BP p.l.c.

welcome to the bp presentation to the financial community webcast and conference call i now hand over to craig marshall head of investor relations good morning everyone and welcome to bp's second quarter 2021 results presentation i'm here today with bernard looney chief executive officer and murray auchincloss chief financial officer before we begin today let me draw your attention to our cautionary statement During today's 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. Please refer to our annual report, stock exchange announcement, and SEC filings for more details. These documents are available on our website. I'll now hand over to Bernard.

Thanks, Craig. Good morning, everyone, and welcome to our second quarter results for 2021. Thanks for joining us. We are reporting what I hope you'll agree is another strong set of financial results. For the quarter, underlying replacement cost profit was $2.8 billion. Operating cash flow was $5.4 billion. Net debt fell for the fifth consecutive quarter to $32.7 billion. and we have achieved our target of $2.5 billion of cash cost reductions around six months early. In addition, consistent with our disciplined financial frame, we are increasing our resilient dividend for the second quarter 2021 by 4% per ordinary share, while maintaining our cash balance point of around $40 a barrel. And at an oil price of around $60 per barrel, Brent – we see capacity for around this level of annual increase through 2025. We are also commencing our share buyback from first half surplus cash flow with a $1.4 billion program, which we expect to complete by the time of our third quarter results. And at around $60 per barrel Brent, we expect to be able to deliver a buyback of around $1 billion per quarter. Importantly, these commitments are underpinned by One, the underlying performance of our business. Two, an improving environment. And three, our confidence in the balance sheet. Looking ahead to 2025, we see a significant opportunity to continue growing underlying cash flow as we take costs out of the business, improve operating efficiency and reliability, deliver the next wave of high-margin major projects, and grow our convenience and mobility business. all while transforming BP for the longer term by taking disciplined investment decisions in support of our transition to an integrated energy company. This is, in essence, what we mean by performing while transforming. And I'll come back to talk about our strategic delivery later. But for now, let me hand over to Murray to take you through our results and financial frame in more detail.

