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.

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OK, thank you again, everybody, for listening. We're going to take questions now. Usual reminder from me, please, two questions maximum per person, just so we get everybody a chance to ask their questions. And I think we'll turn to the US for the first question and to Paul Cheng at Scotiabank. Paul, over to you.

Thank you. Good morning, guys. Mary, can you tell us what is your estimate for the EU win-for-profit tax, win-for-profit tax, and also the UK win-for-profit tax for this year? Granted, the EU win-for-profit tax probably don't have all the details. And the second question is that the nature of the MedDoc 2 commission issue, can you elaborate on that? Thank you.

Great morning, Paul. Bright and early in the States this morning. Thanks for the questions. Let's start off maybe just stepping back on taxes for one minute before I answer your questions. You know, we understand it's a very difficult time for society right now, and we understand why people focus on our global profits. And we understand the challenges that governments face as they move through this very difficult time. As a corporation, we're really focused on two things. First, investing into the energy system of today and starting the transition of the new energy system. And, of course, we pay our taxes, as you asked about. So on to the specifics of the taxes. You'll see in the press that we announced the UK windfall profits tax today. We announced for 2022 what we're seeing. To remind you, the tax rate in the UK is 65% in the North Sea. We will be paying $2.5 billion this year, including $800 million on the... on the 20% uplift that was enacted a while back. So that's two and a half billion, and the 800 is only on seven months of application so far. In the EU, I'm afraid I can't give you an estimate. It's just not certain enough yet. I do think I'll say that our profits in the North Sea are about 15%, or sorry, our profits in the UK are about 15% of global profits, and our profits in the EU are only 5%. So that will give you a sense of magnitude. So I hope that helps on the tax questions. And then on Mad Dog Phase 2, just commissioning issues. We talked about issues with the riser last time around. We're still working our way through that. And we'll update you in February as to when we expect to see start up next year. Thanks, Paul.

Thanks, Paul. We'll take the next question from Oz Clint at Bernstein. Oz, good morning.

Oh, thank you very much, both of you. Thank you. Murray, I saw the White House had a statement last couple of weeks ago on the clean American manufacturing that called out light source BP and all the gigawatts they're doing and all the investment levels and local content. I'm just curious if you think that that might help in any way as we wade into a potential U.S. windfall tax discussion. And ultimately, could you just let us know how light source BP is performing in terms of installations, cost control, and really getting to that double-digit return territory, please? That's the first one. Secondly, just on the working capital release $7 billion, it seems to reverse over what looks to me like quite an extended period of time into 2024. Is that normal or are you selling LNG further across the strip and maybe a part linked? a lot of moving pieces, but if a potential gas price cap here in Europe, does that have any unintended consequences for this positioning, please? Thank you.

Yep, great. Thanks, Oz. Starting on LightSource BP, the entity up and humming, 5.4 gigawatts developed. They've got a pipeline of 23 gigawatts. They've hired 600 people now. I think they're operating in greater than 14 countries now. If you take a look at Companies House, you can see the financial reports for 2021. That's a bit of a lag, obviously, but you can see that's now published. where revenue is up 88% and EBITDA is up 228% year-on-year. So performance is pretty solid, Oz, if I'm honest. Returns remain in line with our external guidance as well. As inflation hits the solar side, we are seeing PPA uplift. I think the last time I looked, we're seeing 10% uplift on solar PPAs. So we remain very happy with LightSource BP, and just congratulations go out to Nick Boyle and the team for the fantastic work that they're doing. On the working capital release, we're just trying to provide you guys with some guidance about how the working capital will unwind. Obviously, we've had a big build this quarter. It's principally related to the derivative positions that we have on the hedge exchange. The way to think about it is we have a 14 million ton per annum portfolio right now, and it's growing pretty significantly over the next few years. You'll remember our tagline of 25 by 25, I'm sure, Oz. At my age, it's helpful to have those kind of taglines that I can remember easily. 30 by 30 was brilliant as well. So we've got 14.4 MTPA now that we're trading. We've got, when Freeport comes back online, that's another 4.4 MTPA. Coral's got 3.4 MTPA. Venture, 2 MTPA. Tortue, 2.4 MTPA. So we can touch and feel that wave of LNG that's now coming. And obviously, we risk manage these things as they get closer and closer. And so with that very large build out, we're pretty clear that the working capital flow is going to follow the ramp up inside these sectors. inside these LNG contracts. And we've carefully managed the position both on the OTC and the derivatives to ensure that we can lock in that profit from the last quarter. And that's why we're disclosing what we're disclosing. Now, I'll just give one last caveat. Craig would caution me. Working capital is incredibly volatile, and it moves all over the place given the scale of our business. But we were just trying to give you a sense of what might happen with the LNG book itself when we gave that guidance. I hope that helps us.

