BP : Stock Exchange Announcement pdf / 465.1 KB

FOR IMMEDIATE RELEASE

London 3 August 2021

BP p.l.c. Group results

Second quarter and half year 2021(a)

Strong results, growing dividend, executing buybacks

Financial summary		Second	First	Second		First	First
		quarter	quarter	quarter		half	half
$ million	2021	2021	2020	2021	2020
Profit (loss) for the period attributable to bp shareholders		3,116	4,667	(16,848)		7,783	(21,213)
Inventory holding (gains) losses*, net of tax	(736)	(1,342)	(809)	(2,078)	2,928
Replacement cost (RC) profit (loss)*		2,380	3,325	(17,657)		5,705	(18,285)
Net (favourable) adverse impact of adjusting items*(b), net of tax		418	(695)	10,975		(277)	12,394
Underlying RC profit (loss)*		2,798	2,630	(6,682)		5,428	(5,891)
Operating cash flow*		5,411	6,109	3,737		11,520	4,689
Capital expenditure*		(2,514)	(3,798)	(3,067)		(6,312)	(6,928)
Divestment and other proceeds(c)		215	4,839	1,135		5,054	1,816
Net issue (repurchase) of shares		(500)	-	-		(500)	(776)
Net debt*(d)		32,706	33,313	40,920		32,706	40,920
Announced dividend per ordinary share (cents per share)		5.46	5.25	5.25		10.71	15.75
Underlying RC profit (loss) per ordinary share* (cents)		13.80	12.95	(33.05)		26.75	(29.17)
Underlying RC profit (loss) per ADS* (dollars)		0.83	0.78	(1.98)		1.61	(1.75)

• Strong results and	• Growth of resilient	• Executing $1.4
continued net debt	dividend within	billion buybacks
reduction in an	disciplined financial	from first half 2021
improving	frame	surplus cash flow
environment

• Further strategic progress with 4 major project start- ups, growth in solar and convenience

We are a year into executing bp's strategy to become an integrated energy company and are making good progress - delivering another quarter of strong performance while investing for the future in a disciplined way. Based on the underlying performance of our business, an improving outlook for the environment and confidence in our balance sheet, we are increasing our resilient dividend by 4% per ordinary share and in addition, we are commencing a buyback of $1.4 billion from first half surplus cash flow. On average at around $60 per barrel, we expect to be able to deliver buybacks of around $1.0 billion per quarter and to have capacity for an annual increase in the dividend per ordinary share of around 4%, through 2025. This shows we continue to perform while transforming bp - generating value for our shareholders today while we transition the company for the future.

Bernard Looney

Chief executive officer

1. This results announcement also represents bp's half-yearly financial report (see page 16).
2. Prior to 2021 adjusting items were reported under two different headings - non-operating items and fair value accounting effects*. See page 32 for more information.
3. Divestment proceeds are disposal proceeds as per the condensed group cash flow statement. Other proceeds were $675 million from the sale of a 49% interest in a controlled affiliate holding certain refined product and crude logistics assets onshore US in the first quarter and first half 2021 and $455 million in relation to TANAP pipeline refinancing in the second quarter and first half 2020. There are no other proceeds in the second quarter 2021.
4. See Note 9 for more information.

RC profit (loss), underlying RC profit (loss) and net debt are non-GAAP measures. Inventory holding (gains) losses and adjusting items are non-GAAP adjustments.

* For items marked with an asterisk throughout this document, definitions are provided in the Glossary on page 38.

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BP p.l.c. Group results

Second quarter and half year 2021

Highlights

Strong results and continued net debt reduction in an improving environment

• Operating performance was resilient in the second quarter with four major project* start-ups, strong momentum in the customers business, including material growth in convenience gross margin*, and delivery of $2.5 billion of cash costs* savings on a run-rate basis relative to 2019, around six months earlier than targeted.
• Reported profit for the quarter was $3.1 billion, compared with $4.7 billion for the first quarter 2021.
• Underlying replacement cost profit* was $2.8 billion, compared with $2.6 billion for the previous quarter. This result was driven by higher oil prices and margins offset by a lower result in gas marketing and trading.
• Operating cash flow* of $5.4 billion includes $1.2 billion pre-tax of Gulf of Mexico oil spill payments within a working capital* build of $0.5 billion (after adjusting for inventory holding gains and fair value accounting effects).
• Net debt* fell to $32.7 billion at the end of the second quarter.
• Following the annual review of price assumptions used for investment appraisal and value-in-use impairment testing, bp's Brent oil price assumption to 2030 is increased to reflect expected supply constraints, while longer-term assumptions are lowered as bp expects an acceleration of the pace of transition to a low carbon economy.
• As a result of these changed assumptions, the reported result includes a pre-tax net impairment reversal of $3.0 billion.

