BP p.l.c. (BP)

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BP plc (BP)

Q4 2012 Earnings Call

February 5, 2013 9:00 am ET

Executives

Jessica Mitchell – Head-Investor Relations

Robert Dudley – Group Chief Executive

Brian Gilvary – Chief Financial Officer

Analysts

Alejandro A. Demichelis – Exane Ltd.

Doug Terreson – ISI

Jason D. Gammel – Macquarie Capital

Oswald C. Clint – Sanford C. Bernstein

Robert Kessler – Tudor, Pickering, Holt

Hootan Yazhari – Bank of America Merrill Lynch

Jon Rigby – UBS

Theepan Jothilingam – Nomura International Plc

Lydia R. Rainforth – Barclays Capital Securities Ltd

Elliston Simon – Citi

Irene Himona – Société Générale

Martin Rats – Morgan Stanley

Lucas O. Herrmann – Deutsche Bank

Peter Hutton – RBC Capital Markets

Jason S. Kenney – Banco Santander SA

Presentation

Operator

Welcome to the BP presentation, to the Financial Community Webcast and Conference Call.

I'll now hand over to Jessica Mitchell, Head of Investor Relations.

Jessica Mitchell

Hello and welcome to BP's Fourth Quarter and Full Year 2012 Results Webcast and Conference Call. I'm Jessica Mitchell, BP's Head of Investor Relations and joining me today are Bob Dudley, our Group Chief Executive and Brian Gilvary, our Chief Financial Officer. Before we start, I'd like 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.

Robert Dudley

Thank you, Jess and good afternoon or good morning everyone, depending on where you are in the world. As you all know, the last few weeks have been a very traumatic time for us following the atrocity of the Amenas joint venture in Algeria. It is also been a terrible blow for our partners in the joint venture; Statoil and Sonatrach and for the contracting companies involved. Of the people who lost their lives; four BP employees and five Statoil employees lost their lives along with contractors and partners; many of them close colleagues and friends.

BP is a large, but tightly knit company. People were murdered in what should have been an ordinary day of work and we feel the loss deeply. The shockwaves have been felt not only within the companies involved, but around the industry as a whole. The event was a painful and tragic reminder of the importance of what we do.

Our industry has a high profile. We operate at many different countries and cultures. We work in challenging physical environments and we deal with multiple hazards. This event has highlighted the risk that we face from time to time and as an industry, we must learn from it. I would like to thank governments and companies for the close cooperation during the incident.


BP is a company that has been tested to the utmost, but we have resilient committed people. I believe we are equal to the test we face in this event that will simply underscore our determination to run our operations that are safe, secure, enabled to delivery energy for customers and value for shareholders. I think today’s presentation will show some of the drivers of work in our business to achieve this outcome.

So turning to our full-year results, today you will see that 2012 was what we said it would be, a year of milestones, in which a great deal was accomplished at BP.

We are entering 2013 as a more focused oil and gas company with a smaller, but stronger portfolio that provides a platform for growth, a set of distinctive capabilities, a disciplined financial framework and a clear strategic direction for the long-term. Together, these building blocks create a solid foundation from which to grow long-term sustainable free cash flow for shareholders.

In 2013, we’ll continue to see the impact of the reshaping work in our reported results from the divestment of non-strategic assets and the repositioning of our Russian interest, as well as some early results from improved underlying performance.

By 2014, I expect underlying financial momentum to be strongly evident. I am confident that we have the right strategy and that BP is well positioned for the world, we are heading into.

Today, we will start with a summary of our full year 2012 financial results, a look at the key milestones we have met over the past 12 months and a brief overview of the macro economic environment. Brian will then take you through our results for the fourth quarter in more detail. Then I want to update you on the big important areas of our business; our progress on safety and operational risk, the U.S. legal process, our expected investment in Rosneft, and our strategic agenda in the upstream and downstream. And then we will take your questions.

So let’s begin with an overview of our full year 2012 results. Underlying replacement cost profit was $17.6 billion. Post-tax operating cash flow was $20.4 billion. Our organic capital expenditure was $23.1 billion. And we divested $11.4 billion of non-core assets during the year.