It does. Thank you. All right. Thanks, Oz. We'll take the next question from Biraj Bokhtari at RBC. Biraj?

Hi there. Thanks for taking my questions. I have one on the distribution framework. And when you put out this framework, you probably didn't envisage the kind of environments we're seeing this year. And you've clearly benefited very consistently across oil and gas trading. But you do have some of the limitations on the buybacks. You can only buy 10% of your equity each year, and there's obviously the market abuse limits on a daily basis. So if I think about your underlying cash flow, excluding the working capital build, and I was thinking about how the business is performing, then it would suggest a buyback number which is actually much larger than you're actually able to execute. So the question is, as you're looking forward, how are you thinking about the distribution frameworks particularly as the balance sheet will continue to improve quite rapidly. Some of your peers have talked about special dividends and so on. So just to get your thoughts on that. And then the second question is on the trading beat. It's quite hard to ascertain, you know, the various elements of what goes into your trading business. But is there any way you can break down sort of how much or contribution of domestic U.S. gas trading power and then LNG? Any incremental color on that would be very helpful. Thank you. Great.

Thanks, Baraj. So on distribution framework, first inside the stock exchange announcement, we saw that there were concerns about our capacity to do our 2022 program. So on the second page of the SCA, We did talk about how much of our program we've completed so far. So 677 million shares completed through October 31st with an annual capacity at 1.95 billion shares. So we don't have any concerns with the upcoming three quarters. Then as we think about our frame moving forward, I suppose I'll retreat back to our five priorities. You know what they are, 1, 2, 3, 4, 5. The fifth priority is obviously what we do with surplus cash flow, and we've said 60% of surplus cash flow will be through share buybacks. When we determine that, we look not only at the accumulated surplus, but we also look forward at what we think the surplus will be in the future. I think as you look forward at our operations barrage, we're moving into a very strong time period. We should have Mad Dog Phase 2, Tangu Trade 3, Mauritania-Senegal coming online. At the same time that we have all these LNG build-outs that I've just talked about where we've got off-take contracts but we don't deploy the capital. So Freeport, Coral Venture, Torchoo, et cetera. That suggests there's some fairly strong earnings momentum, all else being equal, over the next few years. And, you know, far be it for me to suggest the share price would go up, but I would imagine the share price would go up as we start to see that type of earnings growth over the next two or three years. So I think for our part, we're fine with buyback as it is now. We don't see any risks with it. We're looking forward to continued strong performance as we move forward over the next few years. And I think we'll be fine on buybacks. Now, last thing I'd point out is we have guided at $60 that we'll do $4 billion a year. And what we said is that the rules of thumb work well up to the $100 space that we've encountered so far. So I think that gives you a pretty decent idea of how we think about buybacks when you use our rules of thumb and you look at our guidance around $4 billion a year at $60. Hope that helps, Raj.

Thank you. I think, Baraj, you had a second question on trading. Baraj, could you remind me on your trading question?

Yeah, so just the sources of the trading, if we're thinking about domestic gas trading, power trading, and then LNG, any incremental color on the split or color would be helpful. Thank you.

I think it's a pretty ratable business in North America that they just gradually grow over time. I think it probably makes up 50% of an average quarter would be a way to think about it. And then when you see exceptional swings, it's generally inside the LNG portfolio. Baraj, that's probably about all I can give you.

I think, Baraj, another way to think about it is we obviously had an average trading contribution in the second quarter. That was with Freeport offline for part of it, which is obviously well documented. As you look to the third quarter, we've obviously given guidance around volumes. As we look ahead, you can see realizations and we've described gas trading as exceptional. So I think to get a sense of that, you could probably go back and look at the segment, take a view on volumes, realizations and compare 2Q to 3Q to get a sense. Just as a way into it, as you try and sort of correlate our superlatives for choice of a better word.

Thanks, Baraj.

Yeah, understood. Thanks. Okay, thanks, Baraj. We'll take the next question from Alistair Syme.

Thanks, Craig. Murray, just for sake of clarity, when you talk about average and exceptional, you've got these words you've used over the years for gas and oil trading. Are these referenced versus their own history or against each other? So in other words, does an exceptional trading profit in gas have the same threshold as an exceptional trading profit in oil? And then my follow-up question is just on the gas business itself. I'm just interested if you're getting any sort of feedback from customers about the affordability of gas and any general comments on that would be useful. Thank you.

Yep. I think the easy answer on the superlatives is that they're equal. So we don't do something different for gas versus oil, so they're equal. Alistair has answered that question. As far as customers for natural gas, it just depends which basin you're in around the world. Of course, in the U.S., Henry Hub's running somewhere around $5 or $6 right now. I don't think there are any concerns with affordability there. I think inside Europe what we've seen with the high prices is quite a bit of demand destruction. We've seen, I think, 20% off on industrial demand in Europe through the last season. And we're now seeing, as we enter October, similar levels of consumers turning off natural gas as well and conserving. So I think it just depends which basin you're in right now as to how do you relate to these things. And generally, the price mechanism is working to drive the behaviors that would balance out supply and demand.

