BP PLC

LSE:BP

Earnings Call Transcript 2020-Q3

[Operator]

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

[Craig Marshall, executive]

Good morning, and welcome to BP's third quarter 2020 financial results. I'm Craig Marshall, Senior Vice President, Investor Relations. And I'm joined here today by Bernard Looney, Chief Executive Officer; and Murray Auchincloss, Chief Financial Officer. In a moment, Murray will take you through the third quarter financial results before Bernard outlines the performance of our businesses as we continue to progress the transformation of BP. There will then be time to take your questions at the end.

Before I hand to Murray, let me first draw your attention to our cautionary statement. During today's presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors 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'll now hand over to Murray.

[Murray Auchincloss, executive]

Thanks, Craig, and welcome, everyone. So let's begin with the macro environment. After a sharp contraction in the first half of the year, there have been some early signs of global economic recovery as countries move to more regional or localized restrictions on movement and governments continue to offer monetary and fiscal policy stimulus.

Reflecting this, Brent averaged $43 in the third quarter, a 45% increase versus the second quarter. Gas prices were also stronger. Henry Hub averaged $2, driven by strong demand in the power sector and a higher level of U.S. LNG exports. NBP and JKM gas prices also improved quarter-on-quarter. However, refining margins remained weak with an RMM of $6.20, similar to the level seen in the second quarter, reflecting lower demand due to COVID-19 and excess refining capacity.

Looking ahead, the gradual recovery in oil demand seen since the spring looks set to continue, led by strengthening demand in Asia. And while the current concerns around rising cases of COVID-19 across Europe and North America is creating some uncertainty, the IEA continues to estimate an increase of around 6 million barrels a day of demand in 2021 as economies continue to open up.

The OPEC+ production cuts have played a major role in stabilizing the market. And we are already seeing a reduction in crude and product inventories. Inventories are likely to draw through next year, although the pace at which inventories normalize will depend on the strength of economic recovery and the degree of continued OPEC+ compliance.

On gas, U.S. gas supply is expected to continue on a declining trend in 2021, largely due to a drop in associated gas production. Tightening gas balances have caused the prompt price to rise to $2.80 and futures curves for Henry Hub now average above $3 for 2021. This should provide some support to pricing in Europe and Asia until more gas comes to the market.

Finally, the refining margin outlook remains challenging, given the record high inventory levels and the leveling off in demand recovery for gasoline and jet fuel due to COVID-19. It is likely to remain so until we see a recovery in demand or further reductions in refinery runs.

Looking at BP's underlying results. We reported a third quarter underlying replacement cost profit of $100 million compared to a loss of $6.7 billion in the second quarter. Compared to the second quarter, this reflects the absence of significant exploration write-offs, higher liquids realizations and improved marketing demand. This was partly offset by a significantly lower oil trading contribution.

Compared to a year ago, the result reflects lower liquids and gas realizations, lower refining margins and a lower Rosneft contribution. This was partly offset by lower DD&A following the impairments taken in the second quarter of this year. The third quarter dividend, payable in the fourth quarter, remains unchanged at $0.0525 per ordinary share.

Turning to cash flow and our balance sheet. Reflecting the adjustment to our distribution policy communicated with second quarter results, it's worth focusing on the third quarter. In the third quarter, BP generated a cash inflow of $600 million despite the ongoing impact of COVID-19, hurricane outages of high-margin production in the Gulf of Mexico and cash outflows for acquisitions. As a result, the end of the quarter net debt declined to $40.4 billion.

Supported by our actions on cost and capital discipline, in the third quarter, our cash balance point was around $42 a barrel, including acquisitions. This was in line with the average Brent oil price in the quarter despite weak refining margins, lower gas prices and reduced product demand. Net debt was $11 billion lower than at the end of the first quarter, including the proceeds of hybrid bond issuance during the second quarter. This represents substantial progress towards our objective of deleveraging to $35 billion.

In summary, we have a disciplined capital allocation framework, which has the dividend as the first priority. We are deleveraging to support our resilient balance sheet and a strong investment-grade credit rating. We remain focused on operational delivery, cost and capital discipline and progressing our divestment program. And Bernard will talk more about this in a moment.

Turning lastly to the outlook and our guidance. Looking at the fourth quarter, in the Upstream, we expect reported production to be slightly lower than the third quarter due to maintenance activity, while in the Downstream, we expect continued pressure on industry refining margins and for marketing volumes to remain impacted by COVID-19 restrictions.

Looking at our full year guidance. We continue to expect Upstream production to be lower than 2019 and organic capital expenditure to be around $12 billion. We now expect 2020 full year DD&A to be around 15% lower than 2019, reflecting the impact of impairments taken in the second quarter. We expect the post-tax charge for the Gulf of Mexico oil spill payments to be around $1.5 billion in 2020.

And the other business and corporate underlying quarterly charge is expected to be around $350 million. Consistent with the reinvent BP program, we expect to incur people-related costs, including redundancy payments of around $1.4 billion over the next 1 to 2 years with the majority in 2020.

Finally, as a reminder, we will start reporting under our new organizational structure on a post-tax segmental basis effective January 1, 2021. We intend to provide pro forma numbers to assist in modeling the new organization shortly after our fourth quarter results and well ahead of our reporting our first quarter on this new basis.

I will now hand over to Bernard, who's going to speak more about our operational and financial progress.

[Bernard Looney, executive]

Thanks, Murray, and hello to everyone on the call. It's great to be joining you today. I won't replay what Murray has just covered. Whilst our results today are reflective of the tough environment we are operating in, I hope they also show a clear story of robust underlying performance from our businesses.

This is what I want to talk about today. We've set out our stall on where we're taking BP and made some great progress over the last several months, as you can see on this slide. But now it's about getting on with the business of business.

As we said in September, this is not about altruism or charity. This is about value creation. We will be judged by our actions, not by our words, by day-to-day delivery. And that is where we are 100%-focused with an absolute focus on operational excellence so that our businesses are safe, reliable and efficient in order to deliver our growth and returns target to 2025, underpinned by a resilient financial frame and a disciplined approach to capital allocation.

This is what we mean by performing while transforming. And today, we are sharing clear evidence of that, driving capital and cost efficiency in our resilient and focused hydrocarbon businesses, driving growth in convenience and mobility through a focus on our customers, building scale in our low-carbon businesses through capital and returns discipline and doing so while delivering divestments and reducing debt.

Let me take each in turn. I want to start with the engine room of BP, our resilient and focused hydrocarbon business. We believe it is a high-quality business with great assets and resource options. From this foundation, we will create further value by delivering our suite of major projects, continuing to drive cost down and improve capital productivity, focusing capital on the very best opportunities with an increasing emphasis on leveraging existing infrastructure and, as and when the market is right, divesting non-core assets for value. As a result of these actions, we expect to grow underlying production over the next 12 to 18 months. And we expect to grow headline EBITDA through to 2025 even after divestments.

Let me go into each of these actions in a bit more detail. First, we plan to improve the margin mix of our underlying production through continued major project delivery. Earlier this month, we announced the startup of Ghazeer, the second phase of the Block 61-type gas development in Oman. At capacity, we expect the 2 phases, Khazzan and Ghazeer, to produce 1.5 billion cubic feet a day and over 65,000 barrels oil equivalent per day of condensate. This project exemplifies resilient hydrocarbons.

Ghazeer was delivered with capital discipline and in just 33 months ahead of the scheduled 2021 startup. We are seeing continuous improvement in our drilling program with wells being delivered on record time and at lower cost and with lower emissions. Additionally, early indications show a richer condensate mix than anticipated. Startup of Ghazeer is another important milestone in our partnership with Oman, a partnership we will further strengthen as we commence exploration activities on Block 77.

The second major project startup was Atlantis Phase 3 in August, a subsea tieback to the Atlantis platform in the Gulf of Mexico. It is a great example of this sort of fast-payback, high-return project we are prioritizing in our capital allocation. This project was delivered on time and on budget despite the impact of COVID-19. Along with an impressive safety record, drilling completions and offshore construction were executed with 0 personal injuries and 0 regulatory compliance issues, a fantastic achievement. Looking forward, we are on track to deliver the remaining 2020 major projects: Raven, KG D6 R-Series and Vorlich.

Second, we are transforming our operations to drive cost and capital efficiency. Our unit production costs are down 10% in the first 3 quarters compared to the same period a year ago. This was enabled by progress on the efficiency of our operations with continued reductions in underlying operating costs and the impact of strategic divestments. We are also focusing on capital efficiency. A good example of this is the transformation agenda in our wells organization, changing the way we work using centralized and agile teams in well planning and execution.

Recently, one rig, managed from the U.K., drilled a record-breaking well in Mauritania and Senegal before moving to Egypt, where it delivered BP's lowest-cost Oligocene well in Atoll North. And the same rig, managed by the same team in the U.K., has now moved to Angola and has commenced infill drilling operations there.

