英國石油 (BP) 2011 Q2 法說會逐字稿

Welcome to the BP presentation to the financial community webcast and conference call.

I now hand over to Fergus MacLeod, Head of Investor Relations.

Hello, and welcome to BP's second quarter 2011 results conference call.

Today's presentation will be by Bob Dudley, our Group Chief Executive, and Byron Grote, our Chief Financial Officer.

Before we start, I'd just like to draw your attention to our cautionary statement.

During today's presentation, we will make reference to estimates, plans, and expectations that are forward-looking statements.

Actual outcomes could differ materially due to factors we note on this slide and in our regulatory filings.

Please refer to our annual report and accounts in second quarter's stock exchange announcement for more details.

Both of those documents are available on our website.

Thank you, and I'll now hand over to Bob.

Thank you.

Fergus Ladies and gentlemen, a warm welcome to BP's second quarter results for 2011.

Our agenda for today will start with an overview of our strategic framework.

Byron will then take you through the results for the second quarter, and then we will move on to a more detailed look at how BP is back on its feet again and moving forward.

It is over one year ago that the oil was still flowing into the Gulf, and many said we were finished.

The Macondo event was a big test for any company.

We have strengthened the balance sheet, continued to announce and close asset sales, reduced our target gearing band, improved our credit ratings, and restored a dividend.

We continue to meet our commitment front on and with integrity.

That integrity has included looking deep into the event and publicly spreading the lessons learned.

Last year's events were never going to be something that any company could recover from overnight.

We have taken the event very seriously and embedded change in a serious way throughout the organization.

I believe strongly that the strength of this team is the way we see the opportunity to instill those lessons deeply into the fabric of our Company.

This will make BP a safer, stronger, and more resilient Company, and this is good business.

Part of what we are doing is to reduce the uncertainties, not only those in the US following the events of last year, but also reduce uncertainties when operating at the frontiers of our industry.

One thing that is certain, the world will need more and more energy, and much of it will come from the frontiers.

In our review today, we will outline the work to deliver value in each of our businesses and then take your questions.

For the question-and-answer session, we will be joined by Ian Conn, the Chief Executive of Refining and Marketing; Mark Bly, Head of our Safety and Operational Risk Organization; Mark Daly, Bernard Looney, and Bob Fryar, who head up our upstream businesses; and Lamar McKay, President of BP America.

Before we begin, I would like to remind you of the three priorities we outlined in February.

They are all part of the foundation for rebuilding value for our shareholders.

The first is putting safety and operational risk management at the heart of the Company.

We are making real changes here, investing in a safer, more reliable future.

Reducing operational risk will increase the value of BP.

Second, we recognize the importance of rebuilding trust with those around us.

This involves meeting our commitments in the US and resolving the uncertainties we face.

As I mentioned earlier, it also means ensuring lessons are implemented across all our operations globally and that we share those lessons with partners and governments.

Third, we are taking steps to deliver value growth for shareholders.

Of course, we continue to high grade our portfolio.

We also expect to increase investment that will deliver growth, to see operating cash flows growing faster than volumes, as we improve margins.

We are targeting a continued improvement in downstream returns, and we will make divestments that realize value and improve focus.

It remains our intention, as we said in February, to grow the dividend over time, in line with the improving circumstances of the firm.

We are taking steps to restore the Company and its value.

We are committed to seeing the true value of the business more strongly reflected in our share price.

So let me update you on our progress in 2011.

In February, we said we said we expected this to be a year of consolidation as we work to reset the focus of the Company.

That is ongoing, and progress is being made daily on many fronts.

We have made major changes to the way we manage safety and operational risk.

In the US, we are continuing to meet our obligations, and we are actively managing our portfolio.

I'll come back to all these points later.

I'm especially pleased that we've had a very good year so far in achieving access to new upstream opportunities, with success in Trinidad this week, Azerbaijan, Australia, the UK, Indonesia, and the South China Sea.

And we've also recently entered Brazil with the completion of the acquisition of the Devon assets.

Refining and Marketing is continuing to make strong progress in delivering the earnings growth outlined by Ian Conn and his team in 2010.

And in alternative energy, we have expanded our interest in biofuels in Brazil and in the US.

There are, of course, impacts on our volumes and costs in this year of consolidation that became very clear to us in the first quarter.

We increased the number of turnarounds to inspect and check our operations and are driving integrity for the longer-term.

Natural declines have reduced output in the Gulf of Mexico following the suspension of drilling.

That characterizes the Gulf of Mexico today.

But as the largest producer there, it impacts BP the most.

Much of the broad impact is in our highest margin areas, and you can see it in our results today.

However, we are now taking firm steps in getting back to work in the Gulf, and some of our additional costs -- for example, 4 idle rigs -- will be reduced going forward.

We view these impacts as a near-term effect and expect to see momentum returning in 2012.

As with any business, not everything goes as planned.

Our project to jointly explore three exploration blocks in the South Kara Sea and later discussions to bring together the interests of BP, Rosneft, and AAR around a new ownership structure for TNK-BP, did not reach fruition.

This was a disappointment to me, and I recognize the uncertainties it created.

However, I believe it was worth pursuing, although not one worth implementing at any cost.

We remain committed to Russia, to TNK-BP and its ongoing success.

We are pleased with the approval announced this week in India for our deal with Reliance Industries to enter one of the world's exciting and rapid growing gas markets.

So all in all, we are making progress on our agenda of safety, trust, and value.

It is not a straight line, and we are not satisfied, but we expect to build on this progress through the remainder of 2011 into 2012 and beyond.

I'll come back to this in more detail shortly.

Before that, Byron will take you through our second-quarter results.

Thank you, Bob, and good day to those joining us on this call.

I will begin my review of the quarter with the trading environment.

The table shows the percentage year-on-year changes and BP's average upstream realizations and the refining marker margin.

Compared with the previous quarter, our liquids realization was up 14% at $107 per barrel and 47% higher than a year ago.

Our gas realization increased to $4.54 per thousand cubic feet, up 8% on the prior quarter and 21% higher than a year ago.

Taking both oil and gas together, our total average hydrocarbon realization was 7% higher than the first quarter of 2011 and was 34% higher than a year ago.

Our refining marker margin of $13.92 per barrel is 26% higher than both the first quarter of 2011 and the second quarter of 2010.

Turning to the financials.

Adjusting for charges of $300 million for non-operating items and fair value accounting effects, our second-quarter underlying replacement cost profit was $5.6 billion, an increase of 13% on the second quarter of 2010.

This reflects the benefits of higher realizations and a stronger refining environment, which have been partly offset by lower production and higher costs, including from higher turnaround maintenance activity.

Compared with the previous quarter, underlying replacement cost profit is up by 4%.

The large consolidation adjustment in the second quarter was driven by an unusually low volume of equity crude oil in inventory within our Refining and Marketing business at quarter end.

The effective tax rate for the quarter was 35%, down from the 37% reported in the first quarter, which was higher largely due to one-off deferred tax adjustment of $700 million related to changes in the taxation of North Sea production.

We now expect the full-year effective tax rate to be towards the higher end of February guidance at around 34%.

Second-quarter operating cash flow was $7.8 billion.

Excluding Gulf of Mexico oil spill-related post-tax expenditures of $1.9 billion, underlying operating cash flow was $9.7 billion, up 17% compared with the second quarter of 2010, and 87% higher than the prior quarter.

In line with previous guidance, we expect our organic capital expenditure to be around $20 billion in 2011.

The second-quarter dividend is unchanged at $0.07 per ordinary share.

In Exploration and Production, after adjusting for a charge of $700 million for non-operating items and fair value accounting effects, we reported a pre-tax underlying replacement cost profit of $7.3 billion for the quarter.

The primary factors impacting the quarter's performance relative to a year ago were higher realizations, partly offset by lower production volumes, including the impact of divestments.

Costs in the second quarter were impacted by around $300 million as a result of continued rig standby costs in the Gulf of Mexico and certain other one-off charges.

In addition, there were higher exploration write-offs and higher costs from increased turnarounds and maintenance, which will support operational liability and integrity over the long-term.

TNK-BP earnings and gas trading both improved compared to the prior year.

Production for the quarter was 3.43 million barrels of oil equivalent per day, 11% lower than 2Q 2010.

After adjusting for the effect of acquisitions and investments and entitlement impacts on our production sharing agreements, the decrease was 7%.

The lower production primarily reflects continuing decline in Gulf of Mexico production owing to the suspension of production drilling and higher turnarounds and maintenance activity.

The reduction was weighted towards our highest margin areas, including the Gulf of Mexico, Angola, and the North Sea.

Production of the third quarter will reflect the continuation of the divestment program, seasonal turnaround activity across the portfolio, and the ongoing suspension of production drilling in the Gulf of Mexico.