Murray, can I ask, on the gas contract, does that mean that customers are reluctant to turn out for these sort of prices?

Again, it's a basin-by-basin question. If you look to the Far East, customers are starting to want to term out at these levels. They're seeing a desire to lock in long-wavelength contracts. You'll have seen our COGAS deal announced earlier in the year, so that's a specific example of that. So far, Europe less so, not willing to term out, as you say.

Thank you. Yep. Thanks, Al. We'll take the next question from Michele Della Vigna at Goldman Sachs. Michele.

Thank you. Thank you, Craig and Murray. And congratulations on the strong results, especially in gas and low carbon. I had two questions here. The first one is on your fair value accounting and the operating working capital move. You've laid out very clearly the matching of derivatives versus physical, which suggests a release rate. in the second half of 23 and 24. But in the last month, since the end of the quarter, the forward for TTF for the next 12 months has fallen about 30%. So I was wondering if on top of that physical release of the inventories, if there could also be a nearer term release of operating working capital simply driven by shorter term price effect. And then my second question is on your comment around higher turnaround activity and refining, whether that would include whiting in the fourth quarter. Thank you.

Yep. Craig, do you want to comment on the tar first and then I'll tackle the FAA working cap question?

Yeah, we we have commented as you've picked up McKeeley. We don't typically talk specifically into refining portfolio region by region factors for competitive reasons. So I can comment specifically on that. But other than to note, turnarounds are elevated into the fourth quarter. Great. Thanks, Craig.

On fair value and working cap are two very different things, Michele, as you well know. On fair value accounting effects, that will move around with what we call the liquid window, a couple of years of contracted gas. And we mark to market the contracts at the end of each quarter. So if I think if you were to close today, obviously, there would be a fair value reversal there. Probably in line with what we saw in 3Q, but that is very separate from working capital, which is all about how we manage the trading book and how we manage our working capital position with the derivatives we have. And that's why it's a different sort of guidance now where we're saying that we've locked it in and we expect these profits, we expect this working capital to unwind. In 23 and 24. Now, we also have a big oil position, as you know, we have power positions, etc. So that can create volatility in the fourth quarter and working capital. And all I'd say is it's very, very difficult to predict right now what will be happening with pricing in 4Q. There's just a lot moving around, Michele. So I'd hesitate to provide any guidance.

Thanks, Michele. We'll take the next questions from Lydia at Barclays. Lydia, good morning.

Thanks, Craig, and good morning, everybody. Two questions, if I could. The first one's come back to the cash returns, Mary, and when I'm thinking about how you allocate cash flow, is there an element where there's a lot of opportunities like Archaea out there that are going to go, actually, we want to do those, and that then translates through to sort of less surface cash flow and therefore lower buybacks? Is that how we think about it? Because it seems so... It just sort of seems like we've done the Archaea deal for $4 billion, which is a really interesting deal, but does that translate through to the lower buyback relative to last quarter? And the second one, I apologize, it's a little bit difficult, and thank you for the comments earlier around safety, but can I just check, when you're looking at, so there was the fire at Whiting and the Toledo tragedy, is there anything, when you're looking at when the operations were transferred over to be run alongside the upstream, Is there anything you're looking at that's going, actually, maybe something's not working? Thank you.

Great. Thanks, Lydia. I think on the second comment, safety absolutely remains our number one priority. No doubt about that, as you know. It was a tragic accident in Toledo with two brothers being killed. Our thoughts go out to the families involved. We're cooperating with the investigations now, and we'll learn everything we possibly can on that. moving forward. I think, remember, during reInvent, we put all high-hazard operations under Gordon Burrell. So we centralized high-hazard operations under Gordon Burrell. And we remain confident that as we move forward, we'll learn these lessons and continue to build a stronger and safer BP. So I think that's what I'd say on that question. On cash returns, no change to financial frame is my answer, Lydia. Five priorities, and priorities number three and four are on capital. And what we've said is that midterm guidance of 14 to 16 is unchanged. It includes both organic and inorganic capital. You can see that our run rate this year is about 12 ish billion on organic. So that gave us the capacity to do some inorganics as we move into 2023. Obviously, we'll have a bit more organic capital if Archaea completes. That'll bump up the organic capital a bit, but we'll continue to have capacity inside that for both organic and inorganic. But there is no change to the financial frame. We still have the capacity to grow the dividend 4% per year at $60 as priority one. And priority five, we still have the capacity to do $4 billion of buybacks a year at $60. And you can use our rules of thumb to figure out what it might look like at higher levels. So I think I give the boring answer, Lydia, of no change to guidance. Thank you.

Brilliant. Thank you very much.