Focusing on well construction design, multiple projects have helped to increase our top quartiles wells by 15% in the first 3 quarters compared to the same period a year ago. One example is our Atlantis Phase 3 wells, where optimizing casing design enabled the removal of a string, saving time and money. And we have maintained our wells' reliability at over 96% year-to-date, in part due to our progress on mitigating deferrals from safety valve failures and well performance issues.

Third, we are in action to drive value through our investment decisions. We are on track to deliver reduced capital spend in 2020, consistent with the guidance provided earlier this year. We are utilizing short-cycle flexibility in BPX Energy and optimizing spend across the portfolio. And in line with our focus on maximizing the value of past investments, we are focusing our exploration spend on existing hubs. In the last 12 months, we have a success rate of 100% on our infrastructure-led exploration program with 7 out of 7 on wells, adding resources around existing assets in the Gulf of Mexico, in Trinidad and in Egypt, all of which could be developed with short-cycle times.

Turning to convenience and mobility. There has been a lot of interest in this business since bp week in September. It is an integral part of our growth and return strategy as we look to 2021 and beyond. Under our new organizational structure, we plan to provide ongoing disclosures to help the market better understand its financial contribution and growth potential.

This is a business which has scale, delivering around $5 billion of EBITDA in 2019, a track record of growth at around 7% per annum since 2014 and excellent returns, generating a ROACE of more than 20% in 2019. We aim to nearly double the EBITDA by 2030 with ROACE of between 15% and 20%. This growth will be driven by businesses that we know well and have a strong track record.

We are expanding in growth markets. In July, we completed the formation of Jio-bp, our Indian fuels and mobility joint venture with Reliance, more than doubling the number of retail sites in growth markets to around 2,700. With plans to grow to 5,500 retail sites in India over the next 5 years, this is a key contributor to our target of 7,000 retail sites in growth markets by 2025 and is an important source of expected EBITDA growth.

And in Castrol, we delivered a strong recovery in the third quarter with volumes growing by more than 5% in China and in India. As we look to '21 and beyond, we will focus on making this business better through our improvement plan, integration with mobility and investing in the strong brand that helps make Castrol such a resilient business.

We are redefining convenience. In the third quarter, our like-for-like convenience gross margins was 4% higher compared to the same period last year, demonstrating the strength of our customer offer. This was an important contributor to 3% year-on-year growth in fuels market earnings in the third quarter despite COVID-19-driven fuels demand impact of 7% in retail and around 60% in aviation. We have continued to grow the number of strategic convenience sites, a key part of our strategy to redefine convenience for our customers and deliver our 2025 target of more than 2,300.

In next-generation mobility, we now have more than 8,500 electric charging points globally and continue with our growth plans. Earlier this month, BP Chargemaster was awarded the U.K.'s largest ever EV infrastructure contract by Police Scotland to deliver more than 1,000 charging points over the next 4 years. And we are also in action to build a network of ultrafast charging across Germany, beginning with the rollout of more than 100 charging points at Aral retail sites over the next 12 months.

Turning to low carbon. We are putting in place the building blocks to grow scale and deliver on our returns target. We are building on our established businesses and looking for new and emerging opportunities with further progress in the third quarter.

In the U.S., we announced our first entry into offshore wind through a partnership with Equinor. It includes the development of existing offshore wind leases on the U.S. East Coast and the agreement to jointly pursue further opportunities for offshore wind. Equinor has recently submitted bids into New York's second round offshore wind round. The state is accepting proposals for up to 2.5 gigawatts of offshore wind and a multiport infrastructure investment plan.

Lightsource BP completed several financing and acquisition deals in the U.S. and Europe and finished construction of 3 solar sites in Franklin County, Pennsylvania. These sites will deliver electricity to Penn State University under a 70-megawatt power purchase agreement and will provide over 100 million kilowatt hours of electricity in year 1. This is a business with a proven track record of growth. And since 2018, 18 of the projects delivered have achieved returns in the 8% to 10% range or above.

In China, the world's largest and fastest-growing renewable market, we signed a memorandum of understanding with JinkoPower Technology, a leading solar project developer. The partnership will seek to provide integrated decarbonized energy solutions and services to customers, further supporting China's aim of reaching 50% of power generation from nonfossil fuels by 2030.

And we recently announced a partnership with Microsoft, under which the 2 companies will cooperate to progress their sustainability aims. As part of this, BP has agreed to supply Microsoft with renewable energy and to extend its use of Microsoft cloud-based services.

This is a strategy of value, not volume. As we build and grow these businesses and transform our company, we will exercise rigor and discipline in our investment choices, pursuing only those opportunities that we believe can generate the returns we and our shareholders expect.

Looking in more detail at our disciplined approach to investment. We are on track to deliver capital spend of around $12 billion in 2020, excluding inorganics. This is a reduction of around 25% relative to our plans laid out at the start of the year and is a consequence of our decisive action to further strengthen our financial frame. Looking ahead, we expect investment in 2021 to be at the lower end of our $13 billion to $15 billion guidance, including inorganics. And we have further flexibility to respond should the environment deteriorate further. As ever, as we invest to involve our capital employed, we will exercise rigor and discipline, applying stringent hurdle rates and taking decisions to create sustainable long-term value.

We are also focused on driving efficiency through our cost base. And as shown in the journey from 2014, we have a track record of delivery. At the end of the third quarter, year-to-date cash costs were down 11% relative to the same period in 2019. This demonstrates the swift and decisive action we have taken to strengthen BP's financial frame during volatile and challenging market conditions.

To set the context, this means that for 2020, cash costs are expected to be down around 30% since 2014. And there is further to go with BP's reinvent program and associated cost reduction gathering momentum. This program not only supports our commitment to deliver $2.5 billion of pretax cash cost savings by the end of '21 relative to 2019, but it also underpins our target to deliver $3 billion to $4 billion of pretax cash cost savings by 2023.

reinvent will see us create a BP that is a leaner and faster-moving company as we reorganize to drive centralization and remove duplication, invest in digital to drive further efficiency and achieve operational efficiencies through a strategic approach to our supply chain. A key part of this program is the reorganization of BP. The plan is on track with the new organization fully defined and on schedule to be in place by the end of this year. We have already fully defined the extended leadership team, cutting the number of senior executive positions in half from 240 to 120.

In total, BP's headcount has reduced by around 2,800 so far during 2020. And this includes around 300 people who have already left the organization as part of our reinvent bp program. A further 2,100 have elected to leave under reinvent bp. And we continue to expect a total reduction of around 10,000 positions, the majority of which will happen by the end of this year. And we are removing layers. In the new organization, around 50% of roles will be within 5 layers of the CEO. This compares to just 20% in the legacy organization.

In addition, we are focused on driving cost savings through digital and operational efficiencies. And we are making progress here, too. We have put in place the governance structures to enable zero-based budgeting across our supply chain in advance of further rollout. We expect the bulk of these savings to be delivered between 2021 and 2023. We are bringing together all of our finance and procurement activities for the group in one place, effective from the start of 2021.

And we continue to invest in digital to deliver incremental value to the group. For example, in the third quarter, we completed full alignment of our exploration and production financial systems on to one common template. This will contribute to lower back-office costs while enabling improved operational and cost efficiency in the field. A different field-based example is our continued rollout of robotic crawler technology to reduce third-party inspection and maintenance costs. Finally, we continue to make progress executing our divestment program, lowering our cash balance point and deleveraging our balance sheet.

Starting with divestments. We have already completed our agreed transactions approaching half of our target of $25 billion proceeds by 2025. This includes the sale of our petrochemicals business to INEOS, which we expect to complete during the fourth quarter. As we look forward, we have a deep hopper of potential divestment options. And as we execute this program, we will continue to be focused on value. We are not in a rush and we will wait for competitive pricing.

Moving to the cash balance point. As Murray has already mentioned, in the third quarter, our cash balance point, including acquisitions, was around $42 a barrel. This is in line with the average Brent oil price in the quarter despite weak refining margins, low gas prices and reduced product demand. Taken together, our actions on cost and capital efficiency, divestments and capital structure have allowed us to reduce our net debt to $40.4 billion at the end of the third quarter compared to $51.4 billion at the end of the first quarter. As we look forward, we expect net debt to fall again in the fourth quarter, supporting our objective of maintaining a strong investment-grade credit rating and marking further progress towards our $35 billion net debt target. As a reminder, within our capital allocation framework, this represents the trigger to commence buybacks.