Total 2012 dividends paid were $0.33 per share, up 18% in dollars and up 20% in sterling compared to 2011. This means, we distributed $5.3 billion in cash to shareholders. And our gearing at the end of the year is 18.7%, which is within our target band of 10% to 20%. That summarizes the outputs in financial terms, but as I said earlier, 2012 was really about a year of strong progress on the drivers that will show up in future results.

So looking at the key milestones; in Russia, we have an exciting and promising new future, now that we have announced the sale of BP’s 50% share in TNK-BP to Rosneft. We expect the deal to close in the first half of this year.

In the U.S., we continue to work through the legal proceedings. During 2012, we’ve reached landmark settlements with the Plaintiffs’ Steering Committee and we’ve resolved federal criminal charges with the Department of Justice and the SEC. Also in the fourth quarter, we completed the final payment into the $20 billion trust fund. This is a major milestone for the direction of operating cash flow.

We continue to deliver our ten-point plan. We are playing through our strengths and we now have a much more focused portfolio, having effectively reached our $38 billion divestment target, a year earlier than planned. This will have a marked impact on reported earnings and operating cash flow in 2013, but it paves the way for future value creation by establishing a high quality platform for growth.

During 2012, BP started off five major projects; Galapagos in the U.S. Gulf of Mexico, Devenick in the UK North Sea, PSVM in Angola, and Skarv in Norwegian Sea, all of which we operate and Clochas Mavacola in Angola in which we have an interest. I will come back to talk about two of these, PSVM and Skarv in more detail in a short while. Both are projects of considerable scope and scale and are real markers of operational progress. With these projects online, we remain on track to complete our program of 15 major project start-ups between 2011 and the end of 2014.

At our Upstream Investor Day last December, we provided a detailed outline of the upstream platform for growth beyond 2014, and I will summarize that again later.

In the downstream, the major upgrade of our Whiting refinery is now 84% complete at year end and is on track to start up in the second half this year.

Looking even further ahead, we have reloaded our exploration portfolio by gaining access to a range of promising new leases. We’ve acquired new acreage in Brazil, Canada, Namibia, Trinidad and Tobago, Uruguay and the U.S. Since 2010, we have been awarded new license exploration areas that cover a combined area roughly twice the size of the U.K or about the size of the State of California. That’s more than twice as much acreage as we acquired over all of the previous 9 years.

Now before we move on, let’s briefly review the likely course of future energy demand. This slide shows some of the main projections from the BP Energy outlook 2030, which we compile each year. The headlines are that we expect global energy demand to grow rapidly adding around 36% to global consumption by 2030 and nearly all of that increase in demand over 90% is coming from emerging economies. Oil, gas and coal will supply 80% of these needs with gas showing the fastest growth at around 2% per year.

However, the pattern of supply continues to shift and we expect unconventional oil and gas to play an increasing role in meeting demand. The U.S. is now expected to become almost self-sufficient in energy by 2030 while China and India becoming increasingly import dependent.

We can see from the outlook that BP strategy and portfolio is aligned with the opportunities presented by these trends. We plan to play a leading role in the supply of oil by applying what I believe are distinctive capabilities in exploration, managing giant fields and enhanced oil recovery. We are investing in unconventional oil and gas from shale operations in the U.S. to Tight Gas in the Middle East and Heavy Oil in Canada. But we’re also investing in the capacity to process heavy oil, most notably through the major modernization of the Whiting refinery, and our downstream businesses are supporting progress in energy efficiency, for example, with fuels and advanced lubricants for transport that help improve fuel economy and lower emissions, as well as leading petrochemical technologies that minimize energy use, cost, and emissions.

Turning from the long-term to the current environment, the oil price has remained above $100 a barrel for the majority of the past year, albeit with some continued dislocations between crude markers in the U.S. Clearly, this is sensitive to the balance between global demand affected by the recovering global economy and the supply attentions from geopolitical risks. Henry Hub gas prices have continued to remain at historically low trends with reductions in drilling activity offset by only modest demand growth, which has not been sufficient for recovery in the price.

Read the rest of this transcript for free on seekingalpha.com