BP has no plans to ramp up spending in response to high oil and gas prices.
Asked repeatedly by analysts at today's results call if it might increase its $14bn-$16bn/yr capital spending guidance in light of the high price environment, chief executive Bernard Looney said the firm has no intention of changing course.
"We intend to spend between $14bn and $15bn on capital investment this year. Our medium-term guidance around capital is $14bn-16bn [per year]. There's no change to that," Looney said. "We're going to continue to invest in the hydrocarbons that the world needs today and we're going to continue to increasingly invest in advancing the energy transition, which is also what the world needs," he said, adding that discipline is "the important order of the day".
The "number one priority" is the dividend, chief financial officer Murray Auchincloss said. "You need to make sure it's resilient and that we can pay it at the $40 [per barrel] balance point ... It was only 15 months ago that the oil price was in the $40s," Auchinloss said. "Second, we need to continue to reduce debt and we're very pleased to see eight straight quarters [of debt reduction] now — down to $27.5bn of net debt. Third, the lesson of the past 20 years is to stick with capital discipline. Every time the oil price rises in the past, we spent an awful lot more as a sector and we destroyed value."
Auchincloss confirmed that BP will maintain its target to funnel 60pc of its surplus cash flow into share buybacks, with the remaining 40pc going towards paying down debt.
Solving the trilemma
While BP's capital spending budget is set to remain within a $14bn-$16bn/yr range, how the company invests that money is changing as it attempts to solve the "trilemma" of providing cleaner energy that is both secure and affordable, Looney said. "We invested probably about 3pc of our capital in 2019 in non-hydrocarbons. By 2025… over 40pc of our capital will go into non-hydrocarbons, and that number will be 50pc by 2030," he said.
Referring to BP's announcement today that it will invest some £18bn ($22.5bn) in the UK's energy system by 2030, Looney described the country as representing "a microcosm" of the company's integrated energy strategy. Historically, BP has invested some 10-15pc of its capital in the UK, but this is set to increase to 15-20pc through the current decade. "And that's because the policies are in place to support that. The resources — be they hydrocarbon resources or low-carbon resources — are here to enable us to do that, and the skills and the education system is here to enable us to do that," Looney said.
Earlier BP reported forecast-busting first-quarter earnings, excluding heavy impairment charges related to its exit from Russia. The firm's underlying replacement cost profit — which excludes impairment charges, other one-off items and inventory valuation effects — was $6.25bn for the first three months of this year, more than $2bn higher than the previous quarter and up by 137pc on the same period last year. The consensus among analysts was that BP would deliver around $4.5bn in underlying profit.
BP's cash flow from operations came in at $8.2bn in January-March, which was up by 34pc year on year. Consequently, it announced a further $2.5bn of share buybacks — to be executed ahead of its second-quarter results — having repurchased $1.6bn of its own shares during the first quarter. BP has maintained its quarterly dividend at 5.46¢/share.
