BP (BP) Earnings Report: Q1 2016 Conference Call Transcript · The mild winter in the United States...

CompanyName:BPPLCCompanyTicker:BPSector:BasicMaterialsIndustry:Energy

EventDescription:Q12016EarningsCallMarketCapasofEventDate:107.75BPriceasofEventDate:33.462

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

BP(BP)EarningsReport:Q12016ConferenceCallTranscriptThefollowingBPconferencecalltookplaceonApril26,2016,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JessicaMitchell;BPPLC;InvestorRelationsBrianGilvary;BPPLC;CFO

OtherPart icipants

IreneHimona;SocieteGenerale;AnalystBlakeFernandez;ScotiaHowardWeil;AnalystJasonGammel;JefferiesLLC;AnalystLydiaRainforth;BarclaysCapital;AnalystJonRigby;UBS;AnalystRobWest;RedburnPartnersLLP;AnalystGuyBaber;Simmons;AnalystHenryTarr;GoldmanSachs;AnalystOswaldClint;SanfordC.Bernstein&Co;AnalystAneekHaq;ExaneBNPParibas;AnalystAnishKapadia;TudorPickeringHolt;AnalystChrisCopeland;BoAMerrillLynch;AnalystNeillMorton;Investec,Inc;AnalystLucasHerrmann;DeutscheBank;AnalystBrendanWarn;BMOCapitalMarkets;AnalystThomasAdolff;CreditSuisse;AnalystBirajBorkhataria;RBCCapitalMarkets;AnalystJasonKenney;BancoSantanderBrasilS.A;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheBPpresentationtothefinancialcommunitywebcastandconferencecall.

I'llnowhandovertoJessicaMitchell,headofInvestorRelations.

JessicaMitchell(InvestorRelations):

Hello,andwelcome.ThisisBP'sfirstquarter2016resultswebcastandconferencecall.I'mJessMitchell,BP'sheadofInvestorRelations.I'mherewithourChiefFinancialOfficer,BrianGilvary.

Beforewestart,Ineedtodrawyourattentiontoourcautionarystatement.Duringtoday'spresentation,wewillmakeforward-lookingstatementsthatrefertoourestimates,plansandexpectations.ActualresultsandoutcomescoulddiffermateriallyduetofactorswenoteonthisslideandinourUKandSECfilings.




Pleaserefertoourannualreport,stockexchangeannouncement,andSECfilingsformoredetails.Thesedocumentsareavailableonourwebsite.

Thankyou--andnowovertoBrian.

BrianGilvary(CFO):

Thanks,Jess.Welcome,everybody,andthankyouforjoiningus.It'sbeenachallengingstarttotheyearforourindustry.Itisalsoaquarterinwhichwehaveseenconsiderableprogressinourownbusinessasweworktorepositionthegroup.

Wecontinuetoseerealmomentuminresettingthecostbase.Thisisworkingtolowerthepointatwhichweexpecttorebalanceorganiccashflowsin2017,andsupportsourcontinuedcommitmenttosustainingthedividendasyouhaveseeninthismorning'srelease.

Ourfocusoncoststogetherwithsoundoperations,hasalsosupportedthesolidunderlyingearningsandcashflowdeliveryyouhaveseentoday,despitethemuchweakermarketconditions.SoI'llstarttodaybylookingatthebusinessenvironmentbeforecoveringourfirst-quarternumbersindetail.

I'llthenupdateyouonourmedium-termfinancialframewherewecontinuetodemonstratebothflexibilityandresilienceinourapproachtoresettingtheCompany.I'llfinishwithabrieflookatthefirst-quarterprogressinourbusinessesbeforeJessandItakeyourquestions.

Startingwithanupdateonthemacroeconomicswherethemarketisrespondingtolowoilpricesandprogressingbroadlyalongthepathwelaidouttoyouearlierintheyear;globaloildemandlookssettoincreasestronglyagainthisyear,supportedbylowoilprices.Weexpectdemandgrowthtobearound1.4millionbarrelsperdaythisyear,alittleweakerthanlastyear,butstillcomfortablyabovethehistoricalaverage.

Atthesametime,globalsupplygrowthislikelytobeflattofalling,withUStightoilsupplyfallinginparticular,onlypartiallyoffsetbyincreasesinuraniumproduction.Soourviewhasn'tchangedmateriallyoverthepastsixtoninemonths.

Wecontinuetoexpectthecombinationofrobustdemandandweaksupplygrowthtomovethemarketcloserintobalancebytheendofthisyear.Thiswillstillleaverecordhighoilinventoriestobeworkeddownbeforeamoresettledpositionemerges.

Lookingmorespecificallyatthepriceenvironmentsofarthisyear,withcontinuedoversupply,Brentcrudeoilfelltoanaverageof$34perbarrelinthefirstquarter,comparedto$44perbarrelinthefourthquarterand$54perbarrelayearago.HenryHubgaspricescontinuedtodeclineinthefirstquarter,withspotpricesaveragingjustbelow$2permillionBritishthermalunits.

ThemildwinterintheUnitedStatescontinuedtosuppressdemand,whilesupplyremainedample,includinggasandstorageatunseasonablyhighlevels.Theglobalrefiningmarkermarginaveraged$10.50perbarrelinthefirstquarter,thelowestsincethethirdquarterof2010,weigheddownbyweakdieseldemandandhighgasolinestocksintheUnitedStates.

Refiningmarginshaverecovered,averaging$12.70sofarinthesecondquarter.Thisweakerenvironmentisconsistentwiththeassumptionswebuiltintoourplansforthefirstpartoftheyear.

Whileithashadasignificantimpactonourresultsinthefirstquarter,thiswasalsoaperiodofstrongoperationaldeliveryandvisibleprogressonourcostandefficiencyagenda.Turningtotheresultsforthegroup,BP'sfirstquarterunderlyingreplacementcostprofitwas$530million,down79%onthesameperiodayearago,and170%higherthanthefourthquarterof2015.




Comparedtoayearago,theresultreflectslowerupstreamrealizations,aweakerrefiningenvironment,andtheabsenceofaone-offtaxbenefitarisingfromchangestoUKsupplementarytaxation.Thiswaspartlyoffsetbylowercashcostsacrossthegroup.

Comparedtothepreviousquarter,theresultreflectslowercostsacrossthegroupandahighercontributionfromsupplyandtrading,partlyoffsetbylowerupstreamrealizationsandaweakerrefiningenvironment.First-quarterunderlyingoperatingcashflow,whichexcludesGulfofMexicooilspillpayments,was$3billion.

Thefirstquarterdividendpayableinthesecondquarterof2016remainsunchangedat$0.10perordinaryshare.Inupstream,theunderlyingfirstquarterreplacementcostlossbeforeinterestandtaxof$750millioncomparestotheprofitsof$600millionayearagoandalossof$730millioninthefourthquarterof2015.

Comparedtothefirstquarterof2015,theresultreflectssignificantlylowerliquidsandgasrealizations,partlyoffsetbylowercostsfromsimplificationandefficiencyactivities,lowerrigcancellationcosts,andlowerDD&A.ExcludingRosneft,first-quarterreportedproductionversusayearagowas5.2%higher.

Afteradjustingforentitlementanddivestmentimpacts,underlyingproductiondecreasedby1.1%.Comparedtothefourthquarter,theresultreflectslowerrealizations,largelyoffsetbysignificantlylowercosts,includinglowerexpirationwrite-offs.

Lookingahead,weexpectsecond-quarter2016reportedproductiontobelowerthanthefirstquarter,reflectingPSAentitlementimpactsandseasonalturnaroundmaintenanceactivity.Inthedownstream,thefirst-quarterunderlyingreplacementcostprofitbeforeinterestandtaxwas$1.8billion,comparedwith$2.2billionayearagoand$1.2billioninthefourthquarterof2015.

Thefuelsbusinessreportedanunderlyingreplacementcostprofitbeforeinterestandtaxof$1.3billioninthefirstquarter,comparedwith$1.8billioninthesamequarterlastyearand$890millioninthefourthquarterof2015.

Comparedtoayearago,theresultreflectsasignificantlyweakerrefiningenvironmentandalowercontributionfromsupplyandtradingcomparedwithaverystrongresultinthesameperiodlastyear,partlyoffsetbylowercostsfromoursimplificationandefficiencyprograms,strongrefineryoperations,andahigherretailresultsupportedbyvolumegrowth.

Comparedtothefourthquarter,theresultreflectsastrongcontributionfromsupplyandtradingcomparedwithasmalllosslastquarter,lowercosts,andstrongrefiningoperations,partlyoffsetbyaweakerrefiningenvironmentandseasonallylowerfuelsmarketingmargincapture.Thelubricantsbusinessdeliveredanunderlyingreplacementcostprofitof$380millioninthefirstquarter,comparedwith$350millioninthesamequarterlastyear,reflectingstrongpremiumbrandperformanceandmargingrowthdespiteadverseforeignexchangeimpacts.

Thepetrochemicalsbusinessreportedanunderlyingreplacementcostprofitof$110millioncomparedto$20millionayearago,reflectingimprovedoperations,lowercosts,andaslightlyimprovedmarginenvironment.Inthesecondquarterweexpectasignificantlyhigherlevelofturnaroundactivity,particularlyintheUnitedStates,andsomeseasonalimprovementinindustryrefiningmargins.

TurningtoRosneft,basedonpreliminaryinformation,wehaverecognizedaround$70millionasourestimateofBP'sshareofRosneft'sunderlyingnetincomeforthefirstquarter,comparedtoaround$180millionayearagoand$235millioninthefourthquarterof2015.OurestimatesofBPshareofRosneft'sproductionforthefirstquarterisjustover1millionbarrelsofoilequivalentperday,similartobothayearagoandthefourthquarter.




AdditionaldetailswillbemadeavailablebyRosneftwiththeirresults.Onthe22ofApril,theRosneftboardindicatedanintentiontoincreaseitsdividendpayoutto35%ofIFRSearnings.

Atcurrentexchangerates,thiswouldimplydividendpayabletoBPofaround$330millionaftertaxfor2015,payableinthethirdquarterof2016.ThefinaldecisionregardingthepayoutwillbetakenatRosneft'sannualgeneralshareholdersmeetinginJune.

Inotherbusinessandcorporate,wereportedapretaxunderlyingreplacementcostchargeof$180millionforthefirstquarter,$110millionlowerthanthesameperiodayearago.Thisreflectslowercorporateandfunctionalcostsandforeignexchangebenefits.

