The world wants and needs energy that is secure and affordable as well as lower carbon.
That’s what BP Chief Executive Bernard Looney said in a
“To tackle that, action is needed to accelerate the transition. And, at the same time, action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today,” Looney said in a company statement.
“As an integrated energy company, BP is very deliberately set up to help on both counts. With three years of delivery and track record – we have increased confidence our strategy is working. And with today’s announcement we are leaning further in,” he added.
“We are growing our investment into our transition and, at the same time, growing investment into today’s energy system. In doing so – we see tremendous opportunity to create value. And it’s what governments and customers are asking of companies like us,” Looney continued.
In the strategy update, BP noted that it now aims to accelerate the growth in earnings from its transition growth engines (TGEs) while also delivering higher earnings than previously expected from its oil and gas businesses through 2030. The company stated that it plans to support this growth by disciplined increases in investment over the period to 2030 of up to $8 billion in the TGEs and up to $8 billion in oil and gas.
TGE Investment
BP highlighted in the update that it aims to increase investment in its TGEs by up to $1 billion a year on average, or up to a cumulative additional $8 billion to 2030, and noted that its investment in its TGEs is now expected to reach $7-9 billion a year in 2030 “with cumulative investment over 2023-2030 around $55-65 billion”.
The company said it aims to invest around half of this cumulative total in the TGEs where it has established businesses, capabilities and track record – “in bioenergy, and in convenience and EV charging; the other half in hydrogen and renewables and power”.
BP outlined that it expects to achieve returns of greater than 15 percent from bioenergy, and from convenience and EV charging combined, and double digit returns from hydrogen. It expects six to eight percent unlevered returns in renewables.
BP noted that earnings from its TGEs are expected to grow as a result of these changes and said it now expects the TGEs to deliver $3-4 billion EBITDA in 2025. The company is aiming for $10-12 billion in 2030, comprising over $4 billion from bioenergy, over $4 billion from convenience and EV charging, and $2-3 billion from hydrogen and renewables and power.
“We will increase our focus on the transition growth engines able to deliver nearer-term solutions – like EV chargers and sustainable aviation fuels – that can help people and businesses decarbonize sooner,” Looney said in the update.
“And we will continue to build our hydrogen and renewables and power businesses for the longer term, based around projects where BP’s integrated approach can create significant additional value,” he added.
Oil, Gas Investment
In the strategy update, BP highlighted that it aims to increase investment into “resilient, high-quality oil and gas projects”, again by an average of up to $1 billion a year, or up to a cumulative $8 billion to 2030. The investment will help to meet near-term demand for secure supplies of oil and gas, generating additional earnings that can further strengthen BP and support investment in its transition, BP noted.
“The incremental investment to 2025 will target shorter-term, fast-payback projects that maximize value and can deliver rapidly, with minimal new infrastructure,” BP stated in the update.
“While BP will continue to high-grade its global oil and gas portfolio, due to improving operational reliability and commerciality over the past four years it also now anticipates retaining some oil and gas assets longer than previously envisaged,” the company added.
BP now expects its oil and gas production will be around 2.3 million barrels of oil equivalent per day in 2025 and aims for it to be around 2.0 million barrels of oil equivalent per day in 2030, the update revealed. This 2030 production would be around 25 percent lower than BP’s production in 2019, excluding production from Rosneft, compared to BP’s previous expectation of a reduction of around 40 percent, the company highlighted.
BP noted that it correspondingly now aims for a fall of 20 percent to 30 percent in emissions from the carbon in its oil and gas production in 2030 compared to a 2019 baseline, which it pointed out was lower than the previous aim of 35-40 percent.
“We need continuing near-term investment into today’s energy system – which depends on oil and gas – to meet today’s demands and to make sure the transition is an orderly one,” Looney said in the update.
“We have high-quality options throughout our portfolio, allowing us to choose only the best. We will prioritize projects where we can deliver quickly, at low cost, using our existing infrastructure, allowing us to minimize additional emissions and maximize both value and our contribution to energy security and affordability,” he added.
Fourth Quarter, Full Year 2022 Results
In addition to its strategy update on Tuesday, BP released its fourth quarter 2022 and full year 2022 results today.
The company posted an underlying replacement cost profit for the fourth quarter of $4.80 billion, compared with $8.15 billion for the previous quarter. Compared to the third quarter, the result was impacted by a below average gas marketing and trading result after the exceptional result in the third quarter, lower oil and gas realizations, a higher level of refinery turnaround and maintenance activity, and lower marketing margins and seasonally lower volumes, BP noted in the results statement.
Underlying RC profit in the fourth quarter of 2021 was $4.06 billion, while underlying RC profit in 2022 as a whole was $27.65 billion, compared to $12.81 billion in 2021.
Operating cash flow in the fourth quarter of last year was $13.57 billion, including a working capital release (after adjusting for inventory holding losses, fair value accounting effects and other adjusting items) of $4.2 billion.
Operating cash flow was $8.28 billion in the previous quarter, $6.11 billion in the fourth quarter of 2021, and $40.93 billion in 2022. This cash flow came in at $23.61 billion in 2021. Net debt fell for the eleventh successive quarter to reach $21.42 billion at the end of the fourth quarter. This figure stood at $30.61 billion in the fourth quarter of 2021.
BP announced a dividend per ordinary share of 6.610 cents for the fourth quarter, which marked an increase of around 10 percent. The company also revealed that, based on its current forecasts, at around $60 per barrel Brent and subject to the board’s discretion each quarter, it expects to be able to deliver share buybacks of around $4.0 billion per year and said it has capacity for an annual increase in the dividend per ordinary share of around four percent.
“We are strengthening BP, with our strongest upstream plant reliability on record and our lowest production costs in 16 years, helping to generate strong returns and reducing debt for the 11th quarter in a row,” Looney said in the company’s latest results statement.
“Importantly, we are delivering for our shareholders – with buybacks and a growing dividend. This is exactly what we said we would do and will continue to do – performing while transforming,” he added.
strategy update posted on the company’s website on Tuesday, adding that all three together are what’s known as “the energy trilemma”.
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