BP PLC

LSE:BP

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the BP presentation to the financial community webcast and conference call. I now hand over to Craig Marshall, Head of Investor Relations.

[Craig Marshall, executive]

Good morning, everyone, and welcome to BP's First Quarter 2023 Results Presentation. And I'm here today with Murray Auchincloss, our Chief Financial Officer.

Before we begin today, let me draw your attention to our cautionary statement. During today's presentation, we will make forward-looking statements, including those that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors 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.

I will now hand over to Murray.

[Murray Auchincloss, executive]

Thanks, Craig. Hello, everyone, and thanks for joining us. We are here today to report on BP's first quarter 2023 results.

First, we continue to deliver resilient operational and financial performance. For the first quarter, underlying earnings were $5 billion, and we reduced net debt to $21.2 billion. Second, we are executing against our disciplined financial frame, including the announcement of a further $1.75 billion share buyback. And third, we are advancing at pace with our transformation to an integrated energy company.

Since reporting fourth quarter results, we have made progress toward our 2025 oil and gas production target with a safe start-up of Mad Dog Phase 2 in the Gulf of Mexico. In addition, the KGD6-MJ project offshore India is in the final stages of commissioning with 2 wells open to flow gas and full start-up expected later this quarter.

We have also further strengthened our resilient oil and gas portfolio, announcing our intention to form a JV with ADNOC focused on gas development and international areas of mutual interest, including the Eastern Mediterranean; BP expects to contribute assets to form the JV and has made a nonbinding offer with ADNOC to acquire 50% of NewMed Energy; advancing our Kaskida project in the Gulf of Mexico to concept selection; and agreeing to acquire Shell's 27% interest in the Browse project, offshore Australia, subject to approvals.

We have agreed to acquire TravelCenters of America, which is expected to almost double our convenience gross margin and provide growth opportunities across 4 of our 5 transition growth engines. We have continued momentum in executing our fast, on-the-go and fleets EV charging strategy. This includes a strategic collaboration agreement with Iberdrola with plans to accelerate the rollout of EV charging infrastructure in Spain and Portugal, and a new global mobility agreement with Uber. And in low carbon energy, our hydrogen and CCS strategy is progressing with the U.K. government selecting 3 BP-led projects to proceed to the next stage of development.

Turning to results. In the first quarter, we reported a headline profit of $8.2 billion. Allowing for post-tax adjusting items of $3.7 billion and an inventory holding loss of $500 million, our underlying replacement cost profit was $5 billion despite the backdrop of lower average commodity prices.

Turning to business group performance compared to the fourth quarter. In gas & low carbon energy, the result benefited from an exceptional gas marketing and trading result, partly offset by lower gas realizations. In oil production & operations, the result reflects lower liquids and gas realizations.

In customers & products, the products result reflects a lower level of turnaround activity and a very strong oil trading result, partly offset by lower refining margins. The customers result reflects lower retail fuel margins, partially offset by a higher result in Castrol. For the first quarter, BP has announced a dividend of $0.0661 per ordinary share payable in the second quarter.

Moving to cash flow. Operating cash flow was $7.6 billion in the first quarter. This includes a working capital build of $1.4 billion after adjusting for inventory holding losses, fair value accounting effects and other adjusting items. The working capital outflow includes the impact of timing of annual incentive payments to employees. Capital expenditure was $3.6 billion, and disposal proceeds were $800 million.

During the quarter, we repurchased $2.4 billion worth of shares. And the $2.75 billion program announced in the fourth quarter 2022 results was completed on April 28. Despite the working capital build, surplus cash flow was $2.3 billion, and net debt was reduced to $21.2 billion. Taking into account the cumulative level of an outlook for 2023 surplus cash flow, BP intends to execute a further $1.75 billion buyback prior to announcing second quarter results.

Looking ahead in the second quarter, we will make a scheduled payment of $1.2 billion relating to the Gulf of Mexico oil spill settlement. And subject to shareholder approval, we expect to complete the $1.3 billion acquisition of TravelCenters of America.

Turning to our disciplined financial frame where our 5 priorities and our guidance for 2023 are unchanged. A resilient dividend remains our first priority. This is underpinned by a cash balance point of $40 per barrel Brent, $11 RMM and $3 Henry Hub. Our second priority is to maintain a strong investment-grade credit rating. We intend to allocate 40% of 2023 surplus cash flow to further strengthen the balance sheet. Recognizing the significant progress made, we are now on positive outlook with S&P, Moody's and Fitch.

Third and fourth, we will continue to invest with discipline in our transition growth engines and in our oil, gas and refining businesses. Our guidance of $16 billion to $18 billion capital expenditure for 2023 is unchanged. And as a reminder, this includes inorganic capital expenditure.

And fifth, we remain committed to returning 60% of 2023 surplus cash flow to buybacks, subject to maintaining a strong investment-grade credit rating. At around $60 per barrel and subject to the Board's discretion each quarter, we continue to expect to be able to deliver share buybacks of around $4 billion per annum, at the lower end of the $14 billion to $18 billion medium-term capital expenditure range, and have capacity for an annual increase in the dividend per ordinary share of around 4%.

Looking ahead, we remain focused on delivery with strong momentum across our business. First, today's results show that we are performing operationally. We expect around 200 mboe/d of high-margin production from 9 major projects by 2025. Mad Dog Phase 2 and KGD6-MJ are expected to underpin over 1/3 of this volume as they ramp up during 2023 with further start-ups expected this year.

BPX is on track to start up Bingo, its second major Permian processing facility, in 3Q '23. This will double BP's operated Permian oil and gas processing capacity, derisking future volume growth. And we expect to grow our equity LNG liquefaction capacity in 2023, supported by major project start-up with further increases in supply, driven by third-party offtakes from Coral, Venture Global and the restart of Freeport.

Second, we are transforming, executing our strategy with discipline. We expect the acquisition of TravelCenters of America to close in the second quarter and target around $800 million of EBITDA in 2025.

