英國石油 (BP) 2011 Q4 法說會逐字稿

So, hello and welcome back to the wrap-up and Q&A session. My voice is back a little bit. Here in London on the stage we have Brian Gilvary and Iain Conn, we introduced earlier as part of the earlier plenary session. And the Executive Vice Presidents of our upstream businesses who just presented two of the breakouts -- Mike Daly, heads up Exploration; and Bernard Looney, Developments; and Bob Fryar, Production; and Andy Hopwood has overall responsibility for Upstream Strategy and Integration.

And also in the front row with us we have Byron Grote, who is our Executive Vice President of Corporate Business Activities, you all know; [Deb Sanyel], BP's new Group Chief of Staff; Fergus MacLeod, Group head of Strategic Planning; and Jess Mitchell, who you met earlier, head of IR.

You will now have an opportunity to put your questions to all of us. We are webcasting this final section of the presentation today. And for those joining us for the first time on the Web and telephones who did not see our previous message, here is our usual cautionary statement. Please read it quickly and early. Once again, I refer you to the remarks I made earlier, which are now posted on the website.

So with that, we'd be very happy to take your questions. And direct them at any one of us.

Let me start at Theepan -- I'll move in this direction to Theepan.

Good afternoon, Bob. Thank you very much for your presentation and your management team's time. I want to discuss the financial framework, actually. I think big oil investors increasingly thinking of cash generation, particularly post-CapEx.

Three things I would like to talk about. One, just short-term capital investment for 2012, can you talk about what type of increasing CapEx there is for integrity, increase safety?

Secondly, I think from the discussions today, clearly, you've got many choices to make, particularly around your portfolio -- the balance between Deepwater and I think what was referred to as long-term investments or unconventional. Could you talk about the shape of investments going forward between Deepwater and unconventional?

And then lastly, I guess, on the payout, you're generating more cash. I was wanting to know how one should think of payout going forward? Should you look at payout ratios relative to earnings? Gearing, or cash generation? One could argue today, with your gearing levels slightly above the targeted range, the potential for a settlement and perhaps an increase in the dividend could wait. So I know lots of questions there, but it would be great if I could have some answers.

Right, that is a lot of questions, Theepan. Thank you.

First on CapEx and the amounts that we're spending on SNOR. Right now we are embedding what we do in all our projects normally. We're not separating out, I would say, integrity spending. This year, we had 47 turnarounds. We'll have 37 planned for 2012. Some of those may be turnarounds we wouldn't have done in the past, but they're undoubtedly things that will keep our assets operating longer and more reliably.

I am going to, as we go through these questions, throw pieces of this to the management team. And Bernard and Bob, if you want to comment quickly on the additional spending, specifically related to SNOR and how you'd look at that.

Yes. I would just -- so, with respect to integrity, we invest in really two areas. We've talked -- Bob talked about the turnarounds. Secondly, we invest in maintenance, which helps us in our integrity efforts. Turnarounds, I'd say, the spending is going to be pretty much on a pro rata basis -- 47 last year and 37. So we'll see a bit of a decline there.

On maintenance, we'll step it up a bit, because one of the things we are working to do is to make sure that our assets are safe and they're reliable. So that does mean increased investment in maintenance overall. But I think year-to-year between the turnarounds and maintenance programs, I would say from 2011 to 2012 would be flat.

And I would add -- it's Bob -- we do roughly have an estimate of $400 million for integrity CapEx in 2012. That would be across the entire Company. (multiple speakers) Yes. Well, the number is -- yes, for upstream, $400 million, that's right.

Now the Deepwater long-term makeup of the investments going forward, I'm going to ask Andy to comment on this, because he's working with strategy and can give you good summary.

We've said about one-third of our medium-term investment is going to be into Deepwater. The other two-thirds is about one-third into the gas value chains and one-third into Deepwater. The other aspect of the investment is, about 60% of it is really focused on delivering 2014 and the remainder beyond. I mean, clearly, the percentage of unconventionals will grow as the resources get developed and we bring on -- particularly the Canadian resources. But, of course, it's less capital-intensive, so it's pretty hard to break it up.

On our approach to how we think about dividends going forward and distributions, I'm going to ask Brian to comment on some of the ratios we'll use going forward.

