908 Devices Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 29, 2024

There are 3 speakers on the call.

Operator

Hello, everyone, and thank you for your interest in BP's Q3 2024 2024 Results. Today's video presentation features Murray Auchincloss, Chief Executive Officer and Kate Thompson, Chief Financial Officer. Before we begin today, let me draw your attention to our cautionary statement. In this presentation, we will make forward looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note on this slide and in our UK and SEC filings.

Operator

Please refer to our Annual Report, Stock Exchange Announcement and SEC filings for more details. These documents are available on our website. Let me now hand over to Murray.

Speaker 1

Thanks, Greg. Since I became CEO, we've been driving focus into the business, simplifying how we work to deliver efficiencies, all in pursuit of growing cash flow and value. These actions are creating change in BP, and I want to thank our teams for their continued hard work as we deliver on the plans we've laid out. Our hard work is showing up in the progress we've made so far this year. Starting with safety, our goal is to eliminate Tier 1 events and life changing injuries.

Speaker 1

Process safety Tier 1 events are down from previous years. However, we sadly had one life changing injury through September. We remain focused on our safety goals through the rigorous execution of our operating management system. Our operations are running well. Upstream production is up 3% year on year, with liquids production up 5%, and refining availability was 96% in the 3rd quarter, supporting delivery of an underlying profit of $2,300,000,000 in the quarter.

Speaker 1

Kate will provide further details shortly. But before I hand over to Kate, I want to highlight some examples of how our 6 priorities are enabling us to focus and drive efficiency to deliver near term performance improvement, as well as reshape our portfolio to set up BP to grow value and returns. Starting with driving focus, we are moving from what has been a period of origination to one now of delivery and execution. We have worked across all our businesses to review the projects in our hopper, including those from early concept selection through to pre FID. The result?

Speaker 1

We have stopped or paused 24 potential projects, allowing our teams to now focus on delivering the highest value projects. This work to prioritize our next wave of growth will continue through 2025, setting us up well for the high quality growth through the rest of the decade. Furthermore, we continue to divest assets that won't compete for capital. For example, we recently announced our plan to divest our U. S.

Speaker 1

Onshore wind business as well as the sale of 4 mature fields in Trinidad. These actions generate value today, reduce operating costs and enable future capital to be allocated to projects with higher returns. We have also taken further steps this quarter to deliver the next wave of efficiencies to Simplify BP. Kate will cover much of this in her section, but I would like to discuss our next wave of action in digital. Over the past 10 years, we have made significant investments in our oil and gas business to create a highly advantaged global analytics platform.

Speaker 1

The advent of the next generation of AI is allowing us to once again team up with our partner Palantir to take this to the next level. AI boot camps have been held with our engineers and use cases are being progressed. Already, we can see ways to drive a meaningful improvement in efficiency across many of our core engineering processes. Additionally, we're working with Palantir and teaming up with Infosys to accelerate the digitization of our refining operations. We will update you on progress as we move forward, and I'm very excited about this opportunity, as I firmly believe companies with well managed data, or digital ontology as it's known, can use this technology to be safer, faster, more efficient, and create a lot of value for you, our shareholders.

Speaker 1

Turning to growth and access. Last quarter, we announced FID at Cascquita, the first step of unlocking around 10,000,000,000 barrels of discovered resources in the Paleogene. We have made great progress in a short period of time, completing FEED on the hull, progressing engineering on topsides, selecting the EPC contractor for the floating production unit, awarding contracts for subsea equipment, securing ultra deepwater 15 ks and 20 ks rigs and executing key export agreements, just to name a few. We continue to progress other opportunities in the Paleogene and continue to expect to take FID on Tiber next year. We've also taken a number of other key FIDs this year, as can be seen on this slide, and focused on what we do best constructing large, high value projects.

