the company. And today, we have announced a target to deliver at least $2,000,000,000 of cash cost savings by the end of 2026. Craig, back to you.

Operator

Super. Thanks, Murray. So we'll go straight to questions now, and we'll take the first question from Josh Stone at UBS. Josh?

Speaker 2

Yes. Thanks, Craig, and good afternoon, Murray and Kate. And I appreciate the slightly longer time to study the results. Two questions, please. So I want to pick up on your 2025 EBITDA targets, which you reiterated specifically in the TGEs of $3,000,000,000 to $4,000,000,000 If I look at consensus, it feels like few people believe in these numbers.

Speaker 2

And it's only now almost 18 months away. So if I look at how the business has started, the Bayer business looks like it starts a bit lower than you might have expected. You talked about TA was impacted by an ongoing recession of freight in the U. S. So maybe my question is, where do you see the biggest risk in these 2025 targets?

Speaker 2

And what do you think the market is missing on that side? And then second question on the Whiting Refinery, and good to see back online. Maybe now the dust is settled, can you just talk about what lessons you've learned from the outage and maybe some initiatives you've put in place to prevent further issues going forward? Thank you.

Speaker 1

Yes, sure, Josh. Thanks for the questions. I'll take both of these actually. I think on Whiting, it's a bit too early for lessons learned. The teams had a full electrical outage at Whiting.

Speaker 1

It took us about 6 weeks to get it back operating safely. The teams have now done that. Well done to the teams for achieving that. And they're now going through the process of lessons learned probably in the design space. So that is still work to do.

Speaker 1

As far as EBITDA from the transition growth engines, as we reported last year, we made about $1,000,000,000 of EBITDA. We're aiming for $3,000,000,000 to $4,000,000,000 of EBITDA by 2025. Where does that come from? A full year of TA, continued growth out of Arkea. It comes from EV moving to breakeven.

Speaker 1

It comes from real focus inside hydrogen as we focus the portfolio and move to the most likely things to move forward. And it comes from growing bio and growing convenience as well. I think on the confidence side, CNN continues to grow very strongly. We continue to see 9% year on year growth. And with the expansion in TA, that should be very, very good for convenience.

Speaker 1

EV remains on track. I think the number is 93% 83% of all the fast chargers are EBITDA positive now. So Richard and the team are doing a good job driving that engine to breakeven. Arkea continues to get plants online. As I said, we got a big one online in 1Q, And we're commissioning 5 as we speak, so we should be in good shape for the 15 to 20.

Speaker 1

And RIN prices are holding very high for the D3 RINs in the United States as well. On the challenging side, as everybody knows, the bio margins in Europe were tricky through 4Q and 1Q as mandates were rolled back across some of the Scandinavian countries. We do expect change on that in the future, but it's hard to predict. It's kind of like a macro assumption that's hard to predict. And diesel, as you say, is challenging in the United States.

Speaker 1

There's a diesel recession. We feel that will unwind as well as we move towards the back end of the year and 2025 as well. But we feel confident on the 3% to 4%, and we'll just have to see how that goes. But good momentum operationally, good momentum on synergies. And the macro is what we're fighting against a little bit right now.

Speaker 1

But let's see how that macro turns out. Thanks for your question, Josh.

Operator

Thanks, Josh. We'll turn to Biraj, Borkhataria, RBC. Biraj?

Speaker 3

Hi, thanks for taking my questions and appreciate the more condensed format. The first one is just on the cost cutting. When I look at the public disclosures across you and your peers, if I take SG and A, for example, it does look like your figures are quite out sync. It seems like they're growing faster than the peer group. And I can't really tell if it's all accounted for the same or not.

Speaker 3

I guess in your slide, you do some adjustments here. So maybe the question is, when you benchmark your costs and your performance, what is the starting position for BP? Is it that today you're better than average or you're slightly worse? And particularly, where do you see the opportunity there? And then the second question is on another hot topic, which is relisting.

Speaker 3

It's brought up by one of your counterparts. Where does BP sit on this? Is it a live debate? Do you see it as a structural disadvantage? Unlike your counterparts, you do have a big domestic U.

Speaker 3

S. Business upstream and downstream there. So just wanted to get your thoughts on that. Thank you.

Speaker 1

Great. Biraj, I'll ask Kate to tackle the cost question and how different we all account for these things. On relisting, I'll be consistent with what I've said in the past, Biraj. This is not on our agenda. What's on our agenda is safely performing quarter in and quarter out.

Speaker 1

We're in a great position with the business. We've got strong growth coming through. We've got solid targets out to 2025 that we can believe we can deliver. It will deliver 3% to 4% underlying cash flow growth if we hit our plans through the rest of the decade and certainly through 'twenty five as well. And as we continue buybacks, that gives us then the chance to increase the dividend over time.

Speaker 1

We have confidence from it because it's worked before. In 2022 and the first half of twenty twenty three, we compressed the share price with some of the Americans by a third simply by doing that performance. So that's what's on our agenda, not relisting. And so we're just focused tightly, tightly on performance, Biraj. Kate, over to you on the first question, please.

Speaker 4

Thanks, Marie. And hi, Biraj. Yes, so I've seen some of the narrative. Look, it's incredibly hard under the current accounting standards to really try and compare like for like, line by line through the P and L account. There's a level of interpretation, let's say, on how companies can actually account for their costs through the income statement.