Yes, the key metric we use as far as gearing, which is what we've been clear about putting a target up -- the key is to make sure that we strengthen the balance sheet over the next two to three years. And the destination point we've given as 2014 to be in the bottom half of the new lower band -- remember, the old band was 20% to 30%. Post-Macondo, we moved that from 10% to 20%. It's sitting just above 20% now. The trajectory down for that lower half will be a bit lumpy as quarter-by-quarter. But we're confident now in terms of the operating cash flows that are coming through in 2014, in terms of what we've promised around 50% of additional cash. And the disposal proceeds packages we'll see net debt be driven down and the gearing coming into that range.

Now, before we take your question, we've had some very, very patient people who have been very silent on the webcast. And we've got a set of people who have asked questions. So I'd like to ask Doug Terreson if you can hear me, and if you can go ahead and ask your question. And then we'll turn to Irene.

First of all, congratulations on your progress in 2011, and also on your restoration efforts on the Gulf Coast as economic and environmental damage is really unobservable over the past year, so good job there.

And on these points, Bob, you highlighted earlier today progress on safety and trust and value growth, which I think represent important areas of emphasis for BP going forward. So my question in regards to cultural or transformative effect that these efforts may be having on the Company, and specifically, how you envision them translating into greater competitive advantage for BP?

Thanks, Doug, for your comments. I take it you are -- you're located somewhere near the Gulf Coast to make that observation. And if you are, thank you very much.

The competitive advantage. I think that safety is good business. What we're doing -- and I'll ask Bernard to comment on some of this -- safety is good business. What we're doing in terms of putting in place our voluntary standards, and the things that we are doing to change how we approach drilling and working with contractors, is certainly going to change BP going forward, as we work in the offshore around the world.

I think it's good business. I think it will move the dial on the industry. It's the right thing to do. And Bernard, you can make some comments on some of the things we're doing on this.

Yes. Thank you, Bob. We talked earlier, Doug, today about some of the breakouts about this. And I think this point about safety being good business is just something that we continually harp on. And I think we think about it in two ways. I think, first of all, investment in safety and having that being the priority is about the prevention of a major accident, such as the Deepwater Horizon. That's something that none of our shareholders want; none of us want to ensure ever happens again. So that's a good reason to invest.

But I think, as importantly, it is this issue that a safe business is an efficient business, is a reliable business. An example of where we're investing a lot of time today is around the reliability of our blowout preventers and those that operate on our rigs. We're doing that because we want to make that system safer and to make it more reliable. But the upshot of having a safer and more reliable blowout preventer is a more efficient well operation.

So I think this concept that actually investing in safety -- and it is investment, either through capability, the systems that we have or the plant that we have -- is not alone is it right in terms of safety; it's right in terms of our business. And I think as we do this, we see more and more of this. And this is what Bob is leading and we, as a team, believe in.

Sure. Thanks a lot, guys.

Now let me turn to Irene and then I will go back to the Web, because there's a fair number of questions. So, Irene.

Irene Himona of Exane. I had two questions, please. So first of all, Bob, you gave us guidance or a target for cash flow growth to 2014, but you only provide an indication of CapEx for 2012. In an environment of $100 flat, what cumulative capital expenditure should we anticipate to deliver the 50% cash flow growth?

My second question concerns the new project startups, which you mentioned have doubled the cash margin of the existing portfolio. As you said, this is because of higher finding and development costs and higher depreciation charges. I guess my question is, when we look at profit margins, i.e., earnings in an environment of $100, should we also anticipate an improvement in P&L margins? And indeed, in return on capital employed? Thank you.

Okay. Thanks, Irene. There's a number of things there. First on the CapEx levels, we haven't given specific guidance, but I would not see CapEx rising [to] $22 billion today for the year 2012; somewhere between $24 billion and $25 billion is a likely number for 2014. So you can work out the cumulative numbers in there. In terms of the increased margin, half the increase in operating cash flow, by the way, between now and 2014, would go into -- of the 50% increase, into CapEx.

Regarding the cash flows, just looking at my notes of your questions here, we do see higher margins coming on from the nine -- six projects in 2012; the nine projects additional to that in '13 and '14. Half of the increased cash flows -- I'm sorry, somebody sent me a note here on the Web -- we see higher-margin projects coming in. They're primarily oil projects -- Angola, Azerbaijan, the Gulf of Mexico and the North Sea.

And you want to comment further on the increased margin from those projects, Bernard?