As we explained in February, our turnaround activity in 2011 is planned to be higher than 2010, with 51 turnarounds this year, compared with 35 in 2010.

Turnaround activity in the third quarter will be considerably higher than in the second and is again planned for some of our highest margin areas.

The activity will impact near-term costs and margins, as well as volume, but is part of getting the foundation right for the future.

We expect production in 2011 to be in line with our February guidance of around 3.4 million barrels of oil equivalent per day.

Rig standby costs will continue to impact the third quarter.

TNK-BP continues to perform well.

Our share of TNK-BP net income was $1.1 billion for the quarter, and we received cash dividends of $1.6 billion.

In Refining and Marketing, after adjusting for non-operating items and fair value accounting effects of $50 million, which includes impairments associated with our US divestment program, we reported a pre-tax underlying replacement cost profit of $1.4 billion for the second quarter, compared to $1.7 billion for the same quarter last year.

This result reflects an improved refining environment, more than offset by the swing to a small loss in supply and trading and reduced economic utilization at the Texas City refinery following a weather-related power outage.

The second quarter results were also impacted by higher turnaround activities and certain one-off charges.

In the fuels value chains, Solomon refining availability remained high at about 95% for the quarter.

Refining throughputs were reduced by over 170,000 barrels per day, due to the outage at the Texas City refinery.

In the international businesses, petrochemicals production volumes were down in the second quarter by approximately 8%, driven primarily by weather-related shutdowns and planned turnarounds.

Looking ahead, we expect a normal seasonal decline in refining margins in the third quarter.

Throughput at the Texas City refinery has been largely restored, and we expect the last of the impacted units to return to full capacity during August.

We expect petrochemical production volumes to recover, as capacity comes back on stream.

The level of planned turnarounds is expected to be lower in the second half of the year relative to the first six months.

In Other Businesses and Corporate, after adjusting for non-operating items, we reported a pre-tax underlying replacement cost charge of $340 million for the second quarter, an increase of $200 million versus a charge of a year ago, primarily reflecting increased group level functional spend as a consequence of the Gulf of Mexico oil spill.

Guidance for the year remains unchanged at an average of $400 million per quarter.

Next, I'd like to provide you with an update on the costs and provisions associated with the Gulf of Mexico oil spill.

In the second quarter, we recognized a $600 million reduction in the pre-tax charge for the incident.

This reflects the settlements with Mitsui and Weatherford, partially offset by an incremental charge for spill response costs, plus a charge for the ongoing quarterly expenses of the Gulf Coast Restoration Organization.

Under these settlement agreements, Mitsui paid BP $1.1 billion in early July, which was subsequently paid to the trust, and Weatherford paid BP $75 million, which will also be applied to the $20 billion trust.

The total charge taken for the incident is now $40.7 billion, which includes the $20 billion trust commitment.

The provision carried forward on the balance sheet at the end of 2Q represents our current best estimate of those future costs for which a provision can be made at this time.

BP is also working to ensure that the other parties involved in the Macondo well contribute appropriately.

As we indicated in previous quarters, we believe that BP was not grossly negligent, and we have taken the charge against income on that basis.

We will continue to review this quarterly and adjust it as new information becomes available.

Total cash payments of $2.4 billion have been made in the second quarter, which included a payment of $1.25 billion into the trust fund, as well as direct oil spill response costs.

Turning now to cash flow.

This slide compares our sources and uses of cash in the first half of 2010 and 2011.

Operating cash flow, excluding post-tax Gulf of Mexico oil spill expenditures, was $15 billion, 7% lower than a year ago, with higher working capital requirements being a major factor.

We received $4.2 billion of disposal proceeds for deals completed in the first half and additionally held $4.6 billion in deposits for deals to be completed subsequent to the quarter-end.

These deposits are reported as short-term debt.

First half organic capital spending was $8.1 billion.

In addition, inorganic capital spending was $6 billion and included the purchase of Brazilian assets from Devon Energy, the majority control of Brazilian ethanol and sugar producer CNAA, and the initial deposit of $2 billion in respect of our transaction for Alliance Industries.

Total cash held at the end of the second quarter was $18.7 billion.

Our net debt ratio was just under 20% at the end of 2Q.

As I mentioned earlier, the $4.6 billion of deposits for deals to be completed subsequent to the quarter-end were reported as the short-term debt.

As these deals close, net debt will reduce accordingly.

As I explained in our strategy presentation in February, we intend to further reduce gearing within this 10% to 20% range over time.

The pace of achieving this is critically dependent upon the timing of announced disposals and acquisitions.

In the third quarter, we expect net debt to be impacted by the completion of a number of disposals, as well as the second of three payments for the Reliance transaction.

I will now provide a quick update on our acquisitions and disposals activity.

Aside from the acquisitions I've already mentioned, we made further progress in our objective of achieving $30 billion of divestments by the end of 2011.

Thus far, we've entered into agreements for divestments with a total value of $25 billion.

Proceeds from these disposals have significantly exceeded book value and most expectations.

During the second quarter, we completed the sale of our interest in the Wattenberg natural gas processing plant, our assets in Venezuela, a package of downstream fuel storage and pipeline assets in the US, and the sale of our downstream businesses in Zambia and Malawi.

In July, we completed the sale of half our Devon ACG interest to SOCAR.

During the quarter, we also announced agreements to sell our aluminum business and our interest in Wytch Farm.

In addition to the $30 billion disposal program, we are making good progress our the plans to sell the Texas City refinery and the southern part of the West Coast fuels value chain, including the Carson Refinery, by the end of 2012.

That concludes my remarks.

Now back to Bob.

Thank you, Byron.

Let me return to our three strategic priorities -- putting safety and risk management at the heart of the Company, rebuilding trusts, and directly growing value.

Let me give you more detail on what we've done so far.

Our safety and operational risk organization, or S&OR, is now in action to drive safe and reliable and compliant operations across BP.

Its leader reports directly to me.

S&OR has a highly experienced central team which maintains our global standards.

It also has several hundred representatives who are deployed at the operating level in both the upstream and downstream businesses to drive systematic and disciplined application of those standards.

S&OR's work includes a strengthened audit function, and we continue to build programs to develop capability.

The S&OR staff are working alongside the line management and have the authority to assist, to challenge, and to step in, if needed.

Let me give some examples.

At the group level, we have set a new global standard whereby a BP-contracted rig will not drill a deep water well from a dynamically positioned drill ship unless it has two blind shear rams and a casing shear ram on its blowout preventer.

This is one of several measures we are implementing that go beyond the demands of regulation, but we believe it is the right thing to do.

There is an intense focus on risk management across the whole of the Company.

You would and should expect that from us.

We are now implementing the recommendation of the Bly Report into the Gulf of Mexico accident, and we are doing this top to bottom, developing new and thorough ways of working, road testing for quality, and rolling it out globally to the front line.

If new guidance is needed more urgently, we will issue it.

Within developments, we now have a single global wells organization which drills our wells and has a single global approach for managing risk.

Its top priority is safety, but it also includes contingency planning for containment, relief wells, and crisis management.

Our second priority for recovering value is rebuilding trust in BP.

This, of course, starts in the Gulf of Mexico, where we are working hard every day to earn people's trust back by meeting our obligations.

On the ground, the focus has shifted from response to recovery.

The decontamination of all vessels is fully behind us, and the majority of the cleanup of the beaches is complete.

Please visit the Gulf Coast.

You can see it for yourself and help tourism.

While we recognize that there is an ongoing impact in the region, there is much evidence to show that the environment and the economy in the affected states are recovering.

During the first quarter of this year, hotels in the coastal areas of the Gulf states received revenue per room well above the level in the same quarter in 2010, prior to the spill.

Tourist businesses in the Gulf region reported strong, and in some cases, a record spring break season.

All federal commercial fishing areas are open.

In January to May, 2011 was the second strongest like-for-like period for total shrimp landings in the last five years.

BP is working hard to meet its commitments.

As of the end of 2Q, we had funded approximately $6.8 billion to meet claims and government payments.

We are investing $0.5 billion in the Gulf research initiative to examine long-term impacts and have already committed $1 billion to early restoration of natural habitats.

In total, $8.6 billion has now been paid into the trust fund.

Earlier this month, we announced that BP will be implementing a new set of deployed or oil and gas drilling standards for its operations in the US Gulf of Mexico.

These voluntary performance standards go beyond existing regulatory obligations and reflect the Company's determination to apply the lessons learned from the incident.

These have been welcomed by the US regulator.

We are also committed to sharing what we have learned with the industry, regulators, and governments worldwide, and our teams have traveled to 20 countries to explain what we have learned.

Additionally, we have shared equipment and technology developed during the response, for example, with the US Marine Well Containment Company.

We continue to cooperate with a series of investigations or inquiries and hearings.

Let me highlight some of the progress and the expected key milestones.

