EQS-Adhoc: BP p.l.c.: 4Q22 SEA Part 1 of 1

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“For a printer friendly version of this announcement please click on the link below to open a PDF version of the announcement”

1. Divestment proceeds are disposal proceeds as per the condensed group cash flow statement. See page 3 for more information on divestment and other proceeds.

2. Full year 2022 excludes the ordinary shares issued as non-cash consideration for the acquisition of the public units of BP Midstream Partners LP. See Note 8 for more information.

3. See Note 10 for more information.

RC profit (loss), underlying RC profit (loss), surplus cash flow, net debt, ROACE, adjusted EBITDA, adjusted EBIDA, underlying RC profit per ordinary share and underlying RC profit per ADS are non-GAAP measures. Inventory holding (gains) losses and adjusting items are non-GAAP adjustments.

* For items marked with an asterisk throughout this document, definitions are provided in the Glossary on page 36.

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1. “fast charging” includes rapid charging ≥50kW and ultra-fast charging ≥150kW.

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Financial results

At 31 December 2021, the group's reportable segments were gas & low carbon energy, oil production & operations, customers & products and Rosneft. The group has ceased to report Rosneft as a separate segment in the group’s financial reporting for 2022. From the first quarter of 2022, the group's reportable segments are gas & low carbon energy, oil production & operations and customers & products. For more information see Note 1 Basis of preparation - Investment in Rosneft. For the period from 1 January 2022 to 27 February 2022, net income from Rosneft is classified as an adjusting item.

In addition to the highlights on page 2:

• Profit attributable to bp shareholders in the fourth quarter was $10.8 billion compared with $2.3 billion in the same period of 2021. Loss attributable to bp shareholders in the full year was $2.5 billion compared with a profit of $7.6 billion in the same period of 2021.

• The increase in the underlying replacement cost profit for both periods reflects higher gas and liquids realizations and higher refining margins, partially offset by higher tax and the absence of bp share of earnings from Rosneft. The fourth quarter result also reflects an adverse impact of turnaround and maintenance activity, and the year a favourable impact of strong trading performance.

• Adjusting items* in the fourth quarter and full year were a favourable pre-tax impact of $9.7 billion and an adverse pre-tax impact of $29.8 billion respectively, compared with an adverse pre-tax impact of $3.0 billion and $8.7 billion in the same periods of 2021.
  • As a result of bp's two nominated directors stepping-down from the Rosneft board on 27 February 2022, bp determined that it no longer meets the criteria set out under IFRS for having "significant influence" over Rosneft. bp therefore no longer equity accounts for its interest in Rosneft from that date, treating it prospectively as a financial asset measured at fair value. Within the full year result, the loss of significant influence and an impairment assessment led to a net pre-tax charge of $24.0 billion classified as an adjusting item, reducing equity by $14.4 billion. A further $1.5 billion pre-tax charge relating to bp's decision to exit its other businesses with Rosneft in Russia is also included in the full year result, reducing equity by $1.2 billion. See Note 1 for further information.
  • Adjusting items for the fourth quarter and full year 2022 also include increases in pre-tax fair value accounting effects* of $13.2 billion and decreases of $3.5 billion respectively, compared with a decreasing pre-tax impact of $0.9 billion and $8.1 billion in the same periods of 2021. Under IFRS, reported earnings include the mark-to-market value of the hedges used to risk-manage LNG contracts, but not of the LNG contracts themselves. The underlying result includes the mark-to-market value of the hedges but also recognizes changes in value of the LNG contracts being risk managed.
  • Adjusting items for the fourth quarter also includes net impairment charges of $3.6 billion principally as a result of expected portfolio changes in our oil production & operations segment, the annual review of price assumptions used for investment appraisal and value-in-use impairment testing and the annual review of discount rates used for impairment tests. The full year 2022 also includes a non-taxable gain of $2.0 billion arising from the contribution of bp's Angolan business to Azule Energy.

• The effective tax rate (ETR) on RC profit or loss* for the fourth quarter and full year was 33% and 117% respectively, compared with 38% and 51% for the same periods in 2021. Excluding adjusting items, the underlying ETR* for the fourth quarter and full year was 40% and 34% respectively, compared with 34% and 32% for the same periods a year ago. The higher underlying ETR for the fourth quarter and full year reflects the UK Energy Profits Levy on North Sea profits and the absence of equity-accounted earnings from Rosneft, for the full year this is partly offset by changes in the geographical mix of profits. ETR on RC profit or loss and underlying ETR are non-GAAP measures.

• Operating cash flow* for the fourth quarter and full year 2022 was $13.6 billion and $40.9 billion respectively, compared with $6.1 billion and $23.6 billion for the same periods in 2021 primarily as an outcome of higher underlying profits and working capital movements.