Well, I think there is -- some of these projects do carry high DD&A. That's why they do carry higher cash margins. I think earnings may not grow quite as fast as the cash, but I think we will see underlying improvement in both. And our focus today, Irene, is on ensuring that these projects come online; that they operate reliably and efficiently; and that's the focus of the organization. The 15 of those -- and I think as Bob said, you'll see the 50% in cash and you'll also see underlying earnings improvement through that.

And in terms of the return on average capital employed or ROACE going forward, of course it depends on the oil prices. We laid out this target at $100 in 2014. Part of this will depend on how the downstream evolves. We've had a 10% return on our downstream this year. It will depend partly on the environment going forward. And our upstream projects will continue to increase their returns on the business. I notice we said it externally, but this year, our return on average capital employed in the upstream has been roughly at 20%. And we would expect to see those kind of returns in this price environment as well in 2014.

Let me turn to the Web. Sorry, I've been distracted with a couple of technical messages here.

Mark Gilman from Benchmark.

Bob, thank you. Can you hear me all right? (multiple speakers) Just two questions, if I could, please. On Iraq, there's been some question as to whether the Baghdad government is current in terms of payments and entitlements to you vis-a-vis both coast recovery as well as service fees.

Could you comment on where things stand for you there? And whether Iraq is making positive, negative, neutral contribution to earnings and cash flow at this point?

My second question relates to the Eagle Ford. It appears that over the past, I guess, 24 months, you have amassed a considerably larger position in that trend. I wonder if you could just be a little bit more specific in terms of where and what it cost you to get into that position? Thank you.

Okay, Mark. Thanks. A couple of things on Iraq. You'll know that it was about a year ago, a little over a year ago, we reached the production target, initial production targets, which began the cost recovery cycle for us. And so we have been steadily and have recovered our initial investment through recoveries of crude cargoes. We're current, we're up-to-date. There is a little bit of a lag as we spend CapEx there, but we've been very pleased at the pace of the developments in Iraq. The field now, the Rumaila Field is producing about 1.45 billion barrels a day. So it is positive for us.

On the Eagle Ford, I'll ask Bob and Andy to comment, but you are right -- we have been shifting our focus very quietly without fanfare to the liquids-rich areas of unconventional gas. And we have a sizable position in the Eagle Ford, some of which is very rich in liquids. Andy?

You're right, Mark. As we've high-graded the portfolio, both in a divestment and investment sets, we've got a position now with about 6 Tcf of resources in the Eagle Ford spread over about 450,000 acres. We have -- we don't divulge the specific deals that we've done down there, but what we do have is a working relationship with Lewis Energy, whereby they operate the field and we work in terms of identifying the subsurface. And as you say, Mark, it's going very well.

So I'll keep over here -- Jon. Jon Rigby. Then I'll move over here.

Bob, you talked earlier on about how you saw an optimal level of production is around, I think, 2.5 million barrels a day, ex the TNK-BP portion of the business.

2.3 million. (multiple speakers) I think we'll give you (multiple speakers) --.

(multiple speakers) -- already giving you some growth. Does that seem to imply or would that imply that over the medium and longer terms of post the 2014, as you stabilize the business, that you would expect BP to grow at a slightly -- underlying the slightly faster pace than maybe what your aspiration was three or four years ago?

And then, would that mean also that your business model changed a bit and that you recycle cash back through the business, and look to be buying back stock structurally. So adding value to shareholders by churning your portfolio more aggressively and probably being a structural buyer of stock as well?

Well, we've been very careful not to set production targets. We want to get off that treadmill. We do want great value. So while we have described a portfolio that gets down to around 2.3 million barrels a day, ex TNK-BP, which will give us enough cash to be able to invest in projects and return to shareholders -- if we don't continue divesting beyond the target, what you would expect to see growth. Not to give you a target for that, but you would expect to see growth.

It doesn't mean, though, that we won't -- and I believe we will continue to focus divestments of mature assets to be able to replace them into growing assets. So I think you'll see the portfolio movements which may or may not lead to the growth.

In terms of recycling cash flow, that is what we want to signal, is that we'll generate sufficient cash, operating cash flow. We'll have choices of what to do with that operating cash flow -- it could be dividends; it could be continuing to pay down debt at further levels; it could be some acquisitions, although we're not on the acquisition hunt, particularly; or it could be buybacks. Right now is not the time for us to be out buying back stock, but we'll continue to debate with our shareholders. The shareholders have a big mix of opinion on whether it should be dividends or buybacks in our mix. It's quite extraordinary.