So in summary, we are making strong progress, performing while transforming: delivering tangible operational progress relative to our strategic objectives; EBITDA growth in resilient and focused hydrocarbons to 2025 even after divestments; in convenience and mobility, nearly doubling EBITDA by 2030 with ROACE of 15% to 20% through a focus on growth markets, convenience retail and next-gen mobility; and achieving stable returns of 8% to 10% in low-carbon electricity and energy, demonstrating capital discipline and a clear focus on value as we build capability and scale.

Together, with our disciplined and resilient financial frame, this underpins the confidence we have in our investor proposition, that is committed distributions, including the dividend as the #1 priority within our capital allocation framework, profitable growth and sustainable value, all in service of delivering long-term value to shareholders. That's our job.

Thank you for your time today. Now Murray, Craig and I will take your questions.

[Operator]

[Operator Instructions]

[Craig Marshall, executive]

Okay. Thank you again to everybody for listening. We're going to turn to the Q&A session. [Operator Instructions] And on that note, I think we'll take the first question from Lydia Rainforth at Barclays.

[Lydia Rainforth, analyst]

Two questions, if I could. The first one, Bernard, just picking up on the question about delivery, and you gave lots of examples there. Can you just point us to what things over the next 6 months that we should really be thinking about in terms of what you see as a key delivery point? Because there's been a lot of significant things changing but just those key results for the next 6 months.

And then secondly, on the Downstream side and the customer product side, obviously quite an impressive performance there. One of the things I was reflecting on from the strategy presentation was that when looking at that EBITDA number and how you see it doubling, it doesn't seem that the starting point stayed where it is. And that's despite some fairly aggressive assumptions around volumes coming down and oil demand coming down. So can you just talk about how comfortable you are that, that starting point can stay where it is and that provides the base to build on?

[Bernard Looney, executive]

Thanks for joining us. On the first question, maybe I'll take that one. And Murray, if you could take the question around the customers and products part of the business. Lydia, I think it's just worth the emphasis on delivery, it's probably just worth doing a quick recap of what we've been up to this year and how things have been moving along. We're sort of doing exactly what I think we laid out in February of this year. And we started off by saying that BP was, I felt, out of step with parts of society, out of step with parts of our employees and out of step with many shareholders, shareholders begging us to give a reason why they could advise their clients to invest in the company. And I think it's very hard to be a long-term successful company when you're out of step. And we said that back then.

And we spent 8 months working on that part of the story, involved a lot of outreach, engagement, messaging, dialogue, media, listening, talking to the UNFCCC, to Greenpeace, to Christiana Figueres, Nigel Topping, whoever, all sorts of different people. And I think we've made some great progress actually, and it feels much better that -- and we're able to get so much more out of being part of the solution and being inside the tent. Tony Hayward used to tell me it's really important to be inside that tent. And of course, that's led to deals with Microsoft, who have their own net zero ambition; Uber, who've got their net zero ambition; Aberdeen and Houston, around net zero. So being part of the solution has, I think, taken some work over the last 8 months and brought some real dividend.

Secondly, of course, we've had to develop a new strategy. That's involved a lot of hard work. And thirdly, we've been reinventing the company, 2,800 people gone, 10,000, the majority of which to go by the end of the year. And you heard me talk about the delayering, 50% of the organization now within 5 layers of my role versus 20% before. But with much of that work out of the way, you'll hear me speak increasingly about something else we said in February, which is we need to perform while transform. And we haven't been talking as much about that because we've been talking about these other things. But the reality is the entire organization has been focused on that performance. And we've been doing it quietly. And I hope you've seen that in the delivery of the business this month.

So going forward, to your question, what is important? What is important for us going forward is 2 main things. Number one, we must deliver operationally. And number two, we must deliver strategically. That is what we are about. Operational delivery is about 3 more projects to come online by the end of the year. Operational delivery is about taking more cost out of the system, down 11% year-to-date. But we've got $2.5 billion by the end of next year and importantly $3 billion to $4 billion out by 2023. That's what operational delivery is. It's about running those plants reliably. It's about running the refineries well. It's about the basics of running a good business. Strategic delivery is about making sure that we progress on our milestones. A small example is the signing of the charging point deal with Police Scotland. A large example -- a larger example is the Equinor deal in offshore wind.

But we have to make sure that we're doing organic and some smaller inorganic moves that demonstrate that there is value, that the value proposition that we laid out right across the growth piece, not just in low carbon but also in consumer and mobility, that, that's there. And we have to prove that to the market. And that's what we're very focused on. So the next 6 months and, indeed, the next 6 years are about operational delivery, number one, and importantly, safety being absolutely core in that, making sure we don't have an accident. And number two, it's about strategic delivery. I hope that helps. Murray, on the Downstream -- or on customer and products, I should remind myself.

[Murray Auchincloss, executive]

Yes. Thanks, Bernard. If you think about what we said in August 4 and in September, the starting point for all of our targets on EBITDA was the last 2 quarters of 2019 and the first 2 quarters of 2020. That was the starting point to try to give a blend of pre and post COVID. Are we back to that already? Well, we might be doing better actually. When you take a look at our results in detail this quarter, 2 things I'd highlight. First of all, Castrol. Castrol's profits for the quarter, as we've disclosed, are back to pre-COVID levels. And that's coming out of the strength of China, where some outside people are saying China is back to 4.9% growth in GDP. We're seeing that come through the results. So Castrol is back to historic performance. So I think that's very good.

And probably the one that's even surprising us with its strength is on the fuels side, both convenience and fuels. We had the best quarter in 7 quarters in 3Q despite the fact that volumes are down by 15% globally. And that's out of the strength of our convenience business, same-store sales up 3% to 4%, just magnificent performance from the teams. So I think, Lydia, that baseline we used, you can think of pretty confidently now. And we look forward to an awful lot of growth in the future.

[Bernard Looney, executive]

And I think if I could just add, I mean, I think, hopefully, it reinforces the emphasis that we've placed on customers and products in the presentation in our strategy, a key plank of the strategy. And I think there can be no greater proof point that in the third quarter of 2020, when the world is still suffering from an incredible pandemic, that we had our best quarter in 7 quarters in that part of the business. So I think it's -- people want proof points and evidence, I think that's probably as good a proof point as we can get. So hopefully, that helps, Lydia.

[Craig Marshall, executive]

Okay. Thank you, Lydia. We'll take the next question from Christyan Malek at JPMorgan. Christyan.

[Christyan Malek, analyst]

And what off to a very resilient quarter in what is a horrific macro backdrop. Two questions. And I know we sort of addressed this at different points in the CMD. But first, on buybacks, with net debt now sort of around $40 billion and you expect a further fall in Q4 as disposal proceeds, et cetera, and hopefully the operational environment improves, how committed are you to returning the surplus cash to shareholders once you get the sub-$35 billion net debt target is reached? And I say that within the context of potentially other competing demands or just high CapEx or investments in low carbon.

And the second question is around the low-carbon business build-out. And sort of -- I know we've again addressed this. But this organic versus M&A approach, you've talked about the strategic partnership with Equinor as a point of progress during the quarter. And looking forward, how dependent are you on M&A in creating the pipeline to support the 50-gigawatt target? And are there specific submarkets within low carbon that may benefit most from M&A in terms of achieving critical mass more rapidly? Because I think that last point on speed and scale, it feels to me, is the area that potentially we get pushback on in materiality within the context of the overall portfolio.

[Bernard Looney, executive]

Very good, Christyan. Thank you. I will try and tackle the low carbon question with some help from Murray, just to lead on the buybacks, then Murray will give some detail. I mean I think the answer to your question around commitment is we are absolutely committed. And I think we put a lot of work, as you would expect of us, into our financial framework. And we have very deliberately ordered the priorities in those -- in that financial framework and those uses of funds in the way that we have, 1 through to 5, starting with the dividend and, of course, ending with when there is surplus cash and we have Phase 1 and Phase 2, when there is surplus cash, a commitment to buybacks. So I would just encourage people to go back to that financial framework. The ordering is important. It's there for a reason and we intend to follow it. Murray, anything you'd like to say beyond that?

[Murray Auchincloss, executive]

No. Inside the company, guys, we literally follow 1, 2, 3, 4, 5. So whatever the surplus cash is, it first gets dedicated towards paying our resilient dividend; next, we use it to reduce net debt, a very strong step in the quarter despite brutal conditions; third, transition CapEx as we've talked about; fourth, spend in resilient hydrocarbons; and then as Bernard said, at least 60% of any surplus will be dedicated toward share buybacks once we've hit that $35 billion. And that's a firm commitment. So yes, supportive.

[Bernard Looney, executive]

Very good. Great, Christyan. And on your question on low carbon build-out, again just remind people, we have, in gross terms, and you can effectively divide it by 2 for net, so we have a gross pipeline of about 20 gigawatts. We have a further series of options of 21 gigawatts. We're confident in our ability to hit the 20 gigawatt net by 2025.