Wecontinuetoexpecttheaverageunderlyingquarterlychargefortheyeartobearound$300million,althoughthismayfluctuatebetweenindividualquarters.Theunderlyingtaxrateinthefirstquarterwas18%,andreflectstaxcreditsfromthereportedupstreamlossoffsettingtaxchargeselsewhereinthebusinesstogetherwithadeferredtaxbenefitfromtheweakerUSdollar.

Thiscomparestoarateof21%inthesameperiodayearago,afteradjustingfortheUKNorthSeasupplementarychargein2015.Inthecurrentenvironment,andwithourexistingportfolioofassets,wecontinuetoexpecttheeffectivetaxrateforthefullyeartobelowerthantheadjusted2015rateof31%,whichexcludesthepreviouslymentionedNorthSeataxcredit.

TurningtotheGulfofMexicooilspillcostsandprovisions,earlierthismonththecourtenteredfinaljudgmentontheconsentdecreerelatingtothe2015agreementtosettleallfederalandstateclaimsarisingfromtheDeepwaterHorizonincident.Asaresult,theconsentdecreeandsettlementagreementarenoweffective.

Thetotalcumulativepretaxchargefortheincidenttodateis$56.4billion,or$40.7billionaftertax.Thechargeforthefirstquarterwas$917million,whichincludes$593millionrelatedtobusinesseconomiclossclaimsnotprovidedfor,$201millionofcostsrelatingtothesettlementofcertaincivilclaimsoutsideofthe2012classactionsettlementandotheradministrationcosts,andfinancingcostsof$123million.

Itisstillnotpossibletoreliablyestimatetheremainingliabilityforbusinesseconomiclossclaims,andwecontinuetoreviewthiseachquarter.Wehave,however,nowagreedsimplifiedandacceleratedproceduresforprocessingclaims,whichyouseereflectedintoday'shighercharge.

Ofthe$20billionpaidintothetrustfund,$19.8billionhasnowbeenpaidoutwiththeremainderallocatedtoamountsalreadyprovidedfor.Thepretaxcashoutflowoncostsrelatedtotheoilspillforthefirstquarterwas$1.1billion,including$530millionrelatingtothe2012criminalsettlementwiththeUnitedStatesDepartmentofJustice.

Wealsoexpectafurther$1.1billionofpaymentsinrespectofthe2015settlement,aswellasfurtherpaymentsrelatedtobusinesseconomiclossclaimsandofthecostsnotyetprovidedfor.Wewillcontinuetoupdateyouonaquarterlybasis,includinganyfurtherdevelopmentswiththePrivateSecuritiesLitigationunderMDL2185.

Nowlookingatcashflow,thisslidecomparesoursourcesandusesofcashinthefirstquarterof2016.Excludingoilspill-relatedoutgoings,underlyingcashflowforthequarterwas$3billion,includingaworkingcapitalbuildofaround$800million.

GulfofMexicooilspillpaymentsof$1.1billionwereoffsetagainstdivestmentproceeds,whichalsoamountedto$1.1billioninthefirstquarter.Includingoilspillpayments,operatingcashflowforthequarterwas$1.9billion,similartoayearago.

Organiccapitalexpenditureinthefirstquarterwas$3.9billion,comparedto$4.4billionayearago.




Turningnowtoourfinancialframeandstartingwithsomecontext,ourfinancialframeworkisdesignedtogrowlong-termvalueforshareholderswhilemaintainingthefinancialhealthandliquidityofthegroup.

Thisrequiresustodeterminetherightlevelofreinvestment,tocontinuetogrowvaluewhileensuringwedistributesustainablereturnstoshareholders.Webelievegettingthisrightisstronglylinkedtomakingtherightdecisionsaboutourportfolio.

Atitssimplest,wehaveprioritizedvalueovervolumeandwillcontinuetodosoonanongoingbasis.Welooktodivestassetswhichnolongerfitwithourstrategy,anddeepeningassetswhichaddthemostvalue.

Atthesametime,wedrivereturnsthroughdisciplinedinvestmentintothebestprojects.Inthecurrentenvironmentallthisstillapplies,butwehaveanaddedimperativetomakeverycarefuljudgmentsabouthowweuseourscarcecapital.

Wehavetobalancethepaceofinvestmenttocapturemaximumdeflation,whileensuringwemaintainsafeoperationsandpreservefuturegrowth.Wealsowishtoretainflexibilitytoaddtotheportfolioatthelowestpointofthecycleiftherightopportunitiespresentthemselves.

Sothere'salotofmovingpartsthatweneedtocontinuetomanagewhiletheenvironmentremainsunsettled.Weenteredthisdowncyclewithastrongbalancesheet,andwehaveastrongportfoliowitharesilientdownstreamandanewwaveofmaterialupstreamprojectstartupsinsight.

WehavealsomovedveryquicklytoresetthecostbaseoftheCompanyforalowerpriceenvironment.Consistentwithmanyothers,weanticipateamodestlymorefavorableoilpriceenvironmentin2017thanweseetoday,butbelievewehavetheflexibilitytowithstandtherangeofoutcomes.

Ifoilpricesremainlowerforlongerthananticipated,therewillinevitablybetrade-offsthatweneedtotake,butwewillcontinuetobegovernedinthesedecisionsbywhatweconsidertobeinthebestlong-terminterestsofshareholders.Lookingatthespecificsofourfinancialframe,wecontinuedtomakestrongprogressonresettingboththecapitalandcashcostbaseofthegroup.

Wenowexpectcapitalexpenditureinrelationtothecurrentportfoliotobearound$17billionthisyear.Weseeroomtoreducethistobetween$15billionand$17billionperannumfor2017intheeventofacontinuedlowoilprice.

ThiscomparestoourguidanceinFebruaryof2017to$19billionperannumforthesameperiod,whileatthattime2016spendwasexpectedtobeatthelowerendofthatrange.Today'sguidancesuggeststhe30%to40%dropincapitalexpenditureby2017,comparedtoaround$25billionofspendatthepeakin2013whenBrentoilpricesaveraged$109perbarrel.

Thereductionhascomethrough,paringbackexpirationspend,prioritizationofmarginalactivity,andthecaptureofacceleratingdeflationinthesupplychain,aswetimeourinvestmentdecisions.Significantly,italsoreflectsastrongdrivetowardscapitalefficiencyinourdevelopmentplans,whichisallowingustodeliverthesameactivityforlessspend.

Inareaswherewestillseeflexibilitytooptimizeactivity,wewilljudgeverycarefullytheimplicationtothebusiness,retainingtheabilitytoincreaseactivityifpricesstrengthen.Wewillcontinuetorealizedeepeningdeflation,andbalancetheoverallbestuseoffundstotheprevailingoilprice.

Ourintentionremainstostayveryfocusedonbothsafetyandourgrowthplansforthefuture.Wealsocontinuedtomovequicklytolowercontrollablecashcostsacrossthegroup.

Thegroup'scashcostsoverthelastfourquarterswere$4.6billionlowerthan2014.Thisdemonstrates




theongoingmomentumbehindoureffortstoreducecosts,andputusabouttwo-thirdsofthewaythroughtodeliveringthe$7billionofcashcostreductionsby2017comparedto2014.

Aswecontinuetolockincapitalefficienciesandembedstructuralsimplification,alongwithamorecontrolledorganization,weexpectalargepartofthecostsavingstobesustainableforthefuture.Non-operatingrestrictionchargesareexpectedtoapproach$2.5billionintotalbytheendof2016,witharound$1.9billionincurredsofarsincethefourthquarterof2014.

Ofthis,around$350millionwasincurredinthefirstquarter.Ourprincipleaimistoreestablishabalancewhereoperatingcashflowcoverscapitalexpenditureandthedividendovertime.

Inthisway,welooktoensurethatlevelsofreinvestmentanddistributionsareconsistentwiththelong-termgrowthofourunderlyingbusiness.Wehavebeenworkingtowardsagoalofrebalancingby2017attheprevailingoilprice,whichbackinOctober2015wepeggedat$60perbarrel,consistentwiththeforwardcurveatthattime.

Aswesteadilytakemorecostsout,theBrentoilprice,whichwewouldexpecttobreak-evencontinuestomovelower.Wenowanticipaterebalancingorganicsourcesandusesofcashby2017atoilpricesintherangeof$50to$55perbarrel.

Thiscurrentlydefinesthebasisforourongoingcommitmenttosustainingthedividendasthefirstprioritywithinourfinancialframework.Actualinflowsandoutflowswillbesubjecttoongoingrecalibrationtotheenvironment,includingthejudgmentswemakearoundlevelsofcapitalexpenditureandanychangestotheportfolio.

Oncerebalancingisachieved,organicfreecashflowisexpectedtostarttogrowatconstantprices,supportedbythestrongercashflowsexpectedfromourupstreamprojectstartupsoverthemediumterm.Thiswillinturnsupportdistributionstoshareholders.

Withdivestmentshavingreached$10billionover2014and2015,wecontinuetoexpect$3billionto$5billionofdivestmentsin2016andaround$2billionto$3billionperannumthereafterinlinewithhistoricalnorms.Theproceedsfromthesedivestmentsprovideadditionalflexibilitytomanageoilpricevolatility,andcapacitytomeetourDeepwaterHorizonpaymentcommitmentsintheUnitedStates.

Turningtogearing,attheendofthefirstquarternetdebtwas$30billion,withgearingat23.6%.ThisincludestheimpactoftheconsentdecreeandsettlementagreementtheGulfstateshadonourbalancesheetduring2015,andtheschedulingofpaymentsoveranextendedperiod.

Asareminder,during2010weloweredourgearingbandfromahistoricalrangeof20%to30%downto10%to20%tomanageuncertainties,mainlyinrelationtotheDeepwaterHorizonincident.Havingfinalizedtheseagreements,wearereestablishinga20%to30%gearingbandgoingforward.

Nowturningbrieflytothehighlightsofthequarterfromourbusinesses,startingwiththeupstream,wehaveseencontinuedstrongoperationalperformance.Planreliabilitywas95%acrossouroperatorproducingassets,andwesawstrongdrillingperformance,particularlyintheUnitedStates'lower48andAzerbaijan,deliveringbothcostandefficiencybenefits.

ThefirstquartersawthestartupoftheInSalahSouthernFieldsmajorprojectinAlgeria,andwealsorecentlysawthestartupofthePointThomsonprojectinAlaska.Wealsohavetwoprojectsinthecommissioningstage,andtwofurtherprojectscontinuedtoprogresswellforstartuplaterintheyear,withfacilitiesworknearingcompletion.

