BP Plc Q2 FY2024 earnings call

• Cost Reduction: Aiming to deliver $2 billion in operating cost reductions, with $0.5 billion of cash cost savings expected in 2025. Cost savings are embedded in business units, with examples like self-serve checkouts in retail convenience sites reducing labor costs and digital consolidation in B2B self-serve portals.
• Segment Progress: In convenience, saw like-for-like sales growth and store conversions, with plans to expand in key markets. In biofuels, Arkea showed positive margins with increasing demand and new plants coming online. In LNG, focused on optimizing trading and portfolio mix for value maximization. The acquisition of Bunge was highlighted for integrating biofuels and trading opportunities.
• Focus on 2025: Clear focus on priorities including safety, cost reduction, and growth in key segments, with plans to update medium-term plans in February 2025.

BP's operations were strong in the quarter with 96% upstream plant reliability and 96% refining availability. Operating cash flow reached $8.1 billion, net debt decreased by $1.4 billion to $22.6 billion. Dividends were increased by 10%, with a $1.75 billion buyback for 2Q results and a commitment to $3.5 billion of share buybacks for the second half of 2024. In terms of segment contribution, upstream and refining performance supported overall financials, while the transition engines (biofuels, convenience, renewables) had mixed results but with ongoing efforts to drive improvement.

• Dividends: 10% increase announced, with $1.75 billion buyback in 2Q and $3.5 billion for H2 2024.
• EBITDA: Confident in EBITDA growth towards the 3-4 billion range, with the Bunge acquisition expected to boost EBITDA. Refining TARs expected to decrease from 2025 as catch-up from COVID-related delays subsides.
• Project Updates: Tortue FPSO progress ongoing with first gas expected in the next few months; Kaskida sanction and Tiber development in the Paleogene basin with positive outlook.

• Regulatory Uncertainty: In biofuels, regulatory changes in some markets (e.g., Sweden, Finland) have impacted margins, though expectations of improving margins through 2025 and beyond.
• Market Volatility: LNG market oversupply expected from 2026-2027 could impact pricing; refining margins subject to weather events and capacity shrinkage leading to volatility.
• Permitting Challenges: Delays in permitting, grid connections, and build-outs in regions like the U.S. and Europe are a drag on returns and cash flow.

Q: Irene Himona at Bernstein asked about progress towards the $2 billion operating cost reduction target and transition engine EBITDA.

A: Kate Thomson noted efforts to deliver $2 billion in cost reductions, with $0.5 billion expected in 2025, and Emma Delaney amplified on cost savings embedded in business units. On transition engine EBITDA, Murray Auchincloss discussed confidence in EBITDA growth towards 3-4 billion range with Bunge acquisition and ongoing segment efforts.

Q: Biraj Borkhataria at RBC asked about balance sheet and employee share options.

A: Murray Auchincloss stated focus on credit rating and flexibility, with strong balance sheet and support for share buybacks. Kate Thomson mentioned offsetting ESOP dilution over time, with $675 million offset in 2023 and plans to continue.

Q: Paul Cheng asked about OP&P OpEx and BPX activity.

A: Murray Auchincloss discussed BPX progress with strong liquids production growth due to central gathering facilities and TDS technology, while Kate Thomson noted unit production costs are mix-related and EWO of ~$100 million in the quarter related to Gulf of Mexico.

Q: Michele Della Vigna at Goldman asked about LNG long-term contracts and biorefinery decisions.

A: Carol Howle discussed LNG portfolio optimization and long-term contract signings, while Murray Auchincloss explained reallocation of capital to Bunge for biofuels and trading opportunities, citing overcapacity in biorefineries.

Q: Lydia Rainforth at Barclays asked about focus on 2025 and EBITDA cash returns.

A: Murray Auchincloss discussed concentration on key markets for EV, biofuels, and hydrogen, with plans to update medium-term plans in February 2025, and Kate Thomson noted cash conversion improving and focus on 80% surplus to buybacks.