Good afternoon everyone and thank you for joining us today. Welcome to BPs 2014 Investor update. We are very pleased to have you with us, whether in person, over the phone or on the web. 2
Before I begin I need to draw your attention to our cautionary statement. During todays presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ…
So the aim of todays presentation is to tell you about the direction we are setting for the future. It is a course based on our analysis of the future for energy: how energy will be supplied and consumed over the coming decades; and…
and then Iain to cover the Downstream. After a brief summary, well take a short break before gathering back here for Q&A. 4
So lets start with the high level picture of energy trends in the world as we see them in BP. This is all based on the extensive work of our Economics team. Our projections show energy demand rising by roughly 40% by 2035 thats around…
We know that the demand is there. The resources are there. And that oil and gas is part of a sustainable and growing landscape. But we also know there is a need for us to be a very dynamic and innovative industry. While the resources are…
life as companies with newly acquired global portfolios. And everything started well as they deployed combined capabilities with even greater efficiencies of scale. But then came the challenge of managing and sustaining growth in these…
operations. I believe the most successful operators will find new and even better ways to do this, to manage their capex and costs, and extract value in the form of free cash flow, through a blend of judgement, discipline, efficiency and…
At BP we have learned some lessons of our own. The 2010 accident was a terrible tragedy. We recognise the impact that suspending the payment of our dividend in 2010 had on our shareholders. It has made us question everything we do and has…
Our activity in 2013 completed the groundwork. It has set us up to deliver the 10- point plan we laid out to you in October of 2011 the things we said you could expect and measure. The most important commitment was to continue to make…
quarter of 2011 we have announced three further increases in the dividend. We are also using part of the cash proceeds from the sale of our share in TNK-BP to repurchase shares, with 7.2bn of shares repurchased for cancellation since…
Before moving on, I should say only a few words about the on-going legal processes in the United States. We continue to compartmentalise activities related to the legal processes and BPs operating teams are focused firmly on our core…
of these proceedings without compromising the future of the firm. 9
Moving on to describe the company we are today. Through our divestment programme we have fundamentally repositioned BP. Aside from our interest in Russia, we are a company that is smaller, simpler and more focused on value. At the same…
The repositioning of our portfolio following our divestment programme has made us less complex, leaving us with a lower risk footprint and allowing us to streamline the way we run our businesses to be more efficient and drive faster…
At the same time the reshaping of our portfolio has made us more focused and positioned us to drive value by playing to our strengths. It has given us a distinctive platform for growth. Its still sufficiently diverse to balance…
Russia is of course one of the worlds largest oil and gas producers and a country where BP has a long and successful track record. Through our investment in Rosneft we have created a unique position which will allow us to bring…
Turning to BP outside Russia, and starting with exploration, this map gives you a sense of the competitive position that we have created. The small bar charts show BPs net acreage position in a selection of promising offshore…
Moving from exploration to development, if we look at BP relative to our peers, we have more value in deepwater, as this chart shows, and a balance of liquids and selective investments in gas. There is no one size fits all or right and…
In the Downstream its a similar position. As Iain will explain, our repositioned Downstream portfolio has the capability to generate material free cash flow for the Group from a set of quality Downstream assets. We have repositioned our…
So, that describes where we aim to compete. But success in this industry is not only about investing in the right assets. It is also about having a set of distinctive capabilities in technology, in relationships and in our most vital…
But that is only a part of the equation. We work hard to develop and nurture long-term relationships. These include the relationships we build with governments and community stakeholders such as those which were vital in completing the…
So that describes the playing field - but what does this offer to the shareholders if we get it right The BP Proposition is a simple one, and one that I hope by now is familiar to you. We have been talking to you about this for some time…
To deliver these outcomes there are many drivers of success but there are 3 I believe to be key and which I want to focus on today. First, active portfolio management, including the restructuring of some parts of our business; Second,…
Ill start with active portfolio management. Unlocking value from our portfolio has been part of the way we work for a long time. Since 2003 BP has divested around 90bn of assets including the sale of our interest in TNK-BP. This is a…
returns, and we also aim to selectively farm out early life assets to diversify risk and invite a pooling of innovation. We will exit activities that no longer fit our strategy and very selectively acquire assets to complement our…
Which brings me to the announcement we are making today of our intention to separate our Lower 48 onshore oil and gas business in the US. We have a significant proportion of our total resource base in the Lower 48 and we have…
This slide shows the outcome of our focus on value over volume over the past few years. Since 2011, the divestments have led to a decline in production in the Upstream. However, this decline in production is being outweighed by growth in…
The objective of our capital allocation process is to maximise value from our deep portfolio of investment opportunities. We work within the boundaries of our overall financial framework to determine the right balance of reinvestment and…
Thirdly, we have a detailed process of post-project evaluation to learn the lessons from each project once it has been completed both in terms of execution and our decision making processes. 23