Forexample,wesawthesafearrivalofthenewFPSOforQuad204inNorwayaheadofitsinstallationtothewestofShetlandthissummer,readyforstartuparoundtheendoftheyear.Overall,wecontinueto




havemomentumonourupstreammajorprojectsportfolioaswelookbeyondthisyear.

Our2017startupsareontrack,andtogetherwithoursix2016startups,weexpecttoputinplace500,000oilequivalentbarrelperdayofnewnetBPcapacitybytheendof2017versus2015.Forexample,ourKhazzanprojectfacilitiesarenow69%complete,with46wellpadscompletedandstartupexpectedtobealittleaheadofschedule.

Juniper,whichwillbackfillproductionintoourTrinidadLNGtrains,isprogressingwellwithover55%facilitiescompletion.InEgyptfacilitiesfortheTaurusLibraWestNileDeltaprojectarealsoonscheduleandaround50%complete,whilethetop-sidemodulesforClaireRidgeintheNorthSeaareenroutefromSouthKorea,andareexpectedtoarrivelaterthisquarter.

Beyondthese2017startups,theproductionfacilitiesforourShahDenizPhaseIIprojectareaheadofplanataround70%completion,withfirstgasscheduledfor2018.Allofthismeansweremainontrackforthedeliveryofover800,000barrelsperdayofproductionfromnewmajorprojectsby2020.

InFebruary,ourfirstexplorationdiscoveryoftheyearwasannouncedonaNoorosEastprospectinEgyptbytheoperatorEni,whohavenowtieditbackforproduction.Meanwhile,wehavecompletedevaluationoftheBP-operatedKepler3discoverydrilledinlate2015,andareintheprocessoftyingthiswellintoourNaKikaplatformwiththeaimofstartingproductionlaterthisyear.

Thesearegreatexamplesoftheopportunityforrapidmonetizationofnear-fielddiscoveriesofwhatwecallinfrastructure-ledexploration.Thefirstquarterwasastrongquarterfornewaccess,includingfarm-insandlicensesawardedfornewacreageinNorwayandNewfoundland,Canadawithanaggregatetotalofaround12,000squarekilometers.

InOmanwesignedamajoragreementtoextendtheKhazzanlicensetoaccessafurther1,000squarekilometers,estimatedtocontainaround3.5trillioncubicfeetofgas.CombinedplateauproductionfromPhases1and2isexpectedtototalapproximately1.5Bcfofgasaday,equivalenttoaround40%ofOman'scurrenttotaldomesticgasproduction.

Additionallyinthefirstquarter,thegovernmentofIndiaannouncedaseriesofpolicyinitiatives,includingmarketingandpricingfreedomfornaturalgasproducedfromdeepwaterdiscoveries,whichwebelieveisapositivedevelopmentandareevaluatingforfutureprojects.Wealsosignedtwonewagreements,onewithQAPetroleumCorporationtoenhancerecoveryofexistingoilandgasresourcesandpursuefutureoilandgasexplorationopportunities,andaproductionsharingagreementinChinatodevelopshalegasresources.

Inthedownstream,thefirstquartersawstrongyear-on-yearunderlyingperformanceimprovements,mitigatingtheimpactofaweakerrefiningenvironment.Atthesametime,ourrefinerysawa4%increaseinutilization,whileweincreasedtheamountofadvantagedheavycrudeprocessedbymorethan20%.

Andinpetrochemicals,weareimprovingthecashbreakevenofthebusiness,makingitmorerobusttoabottomofcycleenvironment.Ourmarketinggrowthstrategycontinuestodeliverresults.

Theglobalrolloutofourultimatefuelswithactivetechnologyrepresentsourbiggestfuellaunchinoveradecade.WealsoexpandedourconvenienceretailpartnershipsinGermanyandtheNetherlands,andwebecametheworld'sfirstsupplierforcommercialjetbiofuelusingexistingairportinfrastructure.

Inlubricants,wecontinuedtoseedouble-digitearningsgrowthsupportedbystrongpremiumbrandperformanceandgrowthmarketpositions.Andsimplificationandefficiencyhasprogressedacrossthedownstreaminto2016,keepingthebusinessontracktodeliver$2.5billionofcostefficienciesbytheendof2017.




Takentogether,thismomentuminunderlyingperformanceimprovementcontinuestosupporttheincreasedresilienceofthedownstreambusiness.Insummary,theenvironmentisverychallenging,butweareseeingthebenefitofhavingmovedquicklytorespond.

Wehaveconsiderablemomentumaroundresettingourcostbase.Thisisdrivenbyboththepaceatwhichwearecapturingdeflation,andourownsimplificationefforts.

Youhaveseenmoreevidenceofthisacrossallourbusinessesintoday'sresults.Wearesteadilyloweringtheoilpriceatwhichweexpecttobalanceorganicsourcesandusesofcashby2017,whileretainingsufficientflexibilitytomaketherightchoicesaboutourportfoliotosustaingrowth.

Ibelievewearemakingstrongprogress.Weareexecutingourprojectssafelyandmoreefficiently,drivingdowncostsandmakingcarefuljudgmentsaboutthebestuseofscarcecapital.

Andallourdecisionscontinuetobeguidedbyourultimateaimtogrowsustainablefreecashflowanddistributionstoshareholdersoverthelongterm.Onthatnote,thankyouforlistening.

AndI'llnowopenupforquestions.

QUESTIONS&ANSWERS

Operator :

(Operator


Thankyoutoallofthosewaitingontheline.

We'lltakethefirstquestiontodayfromIreneHimonaatSocGen.Areyouthere,Irene?

IreneHimona(Analyst-SocieteGenerale):

Thankyou,Jess.IhadthreequestionsrelatingtoCapEx,ifImay,Brian.Thenewbudgetfornextyearis$15billionto$17billion.

Whatproportionofthereductionversusthisyear'sbudgetwouldyousayisinflation?Secondly,withinthe$15billionto$17billion,roughlyhowmuchwouldyousayismaintenanceversuslet'ssaygrowth?

Andthenfinally,inyourcommentsregardingthefinancialframework,youreferredtotheefforttosettherightlevelofreinvestment.Iwonderifyoucanclarifyhowthe$15billionto$17billionfitsinthat?

Inotherwords,howdoweensurethatistherightlevelofreinvestmentperhapsintermsofreservereplacementorother?Thankyou.

BrianGilvary(CFO):

Thanks,Irene.AndmaybeifIjustsortofstartwithwherewecameintothisyear.Aswethoughtaboutwherecapitalwouldfalloutintermsofthevariousprojectsthatwepursue,wesetyouarangeof$17billionto$19billion.

AndthatwasinthemiddleofthiseffectivelyrebalancingtheCompanyoutto2017.Itnowtranspires,aswe'veseenmoredeflationcomethrough,morethingswe'redoingaroundthewaysinwhichwe'reworkingintermsofourownselfhelp,we'renowconfidentthatactuallythecapitaliscomingatitsomewherearound$17billion.




Sowe'verevisedthatguidanceforthisyear.Therangefornextyearhasreallybeensettosayactuallyiftheoilpriceweretostaylowatthelevelsthatweseetoday,thatwewouldhaveflexibilitywithinthefinancialframetomovethatcapitallower.

Thatisn'tsomethingwewouldchoosetodotodayintermsoftherebalancingat$50to$55abarrel.SoIthinkthebasicassumptionisthattothedegreethatweseeoilpricesstayinglow,therewillbesomemoredeflationcomethrough.

Butyoushouldassumenextyearthatifallthingsbeingequalandweseethesecondhalfofthisyear,thefirmingupoftheoilpricefromwhereweseetodayandasmallrecovery,quiteamodestrecovery,sowe'renottalkingamajormovefromwhereweare,thatintherangeof$50to$55abarrelyouwouldexpectthatourcapitalwillcomeoutsomewherebetween$15billionto$17billion.Butitprobablywouldnotbeatthelowerendofthatrange.

Wewouldonlymovetothelowerendoftherangeifwesawcontinuedpressureontheoilprice.Andthat'sontoday'sportfolio.

Intermsofthemaintenanceversusgrowthspend,Ithinkwe'velaidoutforyouallthevariousprojectsthatwelookatthatdrivegrowthintermsof2016,significantgrowthin2017,withtheprojectsthatcomeoninthesecondhalfofnextyear.TypicallyhistoricallyourmaintenanceCapExwillcomebackandconfirmit,butjustfrommemoryfrompreviouscalls,typicallyit'saroundabout40%ofthecapitalbudgetwouldbearoundmaintenanceversusgrowth.


Thankyou.Andintermsofthe,say,rightlevelofreinvestmentlongerterm,howdoyouthinkaboutsettingthatreinvestment?

BrianGilvary(CFO):

IfyoulookhistoricallyatboththesectorandBP,typicallywe'vereinvestedanywherefrom70%to80%ofcapitalbackintothebusinessintermsofdrivingfuturegrowth.Sofarwehaven'tlimitedthegrowththatwelaidoutforyoufivequartersagointermsof2017,2018,2019.Sowefeelit'stherightlevelofreinvestmentaswegothroughthistransitionwiththeoilprice,butsomethingaround70%to80%istypicalintermsofthesector.


Thankyouverymuch.


Thanks,Irene.We'lltakeaquestionnowfromtheUS.BlakeFernandezofHowardWeil.

BlakeFernandez (Analyst-ScotiaHowardWeil):

Thanks,Jess.Coupleofquestionsonproduction,ifyoudon'tmind.IfIrecall,thepreviousguidancewasforrelativelyflattishtypeofproductionin2016.

Itlookslike1Qisofftoaprettygoodstart,soI'mjustcuriousforone,doyouthinkthatflatprofileisstilltherightwaytolookatit?Andthensecondly,with500,000barrelsadayofnewproductioncomingonthrough2017,canyougiveusanupdateonwhattheportfoliodeclinelookslikecurrently?

BrianGilvary(CFO):




Yes.SoIthinkfirstlet'sstartbysayingthatofcoursethePSEimpactsquarteronquarter.Ifyoulookat1Qthisyearversus1Qlastyear,thereisanuptickintermsofhowthePSAworksaroundtheactualpriceitself.

ButweareactuallyseeingstrongperformanceoutofboththeNorthSea,lower48,andtheGulfofMexicointermsoffirstquarterproduction,offsetalittlebitbysomeissuesaroundsomedeclinesinsomemorelowermarginfieldsinplaceslikeTrinidadandNorthAfrica.Sointheround,itlooksstrong1Qversus1Q,butabigchunkofthatiscomingthroughthePSEeffects.