Speaker 4

So that makes line by line comparison quite tricky. What I would say is that if you step back to February and we talked about the fact that we were going to drive focus through the business and we were going to deliver the next wave of efficiency, what we're really focused on is how we create our own greater efficiency and our own reduction in our cash costs. And what I would say is on a unit production cost, our lifting costs, we think we're very competitive at $6 a barrel. So I guess my guidance to you go forward, Biraj, is to anchor yourself on cash costs, which, as you can see from the slide, we've tried to point you towards if you toggle from where our total reported costs are down to our cash costs. That's how we've disclosed against in the past.

Speaker 4

That's how we'll continue to disclose against as we deliver this £2,000,000,000 of cost reductions through the end of 2026. And then finally, what I would say is, I think IFRS 2018, which comes in at the beginning of 20 27, will probably make your lives a bit easier. It will force more transparency and probably greater comparability across the sector. So hope that's helpful.

Operator

Thank you, Biraj. We're going to move stateside now, given we're at a slightly more hospitable time. Take the first question from Paul Chang at Scotia. Paul?

Speaker 5

Thank you. Good morning, guys. Good afternoon. In, Kay, in the press release, you guys talking about the EJ devaluation balance impact or foreign currency impact. What's the is there a number that you can share that how big is that number?

Speaker 5

And also that from the Q4 to the Q1, the gas and LCD is down roughly about $100,000,000 in the adjusted earnings. How is that contribution is coming from the low carbon side? In other words, there is no carbon getting better or getting worse that we are seeing there. So that's the first question.

Speaker 1

Great. Kate, over to you. On Egypt, I think it answers the second question as well, doesn't it?

Speaker 4

Yes, it pretty much does. So hi, Paul. Yes, so on Egypt, we saw a significant devaluation in the currency. It went from 30 to 48 when Egypt free floated ahead of the injection of funds from the IMF and others, as you'll have seen. So that foreign exchange impact has flowed through the Q1.

Speaker 4

It's around about 0.2%. You can also see it driving our tax rate up in the quarter as well. So that's what's going on with regard to Egypt and devaluation. With regard to the gas and low carbon performance, so we were we're up on production, our COP down really down just quarter on quarter based on lower realizations and FX. So that's the story with regard to GNLC for the quarter.

Speaker 5

Okay. Kay, on the cost reduction, the CHF2 billion, how much of them is related to any divestment or that's purely on their actual underlying cost performance data?

Speaker 4

Yes. So we'll step through the interventions. There are 4 areas we're focusing on, and one of it is focusing our portfolio, as you've heard us talk about for a little while now since we set out our 6 priorities in February. So there will be some of that, which is delivered through portfolio change As we get clearer on the component parts and how they contribute and when they get delivered, we'll update you in due course.

Speaker 1

Yes. Paul, it's more about focusing our engineering efforts. If you think about 2020 to 2023, it was about creating an awful lot of options in the upstream and refining in all of the transition growth engines as well. And we now have 32 final investment decisions to make across 2425. So a large part of this focus is getting really clear which ones of these we're going to take forward.

Speaker 1

And as we do that, redeploying engineers to the highest quality ones, redeploying 3rd party resources, etcetera. That will create a lot of cost savings as we really, really focus on these things moving forward. A small example of that, to think about during the past 90 days is we decided to sanction, Atlantis tieback in the Gulf of Mexico. So you sanctioned that. At the Yarka Taranga and and Mauritania in Senegal.

Speaker 1

So that's about being really, really driven by returns and deciding the best value. And then we can reallocate engineers and yes, and use less third party services, which creates cost savings.

Operator

Thank you, Paul.

Speaker 5

Thank you.

Operator

We'll stay in the U. S. And take the next question from Ryan Tord at Piper Sandler. Ryan?

Speaker 6

Great. Thanks. Maybe first one on refining, you referenced the impact of narrowing crude differentials in North America. Can you talk about the impact that you expect in the U. S.

Speaker 6

From the start up of TMX? Any flexibility that you might have to mitigate the impact whether in the Mid Con or on the West Coast at Cherry Point? And then maybe a follow-up on the cost that you were talking about there. There's increasing focus on cost inflation on the project side that we've seen in areas like Deepwater and LNG and the impact that it's having on some project returns. So can you maybe talk about what you're seeing across the portfolio impact on potential future FIDs like the Paleogene or future LNG expansion phases and your ability to mitigate those?

Speaker 1

Yes, sure. I'll take the first one. Kate, you want to take the second one? On the first one, on TMX and what we're seeing, obviously, differentials have started to collapse on WTI, WCS. I think they're probably sitting, last time I looked, somewhere around 14.

Speaker 1

It's probably not a bad range, plus or minus a couple of bucks, as far as what the range is on WTI, WCS is moving forward. Hard to predict, of course, but that's our sense of what will occur. We've done 2 things to mitigate against this. First of all, as TMX comes online, it gives a direct route for that oil into Cherry Point. So that will mitigate.

Speaker 1

Cherry Point will be able to access more affordable product moving forward. So that should be a benefit to us that helps mitigate some of that effect. Plus, we have some pipeline re wheeling that we've done over the past few years to be ready to flow product up and down across North America to manage risk associated with Whiting as well. So net net, we think we're probably still in the same shape we were pre TMX coming online between Cherry Point and between our flexibility with Whiting and Cushing. Kate, over to you on the capital question.

Speaker 4

Yes, sure. Yes, thanks, Oren. So in terms of inflation, I think the area where we're still seeing inflation persist is in wage growth. So that's an area that we continue to battle against. The procurement team that we have inside the organization are working and have worked over the last few years incredibly hard to mitigate all the effects of inflation that we can through things like competitive bidding, moving into much more performance based models.

