英國石油 (BP) 2021 Q3 法說會逐字稿

Good morning, everyone, and welcome to BP's Third Quarter 2021 Results Presentation.

I'm here today with Bernard Looney, Chief Executive Officer; and Murray Auchincloss, Chief Financial Officer.

Before we begin today, let me draw your attention to our cautionary statement.

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

Actual results and outcomes could differ materially due to factors we note on this slide and in our U.K. and SEC filings.

Please refer to our annual report, stock exchange announcement and SEC filings for more details.

These documents are available on our website.

I'll now hand over to Bernard.

Thanks, Craig, and welcome, everyone.

It is great to have you join us.

I'm going to start with a summary of our results before Murray takes you through the detail.

I'll then share some operational and strategic highlights, and we will then take your questions.

Today, we're reporting another quarter of strong strategic delivery and underlying financial progress.

Our businesses are running well, maintaining their focus on safe and reliable operations.

Our portfolio is capturing the benefit of the strong commodity environment.

And our overall results show how our continued focus on performing while transforming is delivering value for our shareholders today, strengthening our balance sheet, growing distributions, while at the same time investing with discipline in our strategic transformation.

For the quarter, underlying replacement cost profit was $3.3 billion.

Operating cash flow was $6 billion, which includes a working capital build of $1.8 billion.

And net debt fell for the sixth consecutive quarter to reach $32 billion.

Next, to distributions, where we continued to deliver on our commitment to shareholders.

A resilient dividend is our first priority within the financial frame.

And for the third quarter, BP has declared a dividend of $0.0546 per ordinary share, unchanged following the 4% increase announced with our second quarter results.

We have completed the $1.4 billion share buyback from first half's 2021 surplus cash flow and have today announced plans to buy back $1.25 billion of shares, which we expect to complete by the time of our fourth quarter results.

We have also seen continued momentum across each of our strategic focus areas.

And I'll come back to talk about these and other highlights later in the presentation.

But for now, let me hand you over to Murray.

Thanks, Bernard.

Let's begin with the macro environment.

Oil prices have continued to increase, with Brent rising 7% to average $74 in the third quarter, moving above $80 in recent weeks.

This reflects the strong rebound in oil demand as the impact of COVID eases as well as the measured increases in OPEC+ supply.

As a result, inventories have reduced back towards pre-pandemic levels.

As we look ahead to the end of the year, we expect oil prices to be supported by continued inventory drawdown, with the potential for additional demand from gas to oil switching.

Gas markets were very strong in the quarter as well.

Henry Hub averaged $4.30, up from $2.90 in the second quarter, as capital discipline continued to limit U.S. gas production growth and Hurricane Ida led to production curtailments.

In international markets, average NBP and JKM prices rose by around 85% compared to the second quarter.

This reflects a tight LNG market, driven by strong Asian demand growth, LNG supply outages, depleted European gas storage and uncertainty of our Russian pipeline imports.

We expect gas markets will remain tight during the period of peak winter demand.

Looking to refining.

The increase in industry refining margins was supported by Hurricane Ida related disruptions in early September.

In the third quarter, BP's average RMM rose by 11% to $15.20.

This was mainly due to seasonal demand rebound.

Realized margins also benefited from wider North American heavy crude oil differentials.

In the fourth quarter, industry refining margins are expected to be lower compared to the third quarter, driven by seasonal demand.

Moving to results.

In the third quarter, we reported an IFRS loss of $2.5 billion.

After adjusting items of $6.3 billion, we reported an underlying replacement cost profit of $3.3 billion compared to $2.8 billion last quarter.

Adjusting items included fair value accounting effects of $6.1 billion, primarily due to the exceptional increase in forward gas prices towards the end of the quarter.

Under IFRS, reported earnings include the mark-to-market of hedges used to risk manage LNG contracts, but not the physical LNG contracts themselves.

This mismatch at the end of the third quarter is expected to unwind if prices decline and as cargoes are delivered.

The underlying result removes this mismatch, consistent with how BP risk manages its LNG portfolio.

Turning to business group performance compared to the second quarter.

In gas and low carbon energy, the result benefited from higher gas realizations and a strong gas marketing and trading result.

In oil production and operations, the result reflects higher liquids and gas realizations, but was impacted by the effect of Hurricane Ida on our Gulf of Mexico production in the quarter.

And in customers and products, the products business returned to profit, driven by higher refining availability and throughput, enabling the capture of the stronger refining environment, partly offset by increased energy prices.