Distribution growth within disciplined financial frame

• A resilient dividend is bp's first priority within its disciplined financial frame.
• Reflecting the underlying performance of the business, an improving outlook for the environment, confidence in our balance sheet and commencement of the share buyback programme, the board has announced an increase in the second quarter dividend of 4% to 5.46 cents per ordinary share. This increase is accommodated within a 2021-5 average cash balance point* of around $40 per barrel Brent, $11 per barrel RMM and $3 per mmBtu Henry Hub (all 2020 real).
• bp generated surplus cash flow* of $0.7 billion in the second quarter and $2.4 billion in the first half after having reached its net debt target of $35 billion. Taking into account surplus cash flow* generated in the first half of the year, bp intends to execute a share buyback of $1.4 billion prior to announcing its third quarter 2021 results. For 2021, and subject to maintaining a strong investment grade credit rating, the board remains committed to using 60% of surplus cash flow for share buybacks and plans to allocate the remaining 40% to continue strengthening the balance sheet.
• On average, based on bp's current forecasts, at around $60 per barrel Brent and subject to the board's discretion each quarter, bp expects to be able to deliver buybacks of around $1.0 billion per quarter and have capacity for an annual increase in the dividend per ordinary share of around 4%, through 2025. Other elements of the financial frame are unchanged.
• The board will take into account factors including the cumulative level of and outlook for surplus cash flow, the cash balance point and the maintenance of a strong investment grade credit rating in setting the dividend per ordinary share and the buyback each quarter.
• bp expects to outline plans for the fourth-quarter share buyback at the time of its third quarter results.

Strong progress in our transformation to an integrated energy company

• Since outlining its new strategy a year ago, bp has made strong progress in its transformation to an IEC. It has delivered 8 major projects*, built a 21GW renewable pipeline, grown convenience and electrification, reorganized, reached over $10 billion of divestment proceeds, strengthened the financial frame and begun share buybacks.
• Four major projects began production in the second quarter - in India, Egypt, Angola and the Gulf of Mexico.
• bp has continued to significantly expand its renewables pipeline, buying a 9GW solar development pipeline in the US. Lightsource bp also continued to expand, growing in Portugal, Spain, Greece and Australia. bp confirmed its intention to bid for offshore wind leases in Scotland with EnBW and in Norway with Statkraft and Aker.
• bp opened the UK's first fleet-dedicated EV rapid charging hub in London, the first of a series intended for cities across Europe. In the US, bp agreed to take full ownership of the Thorntons business, which is expected to complete in the third quarter of 2021, positioning bp to be a leading convenience operator in the Midwest US.

We have delivered another strong set of results underpinned by an improving environment and our disciplined financial frame. We remain focused on: maintaining a resilient dividend within a cash balance point of around $40 per barrel; strengthening our balance sheet - with net debt reduced for the fifth consecutive quarter; a disciplined approach to investment; and the execution of share buybacks with upside to higher prices. Taken together, we are building a track record of delivery, supporting our investor proposition to grow long-term value.

Murray Auchincloss

Chief financial officer

The commentary above contains forward-looking statements and should be read in conjunction with the cautionary statement on page 44.

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BP p.l.c. Group results

Second quarter and half year 2021

Financial results

At 31 December 2020, the group's reportable segments were Upstream, Downstream and Rosneft. From the first quarter of 2021, the group's reportable segments are gas & low carbon energy, oil production & operations, customers & products, and Rosneft. Comparative information for 2020 has been restated to reflect the changes in reportable segments. For more information see note 1 Basis of preparation - Change in segmentation.

