BP CEO Auchincloss on Profit Beat, Castrol, Oil and Gas Production

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00:00Murray, good morning. Congratulations. Looks like a fairly solid set of numbers.

00:03You've got a 750 million buyback going through. You've got an adjusted net that looks like it's

00:07ahead. The operating line looks like it is ahead as well. Should I focus on those figures or should

00:13I focus maybe on the idea that actually the gearing ratios are starting to tick higher?

00:18Should I be focusing on debt or should I be focusing on earnings this morning?

00:23Well, good morning and thanks very much for having me. It's been a good quarter,

00:26as you said, a 10 percent beat on expectation. 7.8 billion of operating cash flow and of course

00:33we've now announced 5 billion of divestments year to date announced. The operations themselves were

00:39running very well in the downstream. We've had our highest refining availability in 25 years

00:44and our customers business had the best result in history. And then on the upstream, of course,

00:49we're growing volumes 2 to 3 percent per year and we've had six major projects come online,

00:54four ahead of schedule and, of course, the 12 expiration discoveries. So a very good quarter,

00:59three quarters into our 12 quarter plan, but we've got great momentum.

01:03OK, so the momentum is going well. Talk to me about the momentum when it comes to the

01:07divestment program, because that is where everybody is focusing their attention right now. The name

01:10that keeps coming up time and time again in the analyst notes that I've been reading is Castro.

01:15What is happening with Castro? When are we going to be seeing that disposal going through?

01:19And are you still convinced that's the right move?

01:23Sure. So what we announced in February, three quarters ago, is that we divest 20 billion

01:28of divestments across the three year time period to 2027. And that would help lower our debt

01:33from about 26 billion at third quarter to 14 to 18 billion by 2027. We're strongly in action.

01:40We've now announced 5 billion, including the announcement in the US and over the past couple

01:45days. And so we have confidence that we'll hit that 14 to 18 billion. Remember, our net debt is

01:5226 billion in the quarter. That was despite paying down 1.2 billion in the hybrid and despite a higher

01:57tax bill in the quarter. Of the 5 billion of divestments, 3.5 billion is still yet to come

02:02to the balance sheet once they complete. So that, of course, will show progress as well.

02:06And then on Castro, Castro is performing really well. Nine straight quarters now with a profit

02:12improvement quarter in, quarter out and strong interest in Castro. And we remain confident

02:17that we'll be able to transact on it. Murray, why sell it? You just outlined a case for a really

02:25solid business that has a low cost of capital that generates really decent returns. If I'm an

02:31investor, I'm looking at this going, yeah, OK, so that's part of the disposal program. But it's a

02:35great business. So why are we thinking about disposing of it? Yeah, it is a great business. As I said,

02:41nine quarters in a row with earnings growth and Michelle and Emma who are leading the team are

02:44doing a great job. But it's the least integrated of our businesses. We have a strategy to grow our

02:49upstream, to tightly, tightly focus our downstream on the most integrated businesses that support

02:55trading, and then to invest very carefully inside transition. And with Castro, it is a great business,

03:03but it's the least integrated. We don't have base oil. And I think it'll be of more value to others

03:08than necessarily to us. So we continue on our progress, our process, and we remain confident.

03:14We remain confident with that process.

03:17Murray, it's Creedy in London. Let's pivot to a little bit more of the macro agenda. I'm curious

03:21on your take on these oil markets right now. We have new sanctions coming out of the United States

03:25on some of the major Russian players. We have an oversupply and we have an OPEC

03:29plus cartel that continues to hike out output. When do you think oil prices end up in 2026?

03:35Yeah, I think, you know, it's very difficult to predict oil price, probably the hardest thing

03:40in the world. What I will say, though, is as you look through, demand remains strong. We continue

03:46to see 1% demand growth in 25 and 26. So very strong demand growth. And from a non-OPEC part of

03:54the world, non-OPEC plus, we see production peaking somewhere in February, March, April. From there,

04:00we expect it to flatten and decline as far as the eye can see. So really price is going to be

04:05determined by three factors. What happens with OPEC plus you saw you saw the action they had on

04:10Sunday, what happens with these sanctions, they're pretty serious sanctions. And then what Chinese

04:15behavior is on storage, those are the three things that will determine the price. For us doesn't

04:20really matter. What we're focused on is running a solid business uptimes at 97% across the entire

04:25portfolio. We're driving costs out of the business and we're repairing the balance sheet. So we focus

04:31on a low price environment and any price upside will just benefit us.

04:36Well, Marie, speaking of that low price environment, there's starting to be some speculation that

04:40oil prices are headed to be in the low 50s. We've heard that for analysts on the show. We've heard

04:44that from some of your peers as well. And it's certainly been a conversation in Abu Dhabi where you

04:48are right now. Is that valid if we're talking about some of the trade uncertainty, if we're talking

04:52about a growth slowdown? Is that a plausible scenario? Low 50s come 2026? Well, I'll just go

04:59back to the basics. You have to look at supply and demand when you think about these things on demand

05:03remains robust at 1% growth. You know, in fact, we saw gasoline demand increase 5% across Europe

05:09so far this year. So demand growth is strong. And through cycle, that's what's so important.

05:15And then on the supply side, again, it really just depends on what happens with these three big

05:20macro factors that are very difficult to very difficult to predict. So let's just watch and

05:26see what OPEC plus does. Let's see how the serious sanctions impact supply. And let's see the Chinese

05:31behavior. And then then we'll be able to determine what happens with price.

05:36Good morning to you, Marie. So you've set out the three things that you think will then determine

05:39that price. Talk to me about the link between price and your balance sheet. You're clearly taking

05:43very seriously what you need to do around the balance sheet. Does that get harder with a lower oil

05:48price? Do you need to sell more assets with a lower oil price?

05:52Well, you saw you saw so far this year, or you saw in this quarter that we were able to keep the

05:58balance sheet flat despite despite paying down the hybrid and despite a higher tax bill.

06:04As we look forward, there's three and a half billion of proceeds from our announced five billion

06:08in divestments that haven't completed yet. Those will go to the balance sheet. So we'll have good

06:12momentum with those over time. We also have the divestment that we just talked about with the rest of the

06:1720 billion program, including a potential transaction on Castro. So we remain very comfortable

06:23that we'll hit our 14 to 18 billion dollar target. It's a primary target for us, and we will adapt as

06:28we go along.

06:30OK, can I ask you about Brazil? Finally, Murray, you last week provided an update on some of your

06:35offshore oil discovery activities there. How many barrels do you see there? And what does the drilling

06:41timeline look like? Because you previously talked about this as being a really significant

06:44discovery for BP. It is significant. It's a it's a thousand meter column of hydrocarbons. The first

06:51hundred meters are black oil. The next 900 meters above it are rich gas condensate. So it's a it's a

06:57very good reservoir. We continue to take samples and we'll we'll evaluate those samples, including the

07:03sidewall. And that will enable us to be able to tell you what the volumes are in place. And that will come

07:08in due course. In the meantime, we've contracted a rig and we've contracted the equipment for a flow

07:13test. And we look forward to moving into that that phase of the development in the back end of 26 and

07:18into early 2027. We have a team stood up to look at an early production system and a full development

07:25scheme. This is the this is the largest discovery we've had in 25 years. And and we're really looking

07:32forward to progressing it.

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