The result also benefited from a higher contribution from oil trading.

And the customer's result was supported by higher retail and aviation volumes, strong convenience and fuel margin management, offset by higher wage costs and increased digital and marketing investment.

For the third quarter, BP has announced a dividend of $0.0546 per ordinary share, payable in the fourth quarter.

Turning to cash flow and the balance sheet.

Operating cash flow was $6 billion in the third quarter.

This included a working capital build of $1.8 billion after adjusting for inventory holding gains and fair value accounting effects.

Capital expenditure was $2.9 billion, and disposal proceeds were $300 million, bringing year-to-date receipts to $5.4 billion by the end of the third quarter.

We now expect to realize disposal proceeds of around $6 billion to $7 billion by the end of 2021.

Reflecting the strong underlying cash flow delivery and after working capital movements, third quarter surplus cash flow was $900 million.

With second quarter results, BP announced the intention to buy back $1.4 billion of shares from surplus cash flow generated in the first half of 2021.

This program has been completed, with $900 million executed during the third quarter.

Recognizing these factors, net debt fell for the sixth consecutive quarter to reach $32 billion at the end of the third quarter and has now been reduced by $7 billion since the start of this year.

Our financial frame has established a clear set of principles and priorities for our uses of capital.

These remain unchanged with a resilient dividend our first priority.

Our second priority is to maintain a strong investment-grade credit rating.

And I'm pleased with the progress we've made on debt reduction.

And we continue to plan to allocate 40% of 2021 surplus cash flow to further strengthen the balance sheet.

Despite the backdrop of higher commodity prices, we remain focused on capital discipline, and our third and fourth priorities for capital expenditure remain unchanged.

We continued to expect to spend around $13 billion in 2021.

Finally, subject to maintaining a strong investment-grade credit rating and considering the cumulative level of and outlook for surplus cash flow, the Board remains committed to using 60% of 2021 surplus cash flow for share buybacks.

Recognizing third quarter surplus cash flow of $900 million and reflecting our confidence in the outlook, BP intends to execute a further buyback of $1.25 billion prior to fourth quarter results.

And we expect to outline plans for the final tranche of buybacks from 2021 surplus cash flow with our fourth quarter results.

Based on BP's current forecast at around $60 per barrel Brent and subject to the Board's discretion each quarter, we continued to expect to be able to deliver a buyback of around $1 billion per quarter on average, with upside at higher prices, and to have capacity for an annual dividend increase of around 4% through 2025.

Taken together, we remain focused on delivering strong per share growth, consistent with our proposition to shareholders.

Thanks very much for listening.

Bernard, back to you.

Thanks, Murray.

So turning now to look at operational and strategic highlights.

And we continue to make disciplined progress, underpinning our confidence in the targets we laid out last year.

Looking first at hydrocarbons.

We are building a higher quality and more resilient business, growing EBITDA from a smaller, higher margin and price leverage portfolio, whilst at the same time reducing emissions.

In 2016, we first outlined an ambitious plan to grow production from new high-margin major projects.

And with 2 major projects coming online in the third quarter, Thunder Horse South Expansion Phase 2 and Matapal, we have now hit our target of delivering 900,000 barrels of oil equivalent per day by 2021.

This, I hope you will agree, is a fantastic achievement and a great example of us doing as we say, executing our strategy and building real momentum: 34 projects, 11 countries, over 250 million hours, with more than $36 billion of capital expenditure net to BP.

And all executed on average, on schedule, and importantly, around 15% below budget.

Why is this so important?

First, these high-margin barrels will help drive EBITDA growth as we high-grade our portfolio.

And there is more to come.

In 2022, we plan to start up the high-margin Mad Dog Phase 2 project in the Gulf of Mexico, further expanding our footprint in one of our core regions, with substantial price leverage.

And we expect to further drive margin and returns by prioritizing projects around existing infrastructure.

Second, as we've discussed before, our single operating model is allowing us to leverage these world-class project execution capabilities across our existing business and into new areas and is also helping drive resilience across our operating assets, improving reliability, lowering emissions and maximizing value.

Compared to the second quarter, upstream plant reliability improved by around 1% to reach 95.4%, underpinned by strong performance in some newer major projects, such as Raven in Egypt.

Refining availability was also higher, up 2%.

We continued to expect further improvement towards our 2025 target of 96% for both reliability and availability.