Murray. Thanks, Bernard. And hello, everyone. I hope you and your families are safe and healthy. As usual, let's begin with the macro environment, where sentiment has improved. Oil prices continue to increase, with Brent averaging $69 in the second quarter, a 13% rise. This reflects the improved demand outlook as COVID-19 restrictions were gradually lifted, while OPEC Plus has continued to show discipline and progressively increasing output. Looking to the second half of this year, we expect oil prices to remain firm as inventory levels decline to historic levels. driven by ongoing increases in demand and continued active supply management by OPEC+. Turning to gas prices. During the quarter, Henry Hub averaged $2.90, down from $3.50 in the first quarter as prices normalized after Storm Uri. International prices strengthened during the quarter, with JKM LNG price averaging around $10, driven by very strong Chinese demand growth with high European gas prices due to supply issues. We expect global gas markets to remain tight in the second half of 2021 with additional LNG supply outages or further delays to Nord Stream 2 presenting potential price upside. Turning to refining, industry margins increased strongly during the quarter with BP's RMM averaging $13.70, the highest level since the third quarter of 2019. However, the recovery has been uneven across products and regions, with much of the increase in BP's RMM driven by higher U.S. markers. This reflects a strong rebound in U.S. gasoline demand and a near doubling of the cost of U.S. renewable fuels credits since the start of the year. However, as you know, the credits do not impact realized refining margins. Northwest Europe margins increased more modestly due to weaker demand growth, notably for middle distillates. Looking to the third quarter, industry refining margins are expected to be broadly flat compared to the second quarter, with recovering demand offset by growth and refining capacity. Turning to results. In line with our annual cycle, we have reviewed our price and margin assumptions used for both investment appraisal and value and use impairment testing. Effective this quarter, we have updated our oil price assumptions. Other price assumptions are unchanged from those disclosed in our 2020 annual report. Our rent oil price assumption to 2030 has been increased to $60 per barrel in 2020 real terms. This is due to capital discipline limiting supply across many basins. Over the longer term, our Brent oil price assumption has been decreased, reaching $45 per barrel in 2020 real terms by 2050, as we expect an acceleration of the pace of transition to a lower carbon economy. In aggregate, our view of the average price over the 2021 to 2050 period is unchanged, at around $55 per barrel in 2020 real terms. As a result of this revision, our second quarter reported profit included a pre-tax impairment reversal of $3 billion. Moving then to underlying results. In the second quarter, we reported an underlying replacement cost profit of $2.8 billion, compared to an underlying replacement cost profit of $2.6 billion in the first quarter of 2021. In gas and low carbon energy, the second quarter result reflects higher realizations offset by a strong gas marketing and trading result following the exceptional performance in the first quarter. It also reflects a higher DDNA charge as a result of major project ramp up this quarter. In oil production and operations, the second quarter result reflects higher liquids realizations. And in customers and products, the second quarter result benefits from momentum in the customer business with higher retail and aviation volumes and strong convenience performance. In products, the result reflects a loss in refining slightly less than the first quarter. This was driven by a higher level of turnaround and maintenance activity and continued low realized margins due to excess supply. The contribution from oil trading was lower than in the first quarter. As announced, the second quarter dividend payable in the third quarter has been increased by 4% to 5.46 cents per ordinary share. Turning to cash flow in the balance sheet. Commencing this quarter, we have enhanced our working capital reconciliation to include fair value accounting effects. While this item was already disclosed, we believe that its inclusion in the reconciliation will better help users understand our cash flow delivery from underlying replacement cost earnings. Operating cash flow was $5.4 billion in the second quarter. This included $1.2 billion of Gulf of Mexico oil spill payments within a working capital build of $500 million. Our cash flow delivery continues to benefit from the progress being made on cash cost reduction. As Bernard said, we have achieved our target of delivering $2.5 billion of cash cost savings on a run rate basis relative to 2019, around six months earlier than originally anticipated. Capital expenditure was $2.5 billion in the second quarter. And as guided, during the quarter, we repurchased $500 million of shares, offsetting the expected 2021 dilution from vesting of employee share awards. During the second quarter, surplus cash flow was $700 billion. As a result, we generated $2.4 billion of surplus cash flow in the first half of 2021 after reaching our net debt target of $35 billion. Reflecting the strong cash flow delivery, net debt fell for the fifth consecutive quarter to reach $32.7 billion at the end of the second quarter. In addition to debt reduction, during the first half, we took further steps to create a more resilient balance sheet We have extended the duration of our debt book through a combination of retiring short-dated debt and issuing $4 billion of longer-dated debt, including $1.8 billion of 40-year bonds. Now, let me update you on our financial frame. We have provided a clear set of principles and priorities for our uses of capital, and these remain unchanged. A resilient dividend remains the first priority within our disciplined financial framework. Reflecting the underlying performance of the business, an improving environment, confidence in our balance sheet, and commencement of a share buyback program, the board has announced the increase in the second quarter dividend we mentioned earlier. Importantly, this increase is accommodated within our 2021 to 2025 average cash balance point of around $40 per barrel Brent, $11 per barrel RMM, and $3 Henry Hub, all 2020 real. Our second priority is to maintain a strong investment grade credit rating. This is very important to us, and why the dividend increase has been sized to maintain a $40 balance point, and why we continue to allocate 40% of surplus to the balance sheet. Our third and fourth priorities remain unchanged, and we are tightly focused on capital discipline, especially in an increasing price environment. Taking into account the $2.4 billion surplus cash flow generated in the first half of the year, BP intends to execute a share buyback of $1.4 billion prior to third quarter 2021 results. And for 2021, the Board remains committed to using 60 percent of surplus cash flow for share buybacks. On average, based on BP's current forecasts, at around $60 per barrel Brent and subject to the Board's approval each quarter, We expect to be able to deliver a buyback of around $1 billion per quarter and to have capacity for an annual increase in the dividend per ordinary share of around 4 percent through 2025. Other elements of the financial frame are unchanged. The Board will take into account factors including the outlook for surplus cash flow, the cash balance point, and the maintenance of a strong investment-grade credit rating in setting the dividend per ordinary share and in setting the buyback amount each quarter. We expect to outline plans for the fourth quarter share buyback at the time of our third quarter results. In summary, we believe our disciplined financial frame allows us to focus on strengthening our balance sheet, provide committed distributions to shareholders through a resilient dividend and share buyback, with upside to higher prices, and the capacity to invest to transition BP for the future. Thanks for listening, and now let me hand you back to Bernhard.