In addition to the highlights on page 2:

• During the quarter, $500 million of share buybacks were complete to offset the expected full-year dilution from the vesting of awards under employee share schemes.
• Adjusting items* in the second quarter and half year were a favourable pre-tax impact of $8 million and $704 million respectively compared with an adverse impact of $14,566 million and $15,930 million in the same periods of 2020. The 2020 charges were driven by impairment charges of $11,848 million in the second quarter. Pre-tax net impairment reversals of $2,964 million were recorded in the second quarter of 2021 following the annual review of price assumptions used for investment appraisal and value-in-use impairment testing, offset by fair value accounting effects* of $1,377 million, increases in provisions of $856 million and a $415-million charge relating to a remeasurement of deferred tax balances in our equity-accounted entity in Argentina.
• Capital expenditure* in the second quarter and half year was $2.5 billion and $6.3 billion respectively, compared with $3.1 billion and $6.9 billion in the same periods of 2020.
• At the end of the second quarter, net debt* was $32.7 billion, compared to $33.3 billion at the end of the first quarter and $40.9 billion at the end of the second quarter 2020.
• Operating cash flow* was $5.4 billion for the second quarter, including $1.2 billion pre-tax Gulf of Mexico oil spill payments and $0.2 billion of cash flow relating to severance costs associated with the reinvent programme, and $11.5 billion for the half year, compared with $3.7 billion and $4.7 billion for the same periods of 2020.
• The effective tax rate (ETR) on RC profit* for the second quarter and half year was 37% and 31% respectively, compared with 19% and 15% for the same periods in 2020. Excluding adjusting items*, the underlying ETR* for the second quarter and half year was 27% and 29% respectively, compared with 9% and -3% for the same periods a year ago. In 2020 the underlying ETRs were lower as they reflected the exploration write-offs with a limited deferred tax benefit and the reassessment of deferred tax asset recognition. The underlying ETRs for 2021 include a benefit for the reassessment of deferred tax asset recognition. ETR on RC profit or loss and underlying ETR are non-GAAP measures.
• A dividend of 5.46 cents per ordinary share was announced for the quarter.

Analysis of RC profit (loss) before interest and tax and reconciliation to profit (loss) for the period

		Second	First	Second		First	First
		quarter	quarter	quarter	half	half
$ million	2021	2021	2020		2021	2020
RC profit (loss) before interest and tax		927				4,357
gas & low carbon energy	3,430	(7,752)		(6,682)
oil production & operations	3,118	1,479	(14,314)		4,597	(14,493)
customers & products	640	934	594		1,574	1,258
Rosneft	643	363	(124)		1,006	(141)
other businesses & corporate	(425)	(678)	(259)		(1,103)	(825)
Consolidation adjustment - UPII*	(31)	13	(46)		(18)	132
RC profit (loss) before interest and tax		4,872	5,541	(21,901)		10,413	(20,751)
Finance costs and net finance expense relating to pensions and other	(687)				(1,416)
post-retirement benefits	(729)	(791)		(1,581)
Taxation on a RC basis	(1,567)	(1,254)	4,361		(2,821)	3,353
Non-controlling interests	(238)	(233)	674		(471)	694
RC profit (loss) attributable to bp shareholders*		2,380	3,325	(17,657)		5,705	(18,285)
Inventory holding gains (losses)*	953	1,730	1,088		2,683	(3,796)
Taxation (charge) credit on inventory holding gains and losses	(217)	(388)	(279)		(605)	868
Profit (loss) for the period attributable to bp shareholders		3,116	4,667	(16,848)		7,783	(21,213)

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BP p.l.c. Group results

Second quarter and half year 2021

Analysis of underlying RC profit (loss) before interest and tax

		Second	First	Second	First	First
		quarter	quarter	quarter	half	half
$ million	2021	2021	2020		2021	2020
Underlying RC profit (loss) before interest and tax		1,240	2,270	(814)		3,510	33
gas & low carbon energy
oil production & operations	2,242	1,565	(7,713)		3,807	(6,818)
customers & products	827	656	1,405		1,483	2,326
Rosneft	689	363	(61)		1,052	(78)
other businesses & corporate	(305)	(170)	(220)		(475)	(652)
Consolidation adjustment - UPII	(31)	13	(46)		(18)	132
Underlying RC profit (loss) before interest and tax		4,662	4,697	(7,449)		9,359	(5,057)
Finance costs and net finance expense relating to pensions and other	(485)				(1,066)
post-retirement benefits	(581)	(677)		(1,345)
Taxation on an underlying RC basis	(1,141)	(1,253)	770		(2,394)	(183)
Non-controlling interests	(238)	(233)	674		(471)	694
Underlying RC profit (loss) attributable to bp shareholders*		2,798	2,630	(6,682)		5,428	(5,891)

Reconciliations of underlying RC profit attributable to bp shareholders to the nearest equivalent IFRS measure are provided on page 1 for the group and on pages 6-15 for the segments.