In EV charging, we expect around a twofold increase in energy sold in 2023 compared to 2022, supported by EV charging infrastructure rollout, increasing utilization of our charge points and strategic partnerships.

In bioenergy, during 2023, we expect to advance 1 of our 5 biofuels projects to final investment decision with a further 3 moving into front-end engineering and design. And in biogas, we are proceeding with the integration of Archaea Energy and executing our project pipeline.

Finally, in hydrogen and renewables and power, we are progressing our global portfolio of projects. We are on track to nearly double our hydrogen pipeline by year-end from 1.8 mtpa at the end of 2022 to around 3.5 mtpa. And we continue to grow our renewables pipeline. Third, we continue to apply our financial frame with discipline and predictability, remaining focused on delivering long-term value for you, our shareholders.

Thank you for your time. Now let's turn to your questions.

[Operator]

[Operator Instructions]

[Craig Marshall, executive]

Okay. Thanks again, everybody, for listening. We'll turn to questions and answers now. [Operator Instructions]

[Craig Marshall, executive]

On that note, let's take our first question from Biraj Borkhataria, RBC.

[Biraj Borkhataria, analyst]

First one is on the financial frame. When you're deciding the buyback run rate, in the past, you talked about -- you look at the quarter, but you also do a forward look at the future. If I'm thinking about 2023, first half, you've obviously got the working capital builds, you've got Macondo, you're guiding to higher maintenance and so on. And -- but then in the second half of the year, you've got the working capital releases that you talked about.

So from a surplus free cash flow perspective, it's kind of a year of 2 halves. If I look at the full year in totality, at least on my numbers, there was no need to step down the run rate. But obviously, if you look at H1, then there was. So just 2 questions as it relates to that. How -- what time period are you looking at when you're deciding the buyback run rate? And secondly, how much of this ties into your comments on the credit rating upgrade? Because my sense is that this is one way to signal that you're willing to put a bit more cash to the balance sheet in the near term. So that's -- kind of overall comments on that would be helpful.

And the second question is on Egypt. This is a material position for BP, and we've seen the currency devalue quite significantly in the last few months. So can you just help me broadly understand the implications and how much exposure do you have to local currency versus dollars? And any issues in terms of getting paid there and so on?

[Murray Auchincloss, executive]

Great. Thanks, Biraj. Thank you for your questions. First, on Egypt, our contracts are dollar-based. So there's not very much exposure in that space. Overdues come and go over time. There's a bit of an overdue right now, but nothing of any concern for us. I think that's the answer on Egypt.

And then buybacks, maybe just to recite how we think about the financial frame right now. As you all know, we have 5 priorities. The fifth priority with surpluses buybacks, what we've communicated to the market is that we'll do 60% of surplus to buybacks and we guide on an annual basis. So our guidance that we provided on February 7 was that at $60 oil, we can do $4 billion in buybacks through the year and that you could use our rules of thumb. And we gave you CapEx guidance as well of $16 billion to $18 billion in the year.

As you say, Biraj, we calculated the surplus in the first quarter. We had $2.3 billion of surplus. 60% of $2.3 billion would be $1.5 billion. We lent in a bit given the strong performance that we see moving forward from the upstream project starting up to continued LNG expansion and our offtakes to our good trading performance. And so we leaned in a bit, and that's why you got to the $1.75 billion.

Of course, actual buybacks will be $2 billion as we do $250 million of employee offsets as well. So that's how we think about it. We look at it through the year, and we account both the surplus that we've accumulated in the past and the outlook for the future. I hope that helps, Biraj.

[Craig Marshall, executive]

Okay. Thanks, Biraj. We'll take the next question from Paul Cheng, bright and early in the U.S., Paul at Scotia.

[Paul Cheng, analyst]

Two questions, please. Murray, that you guys just signed the purchase agreement with Shell on the Browse LNG project. Just curious, what's the rationale behind given the difficulty to operate in Australia? And the return, is it really going to be that good in order for you to increase? And what's the hurdle and the step in order for that project to take hold and to move to the FID?

The second question is on inflation. Can you give us some idea what you see on the inflation side? And also, what's built in into your current CapEx?

[Murray Auchincloss, executive]

Great. Thanks, Paul. Bright and early this morning, so you're one of the first participants in the call in as well. So thanks for joining us. On inflation, we're actually not seeing very much now around the world. There continues to be labor inflation. But as you can imagine, fuel prices are decreasing, raw products are decreasing as well. So we're really not seeing much inflation right now across the sector other than in wages. So I think that's the inflation question.

And then on Browse, look, to step back to February 7, what we talked about is $8 billion more into our transition growth engines and $8 billion more into our oil and gas operations. The first 3 years of that will be focused on infill and tiebacks, and that's why we added 7 rigs. And then as we look to the second half of the decade, we have 15 potential FIDs that we can move forward. Kaskida that you heard me talk about earlier is one of those that we've moved into concept select on.

And Browse is moving in that direction as well. And we saw the opportunity to deepen in Browse, which we thought would be a great opportunity. It's 13 tcf of gas. It came at an immaterial price that's within our financial framework. And it's gas that's pointed at Asia that needs natural gas moving forward.

From a difficulty perspective, as we've talked through it with our project teams in detail, this isn't a normal LNG project like the past ones. It's not onshore. It's not near the shore, which has been so tricky. Instead, you'll see fabrication through the operator, Woodside, done probably offshore in other countries. You've got a pipeline delay, but it's an offshore pipeline that there's good industry experience around this. And of course, it's going into [ oilage ] that's available in North West Shelf.

So we like the project. We think the returns will be mid-teens that we're happy with. But of course, we need to continue to work with Woodside to optimize that and move it forward. But pleased to be able to do the transaction. I hope that helps, Paul.

[Craig Marshall, executive]

Okay. Thanks, Paul. We'll stay in the U.S. and go to Roger Read at Wells Fargo.

[Roger Read, analyst]

I'd like to hit you up, Murray, on a couple of things on the demand side, what you're seeing, there's been so much in the macro right now, what you're seeing in terms of, call it, non-U.S. R&M demand, refining and marketing, and then I guess particularly a focus on China.