Does that mean that, conceptually, the lifecycle of an E&P asset within BP needn't necessarily be from being awarded a license right-of-way through to plateau production? You could be adding value before you even get to plateau production and moving on, in terms of the assets that you're holding?

That's exactly right. What you will see us do from time is, if we have a big position in exploration and in a project for development, you'll see us sell it down to be able to recycle, reduce -- selling things down that, traditionally, we might not have done earlier. It could be all or it could be parts.

So all of those things are on the table. I think it's a good way to describe it, the mindset that we -- the industry may have had for a while, I believe, is changing and we're certainly changing with it.

And my voice has lost me -- Lucy Haskins is here from Barclays.

Just a follow-on on the dividend. What was the kind of changes in the Company's circumstances that did you make feel comfortable about lifting? And why 14%?

Well, 14% is a very precise calculation of going from $0.07 a share to $0.08 a share for the quarter. And we felt like the improving circumstances of the firm would allow us to do that. The operational momentum that turned in October, getting our assets back running and the cash flow from that, allowed the Board to make the decision that this was the right thing to do. We've had investors who have stayed with us through really tough times in the past and it's time to start rewarding them. And I -- well, I think I'll just leave it at that.

(inaudible - microphone inaccessible)?

I mean, people have different ways of defining progressive dividend policy. We would define it as a progressive dividend policy that our intention is to, with the improving circumstances, move up a dividend in line with underlying earnings. And that there are a lot of factors in future decisions -- oil price; there are a number of things. And we'll come to that later in the year, next year, before we make a decision.

Progressive can also mean, don't lower the dividend. And so the pace and trajectory of dividend increases is not something we're saying today, but I think a progressive dividend policy in line with the improving circumstances of the firm is probably the best way we can describe it.

Yes, Lucy, I mean, I think it's just premature to be talking beyond this quarter. We saw the operational selling point that Bob described in October. We've seen settlements with some of our partners. So the circumstances of the firm have improved and we've signaled that, that we now have the confidence around the cash flow targets that we can signal a $0.01 dividend increase today. Beyond that, I think it would be premature to talk about what the future may look like.

Thanks. I wanted to ask about the exploration program. It's an area that it was maybe DT core competency for BP historically. We've clearly been through a period of abnormally low activity. And my question would be with the resize portfolio, what would you view as an optimal exploration program, either in terms of the number of wells, or really preferably, the amount of resource you're exposing yourself to?

And given that we've been through a period of abnormally low activity, would you expect a ramping activity from that optimal level for the next couple of years? And then maybe what that would mean for overall spending in exploration?

Well, I mean, I agree with you. I think we have, through this last decade, been under-investing, perhaps I would say that.

Optimal size -- the size we're going to is to try and get to a situation where we have the order of 20 real wildcat exploration tests a year. Now last year, we managed six and this year, we're heading for 12. Of the 12, only five of them are operated so there's some uncertainty in that; out of our control, to a degree. But we have a portfolio that will sustain the order of -- I think in the notes, previously, we said 15 to 25; clearly, the middle number is 20.

How do we judge? Well, that's one metric. I mean, the other is -- the scale of BP, even the shrunken BP or slightly smaller BP that we have today, exploration has not been the sole renewal mechanism for a long time. And that will continue. So we're not going to be finding 1.3 billion, 1.4 billion barrels of oil equivalent a year. But half of that coming from exploration seems to me to be a good sort of aspiration. How long it will take us to get back to that sort of level is going to take some time.

I'm just going to add to that. I'm not sure people recognize the quality of the set of licenses that have been acquired over the last year -- 55 licenses in nine countries, whether it's Angola, Namibia, Australia, Azerbaijan, Trinidad, North Sea, Gulf of Mexico, the list goes on. This has really loaded the exploration pipeline of prospects now. And Mike and his team now have an enormous amount to work on in the next few years. And I'm very enthusiastic about the potential of it.

And I can't help smiling at my colleague at the end of the table there, Bernard, who's going to be drilling all those wells. But we have reloaded the portfolio and it will -- the consequences of that will flow through. But equally, we will continue to access things. I mean, I think in the past, we've got to a good portfolio and then we stopped. And clearly, once you stop, it's very difficult to get back. And this is something that, I think, we've learned the hard way.