You're welcome. Thanks, Lydia. We'll take the next question from Peter Lowe at Redburn. Peter.

Hi. Yeah. Thank you. The first question was, can you comment on inflation, where you're seeing it across your portfolio and what you're doing to mitigate it, where it is coming through? And then the second was a very clarification. So I think you just said that the $14 to $16 billion CapEx guidance in 2023 to 2025 would include any future potential inorganic spend. Thanks.

Yep. Peter, yeah, that second one is super easy. Yes. Our guidance, our five financial priorities are unchanged. And our midterm capital guidance of 14 to 16 includes organics and inorganics. So no change there. Inflation, I can't give you much of an update since last quarter. Nothing's really changed from a capital perspective. The place that we've seen inflation in 2022 is lower 48, where net net we're seeing 10 percent inflation rates once we once we negotiate through the contracts. That's really the only place with inflation inside the capex space in the historic upstream. I think as you look across the downstream business, energy prices are quite challenging. Obviously, it shows up in our top line and our bottom line. But we probably had somewhere between a billion and a billion and a half of additional fuel costs and energy costs inside our downstream business over, give or take, the past year. And we've started to see some pretty material numbers inside logistics and wages, probably a couple hundred million dollars that are impacting industry. excuse me, cash costs as well. Inside, low carbon, no real change. Solar, we were seeing a 30% increase in solar costs, solar panel costs, but that was being compensated for on returns with 10% uplift in the PPA. And offshore wind, no change to the last update we gave you where net-net, we were seeing a 5% increase in the overall cost. But again, the PPAs would uplift, offset that. As we look out to 2023, we're watching the indices carefully. And obviously, given recessionary pressures in the world, we're starting to see many of the metal indices drop a significant amount. So we'll have to see how that unfolds and what supply chain strategy we have as we move into 2023.

Thanks, Peter. Thank you. Thank you, Peter. We'll take the next question from Irene Hamona at Societe Generale. Irene.

Yes, thank you. Good morning and congratulations on the numbers. Marie, my first question, obviously interest rates are rising, so one expects the NPV of your decommissioning and other liabilities to drop. Do you anticipate or do you hope that your credit rating may improve in the next, I don't know, year or so? And if it did, what would be the implications, if any, for the financial frame In other words, how does it change perhaps the order of the financial priorities? And then the second question, going back to the archaea acquisition of renewable natural gas, Californian LCFS credit values have more or less halved over the past year. Obviously, R&G economics do depend on these credits. I'm just curious how you approach this question. What would you assume happens to those credit values long-term in your evaluation of that acquisition? Thank you.

Yep, great. Thanks. On Arkea, for those of you that don't know, Arkea is a biogas company out in the United States. We announced the acquisition of it a month or two ago now. A month, yeah. How time flies. It's a fantastic opportunity for us. It's a great team. They've got a fantastic hopper of 80 development, along with the 50 facilities that are already operating, with the capacity to grow production from 6 MBD to 30 MBD. And as you point out, Irene, the assets are worth an awful lot because of the RNG credit system inside the United States, which has been durable through multiple generations. governments all the way back to 2007. I think when we look back at this, we just use average pricing as we think about how to price these things. Sometimes prices will go up, sometimes prices will go down. Much like all energy complex systems, things are very, very volatile. And we'll just position ourselves to make sure that we can price effectively against history as we move through over time. So we priced it based on history. You know, if you look through COVID, you can almost go and you plot yourself some charts. You can see where it's been priced probably for the past five, seven years. So I think that gives you a good indication of where we priced it. We're very excited about it. We see a huge opportunity inside this. And we remain very comfortable that we'll hit the double-digit returns that we talked to the market about. And I think we'll go well beyond that. I think there are going to be interesting opportunities in hydrogen, CCUS with it. Synfuels will start to come into play as well, given the new IRA. And I think as that organization gets closer to BP, we'll look at municipal solid waste together. We're just going to have a fantastic option set to play here that will create a lot of value for our shareholders and help with the transition. So I'm very, very comfortable with that transaction. Interest rates do appear to be rising. We did have a write-back of some of our – this is your first question. Interest rates are rising. We did have a decrease in our decommissioning liability because of that, and we'll see what happens with interest rates in 4Q and beyond to understand what's happening. That will strengthen, obviously, the balance sheet. It'll be less liabilities. As far as what the ratings agencies will do – I think I'll just smile. We're looking forward to continuing to maintain strong investment grade credit ratings. Our metrics are very, very solid, but I'm not sure I'm the right person to forecast what will happen with our rating. You'd have to ask S&P or Moody's or Fitch, I think, with a smile is what I'd say. As far as what we're going to do moving forward. The board will debate, as they always do at fourth quarter results, what's the right thing to do. And we'll lay out the 2023 priorities as well, including what we do with surplus and what we do with debt, as you say. We have made tremendous progress on debt, 10 quarters in a row, down to $22 billion. We're very, very pleased with that. And we just need to continue following that financial frame. I hope that helps, Irene.