The Presidential Commission published its final report in January, and the US Coast Guard released its preliminary report in April.

The tone and specifics vary; however, both reports identified the accident as resulting from multiple causes and being due to the actions of multiple parties, which is consistent with the findings of BP's own internal investigation.

Looking forward, we expect the final report from the Marine Board investigation to be released in the near future.

While we do not know what the report findings will be, previous reports have made a number of criticisms of participants in drilling operations, including BP, and we should expect the same from this report.

The National Academy of Engineers report is scheduled later this year.

Less clear is the timing of the ongoing Department of Justice investigations.

There are also civil lawsuits against BP and other parties.

These have been largely consolidated to two, multi-district litigation proceedings, with most of the cases consolidated under Judge Barbier in the Eastern District of Louisiana.

The first phase of this limitation and liability trial is currently scheduled for early 2012.

We know there are still uncertainties for all involved, including our shareholders, as to how all this will progress However, the situation should become clearer as we move into 2012.

Let me now turn to our upstream businesses and our plans to grow value.

The focus for growing value has five main elements.

These all involve making some clear choices -- investing in risk reduction, managing our portfolio actively, increasing unit margins, increasing investment and exploration, and prioritizing the growth engines that represent BP's distinctive territory.

In terms of risk reduction, I've already covered the implementation of lessons from the Gulf of Mexico incident and the new standards we are adopting.

As I said earlier, each of the three upstream divisions now has an embedded safety and operational risk team.

The second element of value growth is active portfolio management, managing our asset base through divestments in order to maximize its value.

It will also include some acquisitions.

The third element is the growth of operating cash in the portfolio.

We intend to increase the quality of margins across the portfolio as we grow volumes, net of divestments, so that operating cash grows faster than production.

The fourth element is investing to grow our upstream business, particularly through increased investment and exploration.

We are on track to double exploration spending over the next few years, and you will hear more of these opportunities in a moment.

The fifth element is to focus on specific growth engines where BP is building distinctive capabilities and where we know we can add significant value.

These are the deep water, natural gas, and giant field developments.

And across all these activities, we are deepening our relationships and indeed building new types of relationships with governments and national oil companies.

So these are the five elements through which we intend to create and grow value from the upstream over the long-term.

I've already explained the key points relating to risk reduction, so let's move on to active portfolio management.

The first manifestation of this approach is evident in the $25 billion of divestments announced to date.

The majority of these focused in the upstream, and Byron has already given you the detail.

We will continue actively managing our portfolio.

We will maintain a focus on growth, balanced with the management of risk.

We will carefully consider the overall shape and scope of our global footprint.

Where we are the operator in promising areas, we will seek to increase our working interests.

This will better align the balance of our human capital input with expected returns.

Let me underscore the approach we take to our portfolio by reference to two recent agreements.

In Brazil, our acquisition of Devon's assets was approved by the regulator A&P in May.

This gives us a material position in one of the great deep water provinces of the world.

It is one where BP can create value by deploying the deep water experiences developed in the Gulf of Mexico and Angola, applying it to our operated assets, and by making it available to the operator and others.

Our position, as well as being material, is of high quality.

Attractive projects are being progressed which will generate significant cash in the second half of the decade.

There is also considerable exploration upside potential.

Again, more on that in a moment.

Meanwhile, in India, we are entering into a unique relationship with Reliance Industries, combining taking equity in their acreage with the formation of a gas joint marketing venture.

This is a unique opportunity to form a gas value chain that can supply the fast growing needs of India, which is one of the more rapidly growing gas markets in the world.

Last week, the Indian Minister of Petroleum announced approval for our acquisition of a 30% interest in 21 offshore blocks, including the already producing KG-D6.

This is a key milestone that means BP can now proceed towards final regulatory approvals and completion.

Working alongside Reliance Industries, we are bringing together their proven capabilities in project management, strengths in operatorship, and their local market knowledge with BP's industry-leading sub-surface expertise and global gas marketing skills.

We expect this to significantly enhance value for both companies.

Not only will we together be able to help drive development of the most prolific gas basin in India, but the 50-50 gas marketing joint venture to source and market gas will allow the partners to secure a place in a liberalizing market.

Gas demand is projected to double by 2025, and demand growth is exceeding domestic production.

Of course, it is also a fit with our strengths and exploration in deep water, and we expect to see exploration upside over the long-term.

In both Brazil and India, there is significant potential for high-quality add-on investments.

The third element of value is growing operating cash faster than production.

One of the measures for our focus will be increasing cash from operations.

This is the sum of growth in unit margins and volume.

Over the next five years, we expect to see our average unit operating cash margin improve, as we bring new projects online with higher cash margins, assuming, of course, a constant price environment and adjusting for any divestments.

We also expect growth in absolute volume from our assets we hold to contribute significantly to operating cash flow in the next 5 years.

In the near-term, we see some specific milestones in this journey.

First, after a shutdown of some 40 days, the Greater Plutonio field in Angola was brought back online at the end of June and has ramped up to around 165,000 barrels of per day gross.

Second, we are making progress on our preparations for the restart of drilling operations in the Gulf of Mexico.

BP has recently received its first permit approval for rig activity from the US regulator.

We will start with a permanent abandonment operation for a well in the Atlantis field, and we expect more permits to follow in due course.

Third, in Iraq, after reaching our improved production target late last year, we continue to make strong operational progress on the ground through the operating organization of the giant Rumaila field.

Most of the projects due to come on stream during 2012 and 2013 will enhance unit cash flows, as they are in higher-margin areas.

There are 9 projects scheduled to start up this time frame.

4 will be operated by BP, 2 by TNK-BP.

The projects in the Gulf of Mexico and the North Sea are being developed through sub C tie-backs to existing facilities and allow us to build on investment in existing infrastructure.

In Block 31, the PSVM project in Angola is a collection of four reservoirs and is our second floating production storage and offtake facility in Angola.

Let's turn to the fourth element of value creation, increasing investment with a focus on exploration activity.

We're moving ahead with major projects to add production of up to 1 million barrels of oil equivalent per day by the end of 2016.

We are increasing total upstream spend to drive that long-term growth.

Roughly half of the capital will go to projects which will start to produce in the next 5 years.

Oil and gas is a long-term business, and roughly half of the capital will lead to production in the second half of the decade and beyond.

Increasing investment is one thing.

Doing it efficiently is another.

That is the true test of adding value, and here again, there is progress.

Through our single global projects organization, we have better line of sight of capital allocation on a global basis.

This centralized system has many benefits.

It enables us to make better decisions, it enables us to match the best people to the best projects, and it provides us with a smarter global procurement model.

We are on track to double exploration spending in the next few years, both adding new acreage in established basins and entering new basins.

We have detailed plans to expand the drill-out of our prospect inventory, and we intend to significantly increase the number of wells which test new plays over the next few years.

The objective is to drive a higher contribution to reserves replacement from new exploration discoveries.

We have a particular commitment to developing our expertise in seismic imaging, which has become a specialism for BP.

We are leaders in sub-salt acquisition and processing, and we've also been developing our expertise onshore.

We recently completed a development quality 3-D seismic program onshore in Jordan, where we required data at rates of up to 1,500 square kilometers per month, which is an unprecedented rate for onshore seismic work.

The potential depth of our exploration investment is no better illustrated than in these 3 areas.

They all play to our strengths in deep water, and the Australia opportunity provides entry into a totally new and promising frontier.

In Trinidad, where we already have a very large business, we have recently been awarded 100% interest in two blocks, both in deep water frontier acreage offshore of Trinidad's East Coast.

In Brazil, we have acquired access to frontier expiration acreage in Camamu and Parnaiba basins and an emerging pre-salt play in the Campos basin, where both exploration and appraisal drilling will take place this year.

This commenced with our first deep water well, which was spudded just last week.

In Australia we were awarded four licenses in January 2011.

We are preparing to start acquisition of around 12,000 square kilometers of 3-D seismic later this year.

Finally, the fifth element of value growth is to invest in our chosen engines of growth.

By this, I mean very large, long-term projects where we believe BP will build a distinctive position to add value for our shareholders.

For BP, these need to be material enough for follow-on opportunities to occur.

In many cases, they will have great opportunities for us to develop new technology or apply existing technology in a new context.

We look at our portfolio in 3 categories of growth engines -- a deep water, natural gas value chains, and giant fields, for both oil and gas.

In the deep water, we will build on our extensive Gulf of Mexico experience to increase investment there, as well as in Trinidad, Brazil, and Angola.

Through our hard earned experience, we are confident of our ability to safely design, engineer, and operate large deep water installations.

In natural gas, we will leverage our expertise in working across countries to create integrated gas delivery value chains.

Our ongoing work in the Shah Deniz gas field in Azerbaijan is a great example of this.

There, our starting point is gas, some 6,000 meters below the Caspian Sea floor, and ending with customers some 3,000 kilometers away in Western Europe.