And we are in action reducing emissions.

Take BPX as an example.

Through focused investments since acquiring the assets, the team has cut Permian methane flaring intensity by over 90% to less than 1% by the end of the third quarter 2021.

These actions are key to our BPX strategy, helping improve the sustainability of our operations while also yielding attractive returns.

In convenience and mobility, we aim to nearly double EBITDA by 2030 from around $5 billion in 2019 and generate returns of 15% to 20%.

And we continue to make strong progress across our 3 focus areas.

First, we are redefining our convenience offer.

Compared to the same quarter last year, we have increased the number of strategic convenience sites by 8%.

Our BPMe customers, who typically spend twice as much as non-app users, have increased by around 50%.

And since 2019, our basket value is higher in key markets.

For example, in the U.K. and in the U.S. at Thorntons, it has grown by more than 20%.

Together, these factors have underpinned our record year-to-date convenience gross margin delivery.

Next, in next-gen mobility.

Nearly half of our EV charging points are now either rapid or ultrafast.

Our utilization rates are increasing, with electron sales 45% higher than last quarter.

And our digital charging solutions partnership with Daimler and BMW Group completed in October.

This is expected to connect EV drivers across Europe to our network of charging points, drive up utilization rates and increased footfall at our convenience stores.

And finally, we continue to expand in growth markets.

In the last few weeks, Jio-bp, our Indian fuels and mobility joint venture with Reliance, opened their first mobility station, providing a fully integrated customer offer, including high-quality fuels, EV charging points, tailored convenience offers, including our Wild Bean Cafe, and Castrol products and services.

The Jio-bp brand builds on a well-established partnership in India, further combining the knowledge, expertise and experience of BP and Reliance Industries to create an unmatched and distinctive customer experience.

The existing network of 1,400 Reliance fuel stations will be rebranded to Jio-bp in the coming months.

And in China, our record year-to-date underlying earnings were driven by the strength of our Castrol brand and our convenience and mobility businesses.

Finally, low carbon, where we continue to build capability and scale with capital discipline and a focus on returns.

In renewables, we have growing confidence in our ability to develop 20 gigawatts to FID, net to BP by 2025.

First, compared to the second quarter, our pipeline has grown by 2 gigawatts to 23 gigawatts, driven by a continued growth in Lightsource bp's projects portfolio.

And second, Lightsource bp has increased its growth target by 25%, now planning 25 gigawatts developed to FID by 2025.

In hydrogen and CCUS, we are taking early steps to create a distinctive position, aiming for a 10% share in core hydrogen markets by 2030.

Alongside projects in Australia and Europe, we have made several recent announcements in the U.K. Last week, BP was selected by Aberdeen City Council to develop, build and operate the first scalable green hydrogen production hub in Scotland.

And earlier in October, the U.K. government selected the East Coast cluster as one of the first 2 CCUS projects in the country.

The successful bid was managed by the BP-led Northern Endurance Partnership, which will also develop the CCUS infrastructure.

BP also operates 2 further projects, H2Teesside and Net Zero Teesside Power, that are integrated with the East Coast cluster and key to our hydrogen strategy.

And we were in action elsewhere.

In September, we announced a strategic partnership with Masdar and ADNOC in the UAE, where BP has a substantial business and a long-standing relationship.

Together, we plan to develop a range of low-carbon energy projects for the U.K. and the UAE, with a particular focus on hydrogen and CCUS.

These examples demonstrate how we are leveraging mutually beneficial partnerships, deep project experience and global reach across the energy sector to build scale and presence in low carbon.

So to briefly summarize.

I hope you'll agree that today's results tell a story of continued strong underlying financial performance and strategic progress.

We are driving value from a more resilient and focused hydrocarbons portfolio, leveraged to the stronger price environment.

We continue to grow our established convenience and mobility businesses.

And we are investing with discipline in low carbon, laying the foundation for a material business that can generate stable long-term returns.

It is still early days, of course, but the team is doing a great job.

And we believe the combination of financial delivery and strategic momentum presents a compelling investor proposition, one that is purpose-led and performance-driven, is resilient to market cycles in the near term and is expected to grow sustainable value in the long term and that delivers returns for shareholders today and transforms BP for tomorrow.

This is what we mean by performing while transforming, and it is what we are laser-focused on.

And with that, Murray, Craig and I will be pleased to take any questions that you have.