Thanks a lot, Mike. Thank you.

Great, thank you, Irene. We'll take the next question from Lucas Herman at Exxon. Lucas.

Yeah, thanks very much, Craig. Excuse me, fog in the throat and morning, Murray. A couple, if I might. Firstly, just going back to the share buyback and trying to understand the 677 bought to date, the question arises simply that if I look at the shares you've bought back since your AGM, the number's materially higher. So question one, you know, what am I missing? And the second question is on Azul and whether you could just walk us through the cash flow. or line items that have been impacted by Azul this quarter. That's it, Murray. Thanks very much. Great. Thanks, Lucas.

Nice to hear your voice. Craig, do you want to answer the share buyback question, please, and I'll tackle Azul?

Thanks, Lucas. Yeah, on the first one, just to repeat what Murray says and what we say in the SEA firstly, the authority at the 2022 AGM enables us to repurchase 1.95 billion shares annually. And as Murray said, at the 31st of October, we'd repurchased six hundred and seventy seven million shares. The authority actually runs AGM to AGM and the AGM in 2021. The resolution was Resolution 11. gives the company the authority to repurchase shares after the following AGM. And basically, it states if the company has agreed before that date to purchase ordinary shares, whether these purchases will or may be executed after the authority terminates. So in short, the only share buyback that relates to this current programme is the one that we announced in the second quarter. Anything prior to that was covered under the 2021 authority, which is probably the disconnect you're seeing, Lucas, in your calculation, hence the numbers that we've quoted in the SEA.

Thank you, Craig. And on Azul, I'm really pleased to complete that transaction. Obviously, Lucas, it's a fantastic growth business. It produces about 200 MBD now, growing to 250 MBD over the next five years. We'll look forward to getting after cost synergies. It operates at about 12 to 14 a barrel. We'll see what we can do there. We're investing about $2 billion a capex a year inside the entity. between E&I and ourselves, and we'll look for further opportunities to do more there. We have a quarterly distribution to shareholders. We're not interested in trapping cash, so we'll be sweeping the entity, making sure that it has what it needs. And overall, very pleased. From an accounting's perspective, I suspect you know what has happened. Obviously, we show this as a different type of entity now, so it doesn't show up in EBITDA, et cetera. And we get a one-line net income post-tax, and we get cash flow through the dividend as well. But I'm sure you knew that. The only other thing to mention between Ian and I and ourselves is they had a larger working capital in the transaction, so they've had a higher distribution than we have. um in the third quarter relative to our distribution you might see that in the proceeds and that's simply because they had a larger a larger amount of cash built up inside the entity than we had hope that helps lucas and just yeah just just if i can just spend one moment marito just to be clear i think i mean he and i indicated a short billion or so of capital in from uh

from Azul this quarter, the reason that will have been higher than or appears to have been higher than was the case of BP is in effect an element of that was the repayment of working capital. Is that a simple interpretation from a cash perspective? Correct, Lucas.

Yep.

Brilliant.

Thank you. Pleasure. Nice to chat, Lucas.

Thanks, Lucas. We'll take the next question from Christian Malik at JP Morgan. Christian.

Hey, thanks, Craig. Hey, Murray. A couple of questions I've never really answered, but just coming back to sort of trying to understand or just if you could provide perhaps a clearer frame around how the cash return framework is linked or correlates to trading results. And as far as your definition of exceptional versus normal, and sort of we're getting a couple of standard deviations now away from what you typically achieved. And just trying to make that link back into cash return framework or a frame that you can provide help. It just would be quite useful going forward. The second question refers to your oil volume outlook in 2023 and beyond. Is there any way, hypothetically, you could add volumes in your portfolio if you chose to break rank on your capex? I just want to understand the ability to add volumes in the context of your short cycle hopper set against decline rates and supply chain bottlenecks.