When progressing our projects we use a group-wide standard called the Capital Value Process, or CVP. It divides the life cycle of projects into stages which define key decision points when projects either proceed to the next stage or get…
The third but most important driver of success is safe, reliable and efficient execution. Execution is something we absolutely need to get right across all our operations, in the execution of our major projects and also in the way we run…
Good execution may be most visible in operations and projects, but our drive to execute effectively goes far wider and includes our functional and support activities. BP is a smaller, simpler company now and requires a smaller, simpler…
27
Thanks Bob. You now have an overall perspective on the company and where we are today and where we aim to compete. Bob has outlined our proposition to you of growing sustainable free cash flow from 2014 to 2018. Id like to give you a…
Looking at free cash flow beyond 2014. We expect to deliver material growth in operating cash flow out to 2018 roughly in line with the shape on this chart, based on our current portfolio and planning assumptions. This is a faster rate of…
24bn to 26bn. We will continue to actively manage our portfolio for value, as Bob outlined. We plan to divest a further 10bn of assets before the end of 2015 as previously announced. And we intend to keep gearing within the 10% to 20%…
Turning to divestments. The chart on the left shows the Net Book Value for the set of assets we sold as part of our 38bn divestment programme, against the disposal proceeds we received. As Bob noted, while the 38bn divestment programme…
A few words now on capital expenditure and returns. Bob talked earlier about the recent trends in the industry. Rising costs and an increase in investment into new large infrastructure projects across the industry has fed into higher…
price volatility; changes to fiscal terms; portfolio effects such as the life-cycle of significant investments; and the impact of acquisition and divestment activities. Ultimately our goal is to increase the Net Asset Value of the…
Turning to distributions. The combination of material growth in operating cash flow coupled with capital discipline provides a strong platform to grow shareholder distributions. Our first priority is to grow dividend per share…
So in summary. Looking out to 2018 we expect the combination of continued growth in operating cash flow and capital discipline to grow sustainable free cash flow, underpinning progressive growth in dividend per share into the future.…
34
Thanks Brian, I would like to update you today on some of the progress we are making and the outlook for our Upstream business. Firstly, and most importantly, I will start with the progress on making our operations safer and more…
So, first and most importantly to safety where we continue to make progress on improving our management systems, developing capability and progressing a safe operating culture across all levels of the business We continue to maintain a…
improvement in operating efficiency. 36
As Bob highlighted, we have successfully completed a divestment programme which included around 30bn of Upstream assets reducing the risk to the business whilst maintaining access to around 90% of our reserves. Over the next two years we…
We have retained a quality resource pipeline representing a balanced portfolio of opportunities. Total resources at the end of 2013 were over 44bn barrels of oil equivalent, excluding Rosneft, with a proved reserves to production ratio…
Bottom Seismic acquisition and processing. - In unconventional gas - from the Lower 48 to Oman - our technology flagship programme is helping to increase recovery through the application of imaging and rock mechanics technologies. -…
As we look out to 2018 we have great confidence in our ability to deliver long term sustainable value from our resource base. We have three points of access. Firstly through the continued focus on our existing operations where we have…
an opportunity set biased to progressing high-margin resource provides an attractive opportunity for value growth over the next few years. As Brian mentioned, excluding the effects of divestments, we expect to deliver moderate production…
So, moving to the sources of value growth, Id like to begin by looking at the investments in our existing operations. Over 90% of our production and operating cash in 2018 is expected to come from our existing fields or major projects to…
fields, deepwater and gas value chains. Our portfolio continues to be biased towards liquids with selective investments in gas positions. I would now like to take you through some of the activities we are executing in the North Sea, Gulf…
We have operated in the North Sea for over 40 years, and see a long term future in this basin. Over the past several years we have been on a declining average plant reliability trend, mainly due to the ageing nature of our facilities. In…
In the Gulf of Mexico we have a high-quality and focused BP-operated portfolio, with four major producing hubs - Thunder Horse, Atlantis, Mad Dog and Na Kika. These assets are early in their life-cycle, with on average 20% of their…
With the Mad Dog rig being brought online in 2013, we are now seeing a resumption of development activity. We are also optimising the Mad Dog Phase 2 development concept which is intended to support longer term production growth. Across…
So turning now to the US lower 48 and building on what Bob has previously announced our intent to separate the business. Over the last several years we have significantly refocused our Lower 48 onshore business, divesting declining…
This is why we intend to change the operating model and run the Lower 48 onshore as a separate business as we continue to focus on unlocking value from our existing portfolio. 43
Now turning to our second point of access progressing the next wave of major projects. The map illustrates the breadth of projects to which we have already made final investment decisions, with a balance between world class deepwater…
We have a quality pipeline of over 50 major projects being progressed and expect this year to reach final investment decision, or FID, on 5 of these. We have a rigorous process of selecting the right development concept, optimizing the…
Two thirds of our current post-FID projects are focused on oil and of these, the large majority are in our 4 key regions. A number of these oil projects leverage existing assets and infrastructure with major new installations that can…
Both the Khazzan field in Oman and the Shah Deniz stage 2 development in Azerbaijan will bring significant gas resource to market, providing long-term optionality and generating material stable cash flows for decades. Our investment…
