TIDMBP.
RNS Number : 0499V
BP PLC
04 August 2020
4 August 2020
From International Oil Company to Integrated Energy Company:
bp sets out strategy for decade of delivery
towards net zero ambition
New strategy sees bp:
Pivoting to low carbon energy and customer focus
-- 10-fold increase in low carbon investment by 2030, with
up to 8-fold increase by 2025
-- partnering with 10-15 cities and 3 core industries in decarbonization efforts
and doubling customer interactions to 20 million per day, all by
2030
Focusing resilient hydrocarbon business on value:
-- capital intensity decreasing as major project wave completes, combined with
continued efficiency focus, to drive earnings and ROACE
growth
-- production declines by 40% by 2030 through active portfolio management
-- no exploration in new countries
Delivering on net zero ambition
-- emissions from bp's operations 30-35% lower by 2030
-- emissions associated with carbon in upstream oil and gas production
35-40% lower by 2030
-- carbon intensity of products bp sells lower by more than 15% by 2030
Delivering long term value for shareholders
-- reset resilient dividend of 5.25c/share per quarter, with commitment to
return at least 60% of surplus cash as share buybacks
-- profitable growth with 7-9% annual growth in EBIDA per share to 2025
-- sustainable value with increasing investment in low carbon and non-oil and gas
bp today introduces a new strategy that will reshape its
business as it pivots from being an international oil company
focused on producing resources to an integrated energy company
focused on delivering solutions for customers.
Within 10 years, bp aims to have increased its annual low carbon
investment 10-fold to around $5 billion a year, building out an
integrated portfolio of low carbon technologies, including
renewables, bioenergy and early positions in hydrogen and CCUS. By
2030, bp aims to have developed around 50GW of net renewable
generating capacity - a 20-fold increase from 2019 - and to have
doubled its consumer interactions to 20 million a day.
Over the same period, bp's oil and gas production is expected to
reduce by at least one million barrels of oil equivalent a day, or
40%, from 2019 levels. Its remaining hydrocarbon portfolio is
expected to be more cost and carbon resilient.
By 2030, bp aims for emissions from its operations and those
associated with the carbon in its upstream oil and gas production
(addressed by Aim 1 and Aim 2 of bp's net zero ambition) to be
lower by 30-35% and 35-40% respectively.
bp also today sets out a new financial frame to support a
fundamental shift in how it allocates capital, towards low carbon
and other energy transition activities. The combination of strategy
and financial frame is designed to provide a coherent and
compelling investor proposition - introducing a balance between
committed distributions, profitable growth and sustainable value -
and create long-term value for bp's stakeholders.
As part of the investor proposition, bp's board has introduced a
new distribution policy, with two elements:
-- the dividend reset to a resilient level of 5.25 cents per
share per quarter, and intended to remain fixed at this level,
subject to the board's decision each quarter, supplemented by
-- a commitment to return at least 60% of surplus cash to
shareholders through share buybacks, once bp's balance sheet has
been deleveraged and subject to maintaining a strong investment
grade credit rating.
"Energy markets are fundamentally changing, shifting towards low
carbon, driven by societal expectations, technology and changes in
consumer preferences. And in these transforming markets, bp can
compete and create value, based on our skills, experience and
relationships. We are confident that the decisions we have taken
and the strategy we are setting out today are right for bp, for our
shareholders, and for wider society."
Helge Lund, chairman
New strategy
Earlier this year bp announced its new purpose, net zero
ambition and aims, and its determination to reimagine energy and
reinvent bp. Building on the purpose, together with bp's beliefs
about the future of energy systems and changing customer demands,
the strategy sets out how bp expects to deliver its ambition.
"bp has been an international oil company for over a century -
defined by two core commodities produced by two core businesses.
Now we are pivoting to become an integrated energy company - from
IOC to IEC. From a company driven by the production of resources to
one that that's focused on delivering energy solutions for
customers.
"We believe our new strategy provides a comprehensive and
coherent approach to turn our net zero ambition into action. This
coming decade is critical for the world in the fight against
climate change, and to drive the necessary change in global energy
systems will require action from everyone.