Speaker 4

Alliancing and partnerships have been effective in terms of helping us drive our costs down. What I would say is the yard capacity is tight. Utilizations are high, probably the highest they've been for about a decade, and we think they may well remain like that for another 3 to 5 years perhaps. So that's something we will pay attention to. At the end of the day, when we think about the investment decisions, we will be, as you'd expect us to be, returns and value driven.

Speaker 4

So we will be making sure that all our projects that we sanction are meeting hurdles. But we feel pretty good about Cascadia right now. We hope to be able to move to sanction that at some point during the remainder of this year.

Speaker 1

And I think on the LNG side from recent bids we're seeing, we're okay to continue moving this forward, whether it's in Asia or the Middle East as well. I think enough companies are now recycling things that we're seeing some looseness inside the supply chain. But it's a good question to ask us each quarter to observe as we see the bids come in with the potential sanctions upcoming.

Speaker 5

Thank you.

Operator

Thanks very much. We'll take the next question from Chris Kuplent at Bank of America. Chris?

Speaker 7

Thank you, Craig. Hello. Just two quick questions for me. I was wondering whether there is a specific reason you no longer publish your surplus cash flow metric that seems to have dropped off the page. And just checking whether my back of the envelope minus SEK 1,500,000,000 in the quarter is anywhere close to where you would get to with your definition?

Speaker 7

That's question number 1. And question number 2 is on the ADNOC JV in Egypt. I'm assuming that is yet to close. And it's appearing in your assets for sale. So I wonder whether that will translate into disposal proceeds.

Speaker 7

And obviously, you're guiding still to €2,200,000,000 to €3,000,000,000 for the full year. And if you could give us any more clarity on how you're going to account for that JV? Thank you.

Speaker 1

Yes, sure. I'll let Kate answer the surplus one and then I'll tackle Egypt. Kate?

Speaker 4

Yes. Thanks, Chris. So when we updated the financial frame in February and set out a 2 year frame to the end of 2025, What we were after was creating greater clarity and predictability on distributions. As a consequence of that, we've delinked our quarterly share buyback from a surplus cash calculation. It was creating an awful lot of volatility.

Speaker 4

It remains something we look at over time. As you can see from the Finframe, we've said that over time, we expect to distribute 80% of surplus cash to shareholders. So we'll think about the rate at which we may or may not want to include further disclosures. It's not something we intend to disclose on on quarter on quarter now no longer as it's not a direct input to the share buyback. So we don't feel the need to make any quarterly disclosure on that.

Speaker 4

At the end of the day, cash flow is going to go up and down over the quarters, with things like working capital movements. So we expected the balance sheet to tolerate some fluctuations in the first half. We saw that come through. We had the typical working capital build, and we've got heavy CapEx in the Q1, and our divestment proceeds are back ended. But our balance sheet is strong enough to tolerate that.

Speaker 4

We can look through that over time. And that's why we have moved to a frame that stops that quarter on quarter linked to a surplus cash calculation.

Speaker 1

Great. Thanks, Kate. And Chris, on ADNOC, yes, we've moved forward with a transaction. It's an asset held for sale. As you say, we're waiting for completion second half of the year, probably 3Q, 4Q.

Speaker 1

It depends really on how we move our way through with the Egyptian authorities. The accounting for that, it will show up as proceeds. As discussed, I can't disclose those proceeds now. We're under a confidentiality agreement. But by the time it closes, you'll see that inside the accounts.

Speaker 1

But it'll take up a good chunk of the $2,000,000,000 to $3,000,000,000 target that we talked about. Hope that's clear, Chris.

Operator

Thank you, Chris.

Speaker 8

Thank you.

Operator

Thanks. We'll take the next question from Lydia Rainforth at Barclays. Lydia?

Speaker 9

Thanks, Greg, and good afternoon, everyone. 2, if

Speaker 10

I could. Just if we could

Speaker 9

get back to the cost base and the targets that you've got at least $2,000,000,000

Speaker 11

Can you just walk us through in more detail some

Speaker 9

of the examples of what that involves? Because it's sometimes quite hard to say what are good costs that help growth and what are bad costs reflecting inefficiencies. And I am a little bit surprised that you're talking about $20,000,000,000 of costs that in that transportation and shipping costs that there's absolutely nothing you can do about. And that just surprised me a little bit. So any thoughts you have on that?

Speaker 9

And then I'm going to come back a little bit to the EBITDA guidance. Given the cost savings number, is there a reasonable argument that actually the EBITDA numbers and targets should be moved a little bit higher. And effectively, I guess, why I'm asking for Maria slightly separately is that and I suspect you're not going to give me this, but an exit rate on EBITDA for 2024 as to just we should be seeing momentum at this stage in that EBITDA number during this year, right?

Speaker 1

Yes. Great. Lydia, thank you for your questions. Let's see, cost examples, I'll tackle. I think the second question, I'll let Kate deal with.

Speaker 1

On cast examples, so there are 4 areas that we're really focused on, Lydia, to deliver at least $2,000,000,000 by the end of 2026. The first one was focusing the portfolio. You heard about me talk about that already, so I won't repeat myself. The second one is your favorite, which is digital transformation. We've done an awful lot to digitize many parts of our business, and we're now applying Gen AI to it.

Speaker 1

The places that we're seeing tremendous results on are coding. We need 70% less coders from 3rd parties to code as the AI handles most of the coding. The human only needs to look at the final 30% to validate it. That's a big savings for the company moving forward. 2nd, things like call centres, the language models have become so sophisticated now.