In answer to your question around M&A, organic versus inorganic, what I can tell you is that the first thing I would say is that partnerships will be a factor, a key factor, in this build-out, quite frankly, just like it is in the traditional oil and gas business. We partner all around the world today in oil and gas. And partnership will be no different as we look to build out our low carbon position.

The second thing that I would say is that it will be a mix of organic and inorganic. Organic might look like bidding on a license round. If there's an offshore wind license round, which you will see over the coming 6 months probably, you'll see us bid. We'll do that in partnerships, we'd consider that as sort of an organic build-out. And we'll always look at inorganics as well. But I can tell you right now that there is nothing on a material level that is front and focus on our mind today.

And thirdly, and I think most importantly in all of this, is that whatever we do will be focused on that key value metric of that 8% to 10%. And quite frankly, if we can't do it, we won't -- if we can't get it, we won't do it. But clearly, we've done some homework and are confident in our ability to deliver that 8% to 10%. We wouldn't have said it otherwise. But investors should be very clear that if it's not achievable, it's a deal that won't get done.

And I think some of you will have heard Nick Boyle from Lightsource BP recently last week, I think, or this week, speak about the fact that we've already achieved 8% to 10% and more on 17, I think he might have even said 18 or 20 projects in Lightsource BP. And I think, over time, our intention is to give you more visibility and transparency into that so that you can start to have the confidence that we have that these returns are not dream-like, that they're actually returns that we achieve. So our job is to provide more transparency on that. And we will as we head into next year. But it will be a mix in answer to your question. Murray, anything to add?

[Murray Auchincloss, executive]

Just the mix of organic and inorganic is included inside our capital frame as well, Christyan. We talked about a capital frame of $13 billion to $15 billion until we hit net debt of $35 billion. And then we talked about expanding to $14 billion to $16 billion, including both organics and inorganics. So I just wanted to be clear on that.

[Craig Marshall, executive]

We'll take the next question from Jon Rigby at UBS. Jon.

[Jon Rigby, analyst]

Two questions. The first is, I think, for Murray. Can you just walk me through and unpick the tax commentary a little bit? I do have an accounting background, but I found it very difficult to work it out. So I'm particularly interested in the higher tax rate, given the higher contribution from the Downstream. And if you can then maybe talk about how we should be relating tax charge to cash tax as well. I think there's some commentary around deferred tax changes or going back and looking at some of the deferred taxes, if you could help me with that.

The second is just to revisit the restructuring. I'm struck by a relatively low charge to date. I think it's about $200 million for restructuring. And I think you talked about quite a big number of people leaving payroll by end of year. So should we expect an additional restructuring charge and cash-out in 4Q, when we think about P&L and cash flow?

[Bernard Looney, executive]

Very good, Jon. Thank you. Murray is very glad that he started out his career in tax. So I hope that he's going to be able to explain that one relatively easily to you. I didn't, by the way. On the restructuring, I think the charge in the third quarter was $450 million. And we guided to a charge in total of $1.4 billion for the entire restructuring. I think you'll find that a bit more in line with the numbers that we've given around people in the organization. Not all the 10,000 will leave by the end of the year, we said the majority will leave by the end of the year. And that's what we're working on right now.

So that's all I would say. And I think the process is going well. It's obviously a difficult time for our people as they find out in the next several weeks whether they have a job or not. But our intention, and this is very important now as we head into next year, our intention is to turn a real leaf in the book, so to speak, over the Christmas here and move out of a period of restructuring and into a period where people know they have a job, we know what our priorities are and we continue to execute as we have. So they are the numbers that I have that, I hope, give a little bit, make a bit more sense. Murray, on tax.

[Murray Auchincloss, executive]

Yes. If I could just add on the restructuring, so $500 million accrued to date, Jon. The majority of the cash flow will be in 4Q and 1Q. And you'll see a larger accrual towards the $1.4 billion in 4Q once we're clear on the plans.

On tax. Thanks, Jon, for the question. That puts a smile on my face. I'm going to try to dumb this one down, if you don't mind. It's how I try to think about tax. We have a baseload of tax that you have to accrue and pay in some nations around the world in the historic Upstream that no matter what the price is, you get a charge. And that's what you see happening in places like Abu Dhabi and Egypt, et cetera. So you've got this fixed amount of tax that's paid through the system no matter what.

While that's happening, the rest of the profitability of the business can move up and down quite substantially, as you see, as we've gone through the second quarter and the third quarter. So trying to provide guidance when you've got a relatively fixed amount coming in some nations and then you have the rest of the business gyrating around with very different tax rates around the world, it's almost impossible to predict what the effective tax rate will be.

So I think as we're in this low-price world right now, I'd expect a relatively fixed amount of payment in these nations. And as the macro environment is difficult, that can start to lead to higher effective tax rates, which is really what you're seeing in the quarter. I wouldn't want to try to get into much more detail than that because then I start needing to talk about differences between segments and differences between different countries. So I hope that helps, Jon, on effective rate.

Cash tax rate, over the long term, you know cash tax rate equals effective tax rate. As you would expect, as we build up losses, the cash tax rate on an underlying basis will be lower because you have losses coming through. And the only exception to that one is where you have big transactions, where you divest and you get a tax bill on divestment for cash tax. So I hope being a former accountant, that helps you a little bit. And of course, we're moving to post-tax reporting next year. So hopefully, we all get a few less gray hairs trying to understand it then.

[Bernard Looney, executive]

Thanks, Murray. Thanks, Jon. Unfortunately, when he said dumbing it down, he looked immediately at me, but we'll move on from that. Craig?

[Craig Marshall, executive]

Thanks, Jon. We'll take the next question from Roger Read at Wells Fargo. Bright and early, Roger, over to you.

[Roger Read, analyst]

Yes. Not very bright over here but definitely very early. I just would like to come back on the balance sheet and the net debt question, understand $35 billion net debt and then you would look to buy back shares. I'm guessing, as you think about it, you've got to have a couple of things: one, sort of a longer-term total debt number you'd like to get down to so that you're not always balancing around the $35 billion; but secondarily, how much sort of extra cash do you have?

Do we think about it as $35 billion net debt after you've dedicated some capital towards share repurchases? Or maybe help us a little bit with the trigger because we're going to be getting close here over the next couple of quarters. And I think that would really be the kind of point that would help us with clients understanding some of the commitment here to return capital to shareholders.

And then my second question was just going to be on the global gas outlook. We've seen some real improvement in the spot market. But there's a lot of capacity offline. Just kind of how you're thinking about that into the winter time.

[Bernard Looney, executive]

Good, Roger. Thank you. Murray will help me with specifics on the balance sheet. I mean I think just reminding ourselves of the framework and the framework has a sort of a two-step process in it. The first is that we get to that $35 billion. That is step number one. And we are very clear that once we are in a positive cash situation, positive free cash, having achieved a net debt position of $35 billion, we then move into that buyback commitment. Beyond that, of course, it isn't about $35 billion. Specifically, it's about maintaining an investment credit grade. And that becomes our medium- to longer-term objective. Murray, anything you wish to comment on in terms of timing to help Roger?

[Murray Auchincloss, executive]

Yes. On timing, I mean, right now, I would say the business is performing really well. Costs are coming down. CapEx efficiency is good. New projects are coming online. And as Lydia said or Lydia asked about earlier, we have some material new projects that are fixed price that are coming online soon with Ghazeer ramping up and then Raven in Egypt coming online. So those are very material projects that will increase the cash flow into the business.

So operationally, I feel we're going in a very good direction to drive towards that $35 billion of net debt. Of course, then we have the divestments, the petchem divestment. We remain confident that we'll complete that by year-end. And there will be more divestments we might announce over time. We'll see, if we get some value, then we'll pursue those.

What the glide path is to net debt then depends on the environment, and the environment is super hard to call. I'm sure all of you feel that way yourselves. I would expect we'll move into buyback territory somewhere around 4Q 2021, 1Q 2022, somewhere in there, based on a $45 to $50 environment. It's kind of hard to call what that environment is. But remember, RMM, gas all play into it. So I think that's what I'd add to that one. As far as -- do you want to answer the gas question, Bernard?

[Bernard Looney, executive]

Yes. No, I think -- added together, I mean, I think we've always thought that the U.S. is a sort of an anchor point for global gas prices. Gas supply in the United States is down materially. I think Roger will know that better than any of us. It used to be around 95 Bcf, it's down at 86 Bcf. It's leveling off probably a little bit right now. But you are beginning to see exports on the rise, LNG and pipeline. Gas rigs are very low. I think 87 rigs, the last count I saw. So you are seeing one of the bright spots in the environment. And one that we are pretty well positioned, Murray, to take advantage of is gas prices heading to over $3 next year. And that's causing prices to rise in Europe and in Asia, and I think up to $5 or $6 and $7 and $8 from memory.