"So, in the years ahead, bp is going to significantly scale-up
our low-carbon energy business and transform our mobility and
convenience offers. We will focus, and reduce, our oil, gas and
refining portfolio. And, as we drive down emissions on our route to
net zero, we are committed to continuing to deliver long-term value
for our stakeholders.
"We bring with us over 100 years of experience steeped in the
world of energy. We understand energy markets deeply, and have
developed unique capabilities in trading, marketing, technology and
innovation. And we are not starting from scratch in this new world.
From our Lightsource bp joint venture - now in 13 countries - to
our electric vehicle charging partnership with DiDi in China, and
our industry-leading convenience partnerships with M&S in the
UK and REWE in Germany - we are already building scale and
capability."
Bernard Looney, chief executive officer
The strategy is built around three focus areas of activity and
three distinctive sources of differentiation, underpinned by a new
sustainability frame and advocacy for policies that support net
zero.
The focus areas are:
-- Low carbon electricity and energy: building scale in
renewables and bioenergy, seeking early positions in hydrogen and
CCUS, and building out a customer gas portfolio to complement these
low carbon energies.
-- Convenience and mobility: putting customers at the heart of
what bp does, helping accelerate the global revolution in mobility,
redefining the experience of convenience retail, and scaling bp's
presence and fuel sales in growth markets.
-- Resilient and focused hydrocarbons: maintaining an absolute
focus on safety and operational reliability, bp intends to drive
capital and cost productivity up and emissions down. bp intends to
complete the ongoing wave of major projects, decreasing capital
intensity, and to continue to high-grade the portfolio, resulting
in significantly lower and more competitive production and refining
throughput. bp will not seek to explore in countries where it does
not already have upstream activities. Rosneft is a fundamental part
of bp's broader portfolio and provides bp with a strong position in
Russia.
The t hree sources of differentiation to amplify value are:
-- Integrated energy systems: along and across value chains,
pulling together all bp's capabilities to optimise energy systems
and create comprehensive offers for customers.
-- Partnering with countries, cities, and industries: as they
shape their own paths to net zero.
-- Digital and innovation: to enable new ways to engage with
customers, create efficiencies, and support new businesses.
Delivering the strategy will see bp become a very different
company by 2030. By then, bp aims for:
-- investment in low carbon energy to have increased from around
$500 million to around $5 billion a year;
-- developed renewable generating capacity to have grown from 2.5GW in 2019 to around 50GW;
-- bioenergy production to have risen from 22,000 b/d to more than 100,000 b/d;
-- hydrogen business to have grown to have 10% share of core markets;
-- global customer interactions to have risen from 10 million to 20 million a day;
-- electric vehicle charging points to have increased from 7,500 to over 70,000; and
-- energy partnerships with 10-15 major cities around the world and three core industries.
Over the same time:
-- Upstream oil and gas production is expected to reduce from
2.6 million barrels of oil equivalent a day (mmboe/d) in 2019 to
around 1.5mmboe/d; and
-- refining throughput is expected to fall from 1.7 million
barrels a day (mmb/d) in 2019 to around 1.2mmb/d.
Through this change, bp will continue its commitment to
performing as it transforms - maintaining its focus on safety,
operational excellence and financial discipline.
Delivering bp's net zero ambition
The introduction of the new strategy and transformation of bp
are expected to deliver material progress towards its ambition to
become net zero by 2050 or sooner and its supporting aims. By 2030,
bp aims to have delivered significant progress against its first
five Aims:
-- Aim 1 - emissions from operations, 30-35% lower than in 2019;
-- Aim 2 - emissions associated with the carbon in bp's upstream oil and gas production,
35-40% lower than in 2019;
-- Aim 3 - carbon intensity of marketed products, more than 15% lower than in 2019;
-- Aim 4 - measurement of methane in place by 2023, and progress underway to halve its
intensity;
-- Aim 5 - investment in low carbon increased from $0.5 billion to around $5 billion a year -
and to $3-4 billion by 2025.
