bp has reported its full year results for 2021 and is also set to give an update on its strategic transformation, including accelerating its net zero ambition.
The strong progress bp has made over the past few years has reinforced its confidence in the delivery of its earnings and returns targets for 2025. In addition, it is now aiming to continue to grow EBITDA through to 2030.
bp is now aiming to sustain EBITDA from resilient hydrocarbons out to 2030, despite focusing its oil and gas production and refining throughput.
The company also expects to increase the proportion of its capital expenditure in transition growth businesses to more than 40% by 2025 and is aiming for around 50% by 2030. It aims to generate earnings of US$9 – 10 billion from these businesses by 2030, driven by five transition growth engines – bioenergy, convenience, electric vehicle (EV) charging, renewables and hydrogen.
Since setting out its strategy in August 2020, bp has made strong progress across each of its three strategic focus areas, and is on track to meet the targets it set for 2025.
In resilient hydrocarbons, 11 new major projects have begun production since the start of 2020, completing a six-year programme that delivered 35 major projects, on average on schedule and around 15% below budget.
bp now expects to sustain EBITDA from resilient hydrocarbons at approximately US$33 billion/yr to 2025, and aims to maintain it in a US$30 – 35 billion range to 2030, even while oil and gas production is expected to decline 40% from 2019 levels by 2030. bp plans to deliver this through a continued focus on costs and performance, and disciplined investment in high margin opportunities, while also continuing to focus and high-grade its portfolio.
As the world seeks lower carbon fuels, bp sees clear opportunities to leverage its portfolio of assets and customer base – hence bioenergy is one of bp’s transition growth engines. This includes biofuels, including sustainable aviation fuel, and biogas. Building on its refinery footprint, bp anticipates investing in five major biofuels projects, including the conversion of up to two refineries. It also sees opportunity for considerable growth in biogas in the US, Europe and UK.
In convenience and mobility, through the strength of its customer offer, bp has grown its margin share from convenience and electrification from 25% to 29% since 2019. Over the same period, bp has already almost doubled its EV charging points to more than 13 000 worldwide.
bp remains on track with its aim to double 2019 earnings from convenience and mobility to US$9 – 10 billion in 2030, with both convenience and EV charging as transition growth engines.
The company has 2150 strategic convenience sites worldwide and has now increased its aim for 2030 to around 3500. It has also increased its aim for charging points to more than 100 000 by 2030. With a focus on fast and on-the-go charging – almost half its current network is fast or ultra-fast – and on fleets, bp is aiming to increase the energy sold across its EV charging networks 100-fold from 2019 to 2030.
In low carbon energy, it has quadrupled its renewables development pipeline since the end of 2019, from 6 GW to 24.5 GW. This includes its entry into offshore wind, now with a pipeline of 5.2 GW net, including its recent success in the ScotWind leasing round.
With disciplined annual capital expenditure in low carbon energy planned to grow to US$3 – 5 billion by 2025 and US$4 – 6 billion by 2030, it is aiming for EBITDA of US$2 – 3 billion by 2030.
bp sees both renewables and hydrogen as transition growth engines. With its renewables pipeline and 4.4 GW developed to FID at end-2021, it is on track for its target of having developed 20 GW renewable power capacity by 2025 and its aim for 50 GW by 2030. The company remains confident of achieving 8 – 10% levered returns for these investments.
In hydrogen, it has built a significant portfolio of options in advantaged markets worldwide with potential capacity of 0.7 – 1.3 million tpy. These also enable additional value creation through integration with renewables and CCS.
bp investing in Britain
In delivering its strategy, bp expects to show how operating as an integrated energy company can create value while supporting the low carbon ambitions of cities, countries and regions. This is demonstrated by its plans in its home in the UK, where it expects to invest across all its transition growth engines.
It anticipates spending more than double the profit it generates in the UK out to the middle of this decade. Its plans represent an important return to growth for bp and its investment in the UK.
The company helped to create hydrocarbon value chains in the UK – in the North Sea, retail and convenience, and supply and trading – and now intends to help lead the creation of new electron and hydrogen value chains.
Plans in the UK include:
- Producing clean energy from offshore wind in the Irish Sea and off the coast of Scotland, and from solar across the country developed by Lightsource bp.
- Manufacturing green and blue hydrogen, and other opportunities enabled by CCUS, in Teesside, Scotland and elsewhere.
- Growing new markets for hydrogen, including in centres such as Teesside and Aberdeen, and transport opportunities for hydrogen and biofuels.
- Continued growth of its market-leading EV charging network and convenience offers.
- Commercial and geographic integration through bp’s trading, and regions, cities and solutions teams can further enhance returns created in these new value chains.
This approach is not limited to the UK – bp sees opportunities to apply this integrated energy company model in many other geographies around the world.
Accelerating net zero ambition
The strategic progress bp is making, and the growing confidence it has in the opportunities of the energy transition, is now also allowing it to accelerate its net zero ambition and aims.
bp now aims to reduce operational emissions by 50% by 2030, compared with an aim of 30 – 35% previously, on the way to net zero by 2050 or sooner.
It is now also aiming for net zero lifecycle emissions from the energy products it sells by 2050 or sooner – a significant advance from the previous aim of a 50% reduction in their emissions intensity. Additionally, the aim’s scope is expanding to include physically traded sales of energy products. For 2030 bp is aiming for a 15-20% reduction in the lifecycle carbon intensity of these products.
The company intends to provide shareholders with the opportunity of an advisory vote on its net zero ambition at its 2022 AGM.
Growing earnings and distributions
Continuing to deliver this strategy is expected to allow bp to meet its 2025 targets of:
- Growing EBIDA per share at a 7 – 9% CAGR to 2025.
- Growing ROACE to 12 – 14% by 2025.
- Growing the proportion of capital employed in transition growth businesses to over 20%, and the proportion of capital investment allocated to them to over 40%, by 2025.
With a continuing commitment to its financial frame, including strict capital discipline, bp believes that – at an oil price of around US$60/bbl and subject to board discretion – it has the capacity to increase its dividend per ordinary share by around 4%/yr through 2025. In addition, with its commitment to returning at least 60% of surplus cash flow through share buybacks – subject to retaining a strong investment grade credit rating – the company also expects to deliver approximately US$4 billion buybacks a year at US$60/bbl through to 2025 – with upside in higher price environments.
Together with the strategy this underpins confidence in bp’s investor proposition to deliver long-term value to shareholders through committed distributions, profitable growth and sustainable value.
Read the article online at: https://www.hydrocarbonengineering.com/special-reports/08022022/bp-releases-company-progress-statement/
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