Our relationship with Reliance in India will bring another significant gas value chain into the portfolio.

In giant resource plays, we will use expertise with modeling the earth's subsurface to optimize reservoir management and maximize resource recovery from a world-class portfolio.

These opportunities are matched to our strategy, material, technology-led, and founded on strong relationships, increasingly with national oil companies.

In Refining and Marketing, first half of 2011 has been a period in which we have done what we said we would do.

Safety, of course remains our top priority.

The S&OR organization is now embedded in Refining and Marketing, with all entities now on our operating management system.

This will better provide assurance across the business and standardizes our approach to managing and reducing operating risk.

We continue to build momentum and earnings and improving returns on simplifying our portfolio and on improving efficiency.

We are on track to deliver more than $2 billion per year of improvement in underlying performance by 2012 compared with 2009.

That will amount to a cumulative underlying improvement of $7 billion per year against 2007.

Our result, after stripping out the effects of non-operating items and fair value accounting effects, for the first half was $3.6 billion, compared with $2.5 billion for the first half of last year.

Aside from an improved refining environment, this shows the continued delivery of our improvement plans.

In terms of portfolio simplification, as previously announced, we are divesting roughly half of our US refining capacity.

We are progressing with our intention to divest the Texas City refinery and the southern West Coast fuels value chain, including the Carson refinery.

In addition, we continue to divest non-core positions and assets globally.

At the same time, we are continuing to make progress on strategic investments to improve some key assets.

One of the largest is our Whiting refinery modernization project in the US, which I will talk more about in a moment.

In the rest of the fuels value chains, we continue to improve margin capture.

We continue to grow our leading international businesses, including petrochemicals and lubricants, that are materially exposed to the emerging growth markets.

Beyond 2013, our Refining and Marketing assets will be able to deliver material and sustainable earnings growth and cash flows, with attractive returns well above the cost of capital.

I would like to return for a moment to the Whiting refinery modernization project, or WRMP.

This project is one of the largest and most complex refinery projects ever undertaken by BP, and when commissioned in 2013 will conclude over 5 years of design and construction.

Project will significantly increase the capability of the Whiting refinery to process heavy crude.

It will also give a unique flexibility of access to 3 major geographic crude sources -- the Gulf of Mexico, the mid-continent US, and Canada.

It will provide industry-leading flexibility to respond to market dislocations at true, world-scale levels.

This chart is an updated version of the slide in the February investor presentation, showing indexed pre-tax profit per barrel in the Midwest, relative to refining margins.

The yellow dot has been updated to reflect project delivery at 2011 year-to-date refining margins and light/heavy crude differentials.

It does not include the significant WTI price dislocation benefits we have seen in 2011.

The second chart shows the history of the light/heavy crude differential.

This is averaged around $16.50 per barrel since 2004, with periods of significant upside.

Overall, this project is expected to deliver a rough threefold improvement in profitability at Whiting and will contribute materially to improvement in our US fuels value chain position overall.

In terms of future cash flow generation, we will move from a period of cash investment in Whiting to a period of potentially significant cash generation.

To put this in context, in 2011, we are investing in excess of $1 billion on this project, and we expect it to generate in excess of $1 billion cash flow per year once fully operational in 2013, based on the historical light/heavy differentials.

Compared to the significant capital investment we are making, this will be a major upswing in free cash flow.

To summarize, BP is a rapidly changing Company.

As you can see, much has been done, but there is much to come.

2011 is a year of consolidation.

In 2012 and 2013, we expect the momentum of our recovery to build as we get back to work in the Gulf of Mexico, the margin mix of our upstream improves, uncertainties are reduced, the Whiting upgrade comes online, and we meet our commitments to the trust fund.

At the same time, we will increasingly focus both our portfolio and our investments on long-term value growth.

Ladies and gentlemen, one year after capping the Macondo well, we see the Company on stable ground.

We are very clear about our priorities, and as I've described how they will deliver momentum in cash flows and shareholder value as we come out of 2011, a year of consolidation.

We must and do understand the imperative for urgency as we consolidate our recovery and define our forward path.

Equally, I am determined we will undertake this fundamental task fully and thoroughly.

The lasting value we are building demands a methodical rigor across all our businesses and geographies.

Only an exhaustive approach will capture, institutionalize, and spread across BP the invaluable lessons and experience from the testing year behind us.

I am pleased with the progress we are making against this major piece of work.

We will temper the desire for urgency and with a dose of realistic patience as we renew ourselves.

I believe that will also be in the best interest of all of our stakeholders.

There should be no doubt that at BP, the Board and management team are all resolved to deliver deep-rooted, thorough, and reliable change, change which will elevate and distinguish the way we work everywhere.

Our first and overriding priority is safe and reliable operations.

It is good business.

Our shareholders, our employees, our industry, and governments should expect this from us.

We are investing to underpin this, investing more into exploration and investing in new opportunities for growth.

We expect to see operating cash flow growing faster than volumes, both in the upstream and the downstream, and we will continue to actively manage our portfolio, including our announced plans to reduce our US refining position.

All of this will allow us to increase distributions to shareholders over time, as the circumstances of the firm improve.

Thank you for listening.

The team and I would now be pleased to take your questions.

(Operator Instructions).

Thank you, operator.

And the first question, I think, comes from Irene Himona at Societe Generale.

Irene, are you there?

Good afternoon.

I had 2 questions, please.

First, you refer to 9 new projects coming on stream by 2013.

Can you clarify what production contribution we can anticipate at [Platto] from those projects?

And secondly, on the issue of portfolio management, what happens exactly when we reach the $30 billion pre-announced asset disposals?

What is the Board thinking concerning going beyond that level?

Thank you.

Irene, hi.

This is Bob.

I will comment and then Bernard Looney will also add, here.

The 9 new projects that we expect to come on stream in 2012 and 2013, of which 4 are operated by BP, 2 by TNK-BP, should add roughly 250,000 barrels per day for those projects.

Bernard, would you like to add a little color on which ones, the biggest ones?

Yes, Bob, thanks.

Irene, we'll actually have 3 online this year, 9 in '12 and '13, giving us a total of about 12.

And I think about 8 of them are in the higher-margin areas that we traditionally look at, places like Angola, the North Sea, Gulf of Mexico, and even a few of those are tie-backs to existing infrastructure where we can leverage the installed base.

Right now, all on track, and the number of 0.25 million barrels a day for those 9 projects is about right.

Thanks, Bernard.

Irene, on your point about what happens at the end of the $30 billion announced divestment program.

There is no magic end of that, I think.

We are continually reviewing the portfolio.

We are on track, and have our sights on what we will do to move past the $30 billion number, and then we will continue to speak to you about other decisions we might make, none of which we have announced.

Irene, I just would remind you that the sales of the US refineries is not included in the $30 billion.

That is additional disposal proceeds we would already be anticipating for 2012.

Thank you.

Great.

Thanks very much indeed, Irene.

The next question is from Alejandro Demichelis, Bank of America Merrill Lynch.

Alejandro, are you there?

Yes.

Good afternoon, gentlemen.

Three questions, if I may.

The first one is, in your press release, you state this commitment you see and the true value of the business reflected in the share price.

Maybe you can give us some kind of indication whether this stuff -- this road map that you show us is enough to show the true value, or you would be considering some other measures.

That's the first question.

The second question is, maybe you can update us on what is the situation regarding the discussions with your Macondo partners on contractors.

And the third one is if you can update us on the situation with your Russian partners.

Great, Alejandro.

Three very broad questions.

First, on the true value of the business.

We are absolutely committed to the first 3 priorities, making sure we are safe and we have reliable operations.

We are going to continue to meet our commitments in the Gulf Coast, and rebuild the trust there and get back to work in the Gulf.

And then there is a broad set of activities to rebuild value.

First, the risk reduction.

Again, actively managing our portfolio, growing -- we see as we bring on the higher-margin production rates, higher growing operating cash from our productions.

We are going to increase exploration.

We are going to target doubling exploration going forward.

The growth engines of these big projects that are in front of us, we have got 30 of them between now and 2016.

These are things that will increase the value of our business, no doubt.

However, we continue to be mindful of what a great portfolio we have.

We will continue to screen that portfolio.

We will look at many, many options, and at which point we have something to say beyond that, we most certainly will.

With our Macondo partners, we have built our working interest on our partner Anadarko for, as of today, $5.5 billion of costs.

We believe they and the other responsible parties in the lease and in the activity, which includes Halliburton and Transocean, we believe they have a role in contributing as well, which has -- they have not done that.

And we have begun procedures with arbitration with Anadarko.

Regarding our Russian partners, we remain committed to Russia.

We remain committed to TNK-BP.

The company is working well.

It has had a good second quarter.

You can see the results in our results, and we expect that to continue.

Thanks, Alejandro.