And we've got a fantastic position in the Haynesville in the United States, probably one of the -- I think, the premium gas resources in the United States, proximity to market, high-pressure wells. And you'll see us increasing activity there, taking advantage of the situation. The Southern Gas Corridor is 100% mechanically complete, an extraordinary project that the company with its partners has completed over the last several years. And that should begin production before the end of the year with gas from the Caspian into Europe. And nice to see that entering a bit of a strengthening market. And obviously, we've got a strong position in Trinidad and with our business in Tangguh in Asia. So gas is a bright spot in the environment right now. And I think it's one that we're pretty well positioned to take advantage of. Murray, anything to add?

[Murray Auchincloss, executive]

Perfect. Nothing to add.

[Craig Marshall, executive]

Thanks, Roger. We'll take the next question from Irene Himona at Societe General.

[Irene Himona, analyst]

I had a couple of questions. First of all, if you can talk, Murray, about two Q2 numbers. One is the OB&C, $130 million charge was materially below your guidance for $350 million. And the other one is the deepening losses in Q3 at Rosneft. And my second question, working capital, can you talk about what you anticipate will happen in Q4, please, following the release in Q3?

[Bernard Looney, executive]

Irene, thanks very much. Of course, I'll have Murray address both working capital. Of course, we saw a big build in a way in the beginning of the year and we're seeing a bit of that unwind now. So Murray, OB&C, Rosneft and working capital? Thanks.

[Murray Auchincloss, executive]

Thanks, boss. So let's start with OB&C. We had some gains on some of the ventures entities that we hold inside OB&C that offset the normal $350 million a quarter run rate. So those are some gains inside that portfolio that gets effectively marked to market each quarter. I'll let you guess which one that was.

On Rosneft, the results are highly influenced by foreign exchange losses on debt. Rosneft will report more about that on their quarterly reports. I'm not sure, Craig, when those are coming out. But you should -- you'll hear more from Rosneft when that occurs. I think the underlying business is running as expected and they just had some FX losses on debt that -- we'll see what happens in the future on that.

And then on working capital, we did have the big build in 1Q. We've had a release in 2Q. We've had a release in 3Q. What happens in 4Q? There might be a slight release. An awful lot of the working capital that remains tied up sits in refineries. And the refineries are not running at full capacity. You guys know about all the products that store around the world.

So I would expect -- I would expect a gradual unwind of that as opposed to a fast unwind of that unless we see a big demand response post COVID in different geographies. So I think it will be a slow release from here. We, of course, have German MOT to think about in 4Q as well. That will be on your mind. And we, of course, have payments for severance coming out of the reorganizations that you'll have to keep in your mind as well as you look at it. I hope that helped, Irene.

[Bernard Looney, executive]

Thanks, Irene.

[Craig Marshall, executive]

We'll take the next question from Lucas Herrmann at Exane. Lucas.

[Lucas Herrmann, analyst]

I just wanted to move to the U.S. for a moment and a couple of questions. One, related to the election and just whether you had any observations you'd care to make around drilling federal land, potential impact, given change in President? And the second, clearly a lot of consolidation activity at the present time. And to the extent that some of your peers, I guess, gain competitive strength or certainly buying power through this position, to what extent -- well, I guess two questions come from it actually.

Firstly, how do you think about your own position in the context of opportunity to add acreage, opportunity to move? And secondly, to the extent that your relative position, I guess, is undermined as others become larger, how do you think? How do you offset? How do you react? That was it, gents.

[Bernard Looney, executive]

Thanks for the question. Murray, I'll get your comments on the consolidation question. On the U.S. election, Lucas, we've been -- we avoid politics, as you would imagine. We -- all around the world, we work with different governments over different periods of time. You look in Egypt, we've been in Egypt for 55, 56 years and we've been through all sorts of changes in that country over that period of time. And what we do is we stay out of politics and we focus on what is good for the country and good for the people of that country. And in Egypt, for example, that has been the provision of energy.

The United States is no different to that. We're not politicians. We work with whatever government is in power. It's a week away. And we'll see when we have a result. And we'll be working for the next 20, 30 years, I have no doubt, in the United States with whoever is in power. So I really wouldn't -- I don't think it's helpful to add any more than that. Murray, on -- yes, go ahead.

[Lucas Herrmann, analyst]

Bernard, sorry, it wasn't for you to express a view on President. It was more -- if there were the constraints on drilling on federal land, just -- I have very little idea, forgive me, at the proportion of your business that may be exposed to changes if that were -- if we were to see such. So it's really a comment there, not on -- I don't expect you to give me a political view.

[Bernard Looney, executive]

I know you don't. No, I think it's -- we're very -- we would be very little impacted by a change in that. That would not impact BP materially at all were that change to be enacted. Murray?

[Murray Auchincloss, executive]

No federal acreage inside BPX. On consolidation, yes, very active. The market is very active there, Lucas, as you can see. We're quite happy with the position we have. BPX continues to do a great job. Costs continue to come down. The reservoirs continue to look better. We had some great wells recently drilled in the Permian that were coming in 3x expectations. So that's super. I think most interestingly, there's been an awful lot of deflation in the sector, especially on the capital side as activity levels have dropped so much. And I would expect from consolidation that you'll have less activity in the future than we were thinking about when we invested in that.

So for our part, we have very material positions in the Haynesville and the Eagle Ford on the gas side and, of course, in the Permian and the different bit of the Eagle Ford on the oil side. And as the environment bounces back, we'll invest more into that. It's really untouched acreage in many spots. It's probably the last untouched acreage across all those basins. And so it's a tremendous opportunity for us to go into reservoirs that haven't been touched before and start to develop them. So we're really pleased with our position and we're just looking forward to exploiting it over time.

[Bernard Looney, executive]

And as you say, Murray, there's a real possibility that consolidation will drive further costs down in the sector. So we'll take advantage of that. Lucas, thank you for your question. Craig?

[Craig Marshall, executive]

Yes. Thanks, Lucas. We'll take the next question from Thomas Adolff at Crédit Suisse. Thomas.

[Thomas Adolff, analyst]

Two questions for me as well, the first one on acquisitions and disposals. I mean the question should be quite straightforward. The $1.1 billion offshore deal, does that fall into the 2021 budget of around $13 billion and not for this year? And then Murray, you talked about, as it relates to disposals, you talked about a deep hopper. Can you just remind us of the unrisked upside? And when it comes to asset sales today versus, say, 3 months ago, is it easier to talk to potential buyers?

And the second question is related to Slide 16. You have a nice chart there showing your forecast for net debt for 2021 and 2022. And you assume a $50 Brent, 2020 real. I'm not sure whether 2021 hits the $35 billion level. And I'm not sure what you assume there. Do you assume incremental asset sales? Or does -- is it only on the basis of what you've already announced so far?

[Bernard Looney, executive]

Very good. Thomas, thank you. I think there's definitely more than two there, but we're generous, so no problems at all. Murray will answer the question on the $1.1 billion, exactly where it falls. Is it easier to talk to people now than some time ago? Look, I think we all recognize that it's an uncertain market right now. And that's where we're very, very clear that we will be disposing only when we can find value and only when there's a real strategic rationale to do so. We're not in a rush. We've got 4.5, 5 years to do what we have to do on our production guidance. Our balance sheet, I hope you can see, is in a much better place. We've achieved over -- roughly half of the $25 billion divestment target.

So we're very comfortable here sitting back, so to speak, and being driven by one thing and one thing only, and making sure that in the words of one commentator that we're not selling low and we're not setting at the bottom in the market. We're very conscious of that. So any deals, particularly in the Upstream that you do see us do will have a strong strategic rationale to them and will be only ones that we think can pass the [ value at face test ], so to speak, where we feel that we're getting real value for it.

And we continue to make progress on deals in the background. Some will come to fruition, some will not. There are different parties to what you might have been talking to 3 or 4 years ago. But they're still an active marketplace. And as I say, I go back to we'll only do so when we feel that we've got a real strategic rationale and where we'll be able to demonstrate that we've got good value for our shareholders for the asset. And we'll take each one in turn. Murray, the other two questions?

[Murray Auchincloss, executive]

Yes. Sure. The Equinor deal, Thomas, it just depends on when all the approvals are done. It's somewhere around year-end right now. It's hard to call if it's going to be -- if there's going to be cash flow in 2020 or 2021 just because it's right around year-end. So it's really hard to call that right now. So I'll let you make your own judgment on that one, if you want to be conservative or aggressive. But it's going out some time around year-end is my sense. As far as net debt, we've given you Slide 16. It's got '21 and '22. You can see that net debt is getting to $35 billion some time in there. The particular graph we put up has a footnote #1 that says that's the conditions we forecast at Capital Markets' time, which was around $50.