(Operator Instructions)

Well, thanks again, everybody, for joining us this quarter.

(Operator Instructions) And IR is obviously available after the call to follow up on any more detail.

So on that note, let me turn to Jason Kenney at Santander for the first question.

Jason?

So I am struck by the number of strategic collaborations for BP developed particularly over the last couple of years.

I mean there are some smaller ones like Blueprint and BlueSmart.

You've got the obvious ones like Jio-bp and DD, and then the big one, Lightsource bp.

And then there's things like the Masdar and ADMA.

I mean everything's all coming in.

So I'm kind of just wondering what the BP of the future will look like and how much of the new energy business is being directly driven by BP and how much is dependent on the correct alignment with the right players and the right technologies or the best scalable new value chains.

So any thoughts on that would be much appreciated.

And then specifically on the hydrocarbon positions like Angola and Iraq which you're looking to move outside of BP, could you maybe comment on other hydrocarbon positions that may be right for being positioned in an independent supportive operation?

Very good, Jason.

And good to hear your voice.

Maybe I'll take a little stab at the partnerships, and Murray can add if he wishes.

And I'll let Murray talk a little bit about the hydrocarbons and what we're doing there.

Look, I think it's really a couple of things in terms of partnerships and joint ventures and so on.

The first is that the energy system of the future is more diversified.

It's more complex.

It's more local.

And it lends itself to the need for different skills to come together to help solve those problems.

And it sometimes needs local partners like we have with DD in China, like we have with Reliance, with Jio-bp in India.

So I think one is the energy system of the future will encourage us to partner.

And the second thing I would say is that partnership and relationships are part of our DNA.

I think we are a company that have long seen partnerships as a strength, as a sign of strength, not necessarily a sign of weakness.

And the encouraging thing for us, Jason, is that not alone do we want to partner, and in some cases, need to partner, but it is that other companies wish to partner with BP.

And you mentioned some of them.

But I think it's incredible to see our investment in digital charging solutions in this quarter in Europe.

Opens up hundreds of thousands of customers to BP.

And that's the joint venture with Daimler and with BMW, getting us in that software so that customers can be pointed to our charging stations as we build them out here in the U.K. and in Germany.

We wouldn't be able to do what we're doing.

In China, we opened our 100th site in China in EV charging in the quarter.

We're up eightfold year-on-year in terms of the number of charge points in China.

And I would just let you know that China took 11 years to go to 5% of EVs in the marketplace and it took 7 months to go from 5% to 10%.

So DD is an excellent partner for us there.

Reliance in India.

What we're doing with Mukesh Ambani and his team on the natural gas side.

We hope to be providing between 15% and 20% of India's natural gas over the next several years, something that's massively important to that country's transition, and at the same time, opening our first Jio-bp station.

So partnerships are something that we love.

We have a great relationship and track record in them: PAE in Argentina; Aker BP in Norway.

And I just think it's part of the future.

It's just part of what the energy system is going to need and it's something that we are leaning into.

And I guess, as I said, not alone do we want and need partners, but it's encouraging to see that people want to partner with us.

Murray, anything to add, our hydrocarbons?

Yes.

Thanks, Bernard.

Jason, I guess the only thing I'd add is if you look back in the 1970s and 1980s at the historic upstream and downstream, you'd have been seeing a similar type of announcements of BP working together with other companies to develop both the upstream and the downstream.

I just think we're back in that phase of building, and so that is the nature of the cycle we're in.

As far as transactions, et cetera, I suppose, Bernard and I over the past decade, we've done a couple of transactions with partners to create value.

They're always very value-driven.

If I think back to Alaska, what we did with Hilcorp at Northstar and Endicott created a partnership.

I think it's 5 years ago, we created the partnership with Aker BP.

And the share price on Aker BP is up quite substantially over that time period.

Fourfold.

Fourfold.

So that's not bad, is it?

So I think every 10 year -- or every 10 years, it looks like we can do 2 of these things.

And the next one is obviously Angola, working with our partner, Eni.

We see a great industrial synergy opportunity there that we think can create a lot of value for partnerships.

We're constantly looking for these things.

They're just very difficult to do and they're very difficult to align.

So I'm not going to forecast any future ones, but we're always looking for ways to create value here for shareholders.

And it looks like our hit rate is about 2 every 10 years.

So let's see, Jason.

It is all about unlocking value, isn't it?

It's all about unlocking value, and then that's what we're trying to do with the portfolio.