Thank you. Great. Thanks, Christian. We did have an exceptional quarter in the third quarter in gas trading. I think we provide you with enough transparency that you guys can figure out what it is without me stating the number. Remember, we had an average quarter in 2Q and an exceptional quarter in 1Q. So that's the level of earnings, and I'm pretty sure you guys can figure that out yourselves. As far as the how does that impact the financial frame, the answer is it doesn't really. It's just a contributor to cash flow, obviously, either an add or a subtract based on the working capital move. And that just goes into the surplus accumulated to date plus the outlook. And the board takes a balanced position. We look through what's the accumulated surplus to date. And we understand what 60% would be, which is effectively what we've announced in buybacks this quarter. And then we looked at the outlook. And, you know, earlier on Paul Chang's question, I went through how we're feeling about the outlook. We're pretty bullish right now on the outlook moving forward, which I think will impact shareholder returns as we move forward. On 2023 CapEx, maybe a few things to say. Obviously, we'll have some projects finishing off in the historic upstream. We're spending about $8 billion of capital in 2022 in the upstream. Some projects come off. We've got the accounting effects of Iraq and Angola as well, which then gives us room to spend more on 2023 CapEx in the upstream. We're looking at bringing two rigs into the Gulf of Mexico, a fixed and a workover rig. We're looking at bringing another two to three rigs into the lower 48 between the Hainesville and the Permian. We're looking at bringing another couple rigs into the North Sea. So we are looking around at the highest quality opportunities across the business. And as we work through our 2023 budgeting process, we'll come back and talk to you about what we're doing with capital in 2023 in February. I suppose the key challenge these days is supply chain challenges. And can you get rigs? Can you get crews? Can you get a frack fleet? Can you get sand? So it's really the supply chain that's choking activity right now. We won't ramp up if we don't have a secure supply chain at reasonable prices. So I hope that helps, Christian.

Yeah, just to come back on the first point, I'll just put it another way. I mean, that's 60%. Is that anchored on a normal trading environment? In other words, if you have an exceptional trading environment, that would then drive an exceptional dividend like a special. Just trying to understand what your through cycle may sort of anchor in terms of your cash return payment versus what is now two, three standard variations away in your trading, if that makes sense.

Christian, I don't think we can be clearer on our financial frame. Five priorities, 60% of surplus is the fifth priority. It doesn't matter what an individual business does inside the portfolio. We've just tried to be absolutely crystal clear with the market that our aim for 2022 is 60%. So, yes, some businesses do better. Yes, some businesses do worse. But overall, it just moves and it just gets added together into the overall outlook for the company. And 60% is our answer for 2022. Thanks for the questions, Christian.

Thank you. Thanks. We'll take the next question from Giacomo Romeo at Jefferies. Giacomo.

Yes, good morning. Thank you. First question is, I noticed you have Algeria in the column of your divestments portfolio high grading there. I just wanted to check on where do you think these assets sit in terms of your unit EBITDA asset distribution that you showed us back into the 4Q presentation. The other question I have relates to last year we have seen back to the buyback last year we have seen sort of the board taking a decision to smooth over sort of any short-term volatility in surplus cash and again you refer to these also at the time of the RK acquisition just wondering what kind of decision led to not to smooth over the effect of the large working capital outflow in setting the buyback for for this quarter, and what are the circumstances in which this will be instead considered as an exceptional and then therefore trying to average the effect over the following quarter?

Great. Thanks, Giacomo. On Algeria, yeah, it's a late-life asset for us. PSAs are expiring relatively soon. They're a fixed price, and so they're in the lower bucket margin that we talked about back with you. Oh, gosh, that would be about a year ago now, I think. So I think that answers that question. On FinFrame, how are we thinking about FinFrame and buybacks? I think I just need to go back to the boilerplate language, guys. We take a look at the accumulated surplus to date. We look at the outlook for the surplus. We look at the macro environment. And that's what helps the board determine it, the determination of the amount of buyback this quarter. Obviously, it's dead on 60%, I believe, for 2022. And, you know, that just basically follows the formula. As we look out to the fourth quarter, obviously, we hope that the Archaic transaction completes in the fourth quarter. And if that's to occur, the board will have to take a decision around how they deal with that. But that's a decision that will be made by the board in February, and I'm not going to prejudge what that is. But we do look backwards. We do look forwards. We've told you $4 billion a year at 60, and we've told you that the rules of thumb are a good guidance for how we think about this. So I just encourage you to go back to the $4 billion at 60 and the rules of thumb to help understand how we think about it. And I think we'll just leave that one there, Craig. Thank you.

Yeah. And I think one other thing I'd add is we've also told you that as it relates to working capital, that seven billion dollars is expected to release through the second half of 2023 and into 2024 when you consider the impact of that working capital. on forward-looking cash outlook, which, as Murray's explained, is something the board considers as well. So in terms of the working capital impacts as it relates to operating cash and how that feeds through to surplus cash, you've also got a sense now as you look ahead about how that working capital releases alongside the guidance, as Murray says, on the £4 billion at 60 and the rules of thumb above that. Okay, great. We'll take the next question from Martin Ratz from Morgan Stanley.

Yeah, hi. Good morning. Look, frankly, a lot has already been covered, but I did want to ask two more. So $2.5 billion of incremental buybacks in the fourth quarter, that is sort of 2.5% of the share count. So if that sort of lasts for a year, you have another 10%. And I was wondering, building on the discussion we had last quarter, whether it would be sort of fair to say that, well, every $2.5 billion of buybacks you do per quarter, every 2.5%, we should now start to anticipate that the buyback for the fourth quarter will add 2.5 percentage points to DPS growth sort of at the next announcement. It seems a conclusion that will be an extension of what we discussed in 2Q, but I sort of wanted to sort of put it to you to see if you'd say we're thinking along the right lines here, connecting today's buyback to basically tomorrow's dividend growth. And the second question I wanted to ask you is whether you had any update thoughts on the impact of the EU embargo on Russian oil. I mean, it's been incredibly difficult to navigate the issue, but you're arguably much closer to it than any of us. So I was wondering how you would expect this to impact while both the company and the market.

