BP s response to lower oil prices

Transcription

1 BP s response to lower oil prices bp.com/investors

2 The industry is going into a very challenging phase as we reset to a lower price environment but our business model is a very focused one and we are in action to respond. Bob Dudley Group Chief Executive February 2015 For more information bp.com/investors Please be aware of the cautionary statement on the back page of this document. For further information, please see the full transcript of BP s investor presentation from the 3rd February 2015 and 28th April 2015.

3 Resetting for a period of lower oil prices Oil price volatility is inherent in our industry. At BP, we are actively responding to the current environment. Brent Crude Oil (USD/barrel) Source: Thomson Reuters Datastream, 9 September After a sustained period of oil prices over $100 per barrel, the price of Brent crude oil has fallen sharply since the third quarter of BP is in action to rebase our business for a lower price environment. We have a focused portfolio of quality assets, a clear set of near term priorities and we are in action to reset our capital and cost base. BP s response to lower oil prices 1

4 A focused portfolio Today s environment is a good reminder of the logic of being an integrated business with a focused portfolio of high quality assets. Group divestments since 2010 (1) 44% 61% 50% 73% A focused portfolio BP has divested over $45 billion of assets since 2010 with a core purpose of creating a stronger, simpler and more focused business. The choices we have made around our portfolio have provided us with a more focused footprint, a less complex business and a stronger overall set of assets which play to our strengths. All of this leaves BP positioned to focus resources for the greater discipline demanded by lower oil prices. Operated installations Operated wells = Retained = Divested (1) At end 2014 Operated pipelines Refining capacity In the Upstream, our portfolio reflects a balance of investment in giant fields, deepwater and gas value chains (which tend to produce smoother longer life cash delivery) with strong incumbent positions in our four key geographic regions of Angola, the Gulf of Mexico, Azerbaijan and the North Sea. The portfolio is sufficiently diverse to balance exposure to fiscal and geo-political risk but concentrated enough to allow us to focus on our strengths. Contribution to 2014 Upstream operating cash flow Gas value chains Other Our repositioned Downstream business, with our newly upgraded Whiting refinery, is not only an important cash generator for the group but still has potential to grow returns as we focus this business on growth markets and efficiency. Deepwater oil Giant oil fields Azerbaijan Angola North Sea Gulf of Mexico 2 BP s response to lower oil prices

5 Clear near term priorities Looking ahead, our focus throughout will be on growing value for shareholders. Delivery Consolidating the underlying momentum in our business through continued safe, reliable and efficient execution Clear near term priorities Right now, the industry is in a reset phase a period of intense change, the outcomes of which will be defined by oil and gas prices, the pace of deflation, the realisation of efficiencies across the sector and possible inorganic activity. At BP we will be focusing on a clear set of priorities. Divestments Completing the $10 billion programme of divestments Delivery Consolidating the underlying momentum in our businesses through continued safe, reliable and efficient execution. Discipline Resetting the capital budget and right-sizing the cost base to match our footprint Dividend Firmly established as the first priority within our financial framework Divestments Completing our current $10 billion divestment programme. Discipline has two parts: Firstly, resetting the capital budget to ensure every dollar of capital spend delivers value for shareholders, paring back activity as necessary and taking advantage of deflation; and Secondly, right-sizing the cost base to match our footprint and withstand a sustained period of lower oil prices. Dividend And most importantly, the dividend, which makes us keenly aware of the need to rebalance our sources and uses of cash for a lower oil price environment. BP s response to lower oil prices 3