Intermsoflookingoutinto2016,IthinkasLamarlaidoutonthelastcallthatwehad,andBobtalkedabout,relativedeclineofthebasehasbeenrelativelylowbecausewe'vehadalotofcapitalfocusedonthehigherreturninfielddevelopmentwork.Soactuallythisyearit'sreallymorecloser--historicallywe'vesaid2%to3%.It'smoreofthe2%rangeintermsofthisyear.

BlakeFernandez (Analyst-ScotiaHowardWeil):

Perfect.Thankyou,Brian.I'llleaveitthere.


We'lltakethenextquestionfromJasonGammelofJefferies.

JasonGammel(Analyst-JefferiesLLC):

Yes.Thankyou,Jess.Brian,Ijustwantedtocomebacktothecapitalcycle,andlookinginto2017,guidingforthebreakevenof$50to$55,attheupperendoftheCapExrangeof2017andwithadividendofabout6.5%,that'simplyingcashfromopsofroughly$23billion.Doesthatincludetheproceedsfromdivestitures,oristhatwhatyouexpectfromoperationsorganically?

BrianGilvary(CFO):

No.Thanks,Jason.Actuallywhatwe'vedoneiswe'veactuallychangedbackinOctoberoflastyear,were-laidoutthefinancialframebecausenowwehavecertaintyaroundthevastmajorityandMacondoliabilities.

Whatwe'vedoneiseffectivelysaidoperatingcashneedstocoverCapExanddividends,anddisposalproceedswillbeusedintermsofMacondoliabilities.Soitdoesnotrelyonthedisposalproceedsintermsofthatrebalancing.

Itisabasic,simpleoperatingcashneedstocoverdividendandCapEx,andtobeclear,withintheframethatwe'velaidoutitistotaldividend.It'snotjustthecashdividend.


Understood.IfIcouldjustfollowup,Brian,onthedivestitureprocess,obviouslynotamassivetarget,butstillinanoilpriceenvironmentwherewe'reat,howareyouexpectingtobeabletodeliverthesedivestitures?Areyougoingtobemorereliantuponmidstreamanddownstreamtypeofassets,ordoyouactuallyseeamarketforupstreamassetsthatcouldachievevaluethatyouwouldfindacceptable?

BrianGilvary(CFO):

Everythingcomesbacktothebasicprinciplesofwhatwelaidoutforyoubackin2011intermsofvalueovervolume,andtothedegreethatthereareassetswithinourportfoliothatwebelievearebetterinthehandsofothersintermsofreinvestmentversusthoseonesthatwewouldliketomaybeacquire.Sothisisnotjustaboutdisposals;thatwebelievewecanaddvaluetothem,we'lllookatbothsidesofthat




equation.

Intermsofthequantumof3%to5%forthisyearand2%to3%goingforward,the2%to3%isthehistoricalaverage.Butofcourse,asBobhassaidonpreviousquarters,weincludeorexcludeTNK-BP.We'vesoldupto$75billion,ifyouincludeTNK-BP,or$50billionifyouexcludeitoverthelastthreeorfouryears.Soit'sthereforenotsurprising.

Andtheywereat$100abarrel,whichissomewhatfortuitousgivenwhereweareinthecycle.It'snotsurprisingthatactuallynowwe'rereallyintowhatisthenon-strategictaleofthebusiness.And2%to3%feelsrightgoingforward.

Thecurrentsuiteofassetsthatwe'relookingat,andyou'llseeitfromthevarioussalesannouncementsthathappened,theyaremoremidstream.Theywerecertainlymorepredominantlydownstreamlastyearandthefirstquarterofthisyear,butmidstreamdownstream.Wewillstilllooktoexitupstreamassetswherewebelievethattheyarebetterinthehandsofothers,andequallypotentiallyinvestinupstreamassetsandthedownstreamgoingforward.


Thanksverymuch,Brian.


MovingnowtoLydiaRainforthwithBarclays.Areyouthere,Lydia?

LydiaRainforth (Analyst-BarclaysCapital):

Thanks,Jess.TwoquestionsifIcould,please.Thefirstoneonthecostsavingsandthe$4.6billionnumber,the2014reissues--incrediblyimpressivenumber.Areyouabletosplitforuskindofhowmuchofthatisupstream,howmuchofitisdownstream,andhowmuchiscorporate?

Andjustkindofwerethereareareaswhereyouwereactuallyaheadofwhatyourexpectationwouldbe,andifthere'sanywherewhereit'sactuallystilllaggingbehindthatneedsabitmorework.Andthenthesecondquestionwascomingbacktothe$50to$55perbarrelbreakevenin2017,atthatstageitlookslikethefinancialframeworkisrebalanced.

ButthenifIlookattheprojectstartupsthatyoudohave,beitKhazzan,[ShahDeniztoo],isitrighttothinkofthatoilpricebreakevenmovingdownbeyond2017?Thanks.

BrianGilvary(CFO):

That'sagreatquestionactually.Sothefirstquestiononcashcosts,it'sacrossthepiece.It'supstream,it'sdownstream,andit'scorporate.

IfIstartwithcorporate,becausethat'stheonethatwelaidoutforyouin2013,andyou'llseefromtheannualreportandaccountsthatit'sactuallyoneofthethingsthatwetargetedintermsofthegroupperformancescorecard.We'veseenasignificantreduction.

Soover30%ofcostscomingoutofthosecorporateactivities.Equally,we'reseeingsignificantreductionsinabsolutecostsinboththeupstreamanddownstream.

AndintermsofwhatTufanisdoinginthedownstream,it'sefficiencydriveintermsofthemarginofthebarrelthathe'sgenerating.It'sbothabsolutecostreductions,butalsogettingmoreefficientaboutthewayinwhichthoseoperationsarerun.




Andintheupstream,it'sreallyaboutmoreefficientwaysofworking,activityoptimization,organizationstart,sizeandstaffingcosts,butit'salsoaroundagencystaffandhowarethosebeingdeployedinsidetheorganization.Inthecaseoftheupstream,it'ssomethinglike,Ithinkthepeakwas30,000.

Theintentistogetdowntosomethingaround20,000by2017intermsoftotalstaff,BPandagencystaff.Soit'sacrossthepiece.

Onthebreakeveneconomics,there'slotsofmovingparts,hencewhythere'sarangearoundthat.OfcourseitalsodependsontheHenryHubgasprice.Itdependsontherefiningmargin.

Itdependsonwhat'shappeninginanydifferent--manypartsofourbusiness.SoItrytodeterpeoplefromfocusingonaspecificpointintime.

Oilpriceisthebalancingpoint,becausewehavealotofflexibilitywithintheframeitselfintermsofhowwe'llgetthingsbackintobalance.Butallotherthingsbeingequal,Ithinktothedegreethattheoilpriceweretobelowernextyearandwiththenewprojectscomingonandrampingupinto2018,andwe'vetriedtolayoutforyoujustwhatitlookslikeintermsofbalance,intermsofsurpluscash,thatobviouslyalleviatesanyotherpressuresthatwehavearoundrefiningmarginsandothercomponentsofthefinancialframe.

LydiaRainforth (Analyst-BarclaysCapital):

Thankyouverymuch.


Thanks,Lydia.TurningnowtoJonRigbyofUBS.

JonRigby(Analyst-UBS):

Thankyou.CanIaskthreequestionsactually.ThefirstisontheCapExnumberandthevisibilityyou'regettingoncostdeflation.

Presumablyyou'restartingtotalktothemarketsaroundnewsanctions.Somaybeyou'reabletojusttalkalittlebitaboutwhatthekindoffeedbackyou'regettingonsomeofthosesortoflargersanctionsthatyoumaybecomingtothatgivesyouthecomfortaroundthatcostdeflation.

Thesecondisjustonthedividendandtheoilpriceprogression.Soyoutalkedaboutlookingtogetcashintosortofcashneutralitywithafullcashdividend.

Doesthatmeanthatyouwouldexpecttomovetoafullcashdividend,oryou'reexpectingsomesortofhybridofsomesortofanti-dilutionbuybackandcontinuedscrip?Andthenthelastquestion,andthisiswithyourbackground,Brianaswell,isthatthere'sabigbeatinthedownstream.

Butthere'sclearlysomesignificantmovingpartsontrading,both4Qto1Qand1Qto1Q.AndI'mveryclearthatthemarkethastendedtogiveverylittleintermsofamultipletotradingbusinessesanyway,butwiththatlackofvisibility,I'msomewhatconcernedthatyouwon'tgetverymuchcreditforwhatlookslikeaverygoodnumbertoday.

Soisitpossiblethatyoucangivesomemoreguidancearoundthemovingparts,4Qto1Q,1Qto1Q,onthatdownstreamfigure?Thanks.

BrianGilvary(CFO):

I'llworkbackwards.Sointermsofthedownstreamresult,itwasn'tjustaboutsupplyandtrading.That's




thefirstpoint.

Ithinkthat'squiteanimportantone.Infact,ifyouactuallylookathalfofthat,probablyjustinthehalfthatcamefromthesupplyandtradingbusiness,whichhadastrongerquarterthan4Qwherewehadaslightlossin4Q,butdidn'thaveasgoodaquarterasthefirstquarteroflastyear.

SoIthinkit'sjusttoputitintocontext,yes,itwasacertainlyaboveaveragequarterforsupplyandtradinginthedownstream.Buttherewasalotofotherthingsgoingoninsidethedownstreamaswell.

IthinkTufanandhisteamreactedearlytowhattheycouldseeintermsofwhatwashappeningwithrefiningmarginsandgotafterfurthercostefficienciesandalsogoodreliabilitythroughthequarter.Soifyouthinkaboutthebalancefordownstreaminthefirstquarter,Ithinkhalfofitjustinthehalfthatcamefromsupplyandtrading,butactuallyhalfofitcamefromlowercostsandbetteroperationsofthekit.

SoIthinkthat'skindofimportant.Ithinkthereisacomponentofoursupplyandtradingresult,Jon,whichIthinkyou'realludingto,whichisactuallythatbusinesshaschangedahugeamountinthelast5to10years,wherethere'sactuallyabaselevelofbusinessinsidetherenowthatactuallyreducestheriskaroundthevolatilityofthatgoingforward.

Andmaybewe'lltrythroughthisyearmaybetoilluminatethatthroughfuturequartersintermsofmaybejustsomeoftheactivitiesofthephysicalnatureofthatbusinessthatactuallyhasmoreofamargincomponenttoit,likeafuelsbusinessratherthanwhatyouthinkofitastrading.Intermsofcashneutrality,yes,theintentaswelaidoutinOctoberincludedthescrip.