I think it's fair to say we have not lost exploration talent in the Company (multiple speakers) to be able to deal with them.

No, absolutely. The young talent in the Company is much better than the old talent, believe me.

It's Iain Reid from Jefferies. Bob, can I ask you a question about Macondo and any potential settlement? You said -- obviously, BP has said since the outset they think don't think they're grossly negligent. So can we assume that whatever settlement you agree with the Department of Justice, you can't go $1 over $1100 per barrel in order to reach that? Or is there some way of potentially folding that in with something else, which arrives at a number which doesn't imply that? Or is that too much to ask?

Well, it is. I understand your question. It really is too much to ask. Because you said when we settle. I think there's a whole lot of variables here. We don't believe we're grossly negligent. We'd like to settle a variety of things if it's fair and reasonable. But at the moment, we're really working hard, vigorously for the trial ahead. So it's really hard to answer your specific question.

We can assume, though, you wouldn't settle if there was any sign of gross negligence in that settlement number?

We firmly believe we are not grossly negligent. And I think there are a lot of variables around what you would determine numbers on, in terms of fines and penalties. That's really not appropriate for me to talk about it. It's not the right thing.

Let's go to this gentleman right here before -- then we'll go way over there, and then back to Jason.

Yes, I've got two short questions. It's Martijn Rats from Morgan Stanley. First of all, I notice, I might get this wrong, but on a number of occasions, you've talked about production ex-TNK-BP. And there seems to have been more emphasis on parameters ex-TNK-BP. I was just wondering whether underlying, there is a slightly different view in how you see your relationship with TNK-BP? Or if you just become the receiver of the dividend? Or is there still a more operational role to play?

And the second question that I had still relates to the CapEx question that Irene was talking about. Obviously, there has to be a balance -- or there is a long-term relationship between spending on exploration and spending on development. And obviously, all of CapEx is going upward. You're talking about a much more aggressive growth in exploration spending.

Aren't we then -- are we talking about eventually a similar level of growth in development spending? Because ultimately, the two have to be linked. If you're spending a lot more on exploration, will we see continuing strong growth into the next decade on development?

So a couple of things on TNK-BP. One of the things that we promised in this 10-point plan was more transparency on value. So we've laid that out with lubricants, we've laid that out with petrochemicals. And what we have found to our investors is when we talk about the upstream, and combine our upstream business with TNK-BP -- which has three refineries -- and we roll it all up, it has sometimes not helped investors understand the business.

So it's -- you shouldn't read anything into it other than that. We're just separating it out for transparency. And that includes reserve replacement, production and all that. We just want to make it very clear to you. I think it will make it easier. But there's no hidden message in there that somehow that we're going to separate this out or have any intention to do so.

CapEx on exploration. It is our intention -- it's not built into our plans as exploration success specifically, but I think we will have some. And then we will have great choices to make. And at that point, we will make choices of do we spend money on these developments? Do we sell down other things? Do we sell down some of the exploration success? And so it is our intention to maintain a capital discipline that makes sure that we have enough operating cash flow and free cash flow for shareholders, for distributions.

So if we were in the old model that John described, where you explore and you carry and you will develop everything, what you described is probably true, but that's not our intention.

Let's see -- that there.

Paul Spedding from HSBC. It's two questions on the Paleogene. I think many of us regarded that as a potential source of the next generation of US deepwater growth. I'm interested to see that you are at last getting back there. I would be intrigued for you to get a comment on what level of drilling activity you would see in the Paleogene in terms of wells per year.

The second thing I would be interested in is that I think our perception in the city is that it is not a high recovery reservoir in that play. You've talked about how technology can boost recovery in some of your other reservoirs. I wonder if there are any technologies that are on the horizon that could help boost recovery from Paleogene-style reservoirs?

Okay. Very good question. Mike, talk about the drilling levels?

So, as I think you heard in the breakout, we will be restarting drilling in the -- well, we've restarted with Kaskida. So that's -- Kaskida appraisal well. The remainder of the year, we hope to start Hela and -- or I think will start Hela and Cyber -- Cyber appraisal, Hela exploration.

Once we have the eight rigs that Bernard has got coming up and running, then two of those will be dedicated to E&A. And we expect to be able to continue to drill out our exploration inventory at one or two wells a year. And that will depend partly on expiry dates of the portfolio and partly on the amount of success that we -- and the pace we put forward into appraisal.