Speaker 1

They can operate in multiple language, 14, 15 languages, easily. In the past, that hasn't been something we can do, so we can redeploy people off that, given that the AI can do it. You heard my advertising example last quarter where advertising cycle times moved from 4 to 5 months down to a couple of weeks. So that's obviously reducing spend with 3rd parties. We've now got Gen AI in the hands through Microsoft CoPilot I think I think this is just a tremendous step change in digital for our company, and I continue to look for ways to drive higher margin and reduce costs both on capital and cost.

Speaker 1

The suppliers, probably a nice little example to think about eliminating Our good partners at Subsea 7 have formed an alliance with us. In the past, we would have overseen what they were doing. Instead, now we form joint teams. They work together on a job. They try to figure out how to optimize it.

Speaker 1

We incentivize them for time and efficiency. And we have co located teams that work together on these things. So what it does is it eliminates bid cycles. It reduces the number of engineers involved from both sides in getting everything done. It reduces vessel time, etcetera.

Speaker 1

So that's just one concept of alliances that we've been doing in the capital side with projects and drilling for a while, and we're now pushing that into the operation space, both in the upstream and the refineries. So that will take out a lot of waste as we move these alliances forward as well. And then last, global capability hubs. We have a continuing need for engineering. It's scarce in the West, so we're looking East for that engineering capability.

Speaker 1

It's a different cost profile sometimes, but fabulous efficiency. We see that both in contractors. So contractors we work with are shifting that way and then ourselves as well across engineering, IT, etcetera. So those are the four examples of how we think we'll get to the at least the $2,000,000,000 No, Lydia, I'm not going to give you an update on the 'twenty four and run rate to EBITDA. All I'll say is I'm confident in the growth on an underlying cash flow basis of 3% to 4% through the decade, including in 'twenty four and 'twenty five.

Speaker 1

We see strong growth out of the upstream with new projects coming online, with BPX growing, with new LNG coming online from 23 to 25 MTPA, a return to normal tar seasons in our refineries, along with all the growth that we see from the TGs and business like Castrol. So we feel comfortable with that 3% to 4% growth per annum underlying on a free cash flow basis through 2024 2025. Will the cost savings add to that? Let's see. I think it will take time to do some of these things.

Speaker 1

Some things will come through faster than others. But for now, we're saying on an end-twenty 6 basis. And let's see how we get on. Kate?

Speaker 4

Yes, I think you kind of did my job for me.

Speaker 1

Did I roll into your question? Sorry about that.

Speaker 4

The only thing I was going to add is that some of the changes that we're contemplating take time to effect and execute, and we do it in a way that we are confident we're managing risks. So there may be some parallel running costs at some point. And we'll update you as we get clearer on that path and on any associated ratchets.

Speaker 1

Hope that helps, Lydia.

Speaker 9

Great. Thank you,

Operator

both. Thanks, Lydia. We'll take the next question from Michele Della Vigna at Goldman Sachs. Michele?

Speaker 12

Thank you very much and congratulations on the focus on cost efficiency despite the relatively positive macro environment. Two questions, if I may. On the dividend per share, it looks like we are up for an announcement next quarter. I was wondering how should we think about the underlying growth? We've got 3% to 4% absolute growth of the business and we've got a share retirement that is running at between 6% 7%.

Speaker 12

Is it too simplistic to think about growth of the business plus share retirement equal what can be achieved in terms of sustainable DPS growth? And then secondly, on the net interest expense, quite a difficult line to forecast. It's been around €900,000,000 for the last three quarters. Is it fair to assume we remain at about that run rate in the coming quarters? Or is there anything else we need to take into consideration?

Speaker 12

Thank you.

Speaker 1

Katie, do you want to handle the dividend?

Speaker 11

Sure.

Speaker 4

So Michele, I think you may have done my arithmetic for me. I guess a couple of points to just to add to that. So if you think about the financial frame, remember to anchor on our balance points and also the fact that we are our first priority is that resilient dividend at $60 the capacity to increase by 4% per annum. But as you rightly point out, we've had previous increases in 2Q 'twenty two, 4Q 'twenty two, 2Q 'twenty three each around 10%, underpinned by strong performance and by reduced share count. So as you'd imagine, the Board will look into many factors when we come to that conversation in 2Q.

Speaker 4

But as you consider what we've done with our share count, I think we're 17% reduced by the end of 'twenty 3. And since 2Q 'twenty three at the moment, we are about 5.5% reduced share count. So I'll let you add that to your current arithmetic.

Speaker 8

But the

Speaker 1

Board makes that decision each and every quarter. And, of course, you can look backwards to think about what we do looking forward. I think, Michele, on your net interest income expense, presuming flat is a sensible thing to do moving forward. I think that's just the easiest thing to do rather than give guidance.

Speaker 8

Thank you.

Operator

Thanks, Michele. We'll take the next question from Martin Ratz at Morgan Stanley. Martin?

Speaker 13

So last quarter, you were helpful in providing sort of a comment on the EBITDA that was delivered if it was restated under 2025 reference conditions, which are quite helpful. So this quarter EBITDA was €10,300,000,000 Can you once again provide the guidance for a decline in production by the end of the decade.

Speaker 1

We are performing, and then the 3% to 4% gives you a sense of where we think we'll be in 2025. And talked about last quarter. We continue to with the strategy of transitioning against hydrogen and renewables, we will continue investing into this space. We will be pragmatic, and we will make sure the investments we make hit our returns hurdles. And of course, at the same time, we'll be investing into Heidrick a day right now, and it will largely be determined by the long list of potential final investment decisions we have to make across 20 425.