So I think, as I stated a little bit earlier, some time around 4Q '21 to 1Q or 2Q '22, some time in there is our sense of when we'll hit the $35 billion net debt target. And it's highly dependent on the environment. We've made transparent what our environmental assumptions are in that graph that I'm sure you have a little machine that can calculate all the numbers. And you have our rules of thumb on oil, gas and RMM. And so I'd use the calculation and flex it back and forth whichever direction you want and you'll decide it.

We are planning on a few more divestments next year. There's an awful lot of money out there chasing yield. And so this quarter, you saw us divest the land underneath our U.K. retail sites. Somebody bought those, who has a much lower cost of capital than us. So we love those kind of transactions. And we're busy pursuing other transactions like that, that we anticipate we'll do in 2021. And who knows on the Upstream side? Well, it could be '21, it could be '22, it could be '23. We'll just see when those things occur. Hopefully, that helps, Thomas.

[Bernard Looney, executive]

Thanks, Thomas.

[Craig Marshall, executive]

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

[Oswald Clint, analyst]

Balance point, $42 in 3Q, and we obviously have the target of $40 over the next 5 years or so. But I -- just in the context of your discussion here, cost reduction momentum in OpEx and CapEx since 2014. I wanted to ask you, as you peer or look around the corner into 2021, how far away would you have been from the old $35 balance point for 2021? Obviously, the dividend has changed. But is there any way you could talk about that particular target?

And secondly, just over in Oman with Ghazeer up and running, it looks like -- I mean, I don't know, it looks like maybe there's a lot of gas in the country at this point. The LNG plant is now up and running at over 100%. So I'm just wondering, are you putting -- will some of this Ghazeer gas go into the LNG plant? Is there enough demand in the country for all of this gas? You're also an off-taker from the LNG plant. Will you -- is there some way you might be taking more of that out of the country over time? And just because Bernard mentioned it, could you say what's the richer condensate percentage mix is relative to your expectation?

[Bernard Looney, executive]

Oswald, thank you. I think on Oman, it's best just to say that we'll honor the sort of contractual commitments that we have in Oman around the gas sales agreements that we have in the country. We're doing our best to help Oman at the moment maximize its revenues and doing everything that we can to help them. And there will be all sorts of options being discussed, which will be how do you maximize that. But I think I wouldn't say any more, Oswald, if it's okay at the moment on that, other than to say that we have commitments in-country around those gas sales. They'll be honored, and we're doing what we can to help the country, deliver for the country in terms of maximizing revenues. And we'll continue to work, as you said quite rightly and well-informed across all aspects of the value chain to see what we can do to help them best.

So we're very proud of the project, I have to say, I think 4 months early. I think some of the other performance characteristics are absolutely fantastic on that project. Great help from our contractor, Petrofac, who I want to just acknowledge for their work on this, which was excellent. And of course, great support in the country, but turning out to be really, really good, hopefully, for the country and for ourselves. Murray, on Oswald's point around the old $35 and the new balance point and where do you think it bridges?

[Murray Auchincloss, executive]

Thanks, Os, for that question. You could ask deferred taxes, and I'd begin to. Look, I think the difficulty in all this stuff is that what we're trying to convey to the market is balance point is more than just Brent. It's Brent plus RMM plus Henry Hub gas. Remember, 50% of our revenue, so to speak, come from the Brent linkage, 25% from RMM, et cetera, 25% from natural gas.

So when you think back to what we talked about at the Capital Markets Day, we said that we'd have a balance point around $40 with $10 to $12 RMM and around a $3 Henry Hub. And what's super cool about the third quarter is we were at that $42 Brent level, but RMM was $6, not $12; Henry Hub was $2, not $3. So that is a tremendous, tremendous balance point, improves the resilience of BP.

A few people have forgot that BP's portfolio is one of the best portfolios in the sector in a low price environment. And that is before we have ramped up fixed price contracts in Oman and fixed price contracts in Egypt with Raven. So just a bit of a pump there for how good our portfolio is in a low price environment.

As far as would we have met the $35 breakeven, from previous conversations, you'd get the flavor of that, Os. It depends on what the gas price assumption was. It depends on what RMM was. In that particular promise, if I go back 5 years in time, if my memory is not bad, I think we were $3.25 gas, $14 RMM and $35 Brent. And so we'd be well below that on that particular measure would be my sense. And that would come from a combination of a lower dividend, much lower CapEx, much lower cost and production that's not too far away.

So Os, I don't know if that helps you, but that's how my linkage is. I think what I'd say is we have a super resilient business and we have the flexibility to modulate CapEx up or down to what we think a sensible planning price is moving forward. As we described in August and September, that moment in time, we're thinking that the balance point would be $40, $10 to $12 and $3. And as we progress through year-end, we'll give you guidance next year on where we're choosing to balance that. And what I'd ask you to think about is we have a tremendously resilient business and it's okay to ramp up CapEx because it's very resilient in a low price environment.

[Bernard Looney, executive]

Very good. And when you see some of the dividend yields that are out there, I think we really need to remind people of this portfolio that, in many ways, performs much better and has done for some time in a lower-priced world than a higher-priced world. And I think with corporate costs that were sort of stagnant for a few years, we're tackling those, we're driving them down. We're, as you well know, Os, Murray and I and the team, big believers in digital and agile. We talked in the thing about getting really after the procurement side of things with Leigh-Ann and the team.

So there's so much to do. There's just a lot of potential here in the business. And we're focused on it because, yes, there is a bit of an uncertain outlook here. And we know all too well what our priorities are on that framework, starting with the dividend. And we know all too well that the best way to preserve all of that is to drive that balance point down. And that's what we're all over.

[Craig Marshall, executive]

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

[Michele Della Vigna, analyst]

And congratulations on strong results in a very challenging quarter. Two questions, if I may. The first one is related to your disposals. I was wondering if you could give us some guidance on the scale of proceeds that you expect by year-end and through 2021.

And then secondly, on your production guidance for Q4, it's quite unusual to have more maintenance in Q4 than in Q3. But then this is a very unusual year. I was wondering if you could perhaps unpick what are the key areas of maintenance that would affect the Q4 production.

[Bernard Looney, executive]

Michele, thank you, and thanks for the congratulations. Right now, we'll take it, so thank you for that. I'll let Murray talk to the disposals. On the Q4, it is a good question and well-spotted. And the answer is the one that you have given, which is that we have pushed some turnarounds to the right this year, i.e., delayed them later into the year. So I talked to Gordon about this specific point during the week. We'd normally expect the peak really to be in 2Q and 3Q. It is different this year because we have pushed things to the right so that we can get work done. Of course, we were probably pushing them to the right, thinking that the virus would go away and we'd be back to normal.

You then reached a point where the maintenance does have to get done and we're executing on those in the fourth quarter. There's a big one, for example, in Trinidad that I know about, Cassia, I think. And what I would tell you is that while production may be guided down a little bit, I think you should see a better mix, I hope, in the fourth quarter and a better margin mix. So I think you'll find it down in some of the lower-margin areas and doing better on some of the higher-margin areas. But having said that, we are just in the middle of another storm in the Gulf of Mexico. So we'll see how that all turns out. So good question. And hopefully, that helps. Your instincts are correct. Murray, disposals?

[Murray Auchincloss, executive]

Yes. On 4Q, we're -- as we stated, we're expecting the completion of the petchems transaction. So I would expect somewhere between $3 billion and $4 billion in the fourth quarter on a pretax basis, would be what you'd expect. As far as 2021, we haven't given guidance on that yet. We'll wait until next set of results to give guidance on that.

[Bernard Looney, executive]

Thanks, Michele.

[Craig Marshall, executive]

Okay. Thank you, Michele. We'll take the next question from Alastair Syme at Citi. Alastair.

[Alastair Syme, analyst]

Bernard, I just wanted to ask about hydrogen. I'm guessing you might have got a lot of investor questions on hydrogen in your recent roadshow. And I think at bp week, the summary that, I can't remember, it was either you or Guilia gave was sort of renewables as non-technology whereas hydrogen still has some distance to travel. So I'm sort of wondering here if you think investors are running ahead of themselves in the sort of questions you're getting or if you have any sort of fresh perspectives on this topic on how BP might tackle the market opportunity if, indeed, there is one.

[Bernard Looney, executive]

Thanks, Alastair. I had the privilege of being in Germany a couple of weeks ago before we were put on their quarantine list and spent a couple of days there with Daimler and with people in government and so on. And hydrogen is a huge focus in the German economy. They're certainly really going for it in terms of a way to -- they've talked about they have imported oil for many decades and they can see themselves being a hydrogen-importing country. They're setting up agreements with the Middle East, with country-to-country, with Australia. That was just an interesting perspective on hydrogen.