That's great.

Thanks very much, Alejandro.

The next one is from Alastair Syme at Citi.

Alastair?

I wonder if I could ask about the Gulf of Mexico timeline from here on in -- where production levels are at currently, and how quickly and how many wells you have to get back to drilling to get production to where it was again.

Alastair, thank you.

You will know that the entire Gulf of Mexico has been affected by the moratorium on drilling.

Our production rates today are around 250,000 barrels a day.

We are impacted by the slowdown in drilling there the most, because we are the largest producer in the Gulf of Mexico.

We have begun activity back in the Gulf with the permit that's been approved to get 1 of the big rigs back out there, starting with an abandonment well.

We have a schedule for the applications of permits that will continue on.

It is up for -- we will work closely with the regulators.

It is not right for us to lay out a timeline, because it is the regulators who will approve the permits.

But I -- we have lots of people gearing up, ready to go.

We will work closely with regulators.

Lamar, who is here with us from BP America.

Let's see if Lamar wants to add any color to that.

I will just add a little bit.

Obviously, first, what we wanted to do in the Gulf of Mexico was to learn what happened on the Macondo incident, and incorporate those learnings from the [Bly] recommendations, as well as other reports.

And we have done that through this voluntary performance standards that we have offered -- we have not offered, we are actually doing that in the Gulf of Mexico.

So the first step was to make sure we were ready.

We have been working constructively with the regulator throughout this process, sharing those learnings.

Those voluntary performance standards have been welcomed by the regulator.

As Bob said, we have been granted the first permit on plugging and abandoning a well on Atlantis, so the DD2 will now be starting operations, and we'll be progressively applying for permits there in the Gulf.

And when the regulator feels like we have met those commitments, we will get started.

So I think we have made significant material progress there.

Any speculation about how many permits you might need to even stabilize production at current levels?

Well, maybe I will turn this to Bob, back to Bob, or Bob Fryar.

But we will need to get back into the Atlantis and Thunderhorse drilling that we stopped prior to -- during Macondo.

So I can't protect the number of wells, but our rig schedule will progress from P&As completions, and then oil and injection well drilling.

I would just add that we, like many companies, have rig idle standby charges that are building up now.

I think that it's the intention in the United States for the industry to get back to work.

The timing of that is not for us to say.

These same sort of delays are affecting broadly, broadly, all of the operators there.

Let me ask Bob Fryar to comment further, and give you some more color.

Yes, just in terms of building production back up, I just would remind everyone that this is -- the Gulf of Mexico is a very prolific basin, and these wells make substantial rate when they come online.

In terms of -- we won't get into the numbers of exactly how many wells it takes, but these are big wells, and as we get the rigs back going, we do anticipate that we can get it ramped up in time here.

And again, we will do that in coordination with the US regulator.

Thank you very much.

Thank you, Alastair.

Thanks, Alastair.

Next, moving to the United States, Blake Fernandez at Howard Weil.

Blake?

Good afternoon.

Thanks for taking my question.

In conjunction with the last comment that you had, Bob, with regard to rigs standing idle, is there not an opportunity to redeploy those rigs elsewhere, and then bring them back once you do receive the permits?

Well, Blake, it's a good question.

We have actually done that with at least 1 of our big rigs, and maybe a second one.

So we are doing that, but we have a number that are standing by, and when we go through the application process and we get ready, we want to be ready, because these -- like Bob said, these are big wells, will have big impact when we get going again.

And we don't want these -- when you do -- when a rig leaves the Gulf, it goes for quite a long time, half a year or a year, minimum.

So we want to be ready.

Okay, thanks.

And then secondly, on the Marine -- I'm sorry.

The Marine Board investigation report, I believe the original date was July 27, and I see now it is categorized, it says, to be determined.

Has something happened there to defer that?

You are right, Blake.

We received notice; we don't have any insight into what the report's conclusions are.

But we did receive a notice that the date had been deferred to the near future.

These are very complicated investigations.

Several times in the course of the last year, a number of the reports have been deferred a bit.

So I don't have any more insight, but we will wait and see.

Thank you very much.

Thanks, Blake.

Yes, thank you, Blake.

Our next question is from Peter Hutton at RBC.

Peter, are you there?

Yes.

It's really just following on the -- again, on the Gulf of Mexico.

Really, the 80,000 was given assuming something at this beginning of this year.

Can you give any indication?

I know it's still early days, but when you were saying that it broadly, broadly, impacted all of the operators much the same, I am just looking at the approvals that have been given for the others.

And so far this year, Shell have had 16, Chevron have had 23, BHP Billiton have had 15, Exxon has had 11, and BP have had nil.

How are you able to say that it is broadly, broadly impacting all the operators pretty similarly?

So Peter, for one thing, I am talking about BP-operated rigs, and many of those wells that you just spoke about -- Chevron, Shell, a number of the others -- we actually have significant interest in.

So we are -- so let me make that clear.

We have some interest in those permits that are going forward.

As Lamar said, we are making sure we have our standards in place for us to go forward.

We have that first permit.

It was not unduly delayed.

You look broadly across the entire industry, there are many, many permits that are waiting in there.

But we have significant interest in a well, the Noble well that was a discovery earlier this year.

We've got significant interest in the Chevron Moccasin well, which is going down right now; with Shell in the Great White field and a number of other fields.

So, Peter -- .

But it is true to say that, as an operator, BP has not received any approvals.

It is not putting any new applications for exploration or development plans.

And other operators have put in applications subsequent to Macondo and after BP, and they have now received approvals.

All those statements are correct, are they not?

Some companies have received those approvals.

We have a full schedule for permitting applications -- I would just ask somebody to turn off their telephones here.

Lamar, why don't you comment on the scheduling.

That is generally true.

As I said earlier, what we have been doing is making absolutely sure we have got the standards and learnings from Macondo incorporated into what we are going to do prior to applying for permits.

And we are about to start that application schedule.

So that is generally correct.

We have got a couple of permits in.

We have gotten this one back on P&A.

So, we are starting the process now.

You are effectively correct.

Okay, thank you.

Great.

Thanks a lot, Peter.

And the next one is from Jon Rigby at UBS.

Jon.

Thank you for taking the question.

At the risk of flogging a dead horse here, can we just -- again, just drill down on these wells in the Gulf of Mexico?

The first question is, when you start getting approvals, would you be likely to focus on production over exploration, for instance, to start trying to bring some MPV forward and get these wells running again?

And the second is, could you characterize, pre-Macondo, the number of wells you would likely be drilling, and the split between production and exploration, typically?

Thanks.

So, Jon, hi.

This is Bob, and then I am going to turn it over to Bernard and Bob here.

First, when we get these approvals, we will begin a sequence -- a broad sequence of multi-wells around production, water injection wells, appraisal wells, and exploration wells.

And so -- Bob, do you want to comment?

Yes, certainly, it is going to be a mix of all of those things, as Bob said.

Clearly, one of the things we will be doing is getting rigs back on areas such as Thunderhorse, Atlantis, again, very high-prolific wells.

These wells have, again, very good rates, good cash flow.

And so that will be an area -- and likewise, we will be putting some wells towards exploration additionally.

So it is all of the above.

So, just as a follow-up, you have clearly got the ability to drill off the Thunderhorse platform.

Is that a more straightforward permitting process than it would be for a rig?

Yes, Jon, it's Bernard.

We have 5 rigs in the GoM.

One of them, as you say, is on -- is the PDQ on Thunderhorse.

Our sequence of events will be -- we will start probably primarily with abandonment work that we need to do.

That is consistent with what the regulator wants us to do, and what we will want to do.

We will then move through the sequence.

We've actually got some wells, as Bob said, on Thunderhorse and Atlantis that actually have been drilled, and simply need to be completed.

So they would be the next order of priority.

We then get into drilling, and the drilling would be focused in probably 3 areas.

We want to get water back in the ground, so we would actually be drilling some water injection wells.

We want to drill some more producers.

And in Mike Daly's world, we have got exploration and appraisal work to do, and we have got plans to do that, subject to regulatory approval before the end of the year.

So all things considered, we've got a clear plan, as Lamar said.

We have got a clear permitting schedule in our mind, and as we get ready, and as the regulator allows us permission to proceed, we will proceed on that path.

And as Lamar said, we have got that 1 permit so far for an abandonment job, and we have got more permits in the system.

And Jon, let me just add -- this is Bob -- that the regulators have made it clear to us that they are not holding us to a higher standard than others that will be going through the permitting approval processes.

We have set for ourselves a higher standard to make sure when we get back to work, that we do this with lower risk and more reliability.

It's important for us, and I think the regulators have welcomed our approach.

Okay.

Thanks a lot.

Thank you, Jon.

The next one is from Kim Fustier at Credit Suisse.

Kim?

Yes, hi.

Good afternoon, gentlemen.

