BP p.l.c.

Good morning everyone and welcome to BP's third 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 and welcome everyone. It is great to have you join us. I'm going to start with a summary of our results before Murray takes you through the detail. I'll then share some operational and strategic highlights and we will then take your questions. Today we're reporting another quarter of strong strategic delivery and underlying financial progress. Our businesses are running well, maintaining their focus on safe and reliable operations. Our portfolio is capturing the benefit of the strong commodity environment, and our overall results show how our continued focus on performing while transforming is delivering value for our shareholders today, strengthening our balance sheet, growing distributions, while at the same time investing with discipline in our strategic transformation. For the quarter, underlying replacement cost profits was $3.3 billion. Operating cash flow was $6 billion, which includes a working capital build of $1.8 billion. And net debt fell for the sixth consecutive quarter to reach $32 billion. Next to distributions, where we continue to deliver on our commitment to shareholders. A resilient dividend is our first priority within the financial frame, and for the third quarter BP has declared a dividend of 5.46 cents per ordinary share, unchanged following the 4% increase announced with our second quarter results. We have completed the $1.4 billion share buyback from first half's 2021 surplus cash flow, and have today announced plans to buy back $1.25 billion of shares, which we expect to complete by the time of our fourth quarter results. We have also seen continued momentum across each of our strategic focus areas. And I'll come back to talk about these and other highlights later in the presentation. But for now, let me hand you over to Murray. Thanks, Bernard.

Let's begin with the macro environment. Oil prices have continued to increase, with Brent rising 7% to average $74 in the third quarter, moving above $80 in recent weeks. This reflects the strong rebound in oil demand as the impact of COVID eases, as well as the measured increases in OPEC Plus supply. As a result, inventories have reduced back towards pre-pandemic levels. As we look ahead to the end of the year, we expect oil prices to be supported by continued inventory drawdown with the potential for additional demand from gas to oil switching. Gas markets were very strong in the quarter as well. Henry Hub averaged $4.30, up from $2.90 in the second quarter, as capital discipline continued to limit U.S. gas production growth and Hurricane Ida led to production curtailments. In international markets, average NBP and JKM prices rose by around 85% compared to the second quarter. This reflects a tight LNG market driven by strong Asian demand growth, LNG supply outages, depleted European gas storage, and uncertainty over Russian pipeline imports. We expect gas markets will remain tight during the period of peak winter demand. Looking to refining, the increase in industry refining margins was supported by Hurricane Ida-related disruptions in early September. In the third quarter, BP's average RMM rose by 11% to $15.20. This was mainly due to seasonal demand rebound. Realized margins also benefited from wider North American heavy crude oil differentials. In the fourth quarter, industry refining margins are expected to be lower compared to the third quarter, driven by seasonal demand. Moving to results. In the third quarter, we reported an IFRS loss of $2.5 billion. After adjusting items of $6.3 billion, we reported an underlying replacement cost profit of $3.3 billion compared to $2.8 billion last quarter. Adjusting items included fair value accounting effects of $6.1 billion, primarily due to the exceptional increase in forward gas prices towards the end of the quarter. Under IFRS, reported earnings include the mark-to-market of hedges used to risk-manage LNG contracts, but not the physical LNG contracts themselves. This mismatch at the end of the third quarter is expected to unwind if prices decline and as cargoes are delivered. The underlying result removes this mismatch, consistent with how BP risk-manages its LNG portfolio. Turning to business group performance compared to the second quarter, In gas and low carbon energy, the result benefited from higher gas realizations and a strong gas marketing and trading result. In oil production and operations, the result reflects higher liquids and gas realizations, but was impacted by the effect of Hurricane Ida on our Gulf of Mexico production in the quarter. And in customers and products, the products business returned to profit, driven by a higher refining availability and throughput, enabling the capture of the stronger refining environment, partly offset by increased energy prices. The result also benefited from a higher contribution from oil trading. And the customer's result was supported by higher retail and aviation volumes, strong convenience and fuel margin management, offset by higher wage costs and increased digital and marketing investment. For the third quarter, BP has announced a dividend of 5.46 cents per ordinary share, payable in the fourth quarter. Turning to cash flow in the balance sheet. Operating cash flow was 6 billion in the third quarter. This included a working capital build of $1.8 billion after adjusting for inventory holding gains and fair value accounting effects. Capital expenditure was $2.9 billion. And disposal proceeds were $300 million, bringing year-to-date receipts to $5.4 billion by the end of the third quarter. We now expect to realize disposal proceeds of around $6 to $7 billion by the end of 2021. Reflecting the strong underlying cash flow delivery and after working capital movements, third quarter surplus cash flow was $900 million. With second quarter results, BP announced the intention to buy back 1.4 billion of shares from surplus cash flow generated in the first half of 2021. This program has been completed with $900 million executed during the third quarter. Recognizing these factors, net debt fell for the sixth consecutive quarter to reach $32 billion at the end of the third quarter and has now been reduced by $7 billion since the start of this year. Our financial frame has established a clear set of principles and priorities for our uses of capital. These remain unchanged, with a resilient dividend our first priority. Our second priority is to maintain a strong investment-grade credit rating. I'm pleased with the progress we've made on debt reduction, and we continue to plan to allocate 40% of 2021 surplus cash flow to further strengthen the balance sheet. Despite the backdrop of higher commodity prices, we remain focused on capital discipline, and our third and fourth priorities for capital expenditure remain unchanged. We continue to expect to spend around $13 billion in 2021. Finally, subject to maintaining a strong investment-grade credit rating and considering the cumulative level of and outlook for surplus cash flow, the Board remains committed to using 60% of 2021 surplus cash flow for share buybacks. Recognizing third quarter surplus cash flow of $900 million and reflecting our confidence in the outlook, BP intends to execute a further buyback of $1.25 billion prior to fourth quarter results. And we expect to outline plans for the final tranche of buybacks from 2021 surplus cash flow with our fourth quarter results. Based on BP's current forecasts, at around $60 per barrel Brent, and subject to the Board's discretion each quarter, we continue to expect to be able to deliver a buyback of around $1 billion per quarter on average, with upside at higher prices, and to have capacity for an annual dividend increase of around 4% through 2025. Taken together, we remain focused on delivering strong per share growth consistent with our proposition to shareholders. Thanks very much for listening.