Speaker 1

And at the same time, by leveraging our long standing relationships and key partnerships, we are organically accessing exciting new resource opportunities such as our recent MoU in Azerbaijan and Kirkuk. In transition, we remain disciplined and are continuing to prioritize businesses that deliver earnings today with returns that compete across our portfolio. A great example is in Bioenergy, where we recently completed the acquisition of the remaining 50% of BP Banguay Bioenergia, a business that delivers earnings and free cash flow today with material integration upside, especially in trading. Together, our actions are improving BP today and setting BP up for the future. Let me now hand over to Kate to cover our results and an update on actions underway to deliver our cost savings program.

Speaker 2

Okay. Thanks, Murray. So in the Q3, we reported group underlying replacement cost profit of $2,300,000,000 compared with $2,800,000,000 in the 2nd quarter. Our group underlying replacement cost profit before interest and tax was $5,200,000,000 around $200,000,000 lower than the 2nd quarter. Now looking at the segments in more detail and compared to the previous quarter.

Speaker 2

In the Gas and Low Carbon Energy segment, underlying profit was around $400,000,000 higher, largely driven by higher gas realizations. The gas marketing and trading result was average. In oil production and operations, the underlying profit was around $300,000,000 lower, reflecting lower liquids realizations and higher exploration write offs. In the customers and products segment, the underlying profit was $770,000,000 lower. In customers, the underlying profit was around $100,000,000 higher than the previous quarter, reflecting broadly flat fuels margins, seasonally higher volumes, partly offset by costs.

Speaker 2

And in Products, the underlying result was around £880,000,000 lower compared to the previous quarter. The result mainly reflects weaker realized refining margins and a weak oil trading contribution, which was lower than the previous quarter. Our underlying effective tax rate in the 3rd quarter was 42%. We recorded net adverse adjusting items of $1,200,000,000 after tax, primarily related to impairments which are across all three segments. On an IFRS basis, our headline profit was $200,000,000 Now turning to cash flow and the balance sheet.

Speaker 2

Operating cash flow was $6,800,000,000 in the Q3. This included a working capital release of $1,400,000,000 reflecting the unwind of the working capital build in the Q1 as well as impact to the price environment and the timing of various payments. Capital expenditure in the quarter increased by $900,000,000 to 4,500,000,000 dollars largely driven by the scheduled initial payment for our 2 offshore wind projects in Germany. Divestments and other proceeds were around $300,000,000 in the quarter and were around $900,000,000 lower than anticipated due to rephasing of receipts. So these factors, combined with a lower price environment, drove net debt higher by $1,700,000,000 to $24,300,000,000 So moving now to our financial frame.

Speaker 2

Our 5 priorities and guidance remain unchanged. Our first priority remains a resilient dividend, and today we've announced a dividend of $0.08 per ordinary share for the Q3. It's underpinned by a cash balance point of $40 per barrel Brent, dollars 11 RMM and $3 Henry Hub. Our second priority is a strong balance sheet, and we remain committed to maintaining credit metrics within an A range. We remain confident our balance sheet can comfortably accommodate the GBP 3,700,000,000 of reported finance debt expected to be consolidated from the recently completed BP Benge Bioenergy and Light Source BP transactions.

Speaker 2

Now in respect of the BP BungeBioenergia transaction, it improves our credit metrics. In respect of LightSource BP, the impact of the acquired debt is expected to be temporary as we expect to unlock value through bringing in a strategic partner in due course. Our 3rd and 4th priorities are to invest with discipline, driven by value and focusing on the highest returning projects across our businesses, as you heard from Murray earlier. And then turning to our 5th priority buybacks. Today, we announced a further €1,750,000,000 share buyback program to be executed by the time of our 4th quarter results.

Speaker 2

And as we look ahead to the 4th quarter, we remain committed to announcing a 1,750,000,000 share buyback subject, of course, to Board approval. In addition, our previous guidance for at least 14,000,000,000 of share buybacks through 2025 is currently unchanged, Although as part of the update to our medium term plans in February 2025, we intend to review elements of our financial guidance, including our expectations for 2025 share buybacks. Now turning to our Q4 guidance. We expect Upstream production to be lower compared with the Q3. In Customers, we expect seasonally lower volumes and fuel margins to remain sensitive to movements in the cost of supply.