• Capital expenditure* in the fourth quarter and full year 2022 was $7.4 billion and $16.3 billion respectively, compared with $3.6 billion and $12.8 billion in the same periods of 2021, higher as a result of acquisitions completed during the fourth quarter 2022.

• Total divestment and other proceeds for the fourth quarter and full year were $0.6 billion and $3.1 billion respectively, compared with $2.3 billion and $7.6 billion for the same periods in 2021. Other proceeds for the full year 2022 consist of $0.6 billion of proceeds from the disposal of a loan note related to the Alaska divestment. See page 32 for further information.

• At the end of the fourth quarter, net debt* was $21.4 billion, compared with $22.0 billion at the end of the third quarter 2022 and $30.6 billion at the end of the fourth quarter 2021.

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Analysis of RC profit (loss) before interest and tax and reconciliation to profit (loss) for the period

Analysis of underlying RC profit (loss) before interest and tax

Reconciliations of underlying RC profit attributable to bp shareholders to the nearest equivalent IFRS measure are provided on page 1 for the group and on pages 6-15 for the segments.

1. From first quarter 2022 the results of Rosneft, previously reported as a separate segment, are also included in other businesses & corporate. Comparative information for 2021 has been restated to reflect the changes in reportable segments. For more information see Note 1 Basis of preparation - Investment in Rosneft.

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Operating Metrics

1. See Operational updates on pages 6, 9 and 11.

2. Reflecting higher volumes and lower costs including impact of conversion to equity-accounted entities.

Reserves replacement ratio*

The organic reserves replacement ratio (RRR) on a combined basis of subsidiaries and equity-accounted entities was 20% for the year (2021 50%). The decrease is largely due to price related reserves reductions in our production-sharing agreements*. The announced exit from Russia is treated as a divestment and therefore impacts only total RRR, not organic.

Outlook & Guidance

Macro outlook

• In the first quarter, bp expects oil prices to remain supported by recovering Chinese demand, ongoing uncertainty around the level of Russian exports and low inventory levels.

• bp expects the outlook for global gas prices during the first quarter to remain dependent on weather in the Northern Hemisphere and the pace of Chinese demand recovery.

• bp expects industry refining margins to remain elevated in the first quarter due to sanctioning of Russian crude and product.

1Q23 guidance

• Looking ahead, we expect first-quarter 2023 reported upstream* production to be broadly flat compared to fourth quarter 2022.

• In our customers business, we expect seasonally lower volumes and in Castrol base oil prices to remain high, although lower than the fourth quarter 2022. In refining, we expect margins to remain elevated and a lower level of turnaround activity.

2023 guidance

In addition to the guidance on page 2:

• bp expects both reported and underlying upstream production to be broadly flat compared with 2022. Within this, bp expects underlying production* from oil production & operations to be slightly higher and production from gas & low carbon energy to be lower. bp expects the start-up of Mad Dog Phase 2 in the second quarter of 2023 and first gas from the Tangguh expansion and GTA Phase 1 Tortue projects in the fourth quarter of 2023.

• bp expects the other businesses & corporate underlying annual charge to be in a range of $1.1-1.3 billion for 2023. The charge may vary from quarter to quarter.

• bp expects the depreciation, depletion and amortization to be slightly above 2022.

• The underlying ETR* for 2023 is expected to be around 40% but is sensitive to the impact that volatility in the current price environment may have on the geographical mix of the group’s profits and losses.

• bp expects capital expenditure* of $16-18 billion in 2023 including inorganic capital expenditure*.

• Having realized $15.9 billion of divestment and other proceeds since the second quarter of 2020, bp now expects divestment and other proceeds of $2-3 billion in 2023 and continues to expect to reach $25 billion of divestment and other proceeds between the second half of 2020 and 2025.

• bp expects Gulf of Mexico oil spill payments for the year to be around $1.3 billion pre-tax including $1.2 billion pre-tax to be paid during the second quarter.

• Against the authority granted at bp's 2022 annual general meeting to repurchase up to 1.95 billion shares, bp has repurchased 1.11 billion shares.

• In setting the dividend per ordinary share and buyback each quarter, the board will continue to take into account factors including the cumulative level of and outlook for surplus cash flow*, the cash balance point* and the maintenance of a strong investment grade credit rating.

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gas & low carbon energy*

Financial results

• The replacement cost profit before interest and tax for the fourth quarter and full year was $16,439 million and $14,696 million respectively, compared with $1,911 million and $2,133 million for the same periods in 2021. The fourth quarter and full year is adjusted by a favourable impact of net adjusting items* of $13,291 million and adverse impact of $1,367 million respectively to derive the underlying replacement cost profit, compared with adverse impacts of net adjusting items of $300 million and $5,395 million for the same periods in 2021.