And then the other thing to ask about, you outperformed a little bit on the production side this quarter. Just maybe what were some of the factors in that, if any, or if it just looked normal to you? And I'm not very good at forecasting.

[Murray Auchincloss, executive]

Thanks, Roger. Thanks for joining us so early. R&M demand side outside the United States, demand is a little bit soft in Northern Europe. And China really is the main story where post the COVID lockdown, we've seen strong demand on the retail side. That's why you've started to see cash flow starting to pick up a little bit. And we've seen an awful lot of retail demand, both on the fuel side and on the EV charging side, setting records on the EV charging demand.

We haven't seen as much industrial demand. We're only starting to see the first few cargoes of LNG flow into China now. So I think from a demand side perspective, the Chinese story, from an industrial capacity perspective, is still to play out throughout the year. It's why we are constructive on oil prices looking out through the rest of the year.

As far as production, we're up a little bit more than we thought we'd be. I'll always take that as CFO, as you can imagine, Roger. And we've had a really strong performance out of the Gulf of Mexico from base performance. And BPX brought online an awful lot of new wells that are performing better than we hoped. So just good underlying reservoir performance right now is the story, Roger.

[Craig Marshall, executive]

Thanks, Roger. I will take the next question from Irene Himona at Societe Generale.

[Irene Himona, analyst]

Congratulations on the results. Two questions. Firstly, you refer in your press release to the Shah Deniz Consortium having secured additional pipeline capacity. Can you share with us, please, what the flexibility or the spare capacity is at Shah Deniz? And so how much could you grow exports into Europe?

And then you referred to stronger biofuels performance in the quarter. Can you please remind us of your biofuels capacity and then give us a sense of how material that contribution is to EBIT, please?

[Murray Auchincloss, executive]

Yes. Great. Thanks very much for the questions. Shah Deniz excess capacity, without pipeline expansion, there's probably excess capacity. I'm going from memory here, so this may not be an exact answer, and Craig will follow up if I get it wrong. But I think we had about 5% capacity inside the existing pipes to expand if we could. But anything beyond that would take line looping, et cetera, that I know the consortium is working on as well. But Craig will clean that answer up if I got it wrong.

Our bio-production capacity across the business is about 27 Kb/d at the end of 2022. And we continue to grow that through the decade as we bring online biofuels plants and expand the efficiency of the existing ones. Of course, an awful lot of the profit we make inside bios, inside trading as well. And we'll start to bring disclosures on the bio side at 2Q results. We'll show you where we're getting to on EBITDA from our transition growth engines. So there'll be more to provide you with there, Irene, as opposed to today. I hope that's okay.

[Craig Marshall, executive]

Thanks, Irene. And we'll move now to Christyan Malek of JPMorgan.

[Christyan Malek, analyst]

My -- yes, 2 questions from me. First of all, on the buyback quantum, I must admit, it was a bit of a surprise that you [ love this ]. And I just want to understand the relationship between that -- outside of your capital frame formula, which I totally understand, but just in the context of the macro environment, would it be fair to say that as the macro got weaker, which just seems to be given demand weakness and [ base relentless cards ], would that be a new norm in terms of your buyback range from a quantum perspective and as far as taking a more cautionary tone in terms of your approach to balance sheet? So I was just trying to link the macro as opposed to the sort of the formula, if that's okay, in isolation.

And the second question is regarding NewMed Energy and so the acquisition, I'm trying to understand the industrial logic, and maybe that extends to other acquisitions that you've made recently in terms of buying into equity as opposed to building through your own portfolio organically given your optionality. So how should we think about the balance between accessing reserves through an acquisition versus proving our progress in terms of your online portfolio?

And should we read into this that perhaps the portfolio over the medium term needs to be beefed up, if you will, through acquisition because of the lack of optionality? So I'm sort of challenging you on that point, but I just want to understand the industry logical of buy versus build.

[Murray Auchincloss, executive]

Yes, great. Why don't I start on the gas side of the portfolio. Very, very pleased to be progressing the NewMed transaction, and the offer is made, gives us access into Aphrodite and Leviathan, 2 great fields that can be developed for the future for Europe. And as I mentioned in my script, that will be contributing assets to that venture. So you should think of that as an efficiency swap. And as time unfolds, we'll give you more details on what that looks like.

On the broader point, we have a lot of optionality inside natural gas, but it never hurts to get more is our viewpoint to drive towards the highest quality. We obviously have discoveries in Trinidad that allow Trinidad to continue. We have discoveries in Mauritania and Senegal that allow to continue. We've now got an interesting anchor point in the Middle East for export. And of course, we've deepened our Asian access on the equity side.

So we have lots of options. It's really about creating as many options as you can and then deciding which ones you do. Quality through choice, I think, is the mantra that we all learned growing up under John Browne. So I hope that helps understand that.

As far as the buybacks, just to reiterate guidance yet again, Christyan, 60% of surplus, $4 billion of buybacks at $60, use the rule of thumb and the price is around $80. I think at strip right now, give or take, and you'll have the Henry Hub and RMM and use our rules of thumb to calculate it with our $16 billion to $18 billion capital range. And I think you'll find the number is spot on, absolutely spot on what we guided.

So as far as I'm concerned, we've hit just about that on guidance. And as we look forward, we leaned in a bit above the $1.5 billion to the $1.75 billion, as I talked about, on the strength of performance. And of course, if the oil environment improves, let's see what happens.

Remember, last quarter, we did $2.75 billion of buybacks, and that was -- that happened because we had a working capital release. This time, we've got $1.75 billion with a $1.4 billion build. And what you should focus on is we are honoring our commitment to a 60% surplus. We are not -- we have not created a run rate framework. We have created a percentage of surplus. And as far as I can tell, the math works. So thanks, Christyan. I appreciate your question.

[Craig Marshall, executive]

Thanks, Christyan. We'll take the next question from Os Clint at Bernstein.