New financial frame, investor proposition and distribution
policy
bp also today introduces a new financial frame that will support
this transformation and delivery of the strategy. It sets out bp's
clearly defined priorities for capital allocation:
-- supporting a resilient dividend;
-- deleveraging and maintaining a strong investment grade credit rating;
-- investing at scale into the energy transition;
-- investing in bp's resilient hydrocarbons assets to maximise value and cash flow; and
-- returning cash to shareholders through buybacks.
bp intends to maintain its financial discipline with a rigorous
business plan, including strengthening its balance sheet,
maintaining strict discipline on capital spending and deleveraging
to reduce net debt to $35 billion.
bp intends to maintain annual capital expenditure -- including
inorganic investment - in a range of $14-16 billion to 2025;
keeping within the lower end of the $13-15 billion range until net
debt has been reduced to $35bn. As it high-grades its portfolio, bp
is also targeting $25 billion of divestment proceeds between the
second half of 2020 and 2025.
Based on expected growth in profitability, and its focus on
disciplined investment allocation, bp aims to deliver strong and
growing returns, with ROACE rising to 12-14% in 2025(1) . It also
expects to rebalance its sources and uses of cash, on average over
2021-25, to a balance point of around $40/bbl Brent, assuming an
average bp refining marker margin around $11/bbl and Henry Hub at
$3/mmBtu in 2020 real terms.
bp is committed to delivering attractive returns to
shareholders. Therefore, as part of the financial frame, bp's board
has put in place a new distribution policy, comprising two
elements:
-- a resilient dividend of 5.25 cents per share per quarter,
with an intention that this level will remain fixed, subject to the
board's decision each quarter; and
-- a commitment to return at least 60% of surplus cash flow to
shareholders via share buybacks once net debt is reduced to $35
billion and subject to maintaining a strong investment grade credit
rating(2) .
The board believes setting a dividend at this level takes into
account the current uncertainty regarding the economic consequences
of the COVID pandemic, supports bp's balance sheet and also
provides the flexibility required to invest into the energy
transition at scale. The commitment to return surplus cash as
buybacks offers investors benefits from potential cash flow upside,
while also reinforcing bp's commitment to investment
discipline.
The combination of this frame and the new strategy creates bp's
new investor proposition:
-- Committed distributions: a resilient dividend, supplemented
by a commitment to distribute surplus cash through share
buybacks.
-- Profitable growth: underlying business performance expected
to drive growth in EBIDA per share at an average compounded annual
growth rate of 7-9% to 2025(3) , supported by the share buyback
commitment.
-- Sustainable value: with increasing investment in non-oil and
gas, by 2025 more than 20% of bp's capital is expected to be
employed in transition businesses, including low carbon. This is
expected to diversify and improve the resilience of bp's cash
flow.
"We believe that what we are setting out today offers a
compelling and attractive long-term proposition for all investors
-- a reset and resilient dividend with a commitment to share
buybacks; profitable growth; and the opportunity to invest in the
energy transition.
"I want to acknowledge the impact the reset dividend will have
on many - whether individual retail investors or large holders.
However, it is a decision that we wholeheartedly believe is in the
long-term interest of our stakeholders."
Bernard Looney
bp will give more detail on its strategy, business plans and
investor proposition in its capital markets day presentations on
14-16 September.
Notes :
This announcement includes inside information as defined in
Article 7 of the Market Abuse Regulation No. 596/2014. The person
responsible for arranging the release of this announcement on
behalf of BP p.l.c. is Ben Mathews, Company Secretary.
(1) This ROACE figure is based on $50-60/bbl (2020 real).
(2) Following the end of the first quarter in which net debt is
reduced to $35 billion, and subject to having surplus cash flow,
the board will announce the quantum of share buybacks, returning at
least 60% of the surplus cash flow arising in such quarter.
Thereafter, and subject to maintaining a strong investment grade
credit rating, the amount to be allocated to buybacks will be
calculated on a cumulative basis, including surplus cash flow and
the quantum of buybacks in previous quarters. Once a full four
quarters have been reached, the calculation will be limited to the
preceding four quarters, on a rolling basis.
(3) This EBIDA figure is based on $50-60/bbl (2020 real).
Other:
-- bp's net zero ambition and aims are set out in BP Annual
Report and Form 20-F 2019 , pages 6 and 7; further information on
Aims 1, 2 and 3 is provided in BP Annual Report and Form 20-F 2019
, page 40.