Ofcoursethatgivesussomeflexibility.There'snointentatthispointtogobackintermsofwhatweofferinthewayofascrip.That'samatterfortheBoardandforourshareholders.

It'ssomethingourshareholderslike.Wehadaverybigscripuptakeinthefirstquarter.For2015,thescripuptakewasabout9%frommemory.

For1Q,itwasjustover40%.There'sabigtrancheofourshareholderslikethescripasanalternative.SoIdon'tthinkthere'sanyintentatthispointtowithdrawthat.

However,wedorecognizethatthendilutesourshareholders.Sothat'swhywesayintermsofcashneutrality,wewouldlooktowanttooffsetthatscripatsomepointinthefuture.

Andyou'veseenthebuybackprogramwehadinplacepriortothedropintheoilprice.ButthatwouldbeamatterfortheBoardgoingforward.OnCapExandcostdeflation,it'sreallyacrossthepiece.

JusttalkingtoBernardintermsoftheactivitiesthathecanseeandwhat'shappeningoneachoneoftheprojects,evenwithprojectswherewe'reindevelopmentand80%ofthedesignandthekitisbuiltintothepricealready,therehavestillbeenopportunitiestogobackandrenegotiate20%ofthefinalcost.Soit'sreallyacrossthepiece,andI'llsavealittlebitofpowderforBernardlaterthisyear.

IknowJessistalkingaboutanupstreaminvestordayatsomepointthisyear,ideallyinthefirsthalfoftheyear.IthinkBernardandtheteamwillbeabletogiveyoualotmoreflavoraroundwhatwe'reseeing.

Butitreallyis--literallyaswesatandhadareviewwithBernardandhisteamafewweeksbackandwewentthroughatleastsixorsevendifferentprojectswheretherewerelotsofcomponentsofexamples,where$150millionwasbeingtakenoutthrough11wellsinonespecificdevelopmentthatwewerelookingat,how$100millionofthathasbeenbookedalreadyand$50millionmoretofollow.Butit'sjustacrossthepiece,Jon.

JonRigby(Analyst-UBS):




Okay.Thankyou.


Thanks,Jon.We'lltakeaquestionnowfromRobWestofRedburn.

RobWest (Analyst-RedburnPartnersLLP):

Thanksverymuch.I'llasktworelativelyfinancialsyones.Thefirstoneisonthebusinesseconomiclosspayments.Shouldweexpectittocontinuerunningatthisquarter's$600millionrunrateinthecomingquartersfor2016?

Andifitdoes,doweburnthroughtheentireoverhangofBELpaymentsbytheendoftheyear?Mysecondquestionisonthecommoditypriceassumptionsthatyou'reusingtomanagethebusiness.

Soclearlythebreakevenshavecomedownagaintoday.ShouldIbedrawinganyreadacrossthereforthelongrun$90oilpriceassumptionsgoingintotheimpairmenttest?

Andwhenwouldyoulookagainatthose?Thankyou.

BrianGilvary(CFO):

Onthelatterquestion,wedon'tuse$90.$90isthelong-termassumption.Soweusetheforwardcurveforthenextfiveyearsandthen$90kicksin.

We'llbelookingatourlong-termpriceassumptionsthisyear.Soactuallymostofourprojecteconomicstodayaredoneat$60abarrelintermsofthoseoptionsthatarecomingforwardtoourresourcecommitmentcommitteetoday.

OntheBELassumptions,thisisaquarterwhereweagreedwiththePSCandthefacilitytosimplifytheclaimstoaccelerateclaims,tolooktowardsthefinalcompletionterminationofthatfacilityonafastertimelinethanwewereon.Thathasledtoloweradministrationcosts,butofcourseahighernumberofclaims.

Sowesawaverylargenumberofclaimsgothroughthisquarter,hencethe$600million.Wecan'tatthispointactually,givenwhatisleftinthefacility,provideaprovisionaroundfutureBELclaims,butwe'llcontinuetoupdateeachquarter.

Butmaybejustanecdotallytohelpyou,whatispubliclyavailableisthatwe'renowovertwo-thirdsofthewaytowardsprocessingclaimsinthatfacility.Ofthe147,000claimssubmitted,99,000havebeenfinalizedbytheCSSPwhere39,000offersweremadeand59,000thatwereclosedwithnopayments.

Sothatkindofgivesyouaflavorofwhat'shappenedsofar.Buttherearestill48,000claimsthatprogressedthroughthatfacility,andit'simpossiblefromtheworkthatwe'velookedatandwhatwe'veseentocomeupwithatthisstageabestestimateofwhatthatprovisionlookslikegoingforward,butwe'llcontinue--toupdatethateachquarter.

RobWest (Analyst-RedburnPartnersLLP):

Okay.Thanks.


OvertoGuyBaberfromSimmons.

GuyBaber (Analyst-Simmons):




Thankyouverymuch.Selectiveacquisitionswerehighlightedasanobjective,lookingattheslidedeck.Whereintheportfolioorinthemarketmighttherebeopportunitytoaddtotheportfoliohere?

What'sthekeycriteriaonwhichyouwillscreenforacquisitions?AndIknowyouareconstantlylookingatalotofassetsallthetime.HowwouldyoucharacterizethecurrentM&Amarketasitstandsrightnow?

BrianGilvary(CFO):

TheM&Amarketasitstandsrightnowintheupstreamisthere'salotofassetsoutthereavailable.Ithinkoneoftheoverarchingprinciples,anditcomesallthewaybacktoOctober2011,isthisconceptofmakingsurethere'svalueandit'svalueaccretiveforourshareholders.

Sowehavelookedacrossthemarket.We'velookedatvariousoptionsaroundinfillassetacquisition,aroundexistingpositionsthatwehave,orstrategicinfilloptionsforus.

Ithinkthekeytesthastobethatit'saccretiveforshareholders.Andtothedegreethingsaredilutive,thenreallyyouquestionwhyyouwouldbeusingyourcashonthat.

Sowehavedonesomesmallacquisitions.We'vedonesome--lastquarterwementionedsomeinthelower48thatwedidaroundsomeofourexistingpositionsintheSanJuanBasin.

Andwewillcontinuetolookatwherewecanseeanassetacquisitionwherewebelievewecanaddvalue.Typicallywemaybetheoperatorordeepeninginthosepositions,orindeedactuallylookingatswapoptions.

Butit'sbeenprettytoughtoactuallyfindthingswhicharevalueaccretiveinthecurrentmarket.Andtherearealotofassetsupforsalerightnow.

Sowe'llcontinuetolookandsee--andactually,asIsaidlastquarter,wediddosomesmallacquisitions.We'vedeepenedinoneortwopositionswherewe'retheoperator,andwe'llcontinuetofigurethoseoptionsgoingforward.


Thanks,Brian.ThenIhadonefollowup.Youhighlightedthe95%reliabilityforyourupstreamoperatedassets,andtheimprovementsyou'vemadeintheunderlyingupstreamoperationshavebeenimpressiveandimportanttotheprofitability.

Whatstepsareyoutaking?Howareyouensuringthatprogressdoesn'tbegintoerodeinanenvironmentwhereyou'remateriallycuttingbackonyourspendinglevels,assumingyouarecuttingbacksomeintothebasespending,andwhereyou'relettingpeoplegoaswell?Isthatariskthatyouarefocusedonaddressingorthatyousee?

BrianGilvary(CFO):

That'sagreatquestion.Andthething--everythingstartswithnocompromiseonsafety.It'stheoverarchingguidingprinciplethatwe'vedoneforeverything.

I'veactuallyguidedusthrough2010throughthe10-pointplanforwhatwelaidoutforyoutwoyearsagoandactuallywhatyou'reseeingthroughtheseresults.Andtheabsolutecorrelationbetweenreliabilityallthewaybacktosafetyisveryclearlythere,andyoucanseeitthroughtheresults.

Andyou'llhearBernardtalkaboutthat,you'llhearLamartalkaboutit,you'llhearTufantalkaboutit.Bobalwayslaysitoutintermsofeverythingwedo.It'stheoverarchingpiece.




It'sthesafeplacethatwegobackto,issafetybeingtheabsolutenumberonepriority.Andofcoursethatleadstogoodreliabilityofthekit.

Andifyouthinkaboutthenumberofturnaroundswewentthroughin2011,somethinglike48turnaroundsin2011,35in2012,somethinglike23,24in2013,we'rebacktoamuchmorestable,steadystatenowintermsofthoseturnarounds.Butthat'sabsolutelywherethereliabilitiescomefromintermsofthekit.


Thanks,Brian.


AndbackintheUK,HenryTarrfromGoldmanSachs.

HenryT arr (Analyst-GoldmanSachs):

Hi,andthanksfortakingmyquestion.IwantedtogobacktoIrene'squestiononCapEx.

Ifoilpricesdidremainlowandyouconsideredactivityreductionsduetotheenvironment,howwouldyousplitorprioritizebetweenmajorprojectdeferralsandlowerspendonongoingexistingproduction?AndthenifCapExspendweretocomelower,wouldyoustillexpectthat2%orthelowerpartofthedeclinerateonthebaseproductionlookinginto2017?Thanks.

BrianGilvary(CFO):

Ithinkthatgetstougher.Actuallyonceyougooutto2017,you'reprobablybackinto3%to5%historicalaverageintermsofthedecline.The2%Italkedaboutreallyinthecontextof2016.

SoIthinkitgetsdifficultonceyougetdownto$15billionandwhatweseetodayintoday'sportfolio,becauseatthatpointwestartedtolookintermsoffuturegrowthoutto2020and2021,andit'simportantthatwecontinuetoreinvestintothefuture.Andthat'sreallywhereatthispointyouwouldhavequestionsaroundallcomponentsofthefinancialframethatyouwouldneedtolookat.

Basedonallthefundamentalsofwhatweseearoundsupplyanddemandtoday,Ithinkthat'sunlikely,butneverthelessifthat'swhattranspiresandwefindourselvesin2016andtheoilpriceiswhereitistoday,thenwe'llhavedecisionstotakearoundallcomponentsofthefinancialframe.AndIthinkBobsaidinthelastquarter,we'renotgoingtodrivethebusoffacliffonthebasisofeverythingbeingfixedwithinthefinancialframe.Wewouldhavetolookatallcomponentsofthat.


Okay.That'sgreat.Ijusthadonefollowupondeflationandhowyouthinkaboutdeflationgenerally,andhowmuchisbeingdrivenbyFXandisthereacyclicalservicescostreductioncomponentinthere,ordoyouseethebulkofthecostscomingoutnowassecular?