[Oswald Clint, analyst]

Maybe just talking about the LNG book and a little bit of an update on the derivative unwind that we spoke about last quarter, the quarter before, the $5 billion potentially second half this year into early 2024, if we could just get an update on that particular number. And also, if -- is there any -- I mean I know, Murray, you said immaterial monetary value for Browse. But is that -- I mean, is that should be perhaps more than immaterial? Is it a couple of hundred million up towards 0.5 billion for that payment? I wonder if you could just put something around it.

Secondly, yes, Murray, you talked Castrol is picking up. Is that simply China? Or are we still seeing those base oil effects coming through the Castrol business? Would be the second one, please.

[Murray Auchincloss, executive]

Super. Thanks, Os. I appreciate the questions. Browse, we're under a confidentiality agreement. So I really can't comment.

I don't think we want the CFO of BP getting in trouble for commenting against a confidentiality agreement. So I can -- all I can say is it's an immaterial amount and within our capital frame.

As far as the LNG unwind, I think what you're asking is, is there any change to the cash flow guidance on the release on working capital? And the answer is no. Our guidance remains as described last quarter, which is last year, we locked in a bunch of high-quality priced LNG with the cargoes to come starting in 3Q this year. And we see $5 billion releasing from 3Q 2023 through about 2Q 2024 weighted towards 2024. So no change to that guidance. I thought I'd just repeat it. And just interestingly, nobody has asked me, but we are starting to see Freeport come back, and Coral is lifting well as well. So that's good news.

Craig, remind me of the third question.

[Craig Marshall, executive]

Castrol.

[Murray Auchincloss, executive]

Castrol. Yes, Castrol. Sorry, Os, I forgot the third question. I can't read my own writing. On Castrol, we have started to see additive prices and base oil prices relaxing. So that's good news. There's a little bit of performance there, more to come. And then we had the 1 month of unlock inside China, which obviously China is our largest market for Castrol. So that started to move forward as well.

As well, we have a new leader in place now, Michelle Jou.

She's doing a fantastic job. She's got a new leadership team. They're fired up, and they're getting ready to go get market share and move forward on Castrol. So I'm looking forward to a continuing trend in Castrol in the quarters ahead. Thanks, Os.

[Craig Marshall, executive]

Thanks, Os. We'll take the next question from Peter Low at Redburn.

[Peter Low, analyst]

It's actually just another question on the customers & products result more generally. It looks like it was actually the weakest quarterly result for some time. Can you give a little bit more color on what's causing that? And then perhaps how you're tracking against 2025 target for $7 billion of EBITDA from that area? So that was it.

[Murray Auchincloss, executive]

Yes, Peter, we remain still on track in 2025. Remember, a key milestone will be the completion of TravelCenters of America. We're looking forward to the shareholder vote next week. And then obviously, it has a strong contribution into EBITDA in 2025.

On current performance, it's a bit of an anomaly in the quarter where the fuel margins were in refining as opposed to in the -- inside mobility, a fairly sizable number. So that's what makes it look a little bit suppressed. Additionally, we're really pushing hard on the bio space, and we're really pushing hard on the electrification space. So those create losses. Again, we'll come show you a bit more granularity on that at the second quarter results. So because you've got growth engines inside that, it creates a little bit of a suppressed number along with the fuel margin that we saw.

From a headline basis, though, really pleased with the transition growth engines. Convenience year-on-year, 9% up. That's against a market average of 6%. EV charging is storming ahead with continued deployment of fast charging. We hit 8.8% utilization in the U.K. in the quarter, way ahead of what we would have expected as consumers adopt more electric vehicles and use our services. So the underlying drivers of growth are looking fantastic, and it's a bit of an anomaly in the first quarter. I hope that helps.

[Craig Marshall, executive]

Thanks, Peter. We'll take the next question from Lydia Rainforth at Barclays.

[Lydia Rainforth, analyst]

Two questions, if I could. One, if I kind of come back to the buyback and, Murray, you referenced the kind of the working cap impact on last quarter, this quarter. But there is a lot of volatility, it seems like, in those numbers. So do you ever think about moving to something that's slightly more stable in terms of that framework? And I am particularly thinking about 2Q when you do have Gulf of Mexico payments going out, you do have TravelCenters closing. So just sort of the idea that the volatility sometimes isn't necessarily helpful from that side.

And then the second one was actually just on the OpEx side. In the upstream, clearly that number was down 12% on last year in what has been an inflationary environment. I was wondering if you can comment a little bit more about what's driving that.

[Murray Auchincloss, executive]

Yes, great. Lydia, financial frameworks, crystal clear from our perspective, the 5 priorities, we've been doing it for the past 3 years, no intent of change. And I don't imagine you want me to repeat the guidance I just gave the guys on the previous 2 questions, but no intent to change, which I think was what you might have been asking.

And just as a reminder, the Board looks through the year as we think about surplus, and we're committed to 60% to surplus. And yes, working capital does swing amazingly across the quarters and has many, many moving parts. And as you can see, we leaned in a bit this quarter given what happened on working capital.

As far as your second question, OpEx in the upstream, you have to think about this really as a 10-year journey that the upstream has been on. You'll remember that we heavily, heavily started to digitize years ago. And the work of all of that, along with reorganization that occurred to move to a much more central model with agile squads, is really starting to pay off. I think the number was $14 a barrel lifting cost back in 2012 or 2013, and we're all the way to sub-6 now and aspiring to hold that moving forward.

That's really about the fact that we spent years and years and years streamlining all our data, thanks to help from Palantir, a great partner we have. They really helped us clean up our data so that everybody would have it at their fingertips. That enabled us to centralize many of the teams around the globe from the drillers to the reservoir engineers to the explorers.

And another big thing we did in the background is we put in place a single SAP system across the upstream, including a purchasing package. And that purchasing package now really coming to bear where we're able to do offshore work remotely.

So in October, we're going to host an away day for the upstream and Archaea. And at that, we'll do a few showcases on the brilliant stories that we're seeing out of this.