Yep, great. Thanks, Martin. The EU embargo on oil, I guess maybe a few things to state. Just some facts to state. Oil stocks are relatively low relative to the five-year history. Surplus capacity held by OPEC Plus is relatively low as well compared to history, so I think those are two facts. How the EU sanctions will be implemented implemented in December and February, something that we're still watching closely, as well as the price gap. I think it's almost impossible to predict how these things will unfold. You've just got a lot of moving parts on. Chinese demand, you've got a lot of moving parts on how the sanctions will impact. You've got a lot of moving parts on demand destruction. And so I find it very, very difficult to figure out where oil price and products prices are moving over the coming quarters, given all that level of uncertainty. What I do know is that stocks are at low levels. and surplus capacities at low levels. So I think we conclude that an elevated and volatile, Martin. I hope that helps. I'm not trying to dodge, but I think it's as difficult a time period to understand how things will unfold as I've seen. As far as buybacks leading to dividends, your question on that. As we looked back at 2Q, we'd obviously retired an awful lot of stock. We'd retired an awful lot of debt and the interest load associated with it. and the operations themselves were doing quite well. And all of those gave the board the confidence to increase the dividend, with the key focal point being our $40, 11 RMM, and 3 Henry Hub balance point. We want to make sure that any dividend increase is resilient through the transition, and that's why we slavishly look to balance point as we think about these things. So I think it's driven as much by balance point as anything else. Looking forward then, how can you think about this? We will anchor on balance point, 40, 11, and 3. Of course, we will look at buybacks and what that's doing to the dividend load. We'll, of course, look at interest, and we'll, of course, look at operational performance. And hopefully you hear the cheery note in my voice about we think that we've got a strong wave of performance coming now. But that's how we'll look at it moving forward. The only firm guidance I can give you is we have the capacity to increase the dividend by 4% per annum, assuming $60 oil. Hope that helps, Martin. Okay.

Thanks, Martin. We'll take the next question from Chris Coupland at Bank of America. Chris.

Yeah, thank you very much. Murray, just a quick one on Alaska. You've collected some more proceeds this quarter. How many have you now collected when you compare it to the headline price that you were disclosed at the time of the disposal? Just as a sort of reminder. And then lastly, on gas trading, I'm you know, you're being very kind in a way by telling us it is three billion. You should get there yourself in terms of the gas trading contribution in Q3. Who do you fear? Why not? Why not make that more transparent? Is it the political environment or is it your gas traders fear the competition across the street thinking they might not work out that it's about three billion?

Chris, I'm not going to comment on the number. I think transparency on trading is a tricky thing. I think generally we have observed others that do this. The entire conversation with the analyst community comes focused on trading, and I'm not sure that's very productive when you've got a broad-based business that's trying to transition. So it's about investor focus and focusing on the broad conversation, I think, is what covers my mind. And then on Alaska, I think three-ish is about the number so far relative to the original announcement, Chris, give or take.

All right. Thank you. Pleasure. Okay, we'll take the next question from Amy Wong at Credit Suisse. Amy.

Hi, good morning, guys. I've got a couple of questions, both related to your customers and products line. It's a bit more strategic, actually. So thinking about looking at your metrics this quarter on convenience sites and cash flow, they've all seemed to kind of go backwards. So could you just update us on how you feel about your progress and your strategy on your customers and mobility theme? And then the second question there is when you launched your new reporting, you said you'd come back to the market on metrics on how to measure your EV charging business. You've arguably made some good progress there on some acquisitions. So when should we expect to see some standalone metrics and reporting related to that line of business? Thank you.

Great. Thanks, Amy. Yep, Castrol is in a tough sector right now. They have all the hen widens that we've talked about before, base oil prices, additive prices, Chinese lockdowns, et cetera, when they're the largest in China. They are making strategic progress. We have a new leader in. to take that business forward. And she's coming up with her 90-day plan that she'll present to Bernard and I in December. And we have great hope for it. And I think the thing that gives me great hope with it is we can benchmark against the externals. And if we look against the competition published last week, Castrol is actually doing relatively well in a competitive sense. So we just need base oils to flatten out. We need the additives program to be fixed globally, not just for us. And then hopefully China will gradually unlock, and then we should see our great band take effect there. So an awful lot of hope for the future for Castrol, and relative competitive performance is very strong. We benchmark that every quarter. As far as EVs, we'll start to provide more as we move forward. Progress in EVs is fantastic. We're up to 6% utilization across the U.S. We're already up to 3% utilization in the Netherlands and Germany, only having embarked there over the past 12 to 18 months. China's at 13% utilization. Richard, who runs the business on behalf of Emma, is installing 200 fast charge points a week. That's a heck of a number, isn't it? 200 globally a week. and we're seeing record after record in energy sales. So fantastic progress. It's a fabulous business, and we'll provide more information for you. I don't know if it'll be in February or it'll be a separate session next year. That's something that Craig and I still need to debate, but we'll definitely be showing you more about convenience and electrification, one of our big, big growth engines moving forward. We're very excited about it. Thank you.