Speaker 1

There are around 30 of them, some in the upstream, some in refining, some in the transition growth engines. And based on what decisions we make, that will determine the volume outcome. But what I'm really, really focused on with the organization is returns and cash flow, not volume. So during the quarter, back to that story again, we sanctioned 1 oil project in the Gulf of Mexico, and we let go of 2 gas resources in the West Coast of Africa. So that tells you we're return driven, not volume driven.

Speaker 1

And once we're through deciding the final investment decisions over the couple of years, we'll update you with a target for 2,030 production. Could it be higher than $2,000,000 a day? Yes. Could it be lower than $2,000,000 a day? Yes.

Speaker 1

It's all going to be return and cash flow focused, Martin, as I think you would hope we would be. I hope that provides enough clarity.

Operator

Thanks, Martin. We'll take the next question. Actually, we'll go back stateside from Roger Read at Wells Fargo. Roger?

Speaker 13

Yes, thanks. And I do appreciate more reasonable time for those of us on this side of the pond. Just wanted to dive back in. Murray, earlier you mentioned diesel recession going on since you have a pretty impressive global footprint. Just wondering if you could expand on that a little bit.

Speaker 13

And then the other question would just be, can we get a little more of an update on how things are going in the Permian with BPX, just a little more depth into the operations, what you're seeing in the way of productivity and efficiency, things like that?

Speaker 1

Sure. Kate, you want to take diesel recession?

Speaker 4

Yes, sure. Yes, thanks Roger. I was out with TA actually about a month ago. We talked a lot about this. So the sector that TA has historically focused on is a sector where there are probably smaller sized truckers capturing a higher margin.

Speaker 4

As a consequence, they're probably far more sensitive to spot price. And actually, what's happened in the spot freight rate over the last couple of years is it has declined. If these truckers are being sensible, they don't drive when the economics don't make sense. So as a consequence, we've seen volumes down. What I would say to you is, having spoken with Debbie and her LT out there, they are all over how they offset that until such point as the recovery starts to kick in.

Speaker 4

And we expect currently that, that trucking recession will probably start to mitigate towards the end of this year with a full recovery next year. So as you would expect thereafter, streamlining their costs, They're contemplating how to high grade their site portfolio, and they're focused on securing some customers which diversify their customer base into their larger fleets where you may get slightly slimmer margins, but you're going to capture upside from the nonfuel income.

Speaker 1

Great. Thanks, Kate. I think on the Permian, Roger, obviously, central gathering process up online now. I think that takes our capacity for black oil up to around 100 kilobytes D. So I think a lot of the wells are drilled, and we should be popping them and filling that up as we move through the Q2.

Speaker 1

Conditions inside the Permian, it's a bit looser. There are more rigs available, obviously, from low natural gas prices. That's making the supply side of it a little bit better. And no real change from October on the productivity. All the recent benchmarking we're doing is showing us at the top of the pack on the productivity on NPV for drilling spent.

Speaker 1

So we're proud of the team for driving that as well. We're not feeling any constraints. We're not feeling any constraints on export at this stage. And we're looking forward to getting the 4th and last central facility online mid next year. So hope that helps.

Speaker 1

I'll be out there next week to see the guys. And next quarter, I can give you a more detailed report.

Speaker 3

Thank you.

Operator

Thanks very much. We're actually going to jump to an online question that we've received from Alejandro at Santander. He's struggling with the phone lines. Sorry about that, Alejandro. He's asking Murray and Kate about Namibia and the investment plans there after the Azul Energy announcement.

Speaker 1

Yes, sure, I can take that one. So we've been in Namibia's BP for about a decade. We entered back in 2010 or 2011, drilled a couple of dry holes unfortunately last decade, but we've been monitoring it ever since. Given the recent success that's happened, we started to look at some farm ins, and obviously we were able to farm into the blocks south of Galp's big discoveries with Rhino. We farmed in for 42%, and we chose to do it through ANI and ourselves chose to do that through Azul, which is our West African energy company.

Speaker 1

So we're looking forward to completing that farm in. We then move towards drilling wells later in the year. There are 2 wells to drill under our agreement. And we'll see how it goes. But it's a nice little addition to Azul.

Speaker 1

It's got a great growth profile inside Angola to the end of the decade. And cross fingers, if we get some discoveries, it gives it legs for another 10 or 20 years. So we'll see how the drilling goes. You can never count on these things, but it looks like it's at a nice postcode. Craig, back to you.

Operator

Thanks, Murray. We'll

Speaker 14

Two questions, please. First, just on the cost savings. I have to congratulate you, you've continued to drive efficiencies. My only sort of kind of just quick sort of question around growth is your liquids growth in 2026 back to that sort of theme. Why aren't you thinking or framing in the same way you're doing costs, but more in an upcycle view of you to consolidate or scale up your liquids given your constructive outlook.

Speaker 14

It strikes me as sort of very bare market to continue to focus on costs, albeit that's absolutely necessary. So I just want to hear more about your liquids plan, particularly given the U. S. Consolidation that we're seeing and how do you frame that on a medium term basis, given we are after all talking about 2026? And the second question is around low carbon and trading.

Speaker 14

Is there a plan or thinking about being more explicit around those businesses in terms of breaking them up to show your cash flow pathway. Clearly trading is more challenging given it's more discrete, but on the low carbon side, I just understand better what the free cash flow trajectory will be on a medium term basis as we start to think about doing a path to EBITDA targets? Thank you.

Speaker 1

Great. Kate, do you want to lead off with disclosures on low carbon trading?