I have 2 questions, if I may.

Firstly, a few weeks ago, you published a set of new drilling standards in the Gulf of Mexico.

Could you comment on the timeline to sort of implement these standards, and also on the additional costs we should expect in the Gulf as a result of these new standards?

My second question is on the escrow fund.

I think you have been previously on record saying that $20 billion will be more than enough to cover all the cost as the Gulf is recovering, and I think you're now putting in more money each quarter than claims are being paid out.

These claims end up being lower than anticipated.

How do you expect to lower these costs in practical terms?

Can you reduce your quarterly contributions or do something else?

Thank you.

So Kim, first, I am going to ask Bernard Looney to comment on your drilling question, and then Lamar McKay on our contributions to the trust fund.

Okay, Kim.

On the voluntary standards, as Bob said earlier, there's 4 voluntary standards, and there were 6 further actions that we agreed -- that we laid out as our plan for going back to work.

On the 4 voluntary standards, some of them we're capable of enacting right now, things like independent BOP testing we are doing as we speak, third-party verification of cement laboratory tests we are doing, and can do.

Some that are more equipment focused, some of our rigs meet the standard today.

We are carrying out some modifications on 2 rigs in particular, which should be complete over the next probably 3 to 4 months, so we are on track for that.

So, I would say that pretty much in place, with the exception of a few equipment modifications on 2 of the rigs in particular.

There will be some costs.

I don't expect it to be significant.

It will be much of a 1-off cost.

Ongoing independent testing of BOP equipment, for example, is not a significant cost burden.

And frankly, a lot of these standards are likely where the industry may head over time, in any case.

We will see how that goes.

Kim, I would just add that these are very -- this is a very high-margin oil province in the Gulf of Mexico in terms of cost.

For us, it's reduction of risk and reliability rather than the cost.

We don't see that as the impediment.

Lamar.

Kim, on the trust fund and contributions, just a couple of things.

One, the $20 billion trust fund, just recall it is not a cap, and it is not a minimum.

So it is a $20 billion trust fund that is put in to cover several things.

Let me give you the structure.

It covers business and individual claims.

It covers state and local claims.

It covers state and local response costs.

It covers civil litigation.

And it covers natural resource damages.

So there is much more that comes -- that that trust fund covers than just the GCC, the Gulf Coast Claims fund.

The contribution structure is $1.25 billion per quarter through 2013, so we've got the trust fund in place there to cover all of those issues.

And that is the structure of it.

So, the funding of that is going to occur, and that is why we have noted several times that once that funding has occurred, the $5 billion a year then would be -- assuming the fund covers all the things we need it to -- the $5 billion a year would be free cash flow that would come back -- would not be utilized for the fund.

Byron?

Kim, I just would add that the net impact of the settlements with Mitsui and Weatherford, in effect, brings forward that last payment that would be scheduled in 2013.

So, we are looking to continue to pay at this stage on a quarterly basis into it, through the third quarter of 2013.

Great.

Thanks very much indeed.

The next question is actually from the web, and it's about the Reliance transaction in India.

And the question is -- how much time will be required to complete that transaction as it's approved by the government of India?

What is our view on the turnaround time for ramping up production for the existing producing block, KG-D6?

And lastly, what is our view of the prospectivity of the other exploration blocks on the east coast of India?

Thanks, Fergus.

Well, I think in terms of the time required, we are now talking of a matter of a very few weeks.

But this has always exceeded our expectations, so we will see about that.

But that is the sort of level we are in.

In regards to turning around the production of DG-D6, the plan is very much that we are starting to staff up to work with Reliance.

We will be bringing BP's sub-surface talent to the issue of D6, and we will be getting after this.

But this will take some time.

This is not an instant fix, and we will be looking to work on this over the next couple of years.

With regard to the prospectivity of the rest of the assets, again, it's the same story.

We will be working with [real] on its exploration campaign, bringing in our own talents and our exploration process to the issue.

And we will define an exploration program for the whole margin with Reliance, and that will take us over the next 12 months or so.

Thank you, Mike.

This is Bob.

Let me add to your question, some information that came in just right before we got on the webcast.

It was the Information that we expect to get letters from the Cabinet, approval of the transaction with Reliance in about 2 weeks, and then it will take another 2 weeks to work through the paperwork with the Bank of India and other securitizations required.

So it will be about a month.

I think it will be towards the end of August or the first week of September, and then we will be ready to close.

And we are looking forward to starting that work.

Great.

Now coming back to the telephones, we've got a question from Fred Lucas at JPMorgan.

Fred.

Fred Lucas, are you there?

Yes, can you hear?

Good.

Yes, we can.

Good afternoon, gents.

Two questions.

One on strategy in Russia.

It looks, as events panned out, that plan A in Russia was an exploration and equity alliance with Rosneft, and a subsequent change in the ownership structure of TNK-BP.

So I am just wondering, what is plan B for Russia?

And my second question regards cash distributions.

Can you think of any projects in BP's portfolio that would give you a better return than buying back BP stock?

Well, Fred, hi.

This is Bob.

Well, first, in Russia, plan -- well, plan A has always been the successful activity of TNK-BP.

Absolutely, that was always plan A.

Plan B was sort of a supplement of a pursuing exploration in the Arctic.

It evolved to another discussion with our partners there around changes of ownership, not something we were particularly driving for at all.

But now we are back to working in TNK-BP, and it is working well.

There was a Board meeting last week, great second-quarter results out of TNK-BP.

We will continue to work with TNK-BP, and I think it's got a great future.

That has always been our chosen vehicle for investment in Russia.

On cash distributions, I think deeply woven into your question is -- do we believe that the share price reflects the value of our Company?

Both the management and the Board feel a sense of urgency to move this forward.

We have got to make sure that we work to those 3 priorities of reducing the risk.

But then, active portfolio management, absolutely is what we are thinking about, growing operating cash, increasing investment and the focus on exploration, of course, and those growth engines is what we're focused on heavily.

The buyback of shares is something that -- we need to reduce some of the uncertainties around BP as we go forward in the Gulf of Mexico.

However, we are considering all of these options, and when and if we have anything to say on that, we would, of course, say it.

Thanks, Fred.

Okay, the next one's from Lucy Haskins at Barcap.

Lucy, are you there?

Yes.

Good afternoon.

Two questions, if I may.

Obviously, you are doing a lot in terms of your downstream business with the planned divestments and the improvement in terms of profitability.

Without disparaging those plans and such targets, is that going to be the extent of how you can see a release of value from your downstream business?

The second question was -- back in February, Bob, I think you talked about a move away from volume targets to value objective.

Have you got a little bit more guidance you could give us in terms of how we man that measure, effectively, those value objectives?

Lucy, yes.

Thank you.

The work that is going on in downstream continues to move to higher margins in the downstream.

We have got a big project at Whiting moving forward.

The sale of 50% of the US refining is in line.

In terms of unlocking value, again, it is a broad -- in the broadest, broadest sense, we will continue to look at portfolio options all across BP's portfolio.

I might ask Iain to comment, and then I will come back to the volume point in a moment.

Lucy, thanks.

I think the base case, a bit like the base case for BP is one of unlocking value through growing cash flow and improving the return so that the absolute returns of the downstream are actually attractive.

And that's really the path we are on, and we're making good progress towards that outcome by the end of 2012.

That has elements a bit like the upstream of risk reduction, of active portfolio management in the case of the US, and obviously, strengthening the fuel value chains while growing the businesses that are actually exposed to real growth and high returns, such as petrochemicals and lubricants.

So that is the base case.

I think as Bob said, we are going to continue to look at the downstream portfolio, and understand whether we believe all the elements of it will be attractive going forward.

But right now, we have a plan out to 2012, and as Bob said, with some very big chunks that are going to come online in 2013, such as Whiting, which will contribute a big step up in the cash flows available back to the group.

And Lucy, on your last question about volume targets versus value targets, I am going to just refer people to the 32nd slide in the presentation around delivering that shareholder value.

Got to make it safe and reliable.

We are going to double our exploration activity.

We are going to increase investing for upstream growth, for sure.

We are going to grow that operating cost faster than volumes; the downstream earnings momentum and returns; that active portfolio management.

And that will lead to an increase in distribution to shareholders.

And I believe it will increase in the share price of the Company.

Those are all the things that will begin to form the kinds of targets that we will talk about when we come back at our year-end results looking forward.

But as we've said, we're going to get off the treadmill of volume, although volume is important.

Thank you, Lucy.

Thank you.

Great.

Thanks, Lucy.

And now back to the US and Pavel Molchanov at Raymond James.

Pavel.

Thanks very much.

Can you give us any updates on the timeline for the final Coast Guard Marine Board report?

I believe it was originally expected this week, maybe even tomorrow.

And then on a related point, what are your expectations from the key messages we should be watching for from that report?

Pavel, hi, this is Bob.

