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Hello and welcome. This is BP’s first 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. 2
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 UK 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. 3
Thank you Jess and welcome to everyone who has joined us today, wherever you are in the world. 4
The first quarter has been a very productive three months for us. In the Upstream, we have made new exploration discoveries and started up new projects. In the Downstream, the newly modernised Whiting refinery continued to ramp-up, along with progress across our fuels, lubricants and petrochemicals businesses. And we continued our focus on safe and reliable operations across the whole of the Group. In March, we affirmed BP’s proposition to shareholders out to 2018. And just to remind you of what we said, we have committed to growing sustainable free cash flow through a combination of growing operating cash and capital discipline, with the intention of growing distributions to shareholders. As you can see from today’s results, we have delivered a solid start to the year, which puts us firmly on course to deliver our 2014 goal of delivering 30 to 31 billion dollars of operating cash flow, at a $100 oil price. So, turning to the agenda, Brian will start by taking us through the results for the first quarter in detail, along with a reminder of our financial framework and guidance. I will then talk briefly about on-going legal proceedings in the US before sharing some of the first quarter highlights in our operations and at Rosneft. And finally, there will be time for Brian and I to take your questions. So, let me now hand over to Brian to take you through the numbers. 5
Thanks Bob. 6
BP’s first quarter underlying replacement cost profit was $3.2 billion, down 23% on the same period a year ago and 15% higher than the fourth quarter of 2013. Compared to a year ago, the result reflects: – Higher costs, predominantly non-cash, in the Upstream business; – A significantly weaker refining environment; and – Lower production. Partly offset by: – The return of the largest crude unit at our Whiting refinery. Compared to the previous quarter, the result reflects: – Lower costs; and – A stronger contribution from supply and trading in both Upstream and Downstream. Partly offset by: – A significant reduction in our share of earnings from Rosneft due to the recent weakness of the Rouble; and – The absence of the one-off benefits to BP’s share of Rosneft net income in the fourth quarter. Operating cash flow was $8.2 billion for the quarter. We have announced a 8.3% year-on-year increase in the first quarter dividend to 9.75 cents per ordinary share, payable in June. 7
In Upstream, the underlying first quarter replacement cost profit before interest and tax of $4.4 billion compares with $5.7 billion a year ago and $3.9 billion in the fourth quarter of 2013. Compared to the first quarter of 2013 the result reflects: – Higher costs, predominantly exploration write-offs and DD&A; and – Lower production and lower liquids realisations. Partly offset by: – Strong gas marketing and trading results; and – Higher gas realisations. Following our decision to create a separate business around our US lower 48 onshore oil and gas activities, and as a consequence of disappointing appraisal results, we have decided not to proceed with development plans in the Utica shale. As a result, we have taken a $520 million exploration write-off relating to Utica acreage in the quarter. Excluding Russia, first quarter reported production versus a year ago was 8.5% 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 was slightly lower. With new major project volumes in the North Sea, Angola and the Gulf of Mexico we have grown our total underlying production in higher-margin areas. 8
Compared to the fourth quarter, the result reflects: – Lower costs; – Higher gas realisations; and – Stronger gas marketing and trading results. Partly offset by: – The absence of the one-off benefit to production taxes in the fourth quarter; and – Lower liquids realisations. Looking ahead, we expect second quarter 2014 reported production to be lower than the first quarter. This is driven by planned major turnaround activity in the higher-margin North Sea and Gulf of Mexico regions. We expect the turnaround impact on production to be slightly less than the impact experienced in the second quarter of 2013. 8
Rosneft is expected to announce first quarter results tomorrow. Based on preliminary information, we expect BP’s underlying net income related to our Rosneft shareholding to be $270 million for the first quarter. This compares to BP’s share of Rosneft net income in the first quarter of last year of $90 million, which included only 11 days of earnings. Compared to the previous quarter, underlying net income is expected to be $820 million lower. The first quarter was adversely impacted by the devaluation of the Rouble and the absence of adjustments made in the fourth quarter to finalise BP’s equity accounting for 2013. BP’s share of Rosneft production for the first quarter is estimated at one million barrels of oil equivalent per day. We expect to receive our next dividend from Rosneft in the third quarter of 2014. 9
In the Downstream, the first quarter underlying replacement cost profit before interest and tax was $1 billion compared with $1.6 billion in the first quarter last year and $70 million in the fourth quarter. The fuels business reported an underlying replacement cost profit before interest and tax of $700 million in the first quarter, compared with a $1.2 billion profit in the same quarter last year. The decrease reflects: – A significantly weaker refining environment. Partly offset by: – The return of the largest crude unit at our Whiting refinery which had a planned outage in the same period of 2013; and – The progressive increase in heavy crude processing throughout the quarter. This quarter, the fuels business also had a strong supply and trading contribution, similar to the first quarter of 2013. Heavy crude processing continued to increase at Whiting, reaching about 200,000 barrels per day at the end of the quarter. It is expected to reach around 280,000 barrels per day during the second quarter, optimising to market conditions. The lubricants business reported an underlying replacement cost profit before interest and tax of $310 million compared with $350 million in the same quarter last year. The difference is primarily due to exchange rate effects on the Indian Rupee, the British Pound, and the South African Rand. Beyond this, the result reflects continued delivery of our strategy focused on premium lubricants, leading brands and high growth markets. The petrochemicals business reported a break-even result. Our major complex near 10
Shanghai has been down for a site turnaround since early March. The environment for this business continues to be challenging with strong product demand growth more than offset by excess supply. 10
In Other Businesses and Corporate, we reported a pre-tax underlying replacement cost charge of $490 million for the first quarter, in line with guidance. Guidance for 2014 remains unchanged with the average underlying quarterly charge in the range of 400 to 500 million dollars per quarter. The underlying effective tax rate for the first quarter was 33%, compared to 39% in the first quarter of 2013. The rate is lower than a year ago mainly due to foreign exchange effects and a higher level of equity income from Rosneft, which is reported net of tax. Guidance for the full year effective tax rate remains around 35%. 11
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