BrianGilvary(CFO):

IthinktherewassomeForExbenefitswesawlastyear.ThedollarhasactuallyweakenedagainstmostcurrenciesotherthantheUKpound,whichismoreaphenomenonofthevariousissuesgoingonintheUKaroundEuroperightnow.

Ithinkthedollaritselfactuallythroughthequarterweakenedslightlyversusothercurrencies.We'renotreallyseeingForExcomethrough.Anddeflationisoneofthosestrange--IknowLamar'stalkedabout




thisonpreviouscalls,butdeflationisn'tsomethingthatarrivesonyourdoorstep.

It'ssomethingyouhavetoworkout.Youhavetoworkwiththecontractorson,youhavetorenegotiaterates,youhavetolookatyouractivity,youhavetofindmoreefficientwaysofworking.

AndIthinkifyougobackcertainlyfrompreviouscomments,we'vesaidabouttwo-thirdsofthesavingsthatweareseeingcomingthroughintheupstreamarefromselfhelp,andaboutone-thirdisfromdeflation.Thatdeflationisactuallyfromrenegotiatingcontracts.

Ofcoursethereisacomponentofitfromtherig--ifyoulookatdeepwaterrigs,there'snoquestiontherateshavecomedownby50%comparedtowherewewereacoupleofyearsago.Andthat,ofcourse,feedsintotheunderlyingcostbase.


Okay.That'sgreat.Thankyou.


Thanks,Henry.We'lltakethenextquestionfromOswaldClintofSanfordBernstein.

OswaldClint (Analyst-SanfordC.Bernstein&Co):

Yes,hi.MaybejustaquestiononUSgas,please.Ithinkyou'vesaidpreviouslyabouta$2HenryHubbreakevenprice.Canyoumaybejustgiveusanupdateonthatpricepoint,please,Brian.Thankyou.

BrianGilvary(CFO):

Oswald,Ithinkthat'sprobablyacashbreakevenprice,andwe'reprobablymaybe--probably$2isaboutright.Intermsofearnings,it'smorelikecloserto$3,$3.50intermsofwhereourportfolioistoday.

That'saftertheworkthatDaveLawlerandhisteamhavedoneintermsofbringingthecostsdownquitesignificantlyintermsofouractivityinthelower48.ButIthinkabreakevenearningsnumberwouldbecloserto$3.50.Cashbreakevenwouldbemuchlowerthanthat,whichreflectstheactivitythatwe'vebeendoinginthelower48overthelastfivequarters.

OswaldClint (Analyst-SanfordC.Bernstein&Co):

Okay.Thankyou.


Thanks,Oswald.AneekHaqofExane.Goahead,Aneek.

AneekHaq (Analyst-ExaneBNPParibas):

Hi.Averyquickquestiononrefining.Ithinkyou'vehighlighted,Brian,aswellthatyou'reexpectingsomeheavyturnaroundinQ2.IfIlookbackoverthelastatleastcoupleofyears,Ithinkrefiningavailability'sbeenquitehigh.IjustwonderedhowweshouldthinkaboutthatquarteronquarterintermsofrefiningavailabilityinQ2.

BrianGilvary(CFO):

Ithinkweareseeingcertainlysomeoftherefinersouttherecuttingrunsrightnow.Wearenotdoingthat.

AndIthinkitreallycomesbacktowhereyourrefinery'spositionintermsofthebarrelandthemargins




availabletothoserefineries.Ithinkwe'renowdowntoabout10operatedrefineries,lasttimeIcountedandlooked.

Mostofthoserefineriesarewellupgraded,havegoodmarginsavailableeventhroughthesedowntimes.Sowehaven'tseenanyruncutsofourowninourownsystem,butweareseeingruncutsacrossotherrefineriesandotherrefinerscertainlyinthefirstquarter.

Ithinkrefiningmarginslookprettyrobustnowaswe'vecomeinandseen--1Q2016wasthelowestwe'veseensince2010.Soitwasactuallyquiteatoughquarter,alotofthatdrivenbydieselanddistillatedemand.

We'venowcomethroughthatandwe'reseeingmarginsrecoveralreadythisquarter,uptoabout$12.70quartertodate,andtheyarelookingprettyrobustaswecomeintothedrivingseason.ButrightnowwearenotlookingatBrentcuts.


Thanks,Aneek.Andwe'lltakethenextquestionfromAnishKapadiaofTPH.

AnishKapadia(Analyst-TudorPickeringHolt):

Hi.Coupleofquestions,please.FirstthingIwasjustwonderingifyoucouldgivesomewhatofanupdateonwhereyouarewithsomeofyourKFIDdecisions,what'sdrivingyourthinkingonthingslikeMadDog,Hopkins,Tangguh,andatollforthisyear.

Andthenthesecondone,justthinkingaboutacquisitionsagain,givenyourlong-termplanningassumptionsof$80abarrelrealand$5HenryHub,andthere'sclearlyopportunitiesrisinginthecurrentmarket,Iwaswonderingwouldyouconsidercuttingthedividendtodoalargeacquisitionthatyoubelievetobelong-termvalueaccretivetoBPshareholders?

BrianGilvary(CFO):

I'llcomebacktothat.OntheFIDs,specificallynowisn'tthetimetoannouncewhatwe'redoingaroundMadDogPhaseII,butI'llbelookingforwardtothequarterwherewecantalkabouttheFIDhavingbeendone.ButIwouldexpectthatwillbesometime,notwithstandingwherewearewithpartnerstowardstheendofthisyear.

Ithinkthat'ssomethingBoballudedtoonthelastcallandwetalkedaround4Qresults.IntermsoftheHopkinswell,weareinappraisalofthatwellandlookingatwherewegowithitnext.

Ontheotherdevelopments,wehadfourFIDslastyear.TheotherpotentialFIDthisyearotherthanMadDogPhaseIIwillbearoundtheTangguhexpansionthatwe'vetalkedaboutbeforearoundTrain3.

That'ssomethingthatwe'relookingatthisyear.Intermsofacquisitionsanddividendandfinancialframe,Ithinkeverythingcomesbacktothefinancialframeandhowwebalanceallthevariouscomponentsofthatframeup.

Thedividendisjustonecomponentoftheframeasisthecapital,asisthecostbase.Andit'sanactuallyrelativelysmallcomponentincomparison.

Ithinkthekeyisprovidedwecangetthingsbackintobalancenextyear,whichiswhatwewouldanticipatenow,certainlyaswe'veseethecostsfirmupfrombeingcloseto$7billioncomingdowntoactually$7billion,theresettingofwherethecapitalframeis.Ithinkwehavealotofflexibilitywithinthefinancialframe.




Wehavealotofcapacityintermsofcashonthebalancesheetifweweretolookatthose.ButasIsaidearlier,thereisnothingatthispointthatweseetobeaccretiveforshareholdersthatwewouldlooktopursue.

AnishKapadia(Analyst-TudorPickeringHolt):

Great.Thankyou.


Allright.Thankyou.SowedohaveaquestioncominginonthewebfromNikeshPateloftheWesleyanAssuranceSociety.Ifthemarketrebalancesquicklyabove$60abarrel,wouldyouincreasecapitalabove$17billion,orwouldyouremainconservative?

BrianGilvary(CFO):

Ithinkwehaveflexibilityasthepricebeginstofirm,whichwe'dexpectbytheendofthisyear.Andthenintonextyearwestill--evenattheendofthisyear,assumingthingsstarttorebalanceinthesecondhalfoftheyearthewaywe'vedescribed,itwillstilltakeprobablyayeartoworkthroughtheexcesscapacity.

SoIwouldn't--Imean,let'sjustassumeitmovesbacktosomethingaround$60abarrelandthereforewehavesurpluscashavailable.Thenthereisnoquestionthereareplaceswherewecanrampupactivityrelativelyinshortorderinplaceslikethelower48intermsofthedrillingprogram,OmanKhazzan,Omanexploration,Iraq,Alaska,thereareplaceswherewecanlooktorelativelyeasilyrampupdrillrigsthatwehaveavailableintermsofactivity.

Butwe'renotgoingtotryandgetintoboomandbust.Wehavetogobacktothebasicsofwhatarethelong-termgrowthoptionsthatwesee.

Wehaveanumberofsignificantprojectscomingonstreaminthesecondhalfof2017.Wehavethenalonglistofprojectsthatwe'llbelookingtoFIDandappraiseintermsof2018,2019,and2020.

Butwewouldn'tbelookingtosignificantlyrampitupifwesawoilpricescomebackto$60.Itwouldreallybearoundwhatwe'ddoattheperipheryoftheexistingportfolio.


Thanks,Brian.Andwe'lltakeaquestionnowfromChrisCopelandofBankofAmerica.

ChrisCopeland (Analyst-BoAMerrillLynch):

Iknowwe'relong,soI'mgoingtomakeitquickandprobablyquiteboring,Brian.IfImayaskyoutoupdateusonyour2016outlookonallofthoseratherpedestrianitemslikedepreciation,production,maybeyoucangiveusnumbersontheGulfofMexicopaymentschedule,aswellasyoureffectivetaxrate.Thatwouldbegreatlyappreciated.Thanks.

BrianGilvary(CFO):

Okay,Chris.Soeffectivetaxratewouldbelowerthisyearthanwhatitwaslastyear.Ithasalotofmovingpartsaroundthetaxrate.Imean,it'scomingquitelowthisquarter.

Ithinkitwasbelow20%oftheeffectivetaxratefor1Q.ButIwouldexpectittobelowerthanlastyearisreallytheonlyguidancewecangiveyou.

Intermsofproduction,welaidoutforyoualreadythatweexpectittobebroadlyflatwith2015.




DD&Aagainbroadlyflatwith2015,althoughbeyondthatIwouldthenexpecttostarttoseeassomeoftheprojectscomeonstreamin2017thattherewillbeaslightuptickinDD&A.

Butcertainlyfor2016,I'llexpectittobeflatataroundIthink$15billionorjustslightlynorthofthere.OB&Cchargeswelaidoutforyou,about$300millionaquarter.

It'squitelowthisquarter.There'slotsofmovingpartsagaininthatfigure.ButIthinkmostofityoushouldfind,Chris,onthewebsiteonthepresentation.

ChrisCopeland (Analyst-BoAMerrillLynch):

Okay,thankyou.


Thanks,Chris.NextquestionfromNeillMortonofInvestec.