The one that captured my imagination last quarter was that the operators on Schiehallion can actually plan and do the entire work onshore. So they don't have to travel back and forth on helicopters offshore to plan a trip. They have the laser siding that can put up all the architecture of scaffolding, et cetera, onshore in a virtual model. They bring the contractors in to work through the work packs. And all of a sudden, you eliminate all the labor going back and forth between our planners, the contractors, et cetera, and you arrive with a package that works the first time. That's just a step change and nothing I've ever seen in my career, especially in difficult places like the North Sea.

So it's a long -- very long-winded answer. Sorry for that, Lydia. You can tell I have a huge amount of passion in this, but digitization, agile and the structure that Gordon put in place have really, really brought technology to bear inside the upstream. And the great thing is that we can start on the downstream now, so we can really start on the refineries and the customer's business, which we haven't done yet. So it will be fantastic for the future in those businesses. I hope that helps, Lydia.

[Craig Marshall, executive]

Thanks, Lydia. And we'll turn now to Martijn Rats at Morgan Stanley.

[Martijn Rats, analyst]

Two questions from me as well, if I may. First of all, I wanted to ask you about Kaskida. I find it quite noteworthy that Wood Mack is still showing this as not viable. Whilst clearly, I guess, from the comments you made, this is moving to the sort of viable sort of category. So good to see that there is oil that was previously not viable becoming viable.

But I was wondering if you could talk a little bit about the things that have happened in the background on sort of technology or seismic or other things that allowed you to now progress this to the next stage. And the project is a bit of a blast from the past, so clearly, something must have happened in the meantime.

And then secondly, maybe ask sort of nitty-gritty detail, but it feels like quite an obvious one. The $1.4 billion working capital build in this quarter, would you also consider that to be reversible in quarters ahead? Or is that not something we should expect?

[Murray Auchincloss, executive]

On the second one, Martijn, you should not expect it to be reversible. It principally had to do with bonus payments where you accrue for them last year and you pay them out in the first quarter. So that's the majority of that build. And the only thing you should think about for release right now is the $5 billion that we talked about on the earlier questions.

On your first question, blast from the past, I can feel the title to your research note this quarter, Martjin. Yes, for those who haven't been around as long as I have or Martjin has, we discovered Kaskida back in 2006, I think, something like 4 billion barrels of oil in place. And really, what's happened is technology has transformed around us, Martijn. We now have 2 20K rigs that are operating in the Gulf of Mexico. We have frac technology that works inside the Paleogene at the high temperature, high pressure. We have production for 500,000 a day of Paleogene analog reservoirs that we didn't have last decade.

And so that, along with streamlined concepts on development, leads you down a path where you get much, much more comfortable with Kaskida. I wouldn't pay much attention to Wood Mack for now. That's a good reminder, Craig, that we should go introduce what we can to Kaskida to Wood Mack at the right time. But we feel pretty good about this, Martijn. It's probably going to have a decost to somewhere between 15 and 20. It's an enormous resource base, and we're just moving through concept select. And hopefully, we'll move to FID next year.

It's 100% BP-owned, and we're thrilled. It definitely gives us the capacity to hold the Gulf of Mexico up around that 350 to 400 level through the end of the decade, which I think is exceptional value for the company. I hope that helps, Martjin.

[Craig Marshall, executive]

Thanks, Martjin. And we'll take the next question from Chris Kuplent at Bank of America.

[Christopher Kuplent, analyst]

Murray, I just wanted to follow up on the question that Martjin just asked. It's not $1.4 billion of outflows, right? It's more than $4 billion of what I would consider classic working capital outflows in the quarter. Is that all due to those bonus payments you referred to? I just struggle to see the relationship between quarter-on-quarter price movements which, in particular, gas, I would have expected to lead to working capital inflow. So I appreciate -- I'm probably asking the same question again, but yes, if you could just confirm, where you can, the quantum of those bonus payments that you referred to just now and any other color you can add to that would be great.

Secondly, a question on your $16 billion to $18 billion frame. Now that you've announced a few acquisitions that will, I guess, be part of that frame, it'd be good to know what you can see today from Browse, TA, NewMed. I appreciate you probably have confidentiality agreements around a few of them on a single basis, but maybe you can, from where you sit today, give us a number for all of those combined, how much they will make up of the $16 billion to $18 billion for the full year?

[Murray Auchincloss, executive]

Thanks, Chris. I'm not really sure where the $4 billion comes from. So I'll ask Craig to follow up with you off-line or we can cover it this afternoon. The build was $1.4 billion. Last quarter, we had a release of $4 billion. You can't really compare quarter-to-quarter working capital build. So that's not math that makes sense. But the $1.4 billion is what the build was in the quarter, and the majority was bonus payment. So that's all I can say on that one. And we'll have Craig follow up with you afterwards to try to understand the math that you're looking at.

As far as capital frame for 2023, a few things to say, $16 billion to $18 billion obviously remains our guidance. You saw that our run rate in the first quarter was $3.6 billion. That's largely an organic run rate. So you can see where the run rate is moving to right now.

Acquisitions that might fit inside the inorganic side of things, first one, obviously, is TravelCenters of America. And we're waiting for the shareholder vote next week. So we'll see how that goes, and you know what the capital is associated with that. I've talked about Browse already. NewMed is not CapEx since NewMed is a swap. So that doesn't show up as cash CapEx, which is what we measure as cash CapEx.

So I think $16 billion to $18 billion remains valid. You can see what the organic run rate is right now from 1Q results. And so far, really, the only thing of materiality is TravelCenters of America if the shareholders approve that. I hope that helps, Chris.

[Christopher Kuplent, analyst]

Okay. Yes, thanks for the color on NewMed. And the TA is $1.3 billion, right, that's the portion that you would account for as CapEx?

[Murray Auchincloss, executive]

Yes, that's correct. Yes.

[Craig Marshall, executive]

Okay, thanks, Chris. We'll take the next question from Lucas Herrmann at Exane.

