Coronavirus Update

Bp PLC Group Results Q1 2021

This content has been sourced from: https://www.investegate.co.uk/bp-plc--bp.-/rns/1q2...

BP p.l.c. Group results

First quarter 2021

 

 

"For a printer friendly version of this announcement please click on the link below to open a PDF version of the announcement"

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Performing while transforming

 

Financial summary

 

First

Fourth

First

 

 

quarter

quarter

quarter

$ million

 

2021

2020

2020

Profit (loss) for the period attributable to bp shareholders

 

4,667 

 

1,358 

 

(4,365)

 

Inventory holding (gains) losses*, net of tax

 

(1,342)

 

(533)

 

3,737 

 

Replacement cost (RC) profit (loss)*

 

3,325 

 

825 

 

(628)

 

Net (favourable) adverse impact of adjusting items*(a), net of tax

 

(695)

 

(710)

 

1,419 

 

Underlying RC profit*

 

2,630 

 

115 

 

791 

 

Operating cash flow*

 

6,109 

 

2,269 

 

952 

 

Capital expenditure*

 

(3,798)

 

(3,491)

 

(3,861)

 

Divestment and other proceeds(b)

 

4,839 

 

4,173 

 

681 

 

Net issue (repurchase) of shares

 

 

 

(776)

 

Net debt*(c)

 

33,313 

 

38,941 

 

51,404 

 

Announced dividend per ordinary share (cents per share)

 

5.25 

 

5.25 

 

10.50 

 

Underlying RC profit per ordinary share* (cents)

 

12.95 

 

0.57 

 

3.92 

 

Underlying RC profit per ADS (dollars)

 

0.78 

 

0.03 

 

0.24 

 

 

• Strong earnings and cash flow

 

• Net debt target reached around a year early

 

 

• $500 million share buybacks in the second quarter

 

  Disciplined strategic progress across the business

 

This quarter demonstrates what we mean by performing while transforming.

With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early. We are commencing share buybacks in the second quarter which, alongside our resilient dividend, support the growth in distributions to shareholders.

And at the same time, we've delivered disciplined strategic progress right across bp - including building a high-quality offshore wind business, making great strides in our electrification agenda and setting ourselves up for further growth in the Gulf of Mexico.

 

Bernard Looney

Chief executive officer

 

 

(a)  Prior to 2021 adjusting items were reported under two different headings - non-operating items and fair value accounting effects*. See page 28 for more information.

(b)  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 2021 and $170 million in relation to the sale of an interest in bp's New Zealand retail property portfolio in the fourth quarter 2020. There are no other proceeds in the first quarter 2020.

(c)  See Note 8 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 33 .

 

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Highlights

 

 

Strong results and cash flow delivery

 

 

• Reported profit for the quarter was $4.7 billion, compared with $1.4 billion profit for the fourth quarter 2020.

• Underlying replacement cost profit* was $2.6 billion, compared with $0.1 billion for the previous quarter. This result was driven by an exceptional gas marketing and trading performance, significantly higher oil prices and higher refining margins.

• Operating cash flow* of $6.1 billion was underpinned by strong business performance, with a working capital* build (after adjusting for inventory holding gains) of $1.2 billion including $0.5 billion of severance payments. This build was largely offset by other timing differences.

• Divestment and other proceeds were $4.8 billion in the quarter, including $2.4 billion from the divestment of a 20% stake in Oman Block 61 and $1.0 billion final instalment for the sale of the petrochemicals business.

 

 

Net debt target achieved, $500 million share buybacks in the second quarter

 

 

• Net debt* reduced by $5.6 billion to reach $33.3 billion at the end of the quarter. Having reached $35 billion net debt, bp is now retiring this target and remains committed to maintaining a strong investment grade credit rating.

• bp is introducing an intent going forward to offset dilution from vesting of awards under employee share schemes through buybacks. Surplus cash flow* is now defined after the cost of buying back these shares.

• In addition, bp remains committed to returning at least 60% of surplus cash flow to shareholders through share buybacks, subject to maintaining a strong investment grade credit rating. In considering the quantum of buybacks, the board will take account of the cumulative level of, and outlook for, surplus cash flow with the intention to provide guidance on a quarter-forward basis while macro uncertainties remain.

• For 2021:

-  In the second quarter, bp intends to offset the expected full-year dilution from the vesting of awards under employee share schemes through buybacks, at a cost of around $500 million.

-  Subject to maintaining a strong investment grade credit rating, the board is committed to using 60% of surplus cash flow for buybacks, planning to allocate the remaining 40% to further strengthen the balance sheet and support our strong investment grade credit rating.