And you should expect us to continue to be laser focused on it.

And I think we can do a bit better than 2 every 10 years, but let's see.

So day by day.

Thanks, Jason.

I think I just got my performance contract...

That was a little bit of feedback.

Yes, a little bit.

That's great.

Thanks, Jason.

We'll take the next question from Christyan Malek at JPMorgan.

Christyan.

Good to hear your voices, too.

Two questions, if I may.

First, activism in the space regarding sort of the breakup logic appears to be in the rise, be it in the U.S. or Europe now.

I want to know your thoughts on the case for a carve-out of the gas, the carbon renewables businesses.

And I see you understand partnership and JV and the industrial logic of that, following Jason's question.

But I just wondered to what extent can that sit within a separate business and you continue to sort of partner in a sort of BP NewCo?

So would love to hear thoughts on that.

The second question is on the TSR guide.

It's interesting, you benchmarked the TSR guide on your future outlook.

To what extent is that based on the operational execution outlook versus your belief in firmer macro prices?

It would be worth just hearing your thoughts on the latter point as well in terms of how you see the oil price over the next few years, if that is ultimately what's driving your increased confidence.

Very good.

I'll let Murray, Christyan, take the second question around TSR, and I'll see if I can tackle your first question.

And good also to hear your voice.

Thanks for being on the call.

Look, I think the first thing that I would say in the matter of this question around breakup and so on is that we're not hearing that call from our investors.

So I think that's the first and foremost thing.

We're not hearing that from investors today.

Why?

I think our strategy, I think, is clear.

I think it's increasingly clear as we -- as people get more comfortable with it.

I think our financial framework is clear.

I think our investor proposition is clear.

And I actually think, if I may say, I think it's working.

Third quarter in a row of good strong results.

The balance sheet strengthening, 6th quarter in a row of net debt coming down.

We're generating cash.

I think -- I hope you'll have seen, I think we're a cash machine at these types of prices.

And we're investing in the transition with discipline step-by-step.

And from what we see, Christyan, shareholders increasingly like what we're doing.

So we're encouraged.

We chose the name of our strategy last year before these conversations for a reason.

And it's called an integrated energy company.

And we chose that name because we believe deeply in the premise of being an integrated energy company being the way to not alone help the world transition, but importantly, to create value from that transition.

And the reason we say that, Christyan, is twofold.

#1, we need cash flow to invest into the transition.

And our existing businesses generate enormous cash flow.

As you guys have done the math better than I do, adjusting for working capital, we're close to $8 billion of operating cash in this quarter.

When I look at some renewable companies out there, I see some of them struggling to fund their growth.

That's not a problem that a company that is an integrated energy company will have.

And it's not a problem that we have.

And the second thing that I would say is, if I take a country like the United Kingdom, what other company can take natural gas, build a power station, capture the carbon, take it offshore, store it underground?

What other company can take and build offshore wind, build a hydrogen facility on the back of it, take that electricity and put it into the largest charging network in Britain?

At the same time, sign a deal with Daimler to explore the potential for hydrogen trucking infrastructure in the U.K., sign a deal in Aberdeen to look at hydrogen for public transport, and at the same time, have a trading business that can help customers hedge and plan and have predictable and reliable sources of energy?

So as the energy transition becomes clearly more complex, I think, in people's minds, I think the role for a company like BP becomes clearer and clearer by the day.

So we believe, Christyan, long story short, that we are better together.

And I think as we deliver each and every day and as we deliver each and every quarter, and we want to be pretty boring and predictable and reliable, performing while transforming is what you'll continue to hear from us, I think that proposition will continue to strengthen.

So let me just leave it at that.

Murray?

Yes.

On the TSR question, Christyan, I think you're asking about our financial frame.

So what we've said, dividend first priority has the capacity to grow by 4% per annum assuming $60 through 2025.

Second priority is to reduce our net debt.

Third priority, invest in the transition and sustaining CapEx on our historic hydrocarbons business.

And then surplus cash, at least 60% through share buybacks.

And obviously, for 2021, we've said 60% buybacks, 40% to debt reduction to protect the balance sheet.

As we guided on the share buybacks, we just said at $60 million.

That's not a forecast of the future oil price, that's just an assumption of what the oil price was.

And we said that we could do around $1 billion a quarter out to 2025 at $60 oil.

So it's not our belief on what the oil price will be, it's just a helpful guideline for you, the sell side and for our shareholders, to understand what our capacity is.