[Lucas Herrmann, analyst]

A couple, if I might. Just Murray, U.S. onshore, can you give us any idea as to what would likely impact on production and economics? Is it going to be if Bingo steps up? I ask simply because CapEx, obviously, is rising, as you've indicated, but production costs have always have seen quite some elevation this quarter.

So just some commentary, if you don't mind, around the U.S. onshore and progression as we go through the year. And otherwise, if I might, just in LNG, how many cargo diversions this quarter? To what extent are you rebuilding the capacity to divert later in the year should conditions be favorable?

[Murray Auchincloss, executive]

Yes. Thanks, Lucas. Nice to hear your voice. I'm not sure if we've guided on the Permian before at flow rates, but I'll do it anyway. The first one, Grand Slam is about 30 Kb/d of black oil. Bingo is about 30 Kb/d of black oil. And we have 3 more of these to come through '24 and '25. So that's building the Permian oil capacity up to 120 mb/d.

1Q had some anomalies inside BPX. As you brought a bunch of wells online, we had some well work to stimulate them. So it creates a bit of an artificial bubble in cost. Plus, obviously, they had the bonus payment that we talked about a little bit ago as well. So that's -- hopefully, that helps you on the U.S. onshore.

On LNG, I don't actually have that information at my fingertips, Lucas. What happened that drove an exceptional result in the quarter is we signed up a bunch of new contracts for medium-length delivery at a profit inside the portfolio. So that locks in profitability. And we also made some good price calls on the falling gas price.

But as far as cargo diversions, as we've talked about in the past, we have contractual clauses that allow us to redirect an awful lot of our cargoes across the world. And you'll remember the statistic last year that we've made public as we redirected 160 cargoes to Europe when Europe needed gas in 2022. So I hope that helps.

[Lucas Herrmann, analyst]

Murray, can I just come back one moment on the U.S. onshore? How much oil is behind pipe, i.e., effectively, as the facility as Bingo comes on stream, we should expect a pretty rapid ramp in production latter stages of the year?

[Murray Auchincloss, executive]

Yes, you'll -- you should see the 30 Kb/d flow over a 90- to 120-day period. It will just depend on where they are inside the completions versus drilling the next ones out. So it should be a nice rise.

[Craig Marshall, executive]

Thanks, Lucas. We'll take the next question from Michele Della Vigna at Goldman Sachs.

[Michele Della Vigna, analyst]

Congratulations on the strong results. I wanted to ask you 2 questions. On hydrogen, you're clearly building a strong portfolio. You expect to double the pipeline of projects. I was wondering if you could update us on what you expect to be the average profitability of the portfolio. And if you start to see the opportunity of the seaborne market being born or you're mostly focused on local demand, where I find especially the regulatory environment for refining and the substitution of gray hydrogen there remains very attractive.

And secondly, on U.S. gas, you are very well positioned with, I believe, pretty much fully hedged production for this year. But I'm wondering if at $2 per mcf gas, you're actually starting to see the opportunity to perhaps take away some of the rigs and refocus them in the Permian where you keep strongly growing the activity.

[Murray Auchincloss, executive]

Yes. Thanks, Michele. On the U.S. gas side, we're actually hedged out 2 years right now. So we see pretty strong economics on that, actually stronger than the Permian when we're hedged around 4 -- bid rounds to $4 out through 2024. And we keep that position under review, so no intent to reallocate rigs. As we signed up longer-term rig contracts, I wanted to hedge around that to guarantee the profitability and cash flow that came out of it. So we're happy with where the rigs are directed right now, and we have 3 in the Eagle Ford and 3 in the Haynesville.

On hydrogen, yes, progress is happening, and it's quite pleasing. The returns are above the 10% that we're seeing on average across the portfolio. I won't quote any direct numbers at this stage given that we have to get through FID before I get the confidence level, but certainly above the 10% hurdle that we're seeing.

Probably the first projects that are going to happen on the hydrogen side are in the refineries, as you mentioned. Probably green hydrogen out at Cherry Point, probably blue hydrogen at Whiting is our sense, and then green hydrogen across the refineries inside Europe.

Seaborne is something that we're in conversation with many customers, 2 different directions. There's the potential for green methanol to fuel tankers or green ammonia to fuel tankers that are shipping products around the world. So that's a potential that's starting to emerge. We'll see if that works. And then in Asia, we continue conversations with Asian countries on export. I think that will be longer wavelength though. I think that will be more towards the back end of the decade by the time you start to build that business out.

So interestingly, it's refineries and seaboard tanking that may be the things that move first. But ask me that question each quarter, and I'll probably slightly change the emphasis as the model starts to unfold, Michele. Thank you for the question.

[Craig Marshall, executive]

Thanks, Michele. I will take the next question from Jason Kenney at Santander.

[Jason Kenney, analyst]

Murray, I'm going to try and pin you down a bit on customers & products financial delivery this year. Last year, full year '22, $10.8 billion; quite a good first quarter, $2.8 billion. I mean the run rate points to another double-digit EBIT delivery this year. I realize that you've got some confidence in customers going into the second and third quarter. What kind of level of EBIT do you think is sustainable from this on a through-cycle normalized basis because it's got an interesting division?

And then secondly, do you have a view on the valuation disparity U.K. and Europe versus the U.S. majors in a minute? One of your competitors commenting that it's all about location, location, location.

[Murray Auchincloss, executive]

Yes. I think on the second one, I don't know what the competitors are saying. But from our perspective, it just looks like an opportunity. If we perform, as we're saying, we're performing, growing the upstream volumes, for example, the 200 Kb/d from the high-margin oil and gas businesses, growing that LNG portfolio, as we talked about, and growing C&M and the transition growth engines.

I think that's the first thing that we have to do. This was another strong quarter above expectation, and we just have to constantly continue to perform that way. And through the buybacks and the potential dividend increases that the Board has outlined of $4 billion a year of buybacks and 4 billion -- or 4% increase in dividend at $60, we just see the ability to converge. And that's a great opportunity to work our way through. So that's probably all I have to say on that one.