We did receive -- or we actually saw it in the press that the report had been delayed.

It was originally scheduled, I believe, for tomorrow.

Over the course of these investigations -- they are very complicated.

There has been a number of them have been delayed.

They are obviously deliberating very carefully.

There have been a number of reports so far, to date, the Presidential Commission report and the preliminary Coast Guard report.

And the tone of those reports has always said that this is a complicated accident, multi-party, multi-causal, including BP.

And I would expect that this report would likely have similar sets of conclusions.

We have no insight as to when it will come out, other than near future.

Thanks, Pavel.

Now back to Great Britain and Lucas Herrmann at Deutsche Bank.

Lucas.

Yes, Fergus, thanks very much.

Afternoon, gentlemen.

Three questions, if I might.

Well, the first was, I just want to pick up on a comment you made.

I think you said where BP is operating, it will seek to increase its working interest.

I just wonder if you can expand on that?

And also, looking at it the other way, does that also imply to some extent that where BP is not an operator, it will seek to reduce its working interest?

Secondly, I just wanted to ask whether you felt that, in light of the lack of activity in the Gulf for the last 12 months for you, that there is some risk of impairment to the reservoirs and to your ability to drive production back to the levels that certain fields were achieving before the moratorium.

Thirdly, just one for Mike on exploration and on the build in exploration spend -- how rapidly should we expect you to move towards the doubling of exploration, given the opportunity set?

Also, could Mike just comment on some of the opportunities that he feels are particularly interesting over the near term?

Thanks, Lucas, this is Bob.

On your question about expanding our working interests around the world, or looking at reducing them wherever, what we want to do is we want to maximize the human capital that we have.

We have places around the world where we operate very large projects, and we have percentages as low as 25% in some places.

Those are places where we devote lots of people, lots of time, and we have a great knowledge of and great confidence in.

So when an opportunity comes up to deepen in those projects, it is a natural thing for us to do.

And we're looking at a number of those things around the world.

In places where we don't have a material interest, where it is not core to our activities, we have divested a number of things as part of the $30 billion program that we described, and we are constantly looking at the portfolios.

So you might see us with some of those divestments.

In terms of the lack of activity in the Gulf, I don't believe there is a risk of impairing our assets.

We know what we need to do.

The whole Gulf of Mexico needs to get back to work.

We've got minor projects here and there that we have set aside in this quarter.

They are very, very minor ones.

But actually, with these energy prices, with the work plans that we have in place going forward, it is a tremendous province for BP.

Don't see us impairing things.

Lucas, thanks.

Hi Lucas, this is Mike.

How quickly are we going to ramp up?

This year, we are going to be involved between 5 and 10 wells.

I think in current planning sort of intent is that we will be between 15 and -- around 15 next year.

By the time we get to the 2013 year, we're looking at something of the order of 15 to 25.

So I would say, 2013 sees us back in sort of pretty much full exploration mode, and more or less doubling the expenditure we have had in years prior to 2010.

So that's -- I think that is pretty much your first question.

The second question about what are we doing.

The interesting thing for this year, of course, is we have started in Brazil.

Currently, we are drilling an appraisal well in the deep water in the Itaipu.

We follow that with the first exploration well that we will operate in Brazil.

Next year, we hope to be back in operation in the Gulf of Mexico and Egypt.

In the interim, sometime towards the end of this year and next year, South China Sea should start, and also we should have a well in Indonesia.

In the longer term, Australia will be there for us, Trinidad -- and one of the things we haven't mentioned much of, the Angolans are moving towards a decision on the things they announced in January.

There is a -- quite a wealth of opportunity here, both in established basins like the Gulf of Mexico and Egypt, and in some very new things to us, like Brazil and Australia.

Bob, can I just come back to the first point?

Will you actively go out and try encouraging partners to discuss selling part of a working interest to you?

Yes.

Yes, we have.

We are.

We actually are in some cases doing that.

In some cases, they have raised the subject with us.

It certainly is not everywhere we have working interest, but there are a number of very promising projects around the world where we have some discussions about that right now.

Thank you.

Thanks, Lucas.

Still lots to do.

Next one's from the web.

TNK-BP's international expansion ambitions may at some point clash with BP's own development plans, says the question.

How do you plan to manage this situation?

That's from William Saarbach from TriStone Partners.

There is not really going to be a clash, I believe.

We have been supportive of TNK-BP's international expansion, and in fact, part of our $30 billion divestment programs were to sell TNK-BP assets in Vietnam and Venezuela.

We have been part of and supported TNK-BP's decisions to invest in Brazil, just in the last month.

So, I don't see it as a clash.

Right.

And actually, we've got another web question, which is about the safety and operational risk organization.

The question is -- what is the current status of the organization, and what are the milestones for it to be complete and fully operational?

Great.

Thanks, Fergus.

This is Mark.

Yes, we are doing really well.

The capacity of the organization is growing rapidly.

When we started, we had about 220 people; we are up to 500, and I think we will be up to about 650 by the end of the year, which will have us really fully complemented.

There will be bit of add-on after that, but we will be fully functional by the end of the year.

Importantly, we are in action now, as Bob said in his remarks.

We've got people deployed at every level of the operating organization, right out to the operating units, so that gives us our independent access, which allows us to do our work.

And I would just say that the authorities that we established are in place to set standards that independently verify and intervene where required.

Those are getting -- are well understood and getting in place.

It has allowed us to really get into action and have some impact.

I think we've made a good start, and we're sort of building some very good momentum.

Thank you, Mark.

And now back to the telephones.

Paul Spedding from HSBC.

Paul.

Afternoon, gentlemen.

You've described a strategy of active portfolio management and investment for growth.

But frankly, that is a strategy that many European majors, including BP, have had to varying degrees of scale for probably the past 10 years.

And yet we have ended up with a series of European majors that stand at significant discounts to the underlying values of the shares.

I just wonder whether -- what BP is describing to us is just a modification of the traditional European major strategy, which doesn't seem to be adding shareholder value, or whether you are considering something that is more radical that could actually close the gap between the share price and the asset -- the underlying asset base.

First, Paul, you've seen a Company that has come out of an event, a tremendously traumatic event for the Company.

A year ago, people didn't think we were going to be standing today.

We have announced and acted on very quickly a $30 billion divestment program, and we've told you we are going to keep going and looking at our portfolio.

We are going to divest half of the North American refining system.

So I think what you are hearing from us is, one, you are looking at a Company that has done a tremendous amount, really, in 3 quarters here, and that we have more or less said, more to come on strategy.

We will be ready to talk about that at some point down the road.

You have made a statement about European oil companies.

Each one of them are different with their portfolios.

It is not a one-size-fits-all model in any case in all of these.

But I think you should listen or hear from us that we are a Company who has responded very quickly to the circumstances we are in.

We are going to do the things that build the foundations of value of the Company.

We are going to be very active in all kinds of issues around portfolio and strategy, and we will be back to you when we are ready.

Thanks, Paul.

And now we've still got some more questions from some people who have been very patient, one of whom is Oswald Clint at Bernstein.

Oswald.

Thank you very much.

Just to pick up on a point made earlier about relationships, and particularly, new types of relationships.

I guess the Reliance deal fits into that.

But I wonder -- is there more of those types of really integrated deals possible for you to do going forward, and maybe you could talk about those.

And secondly was just one on your natural gas first-half production being down quite a lot, pretty much all regions, coinciding with some reduction in the realizations as well.

I just wonder -- is there some reduction potentially in unconventional drilling in North America, or is it just seasonality?

Thank you.

Yes, hi, Oswald.

This is Bob.

First, on the relationships, then I'll ask Bob Fryar to come in on the production.

I think Reliance is a great example of the kind of new relationships out there.

Reliance will be the operator.

We will bring an a lot of the talent, the sub-surface talent and expertise, and look at reservoir management and exploration and gas marketing with Reliance.

It's a great example.

We have many examples of cooperation and different forms of cooperation with the 3 Chinese national oil companies.

We think that that will be part of the future of different kinds of ventures across the globe, and many of those ventures are in third countries.

I think as you look forward, you will see the national oil companies do more and different things around the globe.

It is companies like BP that have the expertise and the technology to operate in the deep waters, the sub-surface imaging technology that we have, the management of reservoirs like what we are doing in Iraq with CNPC in China.

That is another very good example of a new form of cooperation.

I think that is just a trend for our industry, and certainly BP will be part of that.

Let me turn it to Bob on the gas production comment.

Yes, and Oswald, maybe you could help me a bit with the question.

The 2 big gas businesses we have, North American Gas and Trinidad, when we looked at the first half performance of both of those, it has been pretty consistent with where it has been in the past.

Trinidad is a business that typically runs about 440,000 barrels a day, and it's been consistent with that this year.

North American Gas, we have seen a bit of decline and a few impacts from the winter, early in January.