Of course, if oil price is higher or lower than that, those -- that buyback potential can increase, obviously, if oil price is higher.

And that's what you've seen happen with our third quarter results and the announcement of the $1.25 billion of buybacks.

On oil price itself, I think we've got a constructive outlook on oil price.

Demand is up above 100 million a day.

Again, we're not back to pre-COVID levels.

We think we'll be there somewhere around -- somewhere next year, we think we'll be back to pre-COVID levels.

And of course, OPEC+ is doing a good job managing the balance.

So we remain constructive on oil price, and it doesn't really relate to the $60.

That's just a useful assumption for you to model our business.

Thanks, Christyan.

We'll take the next question from Michele Della Vigna at Goldman Sachs.

Michele?

Two questions, if I may.

The first one is about cost inflation and delays in offshore wind.

The oil and gas industry has tremendous experience on delays, bottlenecks, cost overruns.

And you carry it with you into a new business.

I was wondering, what can you do there differently from your competitors to be able to manage better this risk, which seems to be rising in offshore wind effectively for the first time in the last decade?

And then my second question is about electric mobility.

And I was wondering if there are some key metrics you're looking at in terms of percentage of EV penetration or utilization of your charging points that really are key to achieve profitability in this rising and growing business.

Very good, Michele.

Thank you.

I might ask Murray to talk a little bit about cost inflation and the -- he has the supply chain function within his remit, but also capability and things that we have, but Murray will talk about that.

On electric vehicles, I have to say it's one of the areas that I think both Murray and I are most excited about.

I think Emma and Richard Bartlett and the team are doing a fantastic job in this space for us.

And what are the things that we look at?

I mean, the real driver here is utilization rates.

And utilization rates are going up and up and up.

We sold 45% more electrons in this third quarter than we did in the second quarter.

And that's because, yes, we're growing infrastructure.

And importantly, we're growing fast -- our rapid and ultrafast infrastructure, which is our focus.

50% of bp pulse now is rapid or ultrafast.

And that means that we're getting more electrons through the system, more kilowatt hours through the system.

So that's the key, 45% increase in electronics.

People talk a lot about the number of charging points.

Quite frankly, we need to talk about the number of electrons sold.

And I think we felt we sold 40 gigawatt hours of electricity or electrons in the third quarter.

So that's the key.

We're seeing this happen right around the world.

I think it's really, really encouraging in China.

As I said, we've opened our 100th site.

That's an eightfold increase now year-on-year.

So that's going very, very well.

In Germany, we signed a deal with Burger King to put charging points in their sites.

That will drive utilization.

In Europe, we signed a deal with Digital Charging Solutions to drive utilization.

In India, we've opened our first Jio-bp retail site, which has EV charging on it.

We've bought into BlueSmart, which is India's all electric ride hailer.

So you can see here a system that is coming together.

And I haven't talked about fleets and our deal with Uber here in London.

And if you have time to ever visit our Park Lane charging station where we have dedicated Uber charging points.

So the key in all of this is utilization.

The key here is electricity sales.

And of course, to do that, we've got to have the right locations, which we do, 90% of people in Germany and the U.K. live within 20 minutes of a BP retail side, that's number 1. Number 2, we've got to have fast charging because people do want to make sure that they can get a charge quickly.

Number 3, we've got to have a good digital offer, which we have, and we will continue to improve.

Number 4, we got to have a safe and secure location for people to charge, which we do at our sites.

And number 5, we've got to have a strong convenience offer so that people can grab that cup of coffee or that sandwich while they're charging up, and that's what we're doing.

Hammersmith is the busiest charging site in Britain, 7,400 transactions in the third quarter alone.

That shows us the future.

That shows us what's possible.

If you ever drive by the Hammersmith side here in London, and you will see our charging points pretty much full.

So it's a pretty cool business.

We're excited about it.

It's the one part of the transition that I think is growing faster than predicted.

And you can expect us to be all in on making that a very significant part of the company's future.

Murray?

Great.

I think on offshore wind and the supply chain, yes, I think the sector is starting to see some inflation inside steel, no surprise given what happened with COVID.

And about every 2 months, I sit down with the -- our team on offshore wind to continue to learn and see what's happening.

So the last time I did that was a month ago.

And the big choke point actually is offshore installation and offshore logistics.

Now the funny bit is that's the exact same thing that I talk about other teams with on the oil and gas side.