6 Financial framework We are actively pursuing a disciplined reset of our capital and cost base. Capital Expenditure (1) ($ billion) (1) 2015 estimated Capital reset We drive capital discipline by constraining the total level of capital spend in any one year, taking account of the opportunities available and the flexibility of our balance sheet. This is consistent with our ongoing focus on both value over volume and active portfolio management. In 2015, we have reset our capital budget to below $20 billion, well below our previous guidance. In the Upstream the reduction is expected to come from paring back exploration and access spend, shelving a number of marginal projects, prioritising activity in our base operations and the reduced spending we anticipate in projects operated by others. This does not rely on supply chain deflation in the near term. Depending on where prices settle we would expect deflation to become evident in our capital frame as we move into 2016 and beyond. These interventions in the Upstream will be further supported by not advancing selected projects in the Downstream and our other businesses. Looking further out, our overall capital budget will be the subject of ongoing review as we re-work our medium-term plans. Balance sheet At the end of the second quarter of 2015 our balance sheet reflected gearing of 18.8% and we are working steadily towards divesting a further $10 billion of assets. This gives us significant flexibility as we continue to rebalance our financial framework to the current environment. Restoring balanced cash flows Our first priority within the financial framework is the dividend. Our objective over time is to reflect a position where underlying operating cash flow covers capital expenditure and dividends. We will be actively working to re-establish this balance in our financial framework over the medium term. We are very clear on the actions we need to take to complete our current $10 billion divestment programme, reset our capital expenditure to below $20 billion for 2015 and resize our cost base. These interventions are designed to support our dividend in 2015 in the current price environment, without compromising investment for the future. Over the course of 2015 we expect to start to see some sector supply chain deflation as we also reset our own controllable costs to be sustainable to a lower price environment. 4 BP s response to lower oil prices

7 Group cash costs (1) Simplification and efficiency Upstream Active supply chain management Making choices in our portfolio (1) Cash costs are the principal operating and overhead costs that management considers to be most directly under their control; see bp.com for further information Right-sizing the cost base BP invested significantly in certain areas of functional capability following the Deepwater Horizon incident, which was also a period of strong inflation. At the same time we started divesting non-core assets. This triggered a need to streamline our supporting functions and structures so they are the right size to support our new portfolio, without sacrificing safety and risk management in any way. BP started on this journey some time ago and the results of these efforts are now becoming evident in our total cash cost base. In 2014 we saw a reduction in total group cash costs of over $1 billion relative to We expect ongoing activity to deliver further efficiencies in 2015 and to be sustainable over the long term. Given the uncertainty of the outlook, we are now intensifying our efforts and actively seeking to take advantage of deflation, looking closely at all forms of activity across the group. Aligning business support costs with size of operations Continued improvement in activity planning and execution Downstream ~$1.6bn of Downstream efficiency savings by 2018 vs Corporate Sixty corporate simplification initiatives underway BP s response to lower oil prices 5

8 Forward-looking statements - cautionary statement This document contains forward-looking statements that is, statements related to future, not past events with respect to the financial condition, results of operations and business of BP and certain of the expectations, intentions, plans and objectives of BP with respect to these items, in particular statements regarding future global energy trends; BP s plans to pare back activity, re-phase spend and take advantage of expected deflation and rework the capital budget; expectations regarding the level of 2015 capital expenditure; plans regarding completion of the divestment of $10 billion in 2015; expectations regarding BP s future competitive position and the future industry business environment; expectations and plans regarding the right-sizing of group s cost base and the benefits accruing therefrom and the delivery of efficiencies in 2015; BP s plans and expectations regarding the current industry reset phase through 2015 and the medium term, including reducing spending and prioritising activities in the Upstream and Downstream businesses; expectations regarding future growth in returns from Whiting; expectations and plans regarding BP s continued focus on capital expenditure and cost discipline; and expectations regarding dividend payments in 2015 and surplus cash biased to future distributions. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may occur in the future and are outside the control of BP. Actual results may differ from those expressed in such statements, depending on a variety of factors including changes in public expectations and other changes to business conditions; the timing, quantum and nature of divestments; the receipt of relevant third-party and/or regulatory approvals; future levels of industry product supply; demand and pricing; OPEC quota restrictions; PSA effects; operational problems; regulatory or legal actions; economic and financial conditions generally or in various countries and regions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; exchange rate fluctuations; development and use of new technology; the success or otherwise of partnering; the actions of competitors, trading partners and others; natural disasters and adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism, cyber-attacks or sabotage; and other factors discussed under Risk factors in our Annual Report and Form 20-F Reconciliations to GAAP This presentation also contains financial information which is not presented in accordance with generally accepted accounting principles (GAAP). A quantitative reconciliation of this information to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found on our website at Tables and projections in this presentation are BP projections unless otherwise stated. September 2015 Contact details You can the Investor Relations team at ir@bp.com You can also telephone + 44 (0) or write to: Investor Relations BP p.l.c. 1 St James s Square, London SW1Y 4PD, UK.