Operating Metrics

Operating metrics

Tier 1 and tier 2 process safety events* Reported recordable injury frequency* Group production (mboe/d)(a)

upstream* production (mboe/d) (excludes Rosneft segment) upstream unit production costs*(b) ($/boe)

bp-operated hydrocarbon plant reliability* bp-operated refining availability*(a)

.

1. See Operational updates on pages 6, 9 and 11.
2. Reflecting lower volumes and higher costs due to phasing and seasonal maintenance activities.

First half 2021		vs First half
		2020
30		-20
0.168	+32.5%
3,242	-11.3%
2,169	-15.0%

7.33+19.5%

93.7%	-0.5
94.1%		-1.8

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BP p.l.c. Group results

Second quarter and half year 2021

Outlook & Guidance

Macro outlook

• The oil market is expected to continue its rebalancing process. Global stocks are expected to decline and reach historical levels (in terms of days of forward cover) in the first half of 2022.
• Oil demand is expected to recover in 2021 on the back of a bright macroeconomic outlook, increasing vaccination roll-out and gradual lifting of COVID-19 restrictions around the world. The expectation is that demand reaches pre-Covid levels sometime in the second half of 2022.
• OPEC+ decision making on production levels is a key factor in oil prices and market rebalancing.
• Global gas demand is expected to recover to above 2019 levels by end 2021, and LNG demand to increase as a result of higher Asian imports.
• Industry refining margins are expected to be broadly flat compared to the second quarter, with recovery in demand offset by growth in net refining capacity. In lubricants, industry base oil and additive supply shortages are expected to continue in the second half.

3Q21 guidance

• Looking ahead, we expect third quarter reported upstream* production to be higher than the second quarter reflecting the completion of seasonal maintenance activity and the ramp-up of major projects. Within this, we expect production from oil production & operations to be higher.
• If COVID restrictions continue to ease, we expect higher product demand across our customer business in the third quarter. Realized refining margins are expected to improve slightly supported by stronger demand and wider North American heavy crude oil differentials. In Castrol, industry base oil and additive supply shortages are expected to continue.

2021 Guidance

In addition to the guidance on page 2:

• We continue to expect divestment and other proceeds for the year to reach $5-6 billion during the latter stages of 2021. As a result of the first half year divestments, our target of $25 billion of divestment and other proceeds between the second half of 2020 and 2025 is now underpinned by agreed or completed transactions of around $14.9 billion with over $10 billion of proceeds received.
• bp continues to expect capital expenditure*, including inorganic capital expenditure*, of around $13 billion in 2021.
• Depreciation, depletion and amortization is expected to be at a similar level to 2020 ($14.9 billion).
• Gulf of Mexico oil spill payments for the year are expected to be around $1.5 billion pre-tax.
• The other businesses & corporate underlying annual charge is expected to be in the range of $1.2-1.4 billion for 2021. The quarterly charges may vary from quarter to quarter.
• The underlying ETR* for 2021 is now expected to be around 35% but is sensitive to the impact that volatility in the current price environment may have on the geographical mix of the group's profits and losses.
• For full year 2021 we expect reported upstream production to be lower than 2020 due to the impact of the ongoing divestment programme. However, underlying production* should be slightly higher than 2020 with the ramp-up of major projects, primarily in gas regions, partly offset by the impacts of reduced capital investment and decline in lower-margin gas assets.

COVID-19 Update

• bp's future financial performance, including cash flows and net debt, will be impacted by the extent and duration of the current market conditions and the effectiveness of the actions that it and others take, including its financial interventions. It is difficult to predict when all current supply and demand imbalances will be resolved and what the ultimate impact of COVID-19 will be.
• bp continues to take steps to protect and support its staff through the pandemic. Precautions in operations and offices together with enhanced support and guidance to staff continue with a focus on safety, health and hygiene, homeworking and mental health. Decisions on working practices and return to office based working are being taken with caution and in compliance with local and national guidelines and regulations.

The commentary above contains forward-looking statements and should be read in conjunction with the cautionary statement on page 44.

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