-  During the first quarter, bp generated surplus cash flow of $1.7 billion after having reached its net debt target of $35 billion. During the second quarter, cash flow is expected to be impacted by the $1.2 billion pre-tax annual Gulf of Mexico oil spill payment, further severance payments and a smaller improvement in realized refining margins relative to the quarter to date rise in our RMM*. As a result of these factors we expect a cash flow deficit in the second quarter.

-  In the second half of the year bp expects to generate surplus cash flow above an oil price of around $45 per barrel with an RMM of around $13 per barrel and Henry Hub of $3 per mmBtu.

-  bp will provide an update on our third quarter buyback plans at the time of our second quarter results, taking into account the surplus cash flow in the first half of the year as well as the outlook for surplus cash flow.

 

 

 

Disciplined strategic progress

 

 

• Oil production & operations: in April in the Gulf of Mexico, the Argos platform for bp's Mad Dog 2 development arrived, on track for start-up in 2022, and bp announced the high-quality Puma West oil discovery.

• Customers & products: bp agreed to acquire a stake alongside Daimler and BMW in Digital Charging Solutions, a leading developer of digital charging software, and bp pulse announced the roll out of new EV-only ultra-fast charging hubs across the UK. bp also added further strategic convenience sites* to its network during the quarter.

• Gas & low carbon energy: bp and EnBW were selected as preferred bidder for UK offshore wind leases and bp completed formation of its US offshore wind partnership with Equinor. bp announced plans for the UK's largest blue hydrogen production facility in Teesside. Start of production from two new gas projects - Raven in Egypt and Satellite Cluster in India - was announced in April.

 

 

We generated around $11 billion of cash inflow in the first quarter, enabling us to reach our $35 billion net debt target significantly ahead of plan and move to the second phase of our financial frame. We are starting buybacks in the second quarter with the intent to offset the full-year dilution from employee share schemes. In addition, we intend to distribute 60% of surplus cash flow for 2021 through share buybacks, with the remaining 40% being used to further strengthen our balance sheet. We'll outline these plans further in our second quarter results.

 

Murray Auchincloss

Chief financial officer

 

 

The commentary above contains forward-looking statements and should be read in conjunction with the cautionary statement on page 39.

 

 

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Financial results

bp announced a change in strategy and a new organizational model in 2020. From the start of 2021 we have also changed the way that we performance manage bp. From the first quarter of 2021, the group's reportable segments are gas & low carbon energy, oil production & operations, customers & products, and Rosneft.

In customers & products, as we respond to the energy transition, convenience and electrification are expected to form a greater proportion of our margins and to provide visibility we have provided further information on customers - convenience & mobility and products - refining and trading.

Customers - convenience & mobility includes our customer-focused businesses, spanning convenience and mobility, which includes fuels retail and next-gen offers such as electrification, as well as aviation, midstream, and Castrol lubricants. Products business includes refining and oil & oil products trading.

At 31 December 2020, the group's reportable segments were Upstream, Downstream 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:

Divestment and other proceeds of $4.8 billion in the first quarter include $2.4 billion from the divestment of a 20% stake in Oman Block 61, $1.0 billion final instalment relating to the sale of the petrochemicals business and $0.7 billion from the sale of a 49% interest in a controlled affiliate holding certain refined product and crude logistics assets onshore US.

The divestment of the stake in Oman Block 61 has resulted in a gain on disposal of $1.0 billion.

Capital expenditure* in the first quarter was $3.8 billion, consistent with the $3.9 billion spend in the first quarter 2020 and higher than the $3.5 billion in the fourth quarter 2020. This includes payments of $0.7 billion following completion of the formation of the offshore wind joint venture with Equinor and a $0.3 billion payment in connection with our share of UK offshore wind leases in partnership with EnBW.

Included in the operating cash flow* of $6.1 billion for the first quarter was $0.5 billion of cash flow relating to severance costs associated with the reinvent programme.

The effective tax rate (ETR) on RC profit* for the first quarter was 26%, compared with 280% for the same period in 2020. Excluding adjusting items, the underlying ETR* for the first quarter was 30%, compared with 55% for the same period a year ago. The lower underlying ETR for the first quarter  reflects changes in the geographical mix of profits, and an absence of charges for the reassessment of the recognition of deferred tax assets. ETR on RC profit or loss and underlying ETR are non-GAAP measures.