-- For the purpose of this announcement, the terminology below
has the meaning given to it on the specified page in BP Annual
Report and Form 20-F 2019 :
Carbon intensity of products bp sells; carbon intensity of
marketed products: pages 40 and 338 ("Average emissions intensity
of marketed energy products")
Emissions from bp's operations; emissions from operations: page
40.
Emissions associated with carbon in bp's upstream oil and gas
production: page 38 ("emissions from the carbon in our Upstream oil
and gas production")
Methane intensity: page 34.
Net zero: page 338.
-- For the purpose of this announcement, the terminology below has the following meanings:
EBIDA - underlying replacement cost profit before interest and
tax, add back depreciation, depletion and amortization and
exploration expenditure written-off (net of non-operating items),
less taxation on an underlying replacement cost basis.
EBIDA per share - share buybacks are modelled across a range of
share prices in this calculation and EBIDA is after impact of
planned divestments
Low carbon energy; low carbon technologies: Low carbon
(renewable) electricity; bio-energy; electrification; future
mobility solutions; carbon capture, use and storage (CCUS); "blue"
or "green" hydrogen; and trading in low carbon products. Note that,
while there is some overlap, these terms do not mean the same as
bp's strategic focus area of "low carbon electricity and energy",
as described in this announcement.
Low carbon investment; investment in low carbon energy;
investment in low carbon: Capital expenditure on low carbon energy
or technologies.
Low carbon and other energy transition activities: Low carbon
energy / technologies as described above, together with
convenience; integrated gas and power; bp Ventures and
Launchpad.
Developed net renewable generating capacity; developed renewable
generating capacity: the aggregate quantity, net to bp, of
renewable generating capacity that has been developed, whether
before or after the date of this announcement, to the point of
Final Investment Decision. This figure is calculated irrespective
of any subsequent sell-down; it represents the quantity developed
up to the relevant date (e.g., 2030) rather than the quantity held
at that date.
Bioenergy production: production of bioenergy on an ethanol
equivalent production basis for sugarcane ethanol and biopower
production as well as refining bio co-processing production; net to
bp.
surplus cash flow - refers to surplus of sources of cash
including operating cash flow, JV loan repayments and divestment
proceeds, over uses, including leases, Gulf of Mexico oil spill
payments, hybrid servicing costs, dividend payments and cash
capital expenditure.
ROACE - return on average capital employed as defined in BP
Annual Report and Form 20-F 2019 (page 342).
Further information :
bp press office, London: bppress@bp.com , +44(0)7831 095541
Cautionary statement:
In order to utilize the 'safe harbor' provisions of the United
States Private Securities Litigation Reform Act of 1995 (the
'PSLRA') and the general doctrine of cautionary statements, BP is
providing the following cautionary statement: The discussion in
this results announcement contains certain forecasts, projections
and forward-looking statements - that is, statements related to
future, not past events and circumstances - with respect to the
financial condition, results of operations and businesses of BP and
certain of the plans and objectives of BP with respect to these
items. These statements may generally, but not always, be
identified by the use of words such as 'will', 'expects', 'is
expected to', 'aims', 'should', 'may', 'objective', 'is likely to',
'intends', 'believes', 'anticipates', 'plans', 'we see', 'focus on'
or similar expressions.
