BP p.l.c.

Good morning, everyone, and welcome to BP's third quarter 2022 results presentation. I'm Craig Marshall, BP's Head of Investor Relations, and I'm here today with Murray Auchincloss, our 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, including those 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 will now hand over to Murray. Thanks, Craig.

Good morning, everyone. We're here today to report on another quarter of financial and strategic delivery. But first, I want to take a moment to acknowledge the tragic incident at the Toledo refinery where two of our employees sadly lost their lives following a fire. Our thoughts go to their families, to the team at Toledo, and to the local community. Safety remains our number one priority, and the refinery remains offline as we work to understand the root causes of this incident. Turning to third quarter results, we remain focused on strengthening BP. During the third quarter, we delivered $8.2 billion of underlying earnings and operating cash flow of $8.3 billion, including a working capital build of $6.2 billion. We continue to execute against our disciplined financial frame, reducing net debt for the 10th consecutive quarter to reach $22 billion and announcing a further $2.5 billion share buyback. And we have momentum in our transformation to an integrated energy company. Since reporting second quarter results, we have accelerated our bioenergy strategy, agreeing to acquire Arkea Energy, a leading US biogas company, advanced our growth strategy in EV charging and convenience through our collaboration with Hertz, and continued to high-grade our hydrocarbons business. I will provide more detail on our results and strategic progress in a moment. But first, let me turn to the macro environment. Starting with gas prices, where we continue to see significant volatility. During the quarter, reduced Russian pipeline imports led to sharp increases in both spot and future prices in Europe, with the quarter average TTF price rising by 92%. Prices also rose in the U.S. as summer cooling demand offset the loss of Freeport LNG exports. Looking ahead to the fourth quarter, we expect gas prices to remain elevated and volatile, with the outlook heavily dependent on Russian pipeline flows and the severity of the northern hemisphere winter. Moving to oil prices. During the third quarter, Brent averaged $101 per barrel, down from $114 per barrel in the second quarter. This reflected increased uncertainty around the economic outlook and the continued COVID-related lockdowns in China. Despite this uncertainty, we expect oil prices to remain elevated in the fourth quarter, given the backdrop of low inventory levels, OPEC Plus supply cuts, limited supply growth, and uncertainty around Russian exports. Turning to refining, global margins decreased to average around $35.50 per barrel during the third quarter and are expected to remain at elevated levels during the fourth quarter due to lower stocks and sanctioning of Russian crude and product. Moving to results, in the third quarter, we reported a loss of $2.2 billion. After post-tax adjusting items of $8.1 billion and an inventory holding loss of $2.2 billion, we reported an underlying replacement cost profit of $8.2 billion compared to $8.5 billion last quarter. Pre-tax adjusting items included fair value accounting effects of $10.1 billion, primarily due to the continued increase in forward gas prices. As a reminder, under IFRS... Reported earnings include the mark-to-market value of the hedges used to risk manage LNG contracts, but not of the contracts themselves. In the underlying result, the fair value accounting effect adjusts for this mismatch by also recognizing changes in the value of the LNG contracts that are being risk managed. Turning to business group performance, compared to the second quarter, in gas and low-carbon energy, the result benefited from an exceptional gas marketing and trading performance, higher production, and higher gas realizations. In oil production and operations, the result reflects lower liquids realizations and the impact of converting BP's interest in Angola to an equity-accounted entity. This was partially offset by higher gas realizations. In customers and products, the product result reflects lower realized refining margins and oil trading returning to an average contribution compared to an exceptional result in the second quarter. The customer's result benefited from an improved retail, midstream, and B2B, and aviation performance, partially offset by higher input costs, notably in Castrol. Turning to cash flow. Operating cash flow was $8.3 billion in the third quarter. This included a working capital build of $6.2 billion after adjusting for inventory holding losses and fair value accounting effects, mainly driven by the impact of the increase in Ford gas prices on BP's LNG portfolio. Looking forward, the outlook for working capital remains subject to a number of factors, including price. However, following