And then on the C&P side, I don't -- I mean I guess the way I'd say this is we have our targets for C&M growing to $7 billion through the decade. So I won't -- or through 2025. I won't correct -- I won't change that.

As far as the refineries go, you're kind of asking our refining -- what's the refining margin look like moving forward. Very difficult thing to predict. I suppose we're more optimistic than we were a few years ago because of refining outage and because of continuing demand growth inside fuels markets, especially aviation. So I'm not going to try to guide on what RMM would be, but think about it in chunks of our C&M that we provided guidance for. And then you choose your refining environment, you can use rules of thumb to see where you think we'll go.

But we're pretty happy with our refining slate. We're happy with the 1.5, the capacity we have now. And we're very much looking forward to taking the refining side of the business and moving it from gray to green or blue hydrogen and building out the 5 biofuel plants that we talked about that should make for a more ratable earnings as we move forward. Sorry, I'm being a little bit evasive, but I didn't want to try to guide too closely on RMM. Thanks, Jason.

[Craig Marshall, executive]

Okay. Thanks, Jason. We'll take the next question from Amy Wong at Credit Suisse.

[Amy Wong, analyst]

I got a couple of questions. The first one is just to go back to Australia. I appreciate you're not going to talk about the terms of Browse, but it was more just kind of strategically, given you have some existing operations. You also, last year, announced the large investments in the Asian Renewable Energy Hub. You've got this leaning into more getting more Browse. How do we think about how much capital employed you're going to have in Australia? And where does that kind of comp towards the rest of world? And so a bit of color on what's happening there.

And then the second question I had is on Archaea Energy. I appreciate it's only been a few months since you've had that business completed and acquired, but seems to be having a lot of momentum in that biogas business, and it's important for your growth engines as well. So just really love to get an update on where you are on your targets on that one. If things have accelerated, have you found more positive or negative things with Archaea?

[Murray Auchincloss, executive]

Okay. Great. I think in Archaea, as you said, I mean it's a little bit early to be saying anything. We'll update the markets at our event in October in Denver, where we'll go through Archaea as well. I think that will be a more appropriate time. I think we remain pleased with that 50 operating plants, 80 to build.

When we bought it, when we put the economics together for the bid, et cetera, in Archaea, the IRA really wasn't in place and we were unclear in it. The IRA is clearly providing more benefits than we thought through investment tax credits and through a different treatment on RINs. So we look forward to that. And I think we'll unpack that story more when we talk to the market in October. Apologies, it's just been a few months. So I think it's too early to say anything other than our enthusiasm for it remains very, very high.

As far as Australia, there -- we do have a tremendous amount of opportunities to increase investments inside Australia. The ones, obviously, we've got in the C&M business, we've got New Zealand, Australia, where we stand the chance to electrify the fleets there. And we're seeing quite a bit of uptake there. On the bio side, the bio demand for sustainable aviation fuel is very high. That's why we're converting [ quinoa ]. So that's a good investment for us as well.

And then we have 2 very, very large land positions in Australia: one, ARA, that you talked about; another one as well that give us the opportunity to move through in a phased manner starting with either green electricity or green hydrogen into the mining companies to help them decarbonize. We're a big fuel supplier to them now. And it's a way to start to shift what we provide from both through electricity and through fuel. And then the start of export, whether that be through bunkering or whether that be through direct export of hydrogen and ammonia, depending on what the customers want over time.

So it's a bit early to predict where CapEx will go. We have -- need to get to FID on these things before we decide it. But certainly, between, as you say, Browse, ARA, the Pilbara region, as long -- along with biofuels, et cetera, we stand the chance to grow CAPM in Australia strongly. And I think it's a great market that we worked in for many, many years. And I like it because I was born there as well. I don't often advertise that one. I thought you might like a bit of humor there. Thanks, Amy. I hope that helps.

[Craig Marshall, executive]

Thanks, Amy. An Australian-Canadian. Next question, Henri Patricot at UBS.

[Henri Patricot, analyst]

I just have one question on the upstream and liquids realization, which were lower than usual compared to benchmark prices. Can you give us some background on what drove that this quarter and whether we should expect a bit of a reversal over the rest of the year?

[Murray Auchincloss, executive]

I think there was a little bit of lag inside that. If I remember, Henri, we'll have to get Craig to come back to you. But I think we just had some WTI lag that will come through later in the quarter. But we'll Craig...

[Craig Marshall, executive]

Yes, I'll follow up with you after, Henri, on that one. No problem.

[Murray Auchincloss, executive]

But I think it was inside some of the lag effects we saw, Henri. Thank you for the question.

[Craig Marshall, executive]

Thanks, Henri. We'll go from Henri to Henry. Henry Tarr at Berenberg, next question, please.

[Henry Tarr, analyst]

Just 2 quickly. One on Rosneft, just whether there's any change there or any prospective of receiving anything potentially from the stake where it's completely written off at this point, but just whether there's been any communication around that. And then on windfall taxes and any impact that you've seen there in Q1 or expecting for '23.

[Murray Auchincloss, executive]

Yes. Thanks, Henry. Rosneft, I'm afraid, no change. It's a commercial progress, and we don't disclose any details of the commercial process. And we'll update you when something changes on that. We haven't received any dividends nor do we plan to receive any dividends either. It's probably all I can really say on Rosneft.

On windfall taxes, I presume you're meaning the North Sea. A few statistics for you, $2.2 billion paid in taxes in the North Sea, $2.2 billion of taxes paid in the North Sea in 2022, including $700 million on the EPL, the energy profit levy. And for the first quarter, we paid about $650 million of taxes in the North Sea. That included $300 million on the profit levy. So that's over $1 billion now on the profit levy in the North Sea. As far as European solidarity taxes, we paid about EUR 500 million in last year, in 2022. I hope that helps, Henry.

[Craig Marshall, executive]

Henry, thank you. We'll take the penultimate question from Kim Fustier, HSBC.