December 2013 and its associated Southern Corridor pipelines. This is a further development of the existing BP operated giant gas- condensate field in the Azerbaijani sector of the Caspian Sea. The project is expected to more than double…
Now, turning to the longer term. Over the last eight years, we have systematically rebuilt our exploration portfolio with the largest amount of access in decades. Last year, we accessed new positions in Egypt, the UK, Nova Scotia,…
2013 was our most successful year of exploration drilling for almost a decade. 17 exploration wells were completed and we have announced seven potentially commercial discoveries including: - We had two discoveries in India with the MJ-1…
So, we have talked about how we are creating value, I would now like to turn to why we have confidence in our ability to deliver and the progress we have made through our functional execution model Our functional organization has been…
Within our Global Projects Organisation, we continue to focus on capital efficiency and predictable execution. The chart on the left compares the cost predictability of our projects before and after we established our Major Projects…
execution as measured through plan attainment giving us increased confidence in delivery going forward. 50
Our Global Operations Organisation is focused on driving the systematic delivery of safer and more reliable operations, and this focus is delivering results. Our BP-operated plant reliability has increased significantly since 2011 from…
As I previously mentioned the functional model also provides greater clarity on activity and access to improving the efficiency of our spend both capital and expense We are fortunate to have more investment opportunities than we will…
We will also work more effectively with our global supply chain as we leverage existing global agreements and improve functional planning. Lastly, we will separate our US Lower 48 oil and gas business to compete more effectively through…
In summary. We have a safer more reliable and focused portfolio of assets We expect to deliver strong operating cash growth in the medium-term, driven by growth from our existing asset base, particularly the North Sea and Gulf of Mexico…
Thank you Lamar, and good afternoon Ladies and Gentlemen. Id now like to outline progress and expectations for the Downstream. 54
Over the last six years, the Downstream has had a five-point agenda to transform the business and improve our delivery, as repeated on the left. I have shown you this many times. It started with safety improvements, followed by getting…
And finally, you should expect the Downstream to deliver material and growing cash flows for the Group. Because of the relatively lower reinvestment ratio, the free cash flow provided by the Downstream is disproportionate to its capital…
This slide shows each of those deliverables and our recent progress. In safety, on many measures we are now delivering strong performance relative to our competitors. The graph on the top left shows the API Tier 1 process safety event…
significantly improved relative to capital expenditure since 2007, and free cash flow has been maintained at about two to three times 2007 levels on average for the last five years. This has of course been assisted by divestment proceeds.…
This slide shows the relative quality of our fuels business, compared to some of our leading competitors. On the left you have refining, and on the right the ratio of marketing sales to refining capacity. In refining we have exited 13…
Let me now turn to the Whiting refinery. This picture is of the 102kbd coker, which is now in six-drum operation and throughputs are increasing as we ramp-up the volumes of heavy crude oil we are processing. As indicated in 4Q , we have…
This slide reminds us of the strategic and commercial rationale of the Whiting project. It is all about feedstock and location advantage. On the left you see in green that we expect to increase the proportion of heavy crude capability…
been repositioned into an advantaged set of refining and marketing businesses, with excellent brands and offers. Fuels typically generates over 70% of the Downstreams operating cash flow. These flows are very material to the Group and are…
Our petrochemicals portfolio is focused in large part on two main end products Purified Terephthalic Acid (PTA) and acetic acid. PTA is the precursor to polyester for bottles and fibres, and acetic acid is a mainstay intermediate of…
Turning to returns, over the last 10 years BPs portfolio has enjoyed better levels than the competitor average with return on sales averaging about 10% from 2007 to 2011. In the last two years we have seen particularly weak returns, just…
Turning now to Lubricants. As we outlined in some detail in 2011, the Lubricants business is focused on quality premium lubricants and high growth markets, with competitive advantage driven by leading brands, advantaged formulation…
This chart shows these important drivers of growth. Firstly exposure to growth markets outside of the OECD, the earnings from which have increased by over 250% since 2007. We have also been re-shaping earnings in the OECD as we expand…
I commented on return on capital earlier, and we have seen a big improvement from underperformance to robust competitive performance. In 2013 against a backdrop of lower refining margins and a very tough fuels marketing environment, BPs…
In terms of our final deliverable, material and growing cash flows, I have provided indicators of the track record for each business and now let me outline what you should expect from the Downstream as a whole going forward. Cash flow…
pressure. Today we have over 15 simplification and efficiency programmes underway with the continuing goal to offset much of inflation over the next few years. Taking all these together, on the right I have indicated that there is…
Therefore in summary, the deliverables you can expect from BPs Downstream are leadership and improvement in safety performance, a continuous focus on the competitive margin quality of the portfolio, ensuring that this results in…
67
So thank you Iain and that just about wraps up the presentation. Weve given you a lot of detail and I want to close by picking out the really important points before we take a short break. The first thing to say is that The BP…
We are confident, first because we are building a track record that shows we can do all of these things. Second, because we are clear that this is what a company like ours should be doing in todays market. Not trying to do everything, but…
Loading...