the build in working capital as a result of rising gas prices since 2021, we now expect the working capital movement to include a release of around $7 billion, weighted toward the second half of 2023 and into 2024, primarily as LNG cargoes are delivered. Turning back to the third quarter, capital expenditure was $3.2 billion. And disposal proceeds were $600 million. With $2.5 billion of proceeds received by the end of the third quarter, we now expect to realize slightly over $3 billion during 2022, above the prior $2 to $3 billion guidance range. During the quarter, we repurchased 2.9 billion of shares and a 3.5 billion program announced with second quarter 2022 results was completed on the 27th of October. And net debt fell for the 10th consecutive quarter to reach $22 billion. Moving to our disciplined financial frame, our first priority remains a resilient dividend. This is underpinned by an average cash balance point of around $40 per barrel through 2025. Our second priority is to maintain a strong investment-grade credit rating, and we intend to allocate 40% of 2022 surplus cash flow to further strengthening the balance sheet. Third and fourth, we will continue to invest with discipline into the transition and Brazilian hydrocarbons. Our capital expenditure guidance for 2022, including in organics, is now expected to be around $15.5 billion if the acquisition of Arkea Energy completes before year-end. and our medium-term guidance is unchanged at 14 to 16 billion per annum. Fifth, we remain committed to returning 60% of 2022 surplus cash flow through share buybacks, subject to maintaining a strong investment-grade credit rating. Against the authority granted at BP's 2022 AGM to repurchase up to 1.95 billion shares, BP has repurchased 677 million shares at the 31st of October. And with third quarter surplus cash flow of $3.5 billion, we intend to execute a buyback of $2.5 billion prior to reporting fourth quarter results. This brings total announced share buybacks from 2022 surplus cash flow to $8.5 billion, equivalent to 60% of 2022 surplus cash flow year to date. In setting the buyback, the board will continue to take into account factors including the cumulative level of and outlook for surplus cash flow. Turning to BP's strategic progress, where we have real momentum in our transformation to an integrated energy company. Within Resilient Hydrocarbons, we are accelerating the delivery of our strategy in bioenergy, one of our five transition growth engines. In October, we announced an agreement to acquire Arkea Energy, a leading U.S. biogas company. This transaction, accommodated within our disciplined financial frame, will deepen our participation in the rapidly growing biogas sector, add distinctive value as we integrate biogas supply from Arkea Energy with our experienced trading business and global customer relationships, and reduce carbon intensity, supporting our aim three. And also in resilient hydrocarbons, we have continued to high-grade our portfolio. We have completed the formation of Azul Energy, our new Angolan joint venture with ENI, taken final investment decision on the SEAP gas project offshore Trinidad, a subsea tieback to existing infrastructure, and agreed to divest our Algerian assets to E&I. In convenience and mobility, we are progressing our strategy in the EV charging and convenience transition growth engines. In North America, we are advancing our fleet strategy, announcing plans to collaborate with Hertz to install a network of EV charging solutions for Hertz and its customers powered by BP Pulse. Hertz is investing to create the largest electric rental fleet in North America, and we look forward to working with them. We have expanded our partnership with leading retailer Rewe in Germany to install fast, reliable, convenient charging at their sites. And in China, we signed a strategic collaboration agreement with Avatar Technology to accelerate the development of an ultra-fast charging network in China. Finally, we have continued to advance our strategy to create integrated low-carbon energy hubs. In Australia, we have closed the deal to take a 40.5% stake in Asian Renewables Energy Hub, and our two BP-led projects in the UK, H2 Teesside and Net Zero Teesside Power, were shortlisted in Phase 2 of the UK government's cluster sequencing process for support of CCUS. To summarize, today's results show that BP is performing while transforming. We are strengthening the company. We are delivering on our disciplined financial frame, underpinning our commitment to shareholder distributions. We have real momentum in our transformation to an integrated energy company, and we remain focused on delivering long-term value for our shareholders. Thank you for your time. Now let's turn to your questions.

If audio participants would like to ask a question, they may do so by pressing star 1. To cancel your question, please press star 2. If you are listening on the web, please submit your question using the web question facility.