NeillMorton (Analyst-Investec,Inc):

Thankyou.Goodafternoon.Twoquestions,please.Youmentionedonpreviouscalls,Brian,thatyouareintheprocessofrenegotiatingwellservicescosts.

Ijustwonderedwhatprogressyou'vemadebytheendofthefirstquarterandwhetherthosebenefitswereincludedinthe$4.6billionnumberyoumentioned.Butthensecondlyongearing,asmaybenitpicking,butbackinFebruaryyoutalkedaboutmanaginggettingaroundthe20%level.

Nowyou'vegonebacktotheoldband.Whathaschanged?Isitsimplythecourtsettlement,orhasanythingelsechangedintermsofthetrajectoryofoilprices,paceofdisposals,etcetera?Thankyou.

BrianGilvary(CFO):

Intermsofwellservices,Imean,it'sacrossthepiece,butmaybeatoneparticularlocationwherewe'vecompletedthetender,wehave80%ofthewellservicesscopehasalreadycompetitivelybidwith20%stilltoberenegotiated.Andwe'veseena15%reductioninwellservicesspendinthatparticularlocation.

Thatwouldbejustoneexample,buttherearemanyacrossthepiecethatBernardandtheteamcanlayoutforyoulaterthisyear.Intermsofthegearing,itwasreally,itwasasyoujustalludedto,itwasconvenienttoruna10%to20%strategywhenwedidbecauseitwasn'tonlyjusttheissuesaroundMacondo.

Itwasalsotheoilpriceoutlookwherewe'vebeenprettybearishsincethemiddleof2014inparticularwhereweexpectedacorrection,notasbigaswesaw,butcertainlyacorrection.Butnowthatwehavetheconsentdecreeasfinalanditisnowdoneintermsofthequarterprovingthat,itseemedabsolutelylogicalthatwewentbacktotheoldband.

Actuallywe'vegotalotofpushfromourinvestorstosaywhyhaven'tyougonebackto20%to30%band.Becauseevenat30%,thatstillgivesusahugeamountofflexibility,notthatwehaveanyintentofgoinganywherenearthatthisyear.

Buttheideathatyou'rebackinthe20%to30%bandmadecompletesense,giventhatnowthevastmajorityofexposurearoundMacondoisnotonlytakencareofintermsofthatonelegalsettlementwhichcaughtahugeamountofcomponentsoftheMacondoliabilitiesthatcreatedtheuncertaintythatmovedustothelowerendoftherange,butitwasalsothecertaintythatwenowhadinplaceaplantorebalancetheportfoliogoingforwardatthisnewloweroilpriceset.AndIthinkitresonateswheretheinvestorswerefeelingbetter.





Thanks.Justafollowuponthecosts,whenyou'resigningnewcontracts,thepriceconcessionsyouachieve,aretheytypicallytime-limited,orarethecontractslinkedtotheoilprice?

BrianGilvary(CFO):

Itdependsonwhatthenatureofthecontractis.Someofthosecontractsarelinkedobviouslytooilpriceintermsofhowyourecovercapital,andsomearenot.


Thosebenefitswouldn'ttypicallygointothe$7billiontargetin2017?

BrianGilvary(CFO):

Justtobeclear,becauseactuallythat'smoreonthecapitalsideintermsofwhatyou'reaskingabout.Intermsofthecosts,itwillbeacrossthepiece.

Sothecost,therearebenefitscomingfromheadcount,activities,renegotiationsofcontracts,it'sacrossthepiece.Butthethingthatyou'realludingtoaroundwellservice,alotofthatiscapitalized.


Great.Thankyou.


Thanks,Neill.TurningnowtoLucasHerrmannofDeutsche.

LucasHerrmann (Analyst-DeutscheBank):

Goodafternoon,Brian.Thanksforyourtime,andsorryaboutSaturdayaswell.Three,ifImightquickly.Firstone,intermsofdivestments,theyarebecomingincreasinglysmall,it'sincreasinglydifficultonoursidetotryandassesswhatthecashassociated,ortheincomeassociatedwiththeassetsyou'resellingis.

Inshort,howshouldwethinkaboutthecashortheincomethatyou'reforegoingortheobligationsyou'retakingonasyoustarttodivestsmallerassets,ifthereareindeedany?Secondly,provisionspendonrestructuring,whendoyouactuallyexpectittoend?

Isit2016predominantlygoingtoendtoitin2017?Willitberelativelyclean?Andthirdly,aswegothroughthisperiodwhereanumberofbusinessesareprobablyintaxloss,howmuchtaxupsideisthereasprofitsstarttorecoverandyoufindthoseprofitsaresheltered?

BrianGilvary(CFO):

Okay.Lucas,thankyouforthecommentsaboutSaturday.I'msuremostpeoplearewonderingwhatyou'retalkingabout,butthat'sverymuchappreciated.

Intermsofdivestments,thereissomeoperatingcashwiththem,butthey'renothinglikeasaccretiveastheywerehistoricallyifyouthinkaboutwheretheoilpriceis.Andthosemidstreamassetsandsomeofthosedownstreamassetsthatwe'vetalkedabout,someoperatingcashisgone,butnothinglikeatthesamelevelthatwedivestedinthatbigfirsttrancheofthe$75billion.

Intermsofprovisions,wehavetoeachquarterlookatwhatthecarryingvalueisofalloftheassets.Ipresumeyou'realludingtothethingsaroundMacondoprovisionsthatwe'vetakenthisquarter?





No,I'mreallyreferringtorestructuring.I'mtryingtothinkin2017howclean,towhatextentarewegoingtoseethefullbenefitoftherestructuringsavingswithoperatinglevelcomingthrough.Eithertheywon'tbeoffsetbyafurther$1billionorsoofrestructuringcharges.

BrianGilvary(CFO):

Sorry.Probablysecondhalfof2017willbethefirsttimeyou'llseeacleansetofcostswithbothnomoreprovisions.ActuallyIwouldexpectthebulkoftheprovisionstobeclearedoutthroughthisyear.However,therewillbesomepotentialcashthatflowsoutwiththoseprovisionsinthefirsthalfof2017aspeopleleavetheorganizationtowardsthebackendoftheyearandcashpaymentsgooutinthefirsthalfofnextyear.

Iwouldexpectprobably2Qasbeingtheearliestnextyearwhereyougetacleansetofcostsandcashnumberscomingthrough.Sothere'sahiddenbenefitifyoulikecomingthrougheachquarterbecause,ofcourse,cashpaymentsaregoingouteachquarteraffectingoperatingcashflow,andtheyallcomebackinthesecondhalfof2017.


Yes.

BrianGilvary(CFO):

Andthenintermsoftaxes,yes,you'reright.Actuallywe'vegotanumberoftaxcreditsthatwe'recarryingforwardatthemomentandthekeyishowweutilizethosedeferredtaxcredits.Butasweseerecoveryintheenvironmentthroughthesecondhalfofthisyear,we'recomfortablethatthosetaxcreditswillgetfullyutilizedgoingforward.


Okay.Brian,thanksverymuch.


Thanks,Lucas.AquestionnowfromBrendanWarnofBMO.

BrendanWarn (Analyst-BMOCapitalMarkets):

Thanks,Jess.Brian,mostofmyquestionshavebeenanswered,butjustafollowup,andyouprobablyanswereditinsayingallprojectsthatstartupin2016and2017areontrack,butanyspecificcommentsonThunderHorse,ifyoucouldgiveusanupdateonthosetwoprojectsplease.

BrianGilvary(CFO):

Yes,actuallyontrackoraheadofschedule.ThunderHorseisthesouthexpansionIpresumeyouaretalkingabout.


Andwaterinjection.

BrianGilvary(CFO):

Andonthoserightnowweare--letmejustcomebackonsouthexpansion.Rightnow,thefacility's




progressisaboutnearly50%complete,justbelow50%.

Andfabricationofcriticalpathmanifoldandtheslatisaheadofplan.Onthewaterinjection,lasttimewelookedatit,itwasaheadofplanintermsofwherewewere.ButIwouldhavetocomebacktoyouonthespecificsofwhereweareintermsofdevelopmentofthat.


Thanks.I'llleaveitthere,consideringtime.

BrianGilvary(CFO):

Thankyou.


Thanks,Brendan.Andwe'llfollowupwithyouonthat.ThomasAdolffofCreditSuisse.

T homasAdolf f (Analyst-CreditSuisse):

Hi.Thanksfortakingmyquestions.I'vegottwoonprojectexecution,please.Firstly,ifItaketheIPAstatistic,andtheybasicallysaidtheindustryhasdestroyedvalueversusinitialexpectationson75%ofallprojectscompletedinthelastdecadeonaprice-normalizedbasis.Theyalsosaidintotalthevaluelostrelativetoprojectplanningassumptionhasbeenaround35%.

SoIwonderedhowBP'sperformancehasbeenversustheinitialbudgetoverthepast10years.That'sthefirstquestion.

Thesecondquestion,again,onprojectexecution,andI'mfocusinghereoncurrentdevelopments,IspentjustovertwoweeksrecentlyinAsia.Itwasalotoffun,butsomeofthefeedbackaroundshipyardsdidn'tsoundveryencouragingversusthemessagingwegetfromcorporatesgenerallyfortheindustry.

SoIwonderedwhetheryouseefurtherriskonprojectdelivery,especiallythoseprojectswheresomeworkisbeingdoneatsomeoftheSouthKoreanshipyardsbeyondClairRidge,assumingtheinformationflowfromthebottomtothetopworksasitshould.AndalsoregardingShahDenizPhaseII,Iunderstand,andImightbewronghere,oneofyourpartnershasstruggledtosecuresomefundingrelatedtothepipeline.

Ifthat'sthecase,areyoustillcomfortableeverythingisinlinewithexpectations?Thankyouverymuch.

BrianGilvary(CFO):

Okay.Thomas,letmeworkmywaythroughthosethreequestions.Thefirstone,Iwouldsaysimplythatinthelatterpartofthelastdecade,ourperformanceissignificantlybetterthanitwasinthefirstpartofthelastdecade,intermsofprojectexecution.

Andintermsofthestatsthatyouquoted,wewereprobablyas--certainlyonaverageasbadintermsofthewayyou'velaidthosestatsoutasanybodyelseinthesector.Weputinplacein2009acentralizedprojectsorganization,whichreallyIthink--we'vetalkedaboutthisonpreviouscalls,reallygotintoactionoverthosesubsequentyears.