• After adjusting items, the underlying replacement cost profit before interest and tax* for the fourth quarter and full year was $3,148 million and $16,063 million respectively, compared with $2,211 million and $7,528 million for the same periods in 2021. Adjusting items include favourable fair value accounting effects* of $12,502 million for the quarter and an adverse effect of $1,811 million for the full year. The adjusting items for the fourth quarter primarily arose from a significant decrease in forward gas prices during the quarter. Under IFRS, reported earnings include the mark-to-market value of the hedges used to risk-manage LNG contracts, but not of the LNG contracts themselves. The underlying result includes the mark-to-market value of the hedges but also recognizes changes in value of the LNG contracts being risk managed, which decreased as forward prices fell.

• The underlying replacement cost profit for the fourth quarter, compared with the same period in 2021, reflects higher realizations, partially offset by lower production and a lower gas marketing and trading result. For the full year the result reflects higher realizations, higher production and an exceptional gas marketing and trading result.

Operational update

• Reported production for the quarter was 956mboe/d, 1.8% lower than the same period in 2021. Underlying production* was 2.4% lower, mainly due to base decline in Trinidad.

• Reported production for the full year was 957mboe/d, 4.9% higher than the same period in 2021. Underlying production for the full year was 4.9% higher due to the ramp-up of major projects*.

• Renewables pipeline* at the end of the quarter was 37.2GW (bp net). The renewables pipeline increased by 10.3GW during the quarter due to additions to the renewables pipeline in support of hydrogen in Australia. The renewables pipeline increased by 14.1GW for the full year, primarily as a result of bp and its partner EnBW being awarded a lease option off the east coast of Scotland to develop an offshore wind project (1.45GW bp net) in the first quarter of 2022, net additions to Lightsource bp's pipeline, and the additions to the renewables pipeline in the fourth quarter in support of hydrogen in Australia.

Strategic progress

gas

• On 23 December the government of Indonesia granted a 20-year extension, to 2055, of the Tangguh production-sharing contract* (Tangguh PSC) to bp (40.22% and operator), and its Tangguh PSC partners.

• On 29 November bp announced its Cassia C development offshore Trinidad had safely delivered first gas. Cassia C is bp Trinidad and Tobago’s (bp 70%) first offshore compression platform and its biggest offshore facility.

• On 28 November bp was awarded two exploration blocks in the Mediterranean sea, offshore Egypt by the Egyptian Natural Gas Holding Company. The Northwest Abu Qir Offshore Area (bp 82.75% operator, Wintershall-Dea 17.25%) is located west of the recently awarded North King Mariout block (bp 100%) and north of the Raven field. The Bellatrix-Seti East block (bp 50%, Eni 50% operator) is located west of the Atoll field and North Tabya blocks.

• On 8 December Trinidad's Ministry of Energy and Energy Industries announced that it had reached agreement with the Atlantic LNG shareholders, including bp, on substantial commercial terms for the consolidation of its operations into a single entity which is a key milestone towards unlocking the energy future for Trinidad and Tobago. The new structure is expected to be effective in October 2024 and will enable increased focus on operational efficiency and reliability and underpin future upstream investments.

• On 14 November bp began lifting cargoes of LNG from Mozambique’s first LNG project. bp has a long-term agreement to purchase 100% of the LNG output from the facility that has the capacity to produce up to 3.4 million tonnes of LNG per year.

low carbon energy

• On 8 November and 8 December bp signed memoranda of understanding with the governments of Mauritania and Egypt, respectively to explore the potential for establishing green hydrogen* production facilities in the countries.

• Lightsource bp brought 2.7GW to FID (1.34GW bp net) in full year 2022, an increase of 32% compared with 2.0GW (1.0GW bp net) in 2021, and divested 0.9GW of projects (0.45GW bp net) during the year, resulting in $0.1 billion of gains on disposal recognized in bp's share of equity-accounted earnings.

• On 9 December bp announced it will partner with Shell and Lightsource bp to develop a 148 megawatt-peak solar project in Trinidad and Tobago following approval by the country's government. It is the country’s first commercial-scale renewable energy project.

• On 14 December bp agreed with its Flat Ridge 2 joint venture partner to purchase their 50% ownership in that wind farm. bp now owns 100%, adding an additional 235MW of capacity to bp’s renewable portfolio.

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gas & low carbon energy (continued)

1. Full year 2021 includes $712 million in respect of the remaining payment to Equinor for our investment in our strategic US offshore wind partnership and $326 million as a lease option fee deposit paid to The Crown Estate in connection with our participation in the UK Round 4 Offshore Wind Leasing together with our partner EnBW.

2. Fourth quarter and full year 2022 include $504 million in respect of the acquisition of EDF Energy Services. Power trading is reported under low carbon energy.