Speaker 4

Yes. So thanks, Christian. So the low carbon trading is obviously included in our trading numbers. It's also included in our transition growth engine disclosures when we make those at the half year and the full year, but we don't we won't be breaking those out beyond the 5 transition growth engines. I think there's enough complexity in that disclosure as it is already.

Speaker 1

And on, Liquids side, Christian, I guess, in our Denver presentation to you, back in October, we talked about a pretty resilient oil portfolio with the capacity to grow production through 2027 by 2% to 3%. As we look at our sanctions moving forward, from sanctions in the Middle East to sanctions in the East Coast of Canada to Brazil to the Gulf of Mexico to the North Sea, potentially to Azul Aker BP. We have an awful lot of oil in the portfolio. And as we make those sanctions, that would give us more duration to grow the oil business as well beyond 2027. But I can't really commit to that until I'm clear about which sanctions we move forward.

Speaker 1

I think on the question of, do you want to go buy, I'm a countercyclical human being. With low carbon energy in the doldrums right now, now is the time to go countercyclical. That's why we're doing LightSource BP at a countercyclical moment in time. And watch the space. We may do some more things over the coming years in a countercyclical environment.

Speaker 1

On the oil side, with oil at $85 or $90 I'm not sure it's the right time to be buying oil. We might consider some bolt ons, but we just would prefer to be countercyclical rather than procyclical. And we do have some pretty strong growth as we look forward, especially relative to the competition, especially in the high margin basins of the OECD. So I feel okay where we are right now. I don't want to do high price acquisitions.

Speaker 1

And instead, I'll go countercyclical with scarce cash, where countercyclicality exists. Hope that helps, Christian.

Speaker 14

Thank you.

Operator

Thanks, Christian. We'll go to Irene Harmona at Bernstein next. Irene?

Speaker 11

Thank you. Good afternoon. My first question, Marie, going back to the EUR 2,000,000,000 cost saving. You did mention, I believe, 8% cash cost inflation on that €22,000,000,000 cost base. So I wonder, should we think of the EUR 2,000,000,000 reduction target as partly or wholly removing that inflationary impact and leaving the sort of underlying cost base flat, would you say?

Speaker 11

And then secondly, on convenience, I mean, your convenience gross margin grew 62% in 2023 for an increase in site numbers of about 19%. So I wanted to ask, so far in 2024, are you seeing similarly fast improvements in that convenience margin? Or faster, slower, where do we stand? Thank you.

Speaker 1

Yes. I think on the $2,000,000,000 cost savings, Irene, our intent is to drive that through the business and drive that down to free cash flow delivery. So eating inflation is how I think about these things. And it's why we say at least 2, maybe something above that takes us to beat inflation. But I'd like to try to beat inflation, especially as it's, as that's starting to mitigate, as we look at all what all the central banks are telling us these days.

Speaker 1

So I would like to drive that through to bottom line cash flow delivery. And that certainly, as a leadership team, we'll be working towards moving forward. Kate, do you want to tackle the convenience GM question?

Speaker 4

Yes. Thanks, Irene. Hello. Nice to hear you. Yes, in terms of convenience, so year on year, if you look at 1Q versus 1Q 'twenty three, you're seeing a significant impact there with regard to TA, which we acquired last year.

Speaker 4

That's just owned its 300 sites, so it's driving significant volume. What I would say on gross margin, if you exclude TA, we're seeing between 9% 10% per annum growth in our gross margin year on year. So that's what gives us confidence with regard to convenience delivery.

Operator

Okay. Thanks very much. We'll take the next question from

Speaker 12

Thank you.

Operator

Sorry, Irene. Thank you. We'll take next question from Lucas Herman at BNP.

Speaker 15

Thanks, Graham. My name is Craig and a couple. One is very straightforward. Just on the share count and the reduction this quarter, the buybacks obviously being 1.75, share count reductions just over 130,000,000. I presume that the absence of a greater reduction is because you've issued a lot of stock with employees, the benefits or not the benefits, but and so we'll see more material sums go out on buyback than the 1.75 or so you're indicating for future quarters.

Speaker 15

That was the first. And the second was almost, yes, congratulations, you've achieved 30% growth on your 2022 Permian or your 2022 BPX numbers already. Does that make this number seem rather modest, should we say? But I think more importantly, Murray, can you just comment on the profile we should expect for liquids as you move through 2025?

Speaker 1

For BPX.

Speaker 15

From the start up of yes, for BPX.

Speaker 1

Yes.

Speaker 15

As you said, I mean, you're adding 100,000 barrels a day of liquids capacity, but nothing like that as yet is coming through in the numbers, obviously, bingo or whatever, has just started. Just give me some better sense of where you think liquids will actually be at the end of the period?

Speaker 1

Great. Okay, fantastic. Kate, you want to take the first one? I'll take the second.

Speaker 4

Yes, sure. Yes, sure. Hi, Lucas. So you look just on employee share dilution. We haven't made any disclosures yet with regard to the impact on 2024.

Speaker 4

If you look back over the last couple of years, I think 2022 was around £500,000,000 and it was just over £670,000,000 last year. It's probably going to be of an order of magnitude in the same kind of ballpark for 2024, but obviously it's going to depend on share price. And actually, when employees actually decide to exercise their options, that will drive a level of impact. And we don't have that level of clarity at this point, but we'll update you as we step through the year.

Speaker 1

And you would expect to offset that dilution?

Speaker 14

But the

Speaker 15

intentions to offset, right?

Speaker 4

Yes. Yeah, over time.