I think more broadly, I think hydrogen is a core part of what we believe in for the future. Hydrogen is a business that will materialize for BP probably in the 2030-plus time frame, not in the here and now time frame. But we will look to build that business out over the coming decade. And I think the potential to become material in the period after 2030. And we'll be looking at it on 2 main dimensions. On the heavy industry and power side, it will be a mix of green and blue hydrogen. We've laid out our stall on that. We believe the world needs both. We believe the world needs a hydrogen economy to get going. And the best way to do that is to give it the best possible start. And green and blue are ways to do that, and you'll see us doing that. We're looking at a project in Lingen in Germany at the moment, which will be a green project and hydrogen supply to one of our refineries there.

And then on mobility, I think we are believers in hydrogen being a fuel of choice and maybe the fuel of choice for heavy-duty transport over the medium term. We're in the midst of exploring that more, partnerships that we might have around the world. And that's work that's ongoing at the moment. So we believe in hydrogen. It's not going to be a material part of BP in the next 3 or 4 years. But it could easily be a material part, and I expect it will be, in the period 2030-plus. It will be a mixture of heavy industry and power as well as heavy-duty transport. And you should expect to see a bit more from us in the coming months and certainly as we head into 2021. So hopefully, that gives you a perspective. But it's a pretty exciting place and we want to be part of it. Thanks, Alastair.

[Craig Marshall, executive]

Thank you, Alastair. We'll take the next question from Jason Gabelman at Cowen.

[Jason Gabelman, analyst]

I, first, wanted to ask about divestments. You cited that you're kind of halfway through the divestment program. But I think cash in the door is running below that pace. So can you just talk about where cash divestments are right now relative to that kind of 50% completion mark that you're discussing and the trajectory of cash divestments catching up to the headline number over time?

And then my second question, kind of same question asked on hydrogen, just on carbon capture, you announced a venture yesterday, I believe. And I'm just wondering what the timeline of that becoming a material solution to decarbonize energy is within BP and kind of your thoughts on it on a global landscape.

[Bernard Looney, executive]

Jason, thanks. I'll let Murray take the divestments question on hydrogen. The specific project you're talking about is here in Teesside in the United Kingdom in the northeast of England. I think it's a very exciting project that we will lead on but in partnership with others. The vision there is that we create a gas-fired power plant that is decarbonized with the carbon being captured, taken offshore and stored. And that's the venture that I think you saw announced yesterday, which was the transportation end of that. We also see the potential to create hydrogen. There again blue hydrogen in this case and capturing the carbon from that and sending it offshore. And we also see the potential to decarbonize the steel and fertilizer businesses that are there on the ground. It's a very industrial part of the U.K. and create a sort of leading decarbonized, green, industrial cluster, maybe the first of its kind in the world.

And I think would be an incredible example of the revitalization of an area that has been around for decades but could actually have a very, very new future. We're working on that. We're working right now with government. Strong support from the U.K. government to put in place the sort of -- it's more of the fiscal certainty, it's not about necessarily incentives, but it's around the regulations and the fiscal certainty that we need to be able to make those investments. And I would expect to see us reaching some milestones on that project early next year. And you could see it up and running towards the middle to the second half of the decade. So it's an exciting project. And hydrogen will be central to it as well as CCUS. And I think if we can get some more certainty by the end of the year, I think you'll see us moving into the next stage on that probably by the middle of next year. Murray, cash proceeds versus announced?

[Murray Auchincloss, executive]

Yes. So we announced a $25 billion program of proceeds through 2025. About half of those have been announced now, including the additional $0.5 billion that we announced this quarter. Proceeds, a big one is the petchems transaction. We obviously announced that sale with INEOS a while back. We expect to close in 4Q, where we'll get somewhere between $3 billion and $4 billion. And then we expect the residual amount of that to be paid out in the first half of next year.

On Alaska, which is the other one, if you scour back through our press releases, you'll see that the payments from that, some payments have already come. Future payments come in the form of a bond and then effectively a revenue-sharing mechanism. As oil -- it is really a question of oil price. As oil price improves, we'll start to get a lot of that headed our way. If oil price stays low, it will be delayed for a while. And then it's just a choice for the counterparty about when they cash that debt out. It has a nice interest rate, so I'm happy to take it as interest as opposed to principal right now. So that will be -- that's how that will flow. And then of course, future announcements, the next 12, will just depend on when we announce them and what the cash flow looks like. I hope that helps, Jason.

[Craig Marshall, executive]

Okay. We'll take the next question from Peter Low at Redburn. Peter.

[Peter Low, analyst]

The first was that you mentioned you have the flexibility to reduce CapEx below the bottom end of the $13 billion to $15 billion range next year, should you need to. What will be catalyst to do that, i.e., if oil prices and refining margins remained around current levels, so below your planning assumptions, should we assume you're within the guided range or you'd seek to lower it?

And the second one was a follow-up on the Reliance retail JV in India. Has that contributed positively to marketing earnings from day 1, i.e., kind of in the quarter? Or should we view it more as an investment in the future earnings growth?

[Bernard Looney, executive]

On the second one, there is some contribution, Peter. But I think it is about the future and it's about the future growth. And that's where you'll see, I think we've added some sites already. But the plan is to build out those over the next several years. So look at it as a source of growth. And there'll be some contribution today but not in a material sense. The materiality comes through the growth. And your question around guidance around capital, Murray?

[Murray Auchincloss, executive]

Yes. So the way we've guided so far around capital is while we're above the $35 billion of net debt, we'll be in the $13 billion to $15 billion range. And as Bernard said earlier today, we'll be at the lower end of that range next year. How we decide what to do will very much depend on what oil price is, what gas price is and what RMM is, that 50-25-25 rule that I've helped you with. Gas price is pretty high. It's well above the $2 that we encountered in the third quarter. Forwards are sitting around $3. So we have a decision to make about where to pitch that. And then tricky decision is on oil versus RMM.

I think all I'd say is we haven't made that decision yet, Peter. But we have incredible flexibility. And you only need to look at the run rate this quarter on organic CapEx to see that we were at $2.5 billion on organic cash CapEx. It's very easy to stay at that level or lower if we need to. So we're kind of remaining flexible. We'll decide and give you guidance as we move into next year. It's too early to give guidance on that space.

[Bernard Looney, executive]

Very good. And I'd just again, Peter, remind people, I think, that, that financial framework and those numbers 1, 2, 3, 4 and 5 is a really important thing for us all to anchor on. Because the reason we gave that is so that the market could understand the priorities of uses of cash for our company. And we intend to stick fully by it. So that's also a useful guide and we'll land the planning prices when they come.

But we will be -- there's the potential as ever for upside next year. And Murray's 4Q for buybacks could be earlier. But we're not going to plan. We're not going to hope in a planning sense. We're going to prudently plan our business and continue to do what we need to do to drive that balance point down. And the environment will be what it is. And we'll respond accordingly and we have that flexibility. So thanks for the questions, Peter.

[Craig Marshall, executive]

Okay. Thank you, Peter. We'll take the next question from Chris Kuplent at Bank of America.

[Christopher Kuplent, analyst]

Yes. And I think I've only got one more question left. And I think, Murray, maybe I didn't quite get the answer and I think it was asked before. When you say -- back to the topic of CapEx, when you say you'll be at that lower $13 billion and including inorganics, just wanted to double-check whether you can actually tell us how you deal with that Equinor deal. Is that already in that number when you talk about 2021? Or are you having to take a guess as well and you're risking it in that $13 billion guidance? Just wanted to get a better handle on where we could go in terms of 2020 to '21 organic CapEx rather than including inorganics, if that makes sense.

[Bernard Looney, executive]

Go ahead, Murray.

[Murray Auchincloss, executive]

Yes. Chris, you can see why I'm not really answering the question. I don't know when that thing is going to close. It's somewhere around year-end, so it could slide one way or the other. And we'll give you guidance next quarter as we come clear on that. You can plan on whichever direction you want inside your modeling.

[Bernard Looney, executive]

And I think the feedback had been that the reason that we're collapsing it all is, at the end of the day, I think this distinction is it's all capital and it's definitely all cash. The timing, as Murray says, is the timing. But we want to increasingly look at it as one unit and not be letting somehow people off the hook with a distinction between inorganics and organic. It is all capital, it is all cash and it's all about the balance sheet, net debt and the investment plan. So Chris, we'll let you make the assumption that you make. Thanks for keeping it to one. Craig?

[Craig Marshall, executive]

Yes. We'll take the next question from Colin Smith at Panmure Gordon.

[Colin Smith, analyst]

Yes. It was back to gas. One of the projects, Bernard, you didn't mention was where things stand on Tortue. And perhaps more broadly, if you could comment about how further developments in Mauritania and Senegal play into the 25 million tonnes and 30 million tonnes 2025 and 2030 LNG targets. And in particular, what triggers them into becoming proper full-blown FID projects?