Speaker 2

In Products, we expect realized refining margins to remain low and to continue to remain sensitive to relative movements in product cracks. Turning to full year guidance, there are a couple of points I wanted to highlight. We now expect the annual charge in other businesses and corporate to be in the range of $300,000,000 to $400,000,000 And as for divestments and other proceeds, we now expect that to be greater than $3,000,000,000 and that's above our previous guidance. All our other full year guidance remains unchanged. Before I hand back to Murray to close, I just wanted to provide an update on the cost target we laid out earlier this year to deliver at least $2,000,000,000 of sustainable cash cost savings underpinned by 4 key factors: focusing our portfolio working with our suppliers to improve efficiencies transforming our organization through expanding our business and technology centers, and driving continued digital transformation into the business.

Speaker 2

Starting with portfolio focus, we are already starting to realize cash cost savings from the actions we've taken. For example, across renewables and hydrogen, we expect to benefit from around CHF 200,000,000 reduction in annual cash costs as a result of focusing our portfolio. In EV charging, our focus on our highest value markets means we're delivering cost efficiencies of around 10%, whilst growing gross margin by more than 60% this year. Moving to the supply chain, we're enhancing our procurement process and policy to drive sustainable and material efficiencies. And for example, we're managing our 3rd party resource differently through our BP wide transformation program we're calling Total Resource Management.

Speaker 2

This provides detailed visibility to our contractor population and is leading to more than €200,000,000 of cost savings through reduced and optimized use of third party staff. And on organizational transformation, here we are expanding our business and technology center model, which is focused on bringing together high value, highly skilled teams in competitive locations. We have already announced plans for gas and low carbon energy, customers and products, engineering, finance, procurement, digital, people and culture, and communications. These plans either reduce or transition roles to business and technology centers and are resulting in savings of around $230,000,000 per year. In addition, we have combined our business development and M and A organizations to remove interfaces and deploy expertise globally.

Speaker 2

This is just one of the examples of how we will continue to transform our ways of working to become more cost efficient and enable faster decision making. So these examples together with Murrays on digital transformation are just a few that demonstrate how we will deliver over $500,000,000 of cash cost savings in 2025 and our target of at least $2,000,000,000 by the end of 2026. We believe there could be a bigger prize here and we're working options that are nearly twice this. We will update our progress in terms of the savings actually delivered by business with our 4Q results in February. So let me now hand over to Murray to summarize.

Speaker 1

Thanks, Kate. To summarize, as you have heard, we have made significant progress year to date since we laid out our 6 priorities that support making BP a simpler, more focused, higher value company. We are firmly focused on continuing to improve the underlying performance of the business and at the same time are taking important and pragmatic steps, positioning BP to be more competitive in the future. I am absolutely clear that the actions we are taking will continue to grow the value of BP. We continue to see energy demand growing as we look through the next few decades, with hydrocarbons remaining central to the energy system as the world decarbonizes.

Speaker 1

With the significant optionality in our oil and gas resource base, the new access we are progressing and the new FIDs taken, we see the potential to grow through the decade. We will be value and returns focused as we make decisions or value over volume to borrow a term from our past. At the same time, we have a deep belief in the opportunity afforded by the energy transition and have grown in many leading positions over the last several years. And as you can see through the actions we've taken, we are continuing to focus our investments in these businesses around returns and value, ensuring they durably grow and compete with the rest of our business. We are also focused on driving cost and capital efficiency into our business, and this is all underpinned by our financial frame, focused on a resilient and growing dividend, a strong balance sheet, disciplined capital investment, and competitive distributions to shareholders.

Speaker 1

Looking forward, I firmly believe we are one of only a few companies who can deliver unique, integrated energy solutions for nations, companies and customers alike, and in doing so, delivering the next generation energy system while growing long term value for you, our shareholders. In closing, we look forward to updating you on our medium term plans in February 2025, where we will be broadcasting from New York. Thank you for watching and for your interest in BP.

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Earnings Conference Call
908 Devices Q3 2024
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