But overall, it has been pretty much as expected.

Any specific areas that were of concern for you?

No.

I was just checking -- it was seasonality.

Maybe just a quick follow-up.

Maybe -- I am monitoring a lot of the sales, product sales, as well.

You do seem to be showing some declines through the first 2 quarters.

Is there anything you can comment there on demand at the pump across your businesses?

So when you asked the question, did you mean gas like as in gasoline?

Yes.

Sorry.

Our answers were around natural gas, sorry.

Okay, Iain?

So, thanks for that, Oswald.

On the other type of gas, we are seeing demand impacts generally.

This is not just done to BP or linked to the Gulf of Mexico.

We've seen marketing volumes down about 2% overall, year-on-year, in the quarter.

This is a reaction to high prices.

We're seeing behavioral change to some degree.

We are also seeing some substitution effects.

I think this is -- this is something which we are going to continue to see in Europe and the US, which is why we are determined to only have a very focused, high-quality portfolio.

This is going to be a business where there are going to be winners and losers in the Western Hemisphere.

If I subdivide it a little bit, east of the Rockies, retail volumes are down about 6% year-on-year.

Now that's slightly more than others.

Our market share has fallen from about 11.6% to about 10% and a bit, east of the Rockies.

We are gradually starting to see that come back, but there's a differential effect for us in the US versus elsewhere.

But otherwise, everywhere else we are seeing a diminishment of demand for a number of different reasons.

We are monitoring that quite closely.

Thank you.

Thanks, Oswald.

Next one is from, I think, Paris.

Bertrand Hodee, Kepler.

Yes, good morning.

Good afternoon.

One question on the Gulf of Mexico, again.

Can you disclose the actual level of prediction of Thunderhorse during the quarter on a 100% averted basis?

Just to have a feel of production decline you experienced there?

I remember it was producing above capacity prior to Macondo, at above 250,000 barrel of oil equivalent per day.

Thank you.

Bertrand, it's Fergus.

I'm going to just jump in and say -- we don't disclose field-by-field production on a quarterly basis.

That does appear in our annual report.

But unfortunately, we are not able to do that.

So, sorry.

I can't answer that question.

Anything else you wanted to follow up with, Bertrand?

No.

That's okay.

Thank you.

Okay.

Next one from David Klein at RBS.

David.

Good afternoon.

You indicated in the presentation that cash payments connected with the accident thus far have totaled $23.1 billion.

I assume that $7.5 billion of that are payments into the fund, leaving a balance of $15.6 billion.

Can you give us some granularity on how that carves up into the various cost categories, please?

David, this is Byron.

Your assumption about the $7.5 billion is correct.

That is what has gone into the escrow fund.

The bulk of the rest of it is expenditures that were associated with the response, the initial response at the source, on the water, and on the shoreline, and those continuing expenditures.

We have incurred costs for other areas, but almost all of it sits in those 2 big buckets.

Thanks, David.

And the final 2 questions.

First one from Iain Reid at Jefferies.

Iain.

Hi there, gentlemen.

Could I ask a couple of questions on the downstream, for Iain?

Just curious as to the fundamental reasons for the big swing we've seen in trading profits between the first and second quarter.

And your outlook for how you see this for the balance of the year, and maybe in the longer-term.

Because I know you are changing your trading business somewhat.

And secondly, I just wondered whether you would give us a bit more detail on the sales process with Texas City and Carlson in terms of -- are you still in the data room phase?

Are you talking to anybody?

And kind of what the general level of interest is in the acquisition of those assets?

And thirdly on Whiting.

Are we going to see this $1 billion pour out in just 1 big bang in 2013, or is there more of a kind of a steady build up of that?

Thanks a lot.

This is Byron.

I will deal with the trading question, and Iain will deal with the others.

Our trading activities are -- inherently there's a substantial amount of volatility from quarter to quarter.

Sometimes that is a positive contributor, and sometimes it is more of a disappointment, as it was in the second quarter.

And we split it in between the oil and products trading that is reported through the refining and marketing results in the gas and power trading, which is reported through the exploration and production results.

The first quarter, there was an exceptional contribution from the oil and products trading folks, as they latched on to a very volatile market, and were able to realize very good profitability.

The second quarter hasn't worked out as well.

But I would say that the average over the first half of the year is actually greater than a normal half-year contribution.

We look at this business not on a quarter-by-quarter basis, we look at it over its ability to contribute over the long haul.

It's done it in the past, and we expect it to do in the future.

We are really not in the mode of materially changing the structure of that trading activity.

Iain, over to you.

Thanks, Byron.

Just 1 comment on that, Iain.

I think that 1 of the reasons that the consensus forecast for R&M was different to the result was because the degree of swing in trading, but as Byron says, the first half overall is very much in line with our expectations.

On your other 2 questions, firstly, the sales process.

We are in the process of putting the data rooms together for both Texas City and the southern West Coast.

That is -- they are nearly complete.

We will be issuing CIMs for Texas City some time around the third quarter, and some time in the second half for the West Coast because of the separation aspects.

The organizational separation of the West Coast is going very well.

The only other thing I would say is that before we actually do issue these, we are receiving, as I said in the first quarter, some interest from -- unsolicited interest from buyers for the assets.

On Whiting -- I don't like the term big bang, as you probably understand -- but the build up to Whiting is going very well.

We're looking at the summer of 2013 for Whiting coming online.

It will largely come on as 1, because what it is, is a very large repositioned crude unit with a very large [coko], which was able to handle all of the coke from the Canadian and other heavy oil, and a large amount of hydrotreating to deal with the extra sulfur.

That's really what it is, but it is a rather large version of that.

So it will all come on pretty much around the summer of 2013.

And the $1 billion a year post-tax of cash flow at average conditions, we will expect to see going out for a very long time, indeed.

Can I just follow up on that, Iain?

It is true that you're changing your trading organization though, aren't you?

And repositioning it somewhat?

Is that going to affect the kind of structural level of profits it delivers?

I'll pass back to Byron, but I can assure you, Byron and I both oversee the activity, and we are not changing it fundamentally, as Byron just indicated.

Could you explain what you are pressing at?

I just thought you were focusing more on emerging markets rather than developed markets.

Is that -- or have I misunderstood?

I think you've misunderstood.

We have an international trading organization that focuses on all markets.

Okay.

Thanks for that.

Thank you, Iain.

And the last one -- question of the day comes from Simon Hawkins at MF Global.

Simon, thank you for being so patient.

Good afternoon.

Thank you for taking my question.

Just a couple of questions.

Going back to slide 20, the Gulf of Mexico liabilities, the useful timeline and milestones there.

I just wondered if you could give a little bit color on what happens after February 2012, the Judge Barbier decision, and how likely is that to see sort of some of the uncertainty over the size of the potential liability to sort of decrease quite dramatically.

The second question was, on the engines for growth, if you like, you have not mentioned unconventional shale gas or alternative energies.

I was wondering whether that was still part of the growth engine going forward.

Thank you.

Simon, you've raised a question around the uncertainties as we head into early 2012.

That is an uncertain point, and that's -- but Judge Barbier and that multi-district litigation will come together in those hearings, and I think that will be a point of reducing uncertainty for the Company.

We're working hard every day to meet our commitments on the Gulf, in a variety of areas.

We will continue to do that.

But it is early for us to be able to comment on the -- certainly the events of the trial in early 2012 and the hearings there.

Regarding our commitment to growth around unconventionals and shale, we have a very sizable position, and have had already for some time, a very sizable position in unconventionals in North America and shale gas, in the Fayetteville, in the Woodbine, and the Eagle Ford.

We continue to work with that.

It is a very big position.

And then in alternatives, we have made significant investments in biofuels in Brazil.

We do have a significant wind business that is generating healthy cash flow in the United States.

It's [winned] its scale.

Those are all part of our future.

When we described the big growth engines, I was talking about the big upstream growth engines most certainly, but we have a variety of those activities.

Again, all of this, part of our strategy portfolio of discussions going forward.

Thank you.

Thank you, Simon.

That concludes the questions.

I will just hand over to Bob Dudley now for any concluding remarks.

Thank you, Fergus.

Thank you, everyone, for listening to us today.

It is worth reflecting where we were 1 year ago, where our own survival was in question.

During that year, we've strengthened the balance sheet.

We have continued to announce and close asset sales.

We are continuing to be active with our portfolio.

We have signed new, and very exciting in the oil and gas industry, exploration contracts.

We continue to reduce our targeted gearing band, and moving into that now.

Our credit ratings have improved, and we have restored a dividend.

And yet we are, as you are, and I know from your questions, impatient.

So I just want to add at the end of this that we note the difference in the value between the Company and the share price.

We are well aware of that, and I just want everyone to know that we have a deep sense of commitment and determination to restore and build value for our shareholders.

Thank you all very much.