Speaker 1

Yep, we will offset over time, as you say, Lucas. So good eagle eye catch. As far as the BPX liquids profile goes, you're building up the profile from somewhere between 100 and 120 kilobytes D depending on reservoir responsiveness in the Permian by 2025, assuming the 4th facility comes online. As well, we're expanding we've got most of our rigs focused on the liquid window in the Eagle Ford right now given where natural gas prices are. So there should be an uplift there.

Speaker 1

I don't have a number at my fingertips, but I can make sure we get that for next quarter, Lucas, if you ask the question again. So there is strong liquids growth, as we call it, CARF BPX through 'twenty four and into 'twenty five.

Speaker 15

Okay. Thanks, Mark.

Operator

Pleasure. Thanks, Lucas. We'll take the next question from Peter Low at Redburn. Peter?

Speaker 8

Hi, thanks. It was actually another question on BPX production, but this time on the gas side, I mean, kind of your gas volumes are still growing quite strongly. A lot of other producers in North America are kind of scaling that production. Does that simply reflect your hedging position? Or can you talk a bit about kind of why that growth is coming through in such a weak gas price environment?

Speaker 8

And then just a quick one, are you able to quantify the impact of price lag effects in the Gulf of Mexico and the UAE on the OP and O results in the quarter? Thanks.

Speaker 1

Okay. Kate, do you want to do the price lag and then come back to gas profile?

Speaker 4

Yes, sure. Thank you. On price lag, the impact in the quarter was about 0.4%, pretty much what we said it was going to be in the trading statements. So we were in line with that.

Speaker 1

Great. Thank you. On the gas profile, you're right. We've hedged out natural gas at around $4 through 'twenty three and 'twenty four. So obviously, we've kept that going while we've got those hedges in place.

Speaker 1

We've started to reduce rig count right now and point it more to the liquids levels of the Eagle Ford, as I talked about. So you're just doing retention drilling inside the Haynesville. I think what I'd say is the Haynesville is prolific where we drill. And the amount of production that comes online and is sustainable is quite high per well. We're in absolutely the best spot of the Haynesville through the BHP acquisition, and the teams have really got their capital efficiency down, they've really got their frac structuring down to make sure that we get fabulous production out of these wells.

Speaker 1

So I think that's what's explained the growth so far. And then, of course, we've got a choice as we move into 2025 based on what we see on gas pricing about whether or not we ramp the gas drilling back up or we stick with liquids and oil. All I'd say is we'll be very, very value driven. We won't be volume driven, and we'll see where the best value is and then apply our rig count at that rate. So I hope that helps, Peter.

Speaker 8

Thanks.

Operator

Thanks very much. Next question from Kim Fusdier, HSBC. Kim?

Speaker 10

Hi, good afternoon. Thanks for taking my question. Firstly, on CapEx, you said $16,000,000,000 of CapEx guidance now evenly spread over the year as opposed to weighted to the first half. I just wondered if there had been any project slippage to the right. And then secondly, sorry for going back to the $2,000,000,000 cost savings, but I think you said that some of those cost savings will have associated restructuring charges.

Speaker 10

I wondered if you could provide any detail on the kinds of areas where you might incur such charges? Is this related for instance to headcount reductions? And is the $2,000,000,000 figure net of those restructuring costs? Or is it going to be lower than $2,000,000,000 after those restructuring costs? Thank you.

Speaker 1

Great. Kate, do you want to tackle both of those?

Speaker 4

Yes, sure. So on CapEx, so we're still confident of our guidance of around CHF 16,000,000,000 for the full year. What's happened over the course of the last couple of months is that a couple of lumpy payments that were due around the back end of Q2 have just tipped over into the beginning of Q3, and we just wanted to make sure that you've got line of sight to the fact that it probably wasn't so heavily focused on the first half compared to the second half. It's a little bit more evenly now, spread around the remaining quarters of the year. With regard to RATEX, we'll update you in due course as we get clear on the implications of that.

Speaker 4

At the moment, we are allowing each business and function to work on their own plans to deliver efficiencies. And as we said, some of that will have some rat ex associated with it, but not all of it. And as we get clear on the scale of the numbers and when we report them, we'll update you.

Operator

Thanks, Kim. We will take the next question from Menno, Menno Scharf at TD Cowen. Menno, over to

Speaker 13

you. Great. Good afternoon and thanks for taking my questions. So the first is on the simplification of the org structure. You've clearly made significant headway already, but where do you think you stand in that process?

Speaker 13

And then the second is yet another follow-up on the $2,000,000,000 target and apologies if you talked about this already, but can we get a rough breakdown on how much each of the 4 initiatives is expected to contribute and whether achievement of the $2,000,000,000 is expected to be fairly linear over the next 2.5 years? Thank you.

Speaker 1

Sure. Why don't I tackle both of those since I gave you the last two ones, Kate, and I'll give you relief. You should think about the 4 cost initiatives, each delivering around a quarter of the benefit. It may end up being different than that, but that's a good estimate for right now. And as far as the linear nature, we said it's by the back end of 'twenty six, and it will take time to do some of these things.

Speaker 1

So I wouldn't count on much impact in 'twenty four and 'twenty five. It should be coming in through 'twenty six as we work our way through it. On org structure itself, we have announced the first stage of simplification. There will be multiple steps along the way, maybe 2 or 3 steps is how I'm thinking about it. We have reduced my direct reports down to 10.

Speaker 1

We've combined some functions inside the organization as well. Those need to be well managed. We have to have very, very strong management of change as we go through this and make sure that safety is paramount as we do it. And we expect, in due course, to announce another set of simplification steps to try to make the place easier to work in. Maybe around year end, we'll see that next step.

Speaker 1

So that's what's happening on simplification inside the company. Craig, back to you.