I think that whole thing comes back to your point about the amount of capital we wish to expose to it. So there is a choice ahead of us about exactly that.

As for the low recovery rates, we have got very large oil in place. And there are two issues -- the usual two issues. Some of the oil is a little viscous and so we have to figure out how we're going to deal with that. And at places, some of the rocks are a bit tight; in other places, it's not.

So in the long-term, fraccing that stuff may be an option that we explore, but it's -- I think the lure of it is the very large oil in place. And even with recovery factored in the teens or in the low 20's, you're still talking a very large resource. But your point about technology is absolutely spot-on. You heard the first phase of that today with the [20K] project.

And that seismic imaging, always more within the fields.

Absolutely. I mean, our ability to see through 4 kilometers of salt is remarkable. And it continues to get better and the frequency of our seismic continues to get better. So those barrels will move over time, absolutely. And I just recommend you to talk to a couple of the guys who are joining us here, Kevin Kenneally and his team. I mean, they are -- they're onto this and they're very interesting people to talk to.

Jason?

This is Jason Kenney from Santander. Two questions, if I may. On the exploration side, do you think there are any particular holes that you would like to chase -- maybe East Africa or exposure in Brazil, perhaps?

And then, secondly, we spoke about this earlier, Mike, briefly in the breakout session. I'm interested if there is any wider views from the management team, is how BP looks to recapture or capture the NAB gap. That's obviously been lost over the last few years. Particularly given the material progress you're making in FIDs expansion of projects.

Sometimes in the city, I don't think it's as clear as a new discovery when you double the reserves in an existing development. And I wanted to know how you can really emphasize that to some investors to show the value that has been added through that process.

Shall I start? I mean, we clearly aren't in everything. And it's a bit of the same answer about quality through choice. But there are one or two things, perhaps, that you would look at and think, yes, we should try and respond to that; and there are other things that actually we're quite happy not to be in. And it's always -- the very nature of the game of exploration is always going to be that someone finds something that you don't, and then people say, oh, well, you're not here; you're not there.

We are in a lot of places. And I think we're pretty happy with the portfolio we've got now. But we're not totally happy with it. And there will be -- we will continue to change it. So that's a sort of -- not answering your question but answering your question, Jason.

Recapturing NAV, I mean, the response we get, Jason, in the session was that by being more transparent and talking about the giant field appraisal programs that we've got, we've sort of exposed a whole bunch of value that people haven't really seen before -- appreciated the growth in Mad Dog, the growth in Clare, and the growth potentially in Shah Deniz -- and other fields that we haven't talked about today. And so that's a sort of recognition of that is the growth in that. That was our answer.

I think that is the right answer. And some of the things we do in terms of re-imaging along the way with fields, it allows the size of these fields to grow -- fault blocks that we didn't see before or couldn't reach -- had just been the history of our industry. You'll see we keep adding reserves. We've had a reserve replacement ratio this past year without a whole lot of additional work that we normally would be doing in the Gulf of Mexico.

Traditionally, you are right -- we haven't been particularly transparent on the increase in reserves as a result of, say, seismic imaging or reservoir modeling work. Sometimes we have partners; it's just not been our habit. And maybe take your point, we can be a little bit more transparent about it.

I know that this year Jess's team will have some upstream Investor Day. We haven't set a date for it yet, but maybe we can take some of that on and be more transparent about that. But the track record and the things that we think are possible -- not to put you on the spot, and --.

Peter Hutton at RBC. In the interest of transparency, can I talk a little bit about India? It is a year since you announced it, $7 billion, it's been approved. $7 billion is not much short of the $8 billion that was the original investment in TNK-BP, but we saw a lot more out of that.

What matrix, what information can you, will you be providing that allow investors to chart the progress and the operating momentum in that side of a key strategic investment?

So we look at India as one of the countries that has one of the fastest-growing thirsts for energy. Energy in India will grow at 6% a year. And it is woefully short of natural gas. So the current pricing in India is about $4 an Mcf. Believe it or not, spot cargoes are being imported into India as of yesterday at $17 an Mcf. So we see this being a real land of opportunity. So the Reliance deal took on 22 large blocks off the east coast of India where there is exploration prospects.

We knew we were moving into the D6 field. It was on rapid decline -- always knew that was the case. But around it, there are a lot of satellites. So we've been working and have made proposals to the government on the development of the satellites. Just this last week, a proposal, I believe, has been made by the Indian government itself to increase the gas price to $7 an Mcf in 2014.

