BP Q4 2024 Earnings Call Transcript

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February 11, 2025

Key Takeaways

  • BP’s upstream production rose 2% to 2.36 mboe/d in 2024 with over 95% plant reliability, and the company sanctioned 10 major projects including the Tangu UCC project while forming new joint ventures in offshore wind and gas ventures.
  • Operating cash flow was $27.3 billion and adjusted EBITDA was $38 billion, down $5.7 billion year-on-year due to lower refining margins, weaker trading results, and realizations.
  • The customers & products segment saw underlying profits decline by $700 million quarter-on-quarter, driven by lower fuels margins, seasonally softer volumes, adverse FX impacts, and weaker refining margins.
  • BP delivered $800 million of structural cost reductions in 2024—offsetting inflation and energy cost pressures—and is targeting at least $2 billion in cuts to underlying operating expenditure by end-2026.
  • The board increased the dividend per share by 10% and announced $7 billion of share buybacks for 2024, including a further $1.75 billion repurchase announced today.
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Earnings Conference Call
BP Q4 2024
00:00 / 00:00

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Operator

Hello, everyone, and thank you for your interest in BP's fourth quarter and full year twenty twenty four results. Today's video presentation features Murray Auchincloss, chief executive officer, and Kate Thompson, chief financial officer. Before I hand over to Murray, 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 UK and SEC filings.

Operator

Please refer to our annual report, stock exchange announcement, and SEC filings for more details. These documents are available on our website. Over to you, Murray.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

Thanks, Greg. Early in 2024, we laid out six priorities to support BP in becoming a simpler, more focused, and higher value company. Twenty twenty four was also a year where we made deliberate choices to focus and high grade our portfolio. The scale and pace of the action we have taken in the past year is greater than anything we've seen over the past twenty years, laying a strong foundation on which to build. Many of our businesses performed well during 2024, as seen through higher upstream production and strong plant reliability in oil and gas.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

Plant reliability in oil and gas, another good year for trading, and, of course, the good progress we've made on cost reductions that Kate will cover shortly. And while it was also a difficult year for our customer and products business, notably in refining, I remain confident that the actions we are taking will drive an improvement in performance. Now safety underpins everything we do. Our goal, to eliminate fatalities, life changing injuries, and tier one process safety events remain unchanged. We have demonstrated that strong progress is achievable, including in process safety, where we have continued the pattern of reducing tier one events.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

However, in the fourth quarter, a colleague died following an incident at an industrial facility at a recently acquired BP Bioenergy site in Brazil. This is deeply regrettable, and we must and will learn from this incident. Incident. Turning to emissions, our focus also remains unchanged, and we continue to track well above our 2025 target for operational emission reductions. The implementation of our methane measurement approach at end of twenty twenty three across our upstream oil and gas assets is providing enhanced insight and improving management and reporting.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

Turning to financial and operational performance, in 2024, we delivered operating cash flow of $27,300,000,000 and adjusted EBITDA of $38,000,000,000 around $5,700,000,000 lower than 2023, reflecting the impact of lower refining margins, trading results, and realizations, partly offset by higher upstream production. Our upstream production for the year was 2,360,000 barrels per day, an increase of 2% compared to 2023, with plant reliability over 95%. We sell the start up of oil production from the new Azeri Central East platform in the Caspian Sea, and we brought online our third centralized processing facility in the Permian Basin. Across the group, we took FID on 10 major projects, including with our partners, the Tangu UCC project in Indonesia, sanctioned in November. In December, we established a new gas joint venture, Arkeus Energy, with Adox International energy investment company, XRG, and we also announced an agreement to form Jaren XBP, our offshore wind joint venture that will combine the complementary capabilities and portfolios of both companies and help grow the scale of the business in a capital light way for BP.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

We have signed an agreement with ONGC as the technical services provider for the largest offshore oil and gas field in India, responsible for around 25% of the country's oil production. And in Iraq, we have agreed the majority of commercial terms with the government for the redevelopment of several oil fields in Kirkuk. This builds on our long standing and strategic relationship and delivers access to a new material resource opportunity. In refining, availability declined to 94.3%, including the impact of the Whiting outage in the first quarter. We saw continued stronger performance in Castrol, Aviation, and momentum in EV charging, convenience, and retail fuels.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

However, midstream results were lower due to lower biofuels and b to b margins due to supply demand imbalances. And in trading, the consistent delivery of an average uplift of 4% to Group Proachy now extends to the past five years. We grew our dividend per ordinary share by 10% and announced 7,000,000,000 of share buybacks for the year, including the $1,750,000,000 announced today. We are confident in the actions we are taking, and we're excited to tell you about our plans at our capital market update on February 26. Let me now hand over to Kate to cover our fourth quarter results and provide an update on our progress on our cost agenda.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