Thanks, Amy. We'll take the penultimate question from Jason Gableman at Cowan.

Hey, good afternoon. I just wanted to ask about the LNG growth that you've mentioned within your portfolio. How does that change your kind of exposure to prices and then just spot versus term on offtake. Maybe you could discuss how that evolves over the next year with these new volumes coming online. And then my second question on the Toledo incident, can you discuss maybe expectation for how long the plant will be down, costs to repair and if there's any impact to the asset divestment as a result. Thanks.

Great. Thanks, Jason. On Toledo, I can't really guide you on anything right now. The site is shut down, as we talked about. The investigations continue, and we need to complete the investigations, learn the lessons, and then we'll decide how we move forward. But I can't really give you any guidance until we're through that process. My apologies. On LNG growth and... How do we think about this and price exposure? If you think about our business, we have 14 million tons per annum of equity and merchant cargoes that we bought over time. Each and every quarter, the teams optimize the value of these things through either OTC or derivative positions and try to improve upon the earnings they see. As new programs come in, so as new projects come in, that long list that I talked with you about, we're generally purchasing cargos that were done in the 2015, 16, 17 time window. And you'll know the prices in those time windows. Some of the sales contracts will be hedged on that. Some won't be. You want to make sure that you don't get ahead of yourself too much. and do too much derivative hedging when there's doubt on what the producibility of the assets will be in the early phases. So it's a mix. And then as you get more certainty, you'll start to lock that stuff in as you get more certainty on production. So I think that's a little bit about how we think about it. And I think the part that's maybe a touch different than the rest of the competition is that We have more flexibility to optimize, I think, than some of the competition have. So we're always optimizing inside the quarter, across the basins, based on the clauses we have in our contracts. So I think that that's what makes BP maybe a little bit differential. Maybe I'm misleading myself on that, Jason. So I hope that that's probably more than I've ever talked about. I think I'll stop there before my gas traders get upset. Thanks, Jason.

Thanks. Okay, and the last question from one Jason to another. Jason Kenny in Edinburgh, Santander.

Hey, thanks, Greg. Thanks for the opportunity. Murray, when do you think the first significant capex into the Asia Renewable Energy Hub is possible? And I'm assuming first material EBITDA from that, you know, beyond five years from now, but maybe just some kind of timescale around that. your commitment across in Australia there. Secondly, on Libya gas, some news flow this week that BP with E&I to begin getting gas from a field in the Med that's potentially larger than Zor, apparently. This is according to the National Oil Company, NOC. Any insights on scale or timeframe for Libya gas commitment? Great. Anything you've got there? Thanks.

Yeah, on Libya gas, it's an exploration program. We've recently completed a transaction with ENI to equalize in the offshore in Libya. And in the years ahead, we'll start exploring. That's probably what I'd say on Libya. On ARA, there are two ways to think about ARA. First of all, it's a domestic play. So can we bring green hydrogen or green power to the nearby mining and other industries? That's probably something that happens middle 25, 26, 27 would be my guess when that starts happening. And then that will form the base project that allows you to build a big export hub. hopefully by the end of the decade. That would be brilliant if we could achieve that. The complexity on the domestic play is relatively low. The complexity on the international play is quite high. We'll have to lock in customers. We'll have to lock in stakeholder rights. We'd have to lock in some pretty serious capacity for electrolyzers. and, of course, secure debt financing, et cetera, for what would be a very, very big investment. So we're delighted that we've completed it. We'll get going on the domestic side now, and then hopefully over time we'll work with some of our international customers to start looking at growing that to export as well. Hope that helps, Jason, and thank you for your question.

Yeah, understood. Thanks.

OK, thank you, Jason. And thanks to everybody for all the questions. That's the end of the Q&A. So maybe just let me hand over to Murray for a couple of closing questions. Thank you.

Thanks, Craig. And thanks to everyone for listening. I think it's been another decent quarter for delivery for BP. And that's really what we remain focused on. We're delivering on our operational and strategic plan and financial frame. We're delivering against that financial frame. and we're delivering for shareholders through growing our distributions. We look forward to updating you further on this in fourth quarter results, where we think we'll also provide an update on our strategy progress in February. So thanks again for listening and your questions today, and look forward to chatting with you in the future. Bye-bye.