We've also set up a 50/50 joint venture for gas marketing. That would include bringing gas into India as well as marketing gas inside the country. Now we'll have to think about how we describe all those different pieces going forward, but this was never going to be an investment. It was going to be for tomorrow -- right away. This was going to be one that's longer-term.

And given the growth of energy demand in India, very few companies are going to be able to have that sort of acreage position with that kind of potential going forward. And we'll report on it as best we can -- I don't think quarter-by-quarter is the right thing. We remain very enthusiastic about both the relationship with Reliance and the prospects there.

Bob, thanks. It's Lucas Herrmann at Deutsche. I just wanted to ask you a little bit about the Gulf of Mexico production. I mean, it strikes me that one thing -- one area more than any other is going to be key to your achieving your 2014 targets, and it's simply the restoration of production in the Gulf.

So, three aspects, I guess. The first is the progress that you've made of late -- is that in line with the expectations you have? How much P&A work is there for you to do short-term that prevents the development and build of barrels in the near-term?

And what level of production do you actually need to achieve in your $100 environment in 2014 as an annual average, to broadly deliver the targets they're achieving, relative to -- where is production today, Bob, as an average?

(multiple speakers) To the Gulf of Mexico?

Yes.

It's above that. And we haven't been, for a lot of reasons, disclosed every place we operate with the individual production. But a couple of things. I think -- and I'll ask Bernard to comment on the well work that's going on, because it's -- we're not just being wells now.

I think it's important to remember when we met at third-quarter results, it was not clear when or if we were going to get back to work in the Gulf of Mexico. The third quarter, it was very clear that we had been working with voluntary standards and we were going to get permits back. And we said, we expected, by the end of the year, to have five permits running. Much of the early activity was catching up with plug and abandonment activities.

So here we are in February. We've got five rigs running. We've got a lot of that work out of the way. Two of the five rigs are working up P&A. But we've come a long way. And we shouldn't take for granted the progress that's been made with regulator and care and diligence here.

We are now down about one-third of the way down through the appraisal well on Kaskida, which is a deep, deep, important appraisal well for us. So a lot of progress.

Before, I think Bernard talked about what the rigs are actually doing today in the prospects for 2012, Gulf of Mexico fields generally decline relatively quickly. You have to keep going. And we and the entire industry, the entire industry, with the drilling moratorium there, set us back in well work. So that decline is there. We're arresting that decline in 2012, getting back to work. And then in 2013, we'll see growth again. And I don't see us going below 200,000 barrels a day in 2012 before we start back on the growth.

The question was, what do you need to produce in 2014 to achieve the flat target? Where in your -- what does your plan say you need to be at to achieve the kind of cash flow you need? Because that is the single component that makes the difference.

Well, let me come back. Let's talk about what the rigs are doing. We'll come back to that.

So, Lucas, the opportunity in the Gulf of Mexico is, we're opportunity-rich. And as you know, we're exploring, we're appraising. We've got rigs doing projects work for projects that will come online in a couple of years. We've got wells doing immediate production work and we've got rigs doing P&A work.

So as a breakdown, today, we have five rigs operating in the Gulf of Mexico. Two of them are operating on P&A activity. One of them, as Bob said, is drilling at Kaskida. One is just completing a production well, which we brought online in March or April, and one is drilling in water injector at Thunder -- or at Atlantis. And water injection is just the same as oil -- it just comes a little bit later.

In terms of the eight rigs going forward, we will shift that activity set throughout the year. As Mike said, by the end of the year, we'll have two of those rigs will be working on exploration and appraisal activity -- good for the future. We'll have two rigs operating on Thunder Horse. We'll have two rigs operating on Atlantis. We'll have a rig focused on Na Kika, which will be near-term production, as well as longer-term project work. And we'll be restarting a rig on Mad Dog.

So you'll see the level of activity on P&As not necessarily disappear, but certainly reduced dramatically over time. You'll see that then being translated into full-year effects in 2013 and 2014, when we get the real benefit of full-year effects of having the rigs doing what we want them to do.

And I think one thing is really important to add to this, Lucas. To say that the Gulf of Mexico is the one thing for us -- we're very confident we're going to move the dial and get back going there -- but it's part of a big portfolio. And what we do in Angola, in the North Sea, I would say in terms of the generation of operating cash flow, is just as important to us as the Gulf of Mexico.