Thanks, Marie. In the fourth quarter, we reported group underlying replacement cost profit before interest and tax of $4,000,000,000 The result was around $1,200,000,000 lower than the third quarter, primarily driven by a lower customers and products segment result and a higher charge in other businesses and corporate, which was largely due to foreign exchange effects. Looking at segment performance in more detail. In the gas and low carbon energy segment, the underlying profit was around $200,000,000 higher than the third quarter, largely driven by higher realizations. The gas marketing and trading result was average.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

The fourth quarter included a one off $100,000,000 favorable impact. In the oil production and operations segment, the underlying profit was around $100,000,000 higher than the third quarter, reflecting lower exploration write offs, partly offset by lower realizations and volumes. In the quarter, there was also a cumulative benefit of around $300,000,000 for several items, including hedging and income from a sale of royalties. The customers and products segment was around $700,000,000 lower quarter on quarter. In customers, the underlying profit was around $400,000,000 lower, reflecting lower fuels margins, seasonally lower volumes, and adverse foreign exchange impacts.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

In products, the underlying result was around $300,000,000 lower, mainly reflecting weaker realized refining margins and a higher impact from turnaround activity. The oil trading contribution was weak. Below the operating segments, our underlying finance costs were $1,100,000,000 in the fourth quarter, around $100,000,000 higher than the third quarter, which was mainly reflecting the higher gross debt. Our non controlling interest was $340,000,000 in the fourth quarter, around $180,000,000 higher than the third quarter, mainly reflecting earnings from our subsidiaries with minority interests. Our underlying effective tax rate was 49%, bringing the full year to 41%.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

Taken together, our reported group underlying replacement cost profit was 1,200,000,000.0. On an IFRS basis, our headline loss was $2,000,000,000 after net adverse adjusting items of 3,100,000,000.0. And finally, today, we have announced a dividend of 8¢ per ordinary share for the fourth quarter. Moving to cash flow and the balance sheet. Operating cash flow was 7,400,000,000 in the fourth quarter, which was around 700,000,000 higher than the previous quarter, reflecting lower cash taxes paid and timing of provision settlements, partly offset by lower underlying earnings.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

There was also a working capital release of 1,300,000,000.0 in the quarter. Capital expenditure in the fourth quarter was 3,700,000,000.0. This brought full year CapEx to $16,200,000,000 which is in line with guidance set at the start of the year. Divestment and other proceeds were 2,800,000,000.0 in the quarter, bringing the full year proceeds to $4,200,000,000 Net debt reduced by $1,300,000,000 to $23,000,000,000 including the impacts of acquired net debt of around $3,000,000,000 from the completion of the BP Bioenergy and Light Source BP acquisitions and the issuance of US2.6 billion dollars equivalent of perpetual hybrid bonds where we proactively took advantage of attractive credit spreads on the hybrid market to manage the refinancing of our portfolio through 2026. I'd like now to touch on how we think about costs and update you on our cost efficiency program where we are making really good progress.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

For the detailed readers of our quarterly and annual accounts, we report costs of sales, expenses directly involved in generating revenue across three lines in the income statement, purchases, production and manufacturing expense or P and M, and distribution and administration expense or D and A. It's important to note that companies report costs differently, so the reported expense line items may not be comparable. In 2024, our P and M and D and A costs totaled to around $43,000,000,000 While these two expense line items have increased by 10,000,000,000 over the last six years, eight billion of this increase, a substantial majority, is related to variable costs. This increase in variable costs is primarily driven by higher transportation and shipping expenses, including freight costs, and reflects higher activity levels as we drive increased value and returns largely in our oil and gas trading business. Over this period, we also saw higher costs associated with emissions compliance, primarily related to the German Emissions Trading Act that was introduced in 2021.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

In addition, we saw an increase in marketing and distribution costs, largely reflecting increased volumes as we grow our customers' business. Of course, we are continually reviewing these variable costs to ensure we're safely running the most efficient business and that we are delivering a strong cost to margin ratio. Beyond these variable costs, we are focused on our underlying operating expenditure. As you know, we've previously referred to these as cash costs, but going forward, we will now refer to them as underlying operating expenditure. This expenditure is a subset of P and M plus DNA expenses that exclude the variable costs.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

