BP Plc – Group results – Third quarter and nine months 2020

Financial results and progress

– Underlying replacement cost profit for the quarter was $0.1 billion, compared with a loss of $6.7 billion for the second quarter of 2020 and $2.3 billion profit for the third quarter of 2019. Compared to the previous quarter, the result benefitted from the absence of significant exploration write-offs and recovering oil and gas prices and demand. This was partly offset by a significantly lower oil trading result.

– Reported loss for the quarter was $0.5 billion, compared with losses of $16.8 billion for the previous quarter of 2020, reflecting absence of significant exploration write-offs and impairment charges, and $0.7 billion for the third quarter of 2019.

– Operating cash flow for the quarter, excluding Gulf of Mexico oil spill payments, was resilient at $5.3 billion, including $0.9 billion working capital release (after adjusting for net inventory holding gains). Gulf of Mexico oil spill payments in the quarter were $0.1 billion post-tax.

– Organic capital expenditure in the first three quarters of 2020 was $9.1 billion, in line with the full-year target of around $12 billion.

– BP continues to make progress towards its target of $2.5 billion in annual cash cost savings by end-2021 compared with 2019, with its new organization on schedule to be in place by start of 2021.

– Proceeds from divestments and other disposals in the quarter were $0.6 billion. BP has already completed or agreed transactions for approaching half its target of $25 billion in proceeds by 2025, including the agreed $5 billion sale of BP's petrochemicals business, expected to complete by year end.

– Net debt at quarter-end was $40.4 billion, down $0.5 billion. This includes the impact of the $1.1 billion payment for the completion of the joint venture with Reliance. Net debt is expected to fall in the fourth quarter as proceeds from divestments are received.

– A dividend of 5.25 cents per share was announced for the quarter. 

Performing while transforming

– BP has brought two new Upstream major projects into production since mid-year: Atlantis Phase 3 in the US Gulf of Mexico and, ahead of schedule, Khazzan Phase 2 (Ghazeer) in Oman.

– Operations continued to be good with refining availability of 96.2% and Upstream plant reliability of 93.0%. Upstream unit production costs for the nine months of 2020 were 10% lower than 2019, reflecting progress on cost efficiency and strategic divestments.

– While refining margins remained at historical lows, driven by the extremely weak environment, BP's marketing businesses recovered strongly in the quarter, with fuels marketing earnings growing 3% year on year and lubricants result broadly in line with a year earlier.

– BP agreed to enter the offshore wind sector through a strategic partnership with Equinor to pursue offshore wind opportunities in the US, including taking a 50% stake in two leases off the US east coast.

– BP announced plans for a network of ultra-fast chargers in Germany and BP Chargemaster won a contract to deliver over 1,000 charging points for Police Scotland.

– BP also announced a partnership with Microsoft under which the two companies will co-operate to progress their sustainability aims. As part of this, BP has agreed to supply Microsoft with renewable energy and to extend its use of Microsoft's cloud-based services.

RC profit (loss), underlying RC profit, operating cash flow excluding Gulf of Mexico oil spill payments, working capital, organic capital expenditure, net debt and gearing are non-GAAP measures. These measures and inventory holding gains and losses, non-operating items, fair value accounting effects, major project, Upstream plant reliability. refining availability and cash balance point are defined in the Glossary on page 32.

BP p.l.c. Group results

Third quarter and nine months 2020

COVID-19 Update

Strengthening finances:

– BP has continued to take deliberate steps to strengthen its finances and drive down its cash balance point.

– Organic capital expenditure is on track for the revised full-year target of around $12 billion, announced in April. Total for the first nine months was $9.1 billion.

– BP has continued to progress its divestment programme towards delivery of $25 billion of proceeds by 2025. The $5 billion sale of its petrochemicals business is expected to complete by year end. In the quarter, BP also sold an interest in a portfolio of UK retail properties for $0.5 billion.

– BP's headcount has reduced by a total of around 2,800 so far during 2020, including around 300 who have already left the organization as part of the reinvent bp programme. A further 2,100 have elected to leave under the programme, which is expected to result in a total reduction of around 10,000 positions, the majority by the end of this year. BP expects to incur people-related costs associated with the reinvent programme, including redundancy payments, of around $1.4 billion over the next 1-2 years, primarily in 2020.

– Net debt was $40.4 billion at quarter-end and is expected to fall further in the fourth quarter as divestment proceeds are received. BP also continues to actively manage the profile of its debt portfolio, buying back/retiring $4.0 billion of shorter-term debt in the quarter. At quarter end BP had around $44 billion of liquidity, including cash and undrawn revolving credit facilities.

– BP will continue to review these actions, and any further actions that may be appropriate, in response to changes in prevailing market conditions.

– BP's future financial performance, including cash flows, net debt and gearing, 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 current supply and demand imbalances will be resolved and what the ultimate impact of COVID-19 will be.

– Costs that are directly attributable to COVID-19 were around $0.1 billion for the quarter (second quarter 2020 $0.2 billion).

Protecting our people and operations:

– BP continues to monitor the impact of COVID-19 on global operations and to date there has been no direct significant operational impact, although this could change through the rest of the fourth quarter.

– Refinery utilization in the quarter was around 10% below 2019 levels, driven by COVID-19 impacts. Year-on-year, demand for retail fuels was lower by 7% and for aviation by around 60%. However fuels marketing earnings grew, benefitting from continued growth in convenience sales.

– Despite the significant challenges of the environment, BP's operations performed safely and reliably in the quarter. BP-operated Upstream plant reliability was 93.0% and BP-operated refining availability 96.2%.

– BP continues to take steps to protect and support its staff through the pandemic. The great majority of BP staff who are able to work from home are still doing so. Precautions in operations and offices include: reduced manning levels, changing working patterns, deploying appropriate personal protective equipment (PPE), enhanced cleaning and social distancing measures at plants and retail sites. Decisions on repopulating offices are being taken with caution and in compliance with local and national guidelines and regulations.

– BP is providing enhanced support and guidance to staff on safety, health and hygiene, homeworking and mental health.

Outlook:

– The ongoing impacts of the COVID-19 pandemic continue to create a volatile and challenging trading environment. There have been some early signs of global economic recovery as countries move to more regional or localised restrictions on movement and governments continue to offer monetary and fiscal policy stimulus. However, the shape and pace of the recovery is uncertain, as it depends on the further spread of the pandemic.

– The gradual recovery in oil demand seen since the spring looks set to continue, led by strengthening demand in Asia. The IEA estimates an increase of around six million barrels a day in 2021, as economies continue to open up. OPEC+ production cuts have played a major role in stabilising the market and there is already a reduction in crude and product inventories. Inventories are likely to reduce through 2021, although the pace at which they normalise will depend on the strength of economic recovery and the degree of continued OPEC+ compliance.

– US gas supply is expected to continue on a declining trend in 2021, largely due to a drop in associated gas production. Tightening gas balances have caused the prompt price to rise, and the futures curve for Henry Hub now averages above $3 for 2021. This would be expected to provide some support to pricing in Europe and Asia until more gas comes to market.

– The refining margin outlook remains challenging, given record high inventory levels and a levelling off in demand recovery for gasoline and jet fuel due to COVID-19.