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

 

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

 

 

First

Fourth

First

 

 

quarter

quarter

quarter

$ million

 

2021

2020

2020

RC profit (loss) before interest and tax

 

 

 

 

gas & low carbon energy

 

3,430 

 

(638)

 

1,070 

 

oil production & operations

 

1,479 

 

66 

 

(179)

 

customers & products

 

934 

 

1,245 

 

664 

 

Rosneft

 

363 

 

270 

 

(17)

 

other businesses & corporate

 

(678)

 

288 

 

(566)

 

Consolidation adjustment - UPII*

 

13 

 

(77)

 

178 

 

RC profit before interest and tax

 

5,541 

 

1,154 

 

1,150 

 

Finance costs and net finance expense relating to pensions and other post-retirement benefits

 

(729)

 

(759)

 

(790)

 

Taxation on a RC basis

 

(1,254)

 

557 

 

(1,008)

 

Non-controlling interests

 

(233)

 

(127)

 

20 

 

RC profit (loss) attributable to bp shareholders

 

3,325 

 

825 

 

(628)

 

Inventory holding gains (losses)*

 

1,730 

 

695 

 

(4,884)

 

Taxation (charge) credit on inventory holding gains and losses

 

(388)

 

(162)

 

1,147 

 

Profit (loss) for the period attributable to bp shareholders

 

4,667 

 

1,358 

 

(4,365)

 

 

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

 

 

First

Fourth

First

 

 

quarter

quarter

quarter

$ million

 

2021

2020

2020

Underlying RC profit (loss) before interest and tax

 

 

 

 

gas & low carbon energy

 

2,270 

 

154 

 

847 

 

oil production & operations

 

1,565 

 

563 

 

895 

 

customers & products

 

656 

 

126 

 

921 

 

Rosneft

 

363 

 

311 

 

(17)

 

other businesses & corporate

 

(170)

 

(109)

 

(432)

 

Consolidation adjustment - UPII

 

13 

 

(77)

 

178 

 

Underlying RC profit before interest and tax

 

4,697 

 

968 

 

2,392 

 

Finance costs and net finance expense relating to pensions and other post-retirement benefits

 

(581)

 

(568)

 

(668)

 

Taxation on an underlying RC basis

 

(1,253)

 

(158)

 

(953)

 

Non-controlling interests

 

(233)

 

(127)

 

20 

 

Underlying RC profit attributable to bp shareholders

 

2,630 

 

115 

 

791 

 

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 6-13 for the segments.

 

 

Operating Metrics

 

Operating metrics

 

First quarter 2021

 

vs First quarter 2020

Tier 1 and tier 2 process safety events*

 

23

 

-3

Reported recordable injury frequency*

 

0.160

 

+8.1%

Group production (mboe/d)

 

3,268

 

-12.0%

upstream* production (mboe/d) (excludes Rosneft segment)

 

2,218

 

-14.0%

upstream unit production costs* (a) ($/boe)

 

7.36

 

+4.1%

bp-operated hydrocarbon plant reliability*

 

93.0%

 

0.0

bp-operated refining availability*

 

94.8%

 

-1.3

(a)  Reflecting lower volumes.

 

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Outlook & Guidance

Macro outlook

The oil market is set to continue its rebalancing process. Global stocks are expected to decline and reach historical levels (in terms of days of forward cover) at the end of 2021.

Oil demand is expected to recover in 2021 due to strong growth in US and China and as the distribution of vaccinations gains momentum and lockdown restrictions are gradually lifted.

OPEC+ behaviour is a key factor in oil prices and market rebalancing.

We expect global gas demand to recover to above 2019 levels, and LNG demand to increase as a result of higher Asian imports.

Industry refining margins are expected to improve over the course of 2021 compared to the first quarter, with the recovery in demand and the closure of some capacity supporting higher utilization rates compared to the exceptionally low levels seen last year. However, refining margins are expected to remain weaker than pre-COVID-19 levels.

2Q21 guidance

We expect second quarter reported upstream* production to be lower than the first quarter mainly due to divestments and seasonal maintenance activities, primarily in the Gulf of Mexico, the North Sea and Trinidad, partly offset by the ramp-up of the Raven and KG D6 R Cluster major projects*. Within this, we expect both gas & low carbon energy and oil production & operations to be lower.

We expect higher product demand across our customer businesses in the second quarter as restrictions begin to ease and vaccination rollouts continue. This should help provide some support to industry refining margins. However, realized refining margins are expected to show a smaller improvement due to the slower recovery in diesel and jet demand and a narrower North American heavy crude oil differential. In addition, we expect a higher level of turnaround activity in our refining portfolio.

2021 Guidance

In addition to the guidance on page 2:

We now expect disposal proceeds for the year to reach $5-6 billion during the latter stages of 2021. As a result of this quarter's divestments, our target of $25 billion of disposal and other proceeds between the second half of 2020 and 2025 is now underpinned by agreed or completed transactions of around $14.7 billion with approximately $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 are expected to be around $1 billion post 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 expected to be higher than 40% but is sensitive to the impact that volatility in the current 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.