A detailed reconciliation of P and M plus DNA expenses to underlying operating expenditure is provided as an appendix to our results presentation and in our stock exchange announcement. On this slide, you can see our track record of delivering structural cost reductions. We updated you at the twenty twenty one second quarter results that we had delivered $2,500,000,000 of structural cost reductions, and this slide shows continued progress through to 2023. However, this was more than offset by environmental factors such as supply chain inflation, higher energy costs, and growth costs. In 2024, we announced a target to reduce underlying operating expenditure by at least $2,000,000,000 by the end of twenty twenty six from a 2023 baseline.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

I'm pleased to report that we've delivered structural cost reductions of around 800,000,000 this year, more than offsetting the impacts of inflation, energy costs, foreign exchange effects, and growth costs. So taken together, we've reduced absolute underlying operating expenditures by $300,000,000 Over half of these reductions were delivered in the customers and product segment and a third in other business and corporate. Looking forward, we will provide regular updates in our disclosures on the further progress we're making on structural cost reductions. And now to guidance. So starting with the first quarter twenty twenty five.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

In the upstream, we expect reported upstream production to be around 90,000 barrels of oil equivalent per day lower, including the already announced divestments in Egypt and Trinidad, which completed towards the end of the fourth quarter, as well as base decline in both of those regions. In customers, we expect seasonally lower volumes. In addition, we expect fuels margins to remain sensitive to movements in cost of supply and for earnings to remain sensitive to the relative strength of The US Dollar. In products, we expect realized refining margins to remain low with a lower level of refining turnaround activity. And as a reminder, we had roughly $400,000,000 of favorable impacts in the fourth quarter across the oil production and operations and the Gas and Low Carbon segments.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

Turning to our full year 2025 guidance. Reported upstream production is expected to be lower, primarily reflecting previously announced divestments in gas regions. Underlying upstream production is expected to be slightly lower year on year. In our customers business, we expect growth including a full year contribution from BP Bioenergy and a higher contribution from TravelCenters of America. Fuels margins are expected to remain sensitive to the cost of supply and earnings delivery to remain sensitive to the relative strength of the US dollar.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

Earnings growth is also expected to be supported by structural cost reductions. In products, we expect broadly flat refining margins relative to 2024 and stronger underlying performance underpinned by the absence of the plant wide power outage at Whiting Refinery and improvement plans across the portfolio. We expect similar levels of refinery turnaround activity to 2024, which was lower than 2023, with phasing in 'twenty five heavily weighted towards the first half and the highest impact in the second quarter. I won't go through the full year guidance line by line. It's on this slide and in our stock exchange announcement published this morning.

Kate Thomson
Kate Thomson
CFO at BP p.l.c

Lastly, we are today retiring our 2025 EBITDA target. For completeness, let me reflect on how we hold this. As we've previously mentioned, the basket of prices in '23 was in aggregate equivalent to our planned prices at the time we set our 2025 EBITDA target. 2024 reported EBITDA was $38,000,000,000 and adjusting that to 2023 prices, it would be around $42,000,000,000 When considering the underlying growth in our businesses, the absence of the plant wide power outage at Whiting Refinery, and the full year impact of recent acquisitions and disposals, we would expect 2025 EBITDA to be slightly below previously guided target of $46,000,000,000 to $49,000,000,000 Looking ahead and consistent with our focus on growing cash flow and returns, we will be updating our metrics, our targets and financial frame and our capital markets update on the February 26. Now let me hand back to Murray.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

Thanks, Kate. I'll close by looking ahead to our capital markets update on the February 26. Since setting out our strategy five years ago, a lot has changed in the global economy, across the energy sector, and within BP. We have come through a period of active transformation. We have learned, and we have been actively engaging with and listening to you, our shareholders.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

We are also a far more focused business than twelve months ago, having delivered significant changes across BP in 2024. Our oil and gas business is well positioned and performing strongly, and we have been taking action to reshape our portfolio and grow free cash flow, including sanctioning new projects such as Cascadia and through new access in India and Iraq. We are focused on improving performance and refining, have stopped projects that won't compete for capital, and are restructuring our low carbon business to grow, but in a more capital light way. Our capital markets event will be a comprehensive update that builds on this. It will be a fundamental reset of our strategy.

Murray Auchincloss
Murray Auchincloss
CEO at BP p.l.c

It will demonstrate our focus on actions to drive performance, and it will enable us to grow cash flow and returns and shareholder value. It will be a new direction for BP and not business as usual. I'm excited about it and look forward to updating the market and seeing many of you

Executives
    • Murray Auchincloss
      Murray Auchincloss
      CEO
    • Kate Thomson
      Kate Thomson
      CFO
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