[Bernard Looney, executive]

Thanks, Colin. I think on Tortue, it has been impacted by COVID, there's no question about that. So that project has slipped to the right. It is the first phase in a multiphase development there. The reality is that the resources are there. They're giant resources. They're high quality. We've got supportive governments in 2 countries. I think we are positive on the medium- to longer-term outlook for gas. We're believers in gas. And the trigger for the subsequent phases, quite frankly, is always going to be that very, very simple thing of can we meet the return thresholds that we've laid out? And we've been very clear on what they need to be for a new gas greenfield project. So we'll be working to meet those. And no surprise that, that will involve things such as what the cost structure is, what the market that we can secure is and ultimately as well what the fiscal structure is in the country, so working on all fronts.

But if you're a believer, as we are, in big, large-scale, high-quality resources, good quality always finds a way to market. And I think we're optimistic about the subsequent phases. And the team is working very, very hard and very well actually on Tortue Phase 1. But there has been delay because of COVID, no question. I think we're unable to get the breakwater in this year because of that. But there is nothing fundamentally wrong there, it's simply the impact of the pandemic. So hopefully, that helps you. Murray, on the targets, on the 25 to 30?

[Murray Auchincloss, executive]

Yes. Thanks, Colin. So the targets that we put out there, 2025, it's pretty much secure. So that growth in mtpa that we talked about is pretty much all contracted now, whether that's through deals like Coral, for example, or deals like a venture in the U.S. That growth to 25 mtpa is pretty much secure now and it's just a matter of those projects being constructed and offtake being gathered and then honoring those contracts. So that should give you guys a lot of confidence that profitability from LNG is pretty much locked into 2025.

When you move beyond that and you look at our conservative target of 30 mtpa, beyond that, we have both merchant and equity opportunities. And if the equity opportunities hit the hurdles we have, great, we'll get it through equity offtake. If it doesn't, then we continue to pursue lots of merchant deals. We love the LNG business. It's a great place to use our scale and to divert cargoes across geographies to create profit. And it aligns well to low-carbon strategy moving forward. So very excited about a 2025 underpinned and equity or merchant could make up the 2030 target. And hopefully, in time, we beat it.

[Bernard Looney, executive]

Thanks, Colin.

[Craig Marshall, executive]

Thank you, Colin. We'll take the next question from Martijn Rats at Morgan Stanley. Martin.

[Martijn Rats, analyst]

Yes. I just had one. I wanted to follow up quickly on Lucas' question on the U.S. But I was hoping you could sort of quantify a few things. You talked very positively about further cost reductions in the Upstream. But I was wondering how that translates particularly to your Permian position. I think on the previous call, I think Murray said that the average breakeven in the Permian had now sort of dropped to something like $35 a barrel or so. But I was wondering if that number had come down even further. And sort of related to that, if you look at the oil-directed rig count, we've now added, I think, 32 rigs in the last 5 weeks. I was wondering if you have active plans also to add rigs.

[Bernard Looney, executive]

Thanks, Martin. Murray will comment on the breakeven. What I can tell you is that the business does continue to do what we wanted it to. We planned $350 million of synergies by 2021. We delivered them a year early. We've upgraded that number to $400 million per annum. So that's helping us enormously. We were running 13 rigs in January. I think we're running 1 rig today. And you will see that rig count start to creep back up as we head into next year. You'll see some activity in the Permian, but you've also heard us talk about the very strong activity in the Haynesville. And with gas over $3 next year, I think you'll see that being a real focus of the activity. So Murray, anything to add on breakevens or...

[Murray Auchincloss, executive]

Yes. I think ask me that question again next quarter. We've got our business reviews happening over the next month, Martijn, where the team is busy looking at the bids that are coming in and deciding where we pitch this stuff. So ask me the question again. I don't think I'd say there's a material change yet. But we've got the detailed reviews. We'll decide where the investment goes, as Bernard said, with the leadership team. And then ask me again and we can give you some help.

[Craig Marshall, executive]

Okay. Thank you, Martijn. And we'll take the final question from Biraj Borkhataria at RBC. Biraj.

[Biraj Borkhataria, analyst]

I had a couple, please. The first one is on Slide, I think, 14 and 15 on the costs. It just looks like a huge amount of cost has obviously been taken out and you've got a bit more runway there. As we get into a commodity recovery scenario, I would have thought your leverage to commodity prices could increase quite substantially if you were able to keep a lid on costs. So that margin expansion could look quite significant. So could you say anything about -- I don't know whether it's rule of thumb or any other metric, but if you could quantify how your sensitivity to those commodity prices will change from 2018 to 2019 to 2023 over time? I'm just trying to get a sense of how much that increase could be.

And then the second question is on disclosures. Just to clarify, as you're moving to the new split in 2021, are you looking to break out the convenience retail business from refining? Because the outlook for those 2 businesses is obviously quite different. So that will be also quite useful as well.

[Bernard Looney, executive]

Very good. Murray will take the disclosure question, maybe some numbers around margin, I'm not sure. What I will tell you is that from a leadership perspective, we will keep a lid on costs. Murray and I don't expect the 2023 number here to be the end of the story either. We will expect, quite frankly, when you're spending the amount of money that we spend on cash costs, up towards $20 billion a year, we're going to continue to drive cost out of the system right throughout this decade. And that's why we're doubling our investment into digital. That's why we're introducing what I think is the first agile structured oil and gas organization in our sector that Gordon is leading on. That's why we're doing 0-based budgeting with supply chain.

That's why the whole agenda around restructuring the company and putting 50% of the layers within 5 layers of me rather than 20%, having the number of executives from 240 to 120. So these are all things that are designed to permanently change. But I don't want you to think that they will stop because we will continue. Part of the business of business that we talk about is driving cost out of the system. And it's got to be relentless and it will be relentless for us. And if prices recover, which there's no reason why you can't imagine a positive outlook for the environment, investment levels, I think, are back at 2003 levels. So I have some sympathy with people who can see a strong price environment coming here over the next few years. Who knows, but it's certainly possible, then we expect to fully capitalize on that and not let increasing costs erode that commodity price increase. Murray, anything you'd add?

[Murray Auchincloss, executive]

The rule of thumb, to your question, Biraj, we publish our rules of thumb about once a year. You've got the current ones. As we grow out the future projects, that's how you'd think about it. We're bringing on very, very, very high-margin, flexible barrels in Tangguh and Mad Dog Phase 2. So I'm sure that, that will impact the rule of thumb. When we give you a new rule of thumb in the future, and you can guess what direction that will be.

And then on disclosures, yes. So we'll show you guys after year-end results. We'll do a dry run through with you, I suppose, is a nice way to say it and introducing what the disclosures looks like ahead of 1Q results. Craig and the team will be setting up a date for that. As you say, we will be reorganizing how we present it. And of course, one of the things we're most excited about showcasing is what you talked about in convenience and mobility, actually pulling that apart and sharing with you the strength of that $5 billion of EBITDA and how it's going to grow over time. So absolutely, we're doing that, and you'll see that come in due course, guys.

[Bernard Looney, executive]

Very good. Thanks, Biraj. Appreciate the questions.

[Craig Marshall, executive]

Yes. Thank you. And that ends the questions this morning. Let me then hand over to Bernard as usual for a couple of closing comments.

[Bernard Looney, executive]

Great. Thanks, Craig, and thanks, Murray, and thanks to all of you. Thanks for listening. It's certainly been a busy all year here at BP. We think we've achieved a lot. I hope you do, too. But it's also been a busy year for you all. It's been a challenging year for everyone. And most of all, it's been a challenging year for society as a whole.

We've set out our stall on transforming the company. And we're very committed and we're very confident, I guess, if you can say it that way, that the distinctiveness of the approach that we've laid out will provide tremendous value over the longer term. We've had a lot of support for this. And obviously and understandably, we've also had a lot of questions. It's a big transformation. And we understand that there are people with different views.

But for us, we believe the strategy is right for us and we believe strongly that it's right for our shareholders. And having spent a lot of time over the last several months talking about strategy and talking about ambition, it's nice to be able to spend a bit more time now talking about the business of business, talking about our oil and gas business, which is going to be the engine of this transition here over the coming years. And our focus is now on disciplined delivery of this strategy, quarter in, quarter out, and a strong focus on creating shareholder value. And I hope that today gave you a little glimpse into what the company is capable, our teams have to deliver that sort of performance in this type of world. My heart goes out to them, as I said on my e-mail to them today. They've been astounding.

And with that, I hope you and your loved ones stay safe and well over the coming months. We look forward to your feedback, your questions, your challenge as ever, and we'll be in touch. And I'm hoping that 2021 is going to be a brighter year for the world, and that's what we're all working towards. So thank you for your time, thank you for your interest, and we'll leave you all to it. Thanks, everybody.