In particular, the following, among other statements, are all
forward looking in nature: BP's new strategy to focus on low-carbon
electricity and energy, convenience and mobility, cost and carbon
resilient and focused hydrocarbons, including statements regarding
its aims to increase low-carbon investment 10-fold by 2030 and up
to 8-fold by 2025, decrease capital intensity as major project wave
completes, lower oil and gas production 40% from current levels by
2030 through active portfolio management, develop around 50GW of
net renewable generating capacity by 2030, scale BP's presence and
fuel sales in growth markets, maintain focus on safety and
operational reliability, drive capital and cost productivity up,
increase bioenergy production to 100,00 b/d, increase hydrogen
business to 10% share of core markets, begin no exploration in new
countries, build partnerships with countries, cities and industries
in decarbonisation efforts and double customer interactions to 20
million per day by 2030 and increase electric vehicle charging
points to over 70,000 and to amplify value through digital and
innovation; plans and expectations to reduce
Upstream oil and gas production to around 1.5mmboe/d and
refining throughput to 1.2mmb/d by 2030; BP's new ambition to be a
net zero company by 2050 or sooner including statements regarding
its aims by 2030 for emissions reductions across operations, the
carbon content of its oil and gas production, a 50% cut in the
carbon intensity of products BP sells, methane measurement at major
oil and gas processing sites by 2023 and subsequent reduction of
methane intensity of operations, and aims to increase the
proportion and amount of investment into non-oil and gas businesses
over time; BP's expectations regarding shifts in energy markets;
and BP's new financial frame to support a shift in allocating
capital towards low carbon and other energy transition activities
and for the combination of strategy and financial frame to provide
a coherent and compelling investor proposition and create long-term
value for BP's shareholders, including statements regarding BP's
disciplined priorities for capital allocation, maintaining
financial discipline with a rigorous business plan, strengthening
the balance sheet, maintaining strict discipline on capital
spending in a range of $14-16 billion to 2025 and within the lower
end of the $13-15 billion range until net debt has been reduced to
$35 billion, targeting $25 billion of divestment proceeds between
the second half of 2020 and 2025, delivering strong and growing
returns, with ROACE rising to 12-14% in 2025, rebalancing sources
and uses of cash, on average over 2021-2025 to a balance point of
around $40/bbl Brent, assuming an average bp refining marker margin
around $11/bbl and Henry Hub at $3/mmBtu in 2020 real terms ,
resetting to a resilient level of dividend per quarter subject to
the board's decision each quarter, a commitment to return at least
60% of surplus cash through share buybacks once net debt is reduced
to $35 billion and subject to maintaining a strong investment grade
credit rating, deleveraging and maintaining a strong investment
grade credit rating, investing at scale into the energy transition
as well as in BP's resilient hydrocarbons assets to maximize value
and cash flow; and to drive growth in EBIDA per share at an average
compounded annual growth rate of 7-9% to 2025 supported by the
share buyback commitment and that by 2025 more than 20% of its
capital is expected to be employed in transition businesses,
including low carbon.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that will or may occur in the future and are outside
the control of BP. Actual results may differ materially from those
expressed in such statements, depending on a variety of factors,
including: the extent and duration of the impact of current market
conditions including the significant drop in the oil price, the
impact of COVID-19, overall global economic and business conditions
impacting our business and demand for our products as well as the
specific factors identified in the discussions accompanying such
forward-looking statements; changes in consumer preferences and
societal expectations; the pace of development and adoption of
alternative energy solutions; the receipt of relevant third party
and/or regulatory approvals; the timing and level of maintenance
and/or turnaround activity; the timing and volume of refinery
additions and outages; the timing of bringing new fields onstream;
the timing, quantum and nature of certain acquisitions and
divestments; future levels of industry product supply, demand and
pricing, including supply growth in North America; OPEC quota
restrictions; PSA and TSC effects; operational and safety problems;
potential lapses in product quality; economic and financial market
conditions generally or in various countries and regions; political
stability and economic growth in relevant areas of the world;
changes in laws and governmental regulations; regulatory or legal
actions including the types of enforcement action pursued and the
nature of remedies sought or imposed; the actions of prosecutors,
regulatory authorities and courts; delays in the processes for
resolving claims; amounts ultimately payable and timing of payments
relating to the Gulf of Mexico oil spill; exchange rate
fluctuations; development and use of new technology; recruitment
and retention of a skilled workforce; the success or otherwise of
partnering; the actions of competitors, trading partners,
contractors, subcontractors, creditors, rating agencies and others;
our access to future credit resources; business disruption and
crisis management; the impact on our reputation of ethical
misconduct and non-compliance with regulatory obligations; trading
losses; major uninsured losses; decisions by Rosneft's management
and board of directors; the actions of contractors; natural
disasters and adverse weather conditions; changes in public
expectations and other changes to business conditions; wars and
acts of terrorism; cyber-attacks or sabotage; and other factors
discussed elsewhere in this report, and under "Risk factors" in BP
Annual Report and Form 20-F 2019 as filed with the US Securities
and Exchange Commission.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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