Butparticularly2011wasthebigyearthatproject'sorganizationreallygotafterthe15bigprojectswetalkedabout,aroundthe10-pointplan,themajorityofwhichwiththeexceptionofoneortwofordifferentreasonsweredeliveredontimeandonbudget.Andrightnow,Icouldlayoutforyoueveryoneofourprojectswhereweareintermsofspecificexecutionversuseverythingelsethatwelaidout.




IthinkoneofthethingsthatyouwillhaveheardLamartalkaboutandBernardinparticular,sincethatprojectorganizationheoversaw,alotofthatwasreallyaroundhowyoufrontendloadtheactivityaheadoftimeintermsofplanningandschedulingactivity.Intermsofyourspecificquestionandintermsofwherewearearoundtheexecutionresistingprojects,alotbetterinthelastfiveyearsthanthepreviousfive.

Thenyournextquestion,I'llcomebacktoShahDenizPhaseII,butit'sprobablytheeasiestonetotakenext.ActuallyyouwereaskingaboutKoreanshipyards.

OntheKoreanshipyards,specificallytheexampleyouhadintermsofClairRidge,lasttimewelookedwe'vegotallfivemodulesareontheirwayfromKoreaenroutetothewestofShetlands,andwehavenoissuesaroundthatrightnow.ButIdounderstandsomeoftheconstraintsthatareoutthereintermsoftheshipyardsandtheactivity.

Certainlywhatwecouldseeabout18monthsagowastherewasalotofstackingofactivityintermsofgettingalltheprojectsthroughthatwerebeinglinedupthroughsomeofthoseshipyards.Butwedon'tseeanymajorproblemsrightnowaroundtheexistingprojects.

IntermsofShahDenizPhaseII,that'sprogressingreallywellrightnowintermsofwhereweare.Ifthereareotherpartnerissues,theyarereallyquestionsthatyoushouldaskofthosepartners,notofourselves.

SofarShahDenizPhaseIIisprogressingreallywell.Andtoyourexactquestion,we'reabout71%completionversus60%,whichiswhattheplanwouldsay.


Okay.Thankyou.Justaquickfollowup…

BrianGilvary(CFO):

Comeon,Thomas,youjusthadthreequestions.Whatdoyoumeanafollowup?


Okay.Fairenough.Fairenough.

BrianGilvary(CFO):

No,goahead,please,no,no,pleasenogoahead.


Iunderstandthattheindustryisworkingtogetbetteratexecutingprojects,andfrontendloadingisakeycomponenttothat,asyou'vehighlighted.Iwondered,giventhatnooneistakinganyFIDsatthemomentforvariousreasons,woulditnotbetheperfecttimetobereallydoingprojects,becauseyougetthebestteams,yougetaccesstoallthebestshipyards,etcetera,etceteraasopposedtowaitinguntileveryonecomesbackandactuallypricesrecoveraswell,Imean--

BrianGilvary(CFO):

That'sareallygoodquestion.Actuallyinthatrespect,we'renottryingtocatchthelowhereintermsofratesforactivity.Butthereisnoquestion,Ithinkthepause,andMadDogPhaseIIisprobablythebestexampleofthis.

Thepausethatwedidaroundanumberofprojects,togobackandreengineer,rescope,reschedule,andrecontractsomeoftheactivityhasledto,yes,theproject'smovingsideways,buttheeconomicsand




thereforethevaluetoshareholderssignificantlybeingbetter.Butequallywedon'twanttobesittingaroundwaitingfortheabsolutelow,low,low,lowbeforewegoFID.

It'safairpushtosaythatactuallywe'reinthatwindowrightnow.MadDogPhaseIIisagoodexampleofthat.


Okay.Thankyouverymuch.


Allright.We'llhaveaquestionfromBirajBorkhatariaofRBC.

BirajBorkhataria(Analyst-RBCCapitalMarkets):

Hi.Thanksfortakingmyquestions;IhadacoupleifImay.One,goingbacktothelower48,we'veseencostsgodownagainQonQ.

Iwaswonderingifyoucouldcommentortalkabouthowthatbusinessisperformingrelativetotherestofyourportfolio?Intermsofefficiencygainsandproductivity,isthatfasterorslowerintermsofthosegains?

AndthesecondquestionwouldbeonOman.ThereweresomereportsoverthelastmonthorsoaboutapotentialgaspipelinebetweenIranandOmantobebuilt.

IwaswonderingifyoucouldtalkaboutthepotentialimplicationsfortheKhazzanproject,ifthere'sanyissuesthere.Thanks.

BrianGilvary(CFO):

Ithinkthelatteroneisdifficulttotalkaboutuntilsomethingactuallygetsannounced,butthereisnoquestionthatthereis--OmanKhazzanisprogressingreallywell.Developmentisgoingincrediblywell.

Wenowexpecttodrill--IthinklasttimewereviewedthiswithBernard,85fewerwellscomparedtotheoriginalscopethatwehadinplace.Thatwouldobviouslybeanopportunity,butthat'snotsomethingIcancommentonwithouthavingknownthespecificsofwhetherthatactuallyweretogoaheadintermsofapipeline.

Intermsoflower48,firstofall,again,BobandLamarandBernardhavetalkedaboutthishistorically.Thisismoreofamanufacturingbusiness,soit'salittlebitdifferenttoaoffshorefacilityandafulloffshoredevelopment.

Thatmeansyoucantaketherigsupmuchquicker,andyoucanalsobringthoserigsbackdownagain.Thereisnoquestion,though,thatbriningDaveLawlerinandhisteamandthereengineeringofthatbusiness,themovingitoffthemainWestlakecomplex,therestructuringofthepeopleinsidethatbusiness,andtherefocusingoftheengineersbackonthefielddevelopmentshasledtoalloftheimprovementsthatyoucanseethatwenowpublisheachquarterintermsofthedrillingcostscomingdown,thecostofproductioncomingdown.

Andsodifficulttoreplicateversusasaydeepwatertypealternative,butthereisnoquestionactuallylower48createsforusahugeadvantageinotheroptionsthatwelooklikeinouronshoredevelopments,likeOmanKhazzan,potentiallymaybearoundChinashalethatwe'veannouncedrecently.ButthatisanimportantpartasanassetbasefortheCompanyintermsofthetechnologythatwedevelopinsidetherethatwecandeployelsewhereintheworld.




BirajBorkhataria(Analyst-RBCCapitalMarkets):

That'sgreat,thanks.


Thanks,Biraj.Wehavealateentry,andsolastbutcertainlynotleast,fromJasonKenneyofSantander.

JasonKenney(Analyst-BancoSantanderBrasilS.A):

Hi,everyone.Thanksforhangingonforthisquestion.Justlookingatsomelonger-termenergythematics,youjustmentionedChinashalethere.

IwonderifyoucouldgiveussomeinsightonthescaleoftheprizeandthepotentialcommitmentfromBPoverthenextfewyears,andisitgoingtobegame-changinginthesamewaythatUSsawaturnaroundoveradecadeinitsgasmarketsanytimesoon?

AndthesecondonglobalLNG,areyoufeelingtheneedtocreatedemandforlong-termLNG?I'mjustwonderingwhathappenstofundamentalsoverthenext5years,10yearsinglobalLNG.

BrianGilvary(CFO):

Well,yes,thatlastquestionisquiteaninterestingoneintermsofwheredoesLNGgo,giventhenumberofprojectsthatweseecomingoninthebackendofthedecade.Certainlyoverbetweennowand2020,thereisasignificantamountofLNGwecanseecomingonthemarket.

IntermsofChina,Ican'ttellyoualotI'mafraid,Jason,otherthanthefactit's1,500squarekilometers,it'sintheSichuanBasin,andit'sagreatstepforwardintermsofourcooperationandworkingwithCMPC,whowillbetheoperator.IttiesbacktoanagreementweputinplacebackinOctoberinLondonthatBobsigned,andcoversallsortsofotheropportunities,eventofuelretailinginChina,explorationofoil,andpotentiallyLNGtrading,whichtheyaredefinitelyinterestedin.

Ithinkit'sa--itwasagreatlandmarkdealtogetdoneintermsofprogressingforward.Ithinkit'salittlebitearlyatthispointtosaywhatopportunitieswillflowoffthebackofthat.

IntermsofLNG,we'llseethefirstcargoesofgasprobablyexportoutofthelow48,outofNorthAmericacertainlynextyear.We'llseeourowngasstarttoexportin2018.

Ithinkthewholegasportfolioandtherebalanceofgasglobally,Ithinkyou'llcontinuetohavethethreezonesaroundNorthAmerica,theFarEastandEurope.WhethertherewillbemoreconnectivityasweseemoreLNGprojectscomeon,Ithinkyou'llseemoreLNGpricingintotheFarEastnon-oilrelated,whichwe'veseencertainlyinmorerecenttimes.

ButthereisnoquestiontherewillbealotofLNGavailableonthemarket.Weobviouslycan'tcreatedemand.

ThatwillbesomethingthatwillnaturallybetakenupprobablyintheFarEast,andpotentiallyintermsofpowerdevelopmentsifyoulookatthelower48andtheUS.Andyou'reseeingalotofindustryactivitybeingbuiltoffthelower48gaspricesinNorthAmerica,andIwouldnotbesurprisedtoseemoreofthattrend,especiallyintermsofchemicalsandmanufacturing.


It'sabigtopic.Bigthematic

BrianGilvary(CFO):




Yes,Jason,wecouldgoonforalongtime.ButIthinkyouarenowthefinalquestion.


Good.Thanksverymuch.


Allright.Thankyou,everybody.Thatistheendofourquestions,andI'lljusthandbacktoBriantoclosethecall.

BrianGilvary(CFO):

Well,sofirstofall,thankyouforyourpatience.We'vetriedtocoverallofthequestionsthatyouhadtoday.

Justtosummarize,safety,andwetalkedaboutthis,safety,reliabilityremainsthenumberoneprioritythatwehavewithintheFirm.We'vedemonstratedthroughIthinkcontinuedmomentumoncostsandcapitalandrepositioningtheCompanytotheloweroilpricesthatwesee.

Dividendremainsakeypriority,andwe'velaidoutforyounowhowwebelievewecanbalancethebooksof$50to$55fornextyear,andwelookforwardtoreengagingwithyoucertainlyatsomepointthisyeararoundanupstreaminvestorday.Andifnotthen,atour2Qresultswherewe'llhaveoursegmentheadsandBobavailableforthecall.Butthankyouforyourpatienceandtime.

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BP (BP) Earnings Report: Q1 2016 Conference Call Transcript · The mild winter in the United States...

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Transcript of BP (BP) Earnings Report: Q1 2016 Conference Call Transcript · The mild winter in the United States...