[Kim Fustier, analyst]

I just had 2, please. First one is on gas in India, could you just talk about your investments and activity there? That deepwater gas project feels like it's also been quite a long time coming. And also, how the recent gas pricing reforms in India are impacting economics there?

The second one is on CCS. Could you talk about the recent CCS developments in your portfolio, in particular, the Viking project in U.K. and in the Southern China project with PetroChina. And under that, I'm just curious about what might be the business model or incentives to do CCS in China.

[Murray Auchincloss, executive]

Great. Thanks, Kim. Thank you for the questions. Gas in India, this is the third project we brought online, the MJ project, which is just in its final commissioning stages. So we've had a couple more projects that have come online previously. And we're now providing -- I think the statistic is 1/3 of natural gas into India through those offshore facilities.

I think it's ended up being a pretty decent investment. We're long-term contracted with consumers directly on the gas prices. So given that we're going to industrials, we're not impacted by the latest wave of change from India as far as I understand. So I think that answers the India question.

On CCS, in the Viking area, so if you think about what's happening, the government has awarded the next round of projects for incentivization. Net Zero Teesside, along with our blue hydrogen plant and, of course, NEP offshore, which is the storage injection caverns, those are located very close to Viking. So they provide further capacity in the event the NEP ones are filled up over time. And we already have a pipeline to Viking from historic ownership that we have through the Southern North Sea, and it has access to the east in case carbon sequestration comes from Europe.

So it was a very cheap option for us to buy, to set up more optionality both for Net Zero Teesside and then potential continental import of CO2 over time. So it was a nice little option to build as the U.K. is really pushing -- the U.K. government is really pushing CCS as a way to decarbonize the economy. So we're very, very pleased on that.

And on China, I think, Craig, we're going to have to get back to that one.

[Craig Marshall, executive]

Yes, that one that I immediately have to hand. So we will come back to you on Southern China, Kim.

[Murray Auchincloss, executive]

We'll come back to you on that, Kim. Apologies, I don't often miss questions, but I missed that one.

[Craig Marshall, executive]

Thanks, Kim. And then we will take the final question from Alastair Syme at Citi.

[Alastair Syme, analyst]

Murray, February, you made a bit of a strategic shift. And I mean it felt to me like the press reported that you pivoted back to oil and gas and felt to me more like the pivot that was going on was within what you were doing in the transition. Given you've done a bunch of investor meetings since then, I'm just sort of interested in the conversations you've been having with investors on both sides of the Atlantic and how they've interpreted the shift.

[Murray Auchincloss, executive]

Yes. Thanks, Al. Look, the way I'd characterize it is, as Bernard said, we're leaning in both to transition growth engines and oil and gas, another $8 billion into oil and gas and another $8 billion into the transition growth engines, focused on the shorter cycle ones, so the biogas, biofuels, convenience and electrification that society is demanding.

I think shareholder conversations, we've had an extensive amount of engagement, both after February and then leading up to our AGM. And you see broad support. That's what we saw at the votes inside the AGM, and that's what you saw through share price response. I think shareholders like the fact that we continue to focus on short cycle inside the upstream, driving more EBITDA and more potential for distributions. And I think they like the fact that we shifted the pattern on the transition growth engines to the higher-return, nearer-cycle stuff as well, again, driving higher earnings and the potential for our distributions to shareholders over time.

So very, very, very supportive shareholder meetings on all sides of the Atlantic with the moves that we made back in February 7. I hope that helps, Al.

[Alastair Syme, analyst]

Murray, can I ask, do you sense there's been any sort of reengagement from maybe European investors that might not have looked at BP in the past?

[Murray Auchincloss, executive]

Yes. Yes, I think there has. I think the fact that we're pivoting hard to the shorter-cycle transition growth engines has captured their imagination. We've got a heavy, heavy demand coming out of Continental Europe for road shows. So I'm off to California this afternoon for road shows with some big shareholders out there. But we have 4 teams going into Continental Europe to meet from Finland to Spain and in between. So very, very heavy demand for engagement, and we'll look forward for them buying into the shares over time now.

Maybe just a few closing remarks, Craig, if that sounds okay.

[Craig Marshall, executive]

Yes, go ahead, Murray. Yes, and I've got one just to close off on Shah Deniz in the interest of...

[Murray Auchincloss, executive]

Oh, you close on Shah Deniz first...

[Craig Marshall, executive]

Okay. It was just a follow-up, 2 points. In the interest of having everybody online, I think just to confirm on Shah Deniz, yes, we have spare capacity. I think Murray said 5%. I think it's around 10%. Basically, where we are on Shah Deniz just now is the European leg of the Southern Gas Corridor is operating, however, at full capacity. So as we look at opportunities there to expand that capacity, the TAP pipeline has already launched a first level expansion. There's an additional expansion possible around that.

TANAP can also be expanded. And both TAP and TANAP expansion would be via addition of compression. So there is work to be done there. I think, Murray, you've kind of framed that. There's opportunity, and we're obviously working closely around that in terms of gas into Europe.

The one other thing, I think, Henri, just quickly on, I think, your question on oil price, as Murray said, lag impacts, mostly actually in the UAE, just to clarify on that one. And Lucas, I'll come back to you separately on BPX.

I think those were the 3 homework questions, but we will have an opportunity to talk a little bit later as well. And then on that note, sorry, Murray, closing remarks.

[Murray Auchincloss, executive]

Great. Thanks, Craig. I appreciate that follow-up. Look, a few things, just to say thank you for listening. BP remains a company that is performing very well, as the tagline goes, performing well, transforming another good quarter, especially on the trading side and very robust performance across our refineries and the upstream as well.

We remain confident in the future. We've got strong growth ahead of us over the next few years. It's great to see Mad Dog Phase 2 up and ramping up. It's great to see that the Indian projects are coming. And we have more start-ups to come this year, another 3 start-ups to come this year, along with growth inside the LNG offtakes, as we've talked about.

So great momentum moving forward, and thank you very much for listening.