BP(BP) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total underlying replacement cost profit for 2025 was $7.5 billion, with operating cash flow at $24.5 billion, including a $2.9 billion adjusted working capital build [3][4] - Capital expenditure was reduced by 10% compared to 2024, with organic CapEx at $13.6 billion [3][4] - Return on average capital employed increased to around 14% in 2025 from around 12% in 2024 [7] Business Line Data and Key Metrics Changes - In gas and low-carbon energy, the underlying result was $1.4 billion, down from $1.5 billion in the third quarter due to lower realizations [8] - Oil production operations reported an underlying result of $2 billion, down from $2.3 billion in the third quarter, impacted by lower realizations and production mix [8] - In customers, the underlying result was $900 million, down from $1.2 billion in the third quarter, reflecting seasonally lower volumes [9] Market Data and Key Metrics Changes - The reserves replacement ratio improved to 90%, up from an average of around 50% in the prior two years [4] - The company reported a fourth quarter IFRS loss of $3.4 billion, primarily due to impairment charges related to transition businesses [11] Company Strategy and Development Direction - The board decided to suspend share buybacks to prioritize strengthening the balance sheet, creating a more resilient platform for investment [4][15] - The company aims to high-grade its portfolio and has increased its structural cost reduction target to $5.5 billion-$6.5 billion by 2027 [6][15] - Plans for an appraisal program for the Bumerangue discovery, estimated to contain around 8 billion barrels of liquids, are set to start by the end of the year [5] Management Comments on Operating Environment and Future Outlook - Management acknowledged a weaker oil price environment but highlighted strong operational performance and capital discipline [3][15] - For 2026, reported upstream production is expected to be broadly flat, with underlying production slightly lower [13] - The company anticipates net debt to increase in the first half of 2026 before falling significantly in the second half [14] Other Important Information - The company completed over $11 billion in divestments, more than halfway towards its $20 billion disposal program [5] - Operating cash flow for the fourth quarter was $7.6 billion, with a cash conversion improvement of 6 percentage points [12] Q&A Session Summary Question: What are the expectations for production in 2026? - Management expects reported upstream production to be broadly flat, with underlying production slightly lower than in 2025 [13] Question: How is the company addressing its balance sheet? - The board has decided to suspend share buybacks and fully allocate excess cash to strengthen the balance sheet [4][15] Question: What is the outlook for capital expenditure? - Capital expenditure for 2026 is expected to be in the range of $13 billion-$13.5 billion, weighted to the first half [14]