Operator

Thanks, Marie. Thanks, Menno. Three questions left. We'll take the first one from Henry Tarr at Berenberg.

Speaker 16

Hi there, and thanks for taking my question. 2 quickly. One on the outlook for U. S. Offshore wind at this point and your Beacon Wind project.

Speaker 16

How are you thinking about offshore wind broadly in the U. S. And that project moving forward? And then just coming back to a comment about the potential to be countercyclical in low carbon. Where do you see sort of attractive returns today in low carbon, either within your own business or sort of externally?

Speaker 16

Where might you be looking across that space?

Speaker 1

Great, Henry. I think on I'll tackle both of these. I think on Beacon, look, we're going slow on that one. Infrastructure needs to develop off the Northeast coast of the U. S.

Speaker 1

We need to see some changes in pricing mechanisms moving forward so that we can move more to an integrated model like we see in Europe. And it's hard to predict at what pace that will happen, but I think on Beacon we'll be going slow, I think, is what I'd say for now. As far as countercyclical, I'll have to be careful on this one, because the second I say anything about it, I'll have too much competition. So I think what I'd say is you know my hierarchy of returns on the growth engines from biogas to biofuel to convenience to electrification are the places that are quite interesting to me. And you can figure out what the countercyclical moment might be inside some of those based on what's been happening recently.

Speaker 1

And I'll stop myself saying any more than that because my mergers and acquisitions team might shoot me if I say any more. So I hope that gave you enough hints, Henry, to think about. And in due course, you'll see or you won't see announcements, let's see.

Operator

I think, Henry, just to reiterate, obviously, we've laid out our CapEx guidance, and that's organic and inorganic, in totality. So there's not any leakage.

Speaker 1

CEO doesn't get to spend more than $16,000,000 That was code from Craig. Said IR. Sorry.

Operator

Thank you, boss. And then the last question sorry, I thought there was 2, but the last question from Giacomo Romeo at Jefferies. Giacomo, thanks for being patient.

Speaker 17

Yes. No, thank you. And sorry, I actually slipped off the list and had to go back on. First question, if I can just ask again about this countercyclical. Just wanted to check with you, Murray, I think that on the Q4 call, you talked about the fact that you've done a lot of acquisitions in the previous years and you are sort of focusing more of integration.

Speaker 17

Has somehow this message changed or what kind of size of acquisition countercyclical deal we could expect? The second is on the Namibia Farm Inn. Just trying to understand when Azul was set up in 2022, was always the was your thinking always about making it your West Africa venture? Or has this somewhat evolved over time? And just on the deal in Namibia specifically, the PEL85 is on shallower waters than versus where other discoveries have been made.

Speaker 17

Just trying to understand what gives you confidence as that the play will extend onto shallower waters? Thank you.

Speaker 1

Yes. Let's see. On countercyclical, what I'd say is we have a tight capital frame at $16,000,000,000 in $24,000,000,000 and $16,000,000,000 in $25,000,000 Last time I communicated with you, I said, we've done an awful lot on acquisitions from TA to Arkea to LightSource to EDF, and it's time to bring now bring the synergies out of these. And I gave you a caveat saying, however, we will consider 1 or 2 more of these things moving forward. So I'm not out of line with what I said in February and what I said the previous quarter, Giacomo.

Speaker 1

I'm in line with that. It's 1 or 2 opportunities that we see over the next couple of years. And I guess the point was more I'm not going procyclical in transition while prices are low. And let's see if we can actually prosecute anything. Kate, do you want to talk about origins of Azul?

Speaker 1

I tackle the geology question.

Speaker 4

Yes, sure. So I mean, when Azul was set up with E and I, it was a great marriage of assets. Ours were later life, generating significant cash and E and I's were earlier life. So it was a very nice symbiotic relationship, very similar to the one we created with AKA BP. And since we formed it, we've taken just over $5,000,000,000 of distributions.

Speaker 4

A couple of points I'd say on the finances with regard to Azul and Namibia is it's been set up to be a self funded vehicle and to continue to distribute back to its shareholders. For the first part of Namibia, it's 2 exploration wells. Let's see what happens with that. Don't expect a material impact on the distributions back to us or ENI, but let's see what happens with those.

Speaker 1

If I channel my inner explorer, really, water depth doesn't matter. It's what's happening subsurface. I think the interesting bit about these ones, Galp has had some discoveries, you've seen what their announcements are. When you look at the seismic on the block that we picked up from Rhino, it's a direct extension of the 4 or 5 structures that are in the Galp blocks at the same geologic depth. So who knows?

Speaker 1

Who knows what happens with exploration? Sometimes it works, sometimes it doesn't. But there are very clear structures in the Galp block. There are very clear structures in the rhino block. They lay in a pattern.

Speaker 1

They should have the same charge. They should have the same origin. Of course, there's JLoch risk around it, but water depth really doesn't play into it. So let's see, Giacomo. Let's see what happens.

Speaker 1

You have to drill the wells to find out what's actually down there. I think with that, Craig, shall we close? So thanks, everybody, for listening to us. Another decent quarter out of BP. I'm really pleased about bringing growth to the market.

Speaker 1

So Ace getting up online in Azerbaijan, BPX expanding their operations with the 3rd plant in the Lower 48 in the Permian. Arkea expanding, 1 big plant, 5 more in commissioning, and we've got great momentum around cost as well. So I'm very optimistic about growth for BP as we look through the next couple of years and hitting our targets and in due course, updating you about what's beyond that. So thanks very much for listening, and I look forward to chatting with you next quarter.

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