I think -- and so -- and we've got lots of good prospects in terms of production growth in Angola and North Sea. So, sorry, losing my voice. But those are 65% of our operating cash flow in the upstream come from four places -- Gulf of Mexico, Angola, the North Sea and Azerbaijan. And so we're very confident, at this point, all those areas come through for us.

Thank you, Bob.

I think it is okay for us to say we'll be back to pre-Macondo levels by 2014.

Pre-Macondo levels by 2014?

Yes, for the Gulf of Mexico.

When you look at what underpins that operating cash growth through 2014, what it assumes -- what underpins that is pre-Macondo rates in 2014?

It's Neill Morton at Berenberg. I had two unrelated questions. The first on gas value chains. We're pretty close to FID on the second phase of Shah Deniz. Could you perhaps clarify the likely gas evacuation route? It all seems fairly chaotic as we approach the deadline.

And then just secondly, on the downstream, in light of increased transparency and value creation, would you ever consider ceding partial ownership of your lubricants business? Thank you.

So, Shah Deniz Phase II. The moving of gas from the markets in the Caspian to Europe is a complex process. Just like it was in the building of the BTC pipeline out of Azerbaijan or the initial Caspian gas pipeline through there. The roots will come up into Turkey and then it is, which direction does it go across to Turkey to link in with Europe?

Right now, there are three competing proposals. And we, working with SOCAR, have even developed a fourth proposal. And I think very good progress is being made and has been made in the intergovernmental agreements between Turkey and Georgia and Azerbaijan. And that was a key step here. And I'm hopeful -- because it is complicated -- that we'll be able to announce with SOCAR and Turkey and European the different projects that are being supported for the gas lines, something over the next six months. But this is a complicated process that, like all big oil and gas pipelines, just take a lot of time. And it really feels like it's coming together now.

It's also fair to say you may see it as chaotic; from the Shah Deniz shareholders, they also see it as a lot of options. And that's going to be good for value. And also the ability now over the great constructive discussion that's being had to be able to build out from Baku and successive steps -- within Azerbaijan, across Turkey, and then into Europe, has got to be a really pragmatic and sensible way of developing this resource.

Now on your question around lubricants, Iain.

Yes, Neill, I just think I would turn it around and say why would you? This is a business that is delivering 15% to 20% pretax returns and has grown 30% per annum over the last five years. I'm not suggesting it's going to carry on growing at that rate, but it's material and it's top of the sector. Technically, we've got a tiny bit of it listed on the Mumbai Stock Exchange, which you can always go and have a look at. But unless we were deeply desperate for cash, I can't imagine why we would.

I think, given that it's 5.30, I see some people have already had to run out to catch airplanes, let us see if there's any other last question. We've actually lost some people on the Web -- gone too long.

So, ladies and gentlemen, first, thank you very much for spending today with us. It's a big investment of your time and we do appreciate it. I hope you found the time well-spent. And I know I speak for all of the executive team here and the others who have joined us today, we actually enjoy showing you what we do and the plans for the future. So thank you.

We do continue as a company to meet our obligations. For our many employees working hard everywhere, I think it's fair to say the period of consolidation is over, knowing there's some uncertainty still out there. Now is the time for us at BP -- it's time to deliver. It's time to make good on the investment, the growth plans that we have, grow the value. And we're going to do that by playing to our strengths as a company. And that means about making many choices, whether it's exploration, development, development of new technologies.

And we are choosing value over volume. We're going to measure it in cash flow rather than barrels. We're going to choose strategic assets over nonstrategic assets. You'll see more of that over the years to come.

We are investing more in front-end exploration. And we are going to divest more mature assets. We think others can derive more value from that. Our capital allocations probably won't go in that direction; that's why we're going to do it. And we are choosing not to be the biggest; but over time, we do have an aspiration, dare I say it, to be the best. We will be a safer and stronger and simpler BP going forward.

So, as I said at the outside, our vision is to build an ever-stronger portfolio upstream and downstream. We want us to generate sufficient cash to invest both in our pipeline of projects and reward those who invest with us. Those who do, thank you very much. And we will return rewards. I'm not crying; I'm just losing my voice. (laughter)

So, look, why don't I just draw a line under it and just say, thank you. For those who have stayed with us on the webcast, thank you very much, and our very best to you here in London.