BP p.l.c. (NYSE:BP) Q1 2024 Earnings Call Transcript

BP p.l.c. (NYSE:BP) Q1 2024 Earnings Call Transcript May 7, 2024

BP p.l.c. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Craig Marshall: Well, thanks, everyone for joining BP’s First Quarter 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 UK 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 2:00 P.M. UK 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 maybe let me start there. And on that note, hand over to Murray for a few brief opening remarks.

Murray Auchincloss: 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 $10.3 billion and underlying earnings were $2.7 billion. Adjusting for the expected seasonal working capital build, operating cash flow was $7.4 billion in the quarter. We continue to make good strategic progress and this quarter saw the safe start-up of the Azeri Central lease project in the Caspian Sea. BPX also brought online Checkmate, our third central processing facility and in biogas, Archaea brought online its largest modular RNG plant to date and has five in commissioning.

Last week, our JV Azule announced a 42.5% firm-in into an exploration block in the Orange 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 billion of cash cost savings by the end of 2026. Craig, back to you.

A – Craig Marshall: Super. Thanks, Murray. So we’ll go straight to questions now and we’ll take the first question from Josh Stone at UBS. Josh?

Josh Stone: Yeah. Thanks, Craig, and good afternoon, Murray, and Kate, and appreciate the slightly longer time to study the results. I have two questions, please. First, I want to pick up on your 2025 EBITDA targets, which you reiterated specifically in the TGEs of $3 billion to $4 billion. And if I look at consensus, it feels like few people believe in these numbers and it’s only now almost 18 months away. So if I look at how the business has started, the buyer business looks like it started 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 and what do you think the market is missing on that side?

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Q&A Session

And then second question on the Whiting refinery, good to see back online. Maybe now the dust has 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.

Murray Auchincloss: Yeah. Sure, Josh. I’ll — 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. It took us about six 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. As far as EBITDA from the transition growth engines, as we reported last year, we made about $1 billion of EBITDA. We’re aiming for $3 billion to $4 billion of EBITDA by 2025. Where does that come from? A full year of TA, continued growth out of Archaea. It comes from EV moving to breakeven.

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, C&M 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. EV remains on track. I think the number is 93% of — 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. Archaea continues to get plants online. As I said, we got a big one online in 1Q and we’re commissioning five as we speak. So we should be in good shape for the 15 to 20 and RIN prices are holding very high for the D3 RINs in the United States as well.

On the challenging side, bio 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. There’s a diesel recession. We feel that will unwind as well as we move towards the back end of the year and into 2025 as well, but we feel confident on the 3% to 4% and we’ll just have to 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, but let’s see how that macro turns out.

Thanks for your question, Josh.

Craig Marshall: Thanks, Josh. We’ll turn to Biraj Borkhataria, RBC. Biraj?

Biraj Borkhataria: 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&A, for example, it does look like your figures are quite out of 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. I guess in your slides, 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 a relisting is brought up by one of your counterparts.

Where does BP sit on this? Is it a live debate? Do you see as a structural disadvantage? Unlike your counterparts, you do have a big domestic U.S. business upstream and downstream there. So I just wanted to get your thoughts on that. Thank you.

Craig Marshall: 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. 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 ’25 as well. And as we continue buybacks, that gives us then the chance to increase the dividend over time. We have confidence from it because it’s worked before.

In 2022, in the first half of 2023, 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 a — not relisting and so we’re just focused tightly, tightly on performance, Biraj. Kate, over to you on the first question, please.

Kate Thomson: Thanks, Murray, 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 that like-for-like, line-by-line through the P&L account. There’s a level of interpretation, let’s say, on how companies can actually account for their costs through the — through the income statements, 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 going 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. That’s how we’ll continue to disclose against as we deliver this $2 billion of cost reductions through the end of 2026. And then finally, what I would say is, I think IFRS 18, which comes in at the beginning of ’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.

Craig Marshall: Thank you, Biraj.

Biraj Borkhataria: Thank you.

Craig Marshall: We’re going to move stateside now, given we’re at a slightly more hospitable time, and take the first question from Paul Cheng at Scotia. Paul.

Paul Cheng: Thank you. Good morning, guys, or good afternoon. In K, 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? And also that from the fourth quarter to the first quarter, the gas and LCE is down roughly about $100 million in the adjusted earnings. How is that contribution is coming from the low carbon side? In other words, there is low-carbon getting better or getting worse that we are seeing there? So that’s the first question.

Murray Auchincloss: Great. Kate, over to you on Egypt. I think it answers the second question as well, doesn’t it?

Kate Thomson: Yeah. It pretty much does. Hi, Paul. Yes. So on Egypt, we saw a significant devaluation in the currency. It went from 30 million to 48 million when Egypt 3 fluted 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 first quarter. It’s around about 0.2 and 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 up on production and our comp 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.

Paul Cheng: Okay. Kate, on the cost reduction, the EUR2 billion, how much of them is related to any divestment, or that’s purely on their actual underlying course are performing better?

Kate Thomson: Yeah. So we’ll step through the interventions. There are four 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 six 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.

Murray Auchincloss: Yeah. 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 ’24 and ’25. So a large part of this focus is getting really clear which ones of these we’re going to take forward. And as we do that, redeploying engineers to the highest-quality ones, redeploying third-party resources, etc. That will create a lot of cost-savings as we really, really focus on these things moving forward. Yeah. A small — 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 same time, we decided to release Birallah in Yakaar-Teranga in Mauritania and Senegal. 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.

Craig Marshall: Thank you, Paul.

Paul Cheng: Thank you.

Craig Marshall: We’ll stay in the U.S. and take the next question from Ryan Todd at Piper Sandler. Ryan?

Ryan Todd: Great. Thanks. Maybe a 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. from the startup 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 is increasing — I mean, 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?