Home » BP’s (BP) CEO Bob Dudley on Q2 2014 Results – Earnings Call Transcript

BP’s (BP) CEO Bob Dudley on Q2 2014 Results – Earnings Call Transcript

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BP P.L.C. (NYSE:BP)

Q2 2014 Earnings Conference Call

July 29, 2014 9:00 am ET

Executives

Bob Dudley – Group Chief Executive Officer

Brian Gilvary – Group Chief Financial Officer

Jessica Mitchell – Head of Global Investor Relations

Analysts

Oswald Clint – Sanford Bernstein

Doug Terreson – ISI

Michele della Vigna – Goldman Sachs

Blake Fernandez – Howard Weil

Jon Rigby – UBS

Iain Armstrong – Brewin Dolphin

Guy Baber – Simmons & Co.

Theepan Jothilingam – Nomura

Anish Kapadia – Tudor Pickering Holt

Alastair Syme – Citibank

Lydia Rainforth – Bar Cap

Stephen Simko – Morningstar

Thomas Adolf – Credit Suisse

Bertrand Hodee – Raymond James

Gordon Gray – HSBC

Irene Himona – SocGen

Martijn Rats – Morgan Stanley

Chris Coupland – Bank of America Merrill Lynch

Fred Lucas – JPMorgan

Lucas Herrmann – Deutsche Bank

Richard Griffith – Canaccord Genuity

Neill Morton – Investec

Operator

Welcome to the BP presentation to the financial community webcast and conference call. I now hand over to Jessica Mitchell, Head of Investor Relations.

Jessica Mitchell – Head of Global Investor Relations

Hello and welcome. This is BP’s Second Quarter 2014 Results webcast and conference call. I’m Jess Mitchell, BP’s Head of Investor Relations, and I’m here with our Group Chief Executive, Bob Dudley; and our Chief Financial Officer, Brian Gilvary.

Before we start, I need to draw your attention to our cautionary statement. During today’s 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 that we note on this slide and in our U.K. and SEC filings. Please refer to our annual report, stock exchange announcement and SEC filings for more details. These documents are available on our website.

Thank you, and now, over to Bob.

Bob Dudley – Group Chief Executive Officer

Thank you, Jess. Hello everyone and wherever you are in the world, I’d like to thank you for joining us today. It’s been another active and, I think, a successful quarter at BP. We continue to move with momentum towards our key goals, not least our commitment to delivering the 10-point plan we first laid out to you in 2011. The demonstration of this is in the stronger underlying earnings and operating cash flow you are seeing in our results today compared to a year ago. We continue to ramp up the new major projects that drive delivery of the $30 billion to $31 billion of operating cash flow planned for this year, so we remain confident of achieving this goal. At the same time, we are firmly focused on safe, reliable and increasing efficient operations.

Earlier this year, we also set out our longer term proposition covering the period out to 2018. As you will recall, we said that we intend to grow sustainable free cash flow through a combination of material growth and operating cash flow and capital discipline with the intention of growing distributions to shareholders. Today you will also see the consistent progress towards the milestones that support the delivery of this plan.

Turning to today’s agenda, I will start off with the headlines for the group in the first half and then Brian will take us through the results for the second quarter along with a reminder of our financial framework and guidance. I will then give a brief update on the ongoing legal proceedings in the U.S. before a note on Rosneft and a look in more detail at the first half highlights from our upstream and downstream businesses. Finally, there will be time at the end for questions.

Let me start with an overview of progress in the first half of 2014, beginning with the portfolio. Having completed the $38 billion divestment program in 2013, we announced a further $10 billion of divestments by the end of 2015 and we have now agreed $3.4 billion of this $10 billion program and continue to look at other ways of actively managing our portfolio to generate value.

You saw this in the announcement we made in March regarding the separation of our U.S. Lower 48 business, and we have already made a start on defining an operating model for the new business and are busy transitioning to a new streamlined organizational structure. We have also signed a lease on new office premises in Houston for the Lower 48 business.

In the upstream, we have participated in the completion of 10 exploration wells this year with two significant discoveries, one at Orca in Angola and the other at Notus in Egypt. Five new upstream major projects have come online it the first half of the year, all in key regions for us. At the same time, we have a number of big projects ramping up, helping to drive operating cash flow growth in 2014 and beyond. We also continue to demonstrate quality in our operations as seen through our increased levels of plant reliability.

In the downstream, the modernized Whiting refinery is up and running heavy crude, and we have continued to focus the portfolio on advantage assets and high-quality products in growth markets. BP has also signed some important deals in the second quarter, notably a heads of agreement with CNOOC, the Chinese National Offshore Oil Corporation, for a 20-year LNG supply contract, so progress is visible and all of this supports our longer-term commitment to growing distributions.

In April, we announced an 8.3% year-on-year increase in the quarterly dividend, demonstrating our confidence to keep this momentum through the remainder of the year and beyond. We have also, as promised, bought back $8 billion worth of our own shares since the start of 2013, completing the buybacks associated with the proceeds from the sale of our interest in TNK-BP. The buyback program will continue, as Brian will come to later, supported by the current program of divestments.

So let me now hand over to Brian to take you through the numbers in detail.

Brian Gilvary – Group Chief Financial Officer

Thanks Bob. BP’s underlying replacement cost profit in the second quarter was $3.6 billion, up 34% on the same period a year ago and 13% higher than the first quarter of 2014. Compared to a year ago, the result reflects increased upstream production in higher-margin areas, a stronger contribution from Rosneft, the return and ramp-up of the modernised Whiting refinery, and stronger oil and gas realisations. These effects were partly offset by higher DD&A, a significantly weaker downstream environment, a lower contribution from supply and trading, and the impact of divestments. Second quarter operating cash flow was $7.9 billion.

Turning to the highlights at a segment level, in the upstream the underlying second quarter replacement cost profit before interest and tax of $4.7 billion compares with $4.3 billion a year ago and $4.4 billion in the first quarter of 2014. Compared to the second quarter of 2013, the result reflects increased production in higher-margin areas, primarily the Gulf of Mexico, and higher liquids and gas realisations partly offset by higher DD&A and well work costs and the impact of divestments. Excluding Russia, second quarter reported production versus a year ago was 6% lower primarily due to the Abu Dhabi onshore concession expiry in January and the impact of divestments. After adjusting for these factors and entitlement impacts, underlying production increased by 3.1%.

Compared to the first quarter, the result reflects increased production in higher-margin areas and lower exploration write-offs partly offset by a lower gas marketing and trading result following strong first quarter performance and lower gas realisations. Looking ahead, we expect third quarter 2014 reported production to be lower than the second quarter, primarily reflecting planned major turnaround and seasonal maintenance activities in Alaska and the Gulf of Mexico. We expect the seasonal reduction to be slightly larger than we experienced in the same quarter of 2013 due to phasing of these activities.

BP’s share of Rosneft underlying net income was $1 billion in the second quarter compared to $220 million a year ago and $270 million in the first quarter. The second quarter result benefited primarily from foreign exchange impacts. BP’s share of Rosneft production for the second quarter was 988,000 barrels of oil equivalent per day, an increase of 5% compared with a year ago. On June 27, Rosneft’s annual shareholders meeting approved an annual dividend of 12.85 roubles per share in respect of 2013 earnings. On the July 22, we received our share of this dividend which amounted to $690 million net of taxes.

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