So the way that we'll manage this, it looks to me like about 60% to 70% of the supply chain overlaps between offshore wind and offshore oil and gas.

It's a rough estimate.

And the typical way we've managed these things is big long-term frame agreements on steel.

So far, despite input prices rising, we've been able to use our frame agreements to offset that inflation in the oil and gas.

And I'd expect as we move through offshore wind, we'll bring those 2 things together and manage that inflation.

And the other things we do is we have big programs of activity.

So in the offshore U.K., we'll have subsea teams.

We'll have subsea programs.

We'll have pipeline programs in the Upstream.

And we'll be sharing the logistics and the Lyft vessels across both the offshore wind and the historical oil and gas position.

So there's quite a bit of overlap.

We know the -- we know all the things that we do to manage this inflation.

We're pretty decent at managing in this space.

I think you heard Bernard talk about our project delivery over the past 5 years.

We targeted to spend $42 billion.

We spent 15% less than that across 35 major projects across a very busy time period.

And that exact same team has now moved into offshore wind.

We'll move into onshore CCUS and onshore hydrogen.

And we look forward to taking all those lessons that we built up over time in the upstream, into the downstream and into low carbon.

So I think, yes, we're seeing a little bit of inflation in that space.

But I think we'll be able to use everything we've learned from upstream oil and gas and our leverage with the supply chain to manage this risk.

Thanks, Murray.

Just one fun fact on electrification before we let Michele go.

It took China 11 years to go from 0% to 5% EV penetration.

It took them 7 months to go from 5% to 10% EV penetration.

It's incredible.

And someone just said that we doubled the electrons sold in Germany quarter-on-quarter.

So this is a fast-moving business, and we're well positioned.

And if you wanted to measure returns, the general stat we hold is if you get 10% utilization on a fast charger, you'll make a 10% return.

That's just the pure electrons themselves.

Of course, this is not just about the electrons.

It's about the convenience as well.

And when somebody goes to charge their car, they spend probably 8 minutes as opposed to 4 minutes.

And hopefully, they come in, and they get a nice cup of Wild Bean coffee and a sandwich, and then that will certainly enhance those returns.

And utilization at Hammersmith is definitely above 10%.

Now we don't have Hammersmiths everywhere, but it is a sign of the future, I think.

Great.

Thanks, Michele.

Super.

Thanks, Michele.

We'll take the next question from Os Clint at Bernstein.

Os?

India Jio-bp, the new station, which you've mentioned a couple of times this morning.

I have to admit, when I read that, I saw a lot of the word, free.

I saw free active fuel within the standard fuel.

I saw free oil change, et cetera, et cetera.

So I just wanted you to tell me, please, what's the revenue model?

Or what's the -- or actually, where is the margin?

Is it -- I'm not sure what retail margins are in India, but is it bulk standard fuel?

Is it the EV charging?

You just talked about the refreshments or things like battery charge.

It would just be great to flesh out how this all comes together.

Is there any cross-subsidization that's taking place?

And then secondly, please, I mean, there's obviously still some concern out in the markets about your shrinking upstream.

And it's pretty amazing to see just how low your exploration write-offs are this year, basically 0. But could you just talk about your base decline rate at this point in the year and how it's comparing to your expectations, please?

Os, great.

And Murray will maybe help me on decline rates.

I'll say something on the 40%.

And then India, look, I think we're at the very early days.

This is our first Jio-bp site.

The existing 1,400 Reliance sites will be rebranded over the coming months.

The margin here is a margin that crosses all the way from margin on fuel to margin on convenience, to margin on charging.

I mean it is a complete customer capture strategy, so to speak.

And I think the numbers here in the U.K. now are climbing and climbing.

And we're seeing in the U.K. that I think we used to say over 50% of customers that visit the BP retail side in the U.K. buy fuel only -- or don't buy any fuel, sorry, that number has risen to, I think, between 60% and 70%.

So consumer habits are changing.

Basket sizes are increasing.

Here in the U.K., we see basket sizes have risen 20% with -- pre-pandemic.

So it is an integrated offer, if I may use that word.

And in terms of free, think of it as customer capture.

People made a lot of Jio issuing free mobile phones.

Today, I think they have 400 million users on their platform.

So customers matter.

We invest in customers.

We want to attract and secure customers.

And we'll do that in India as Jio did incredibly successfully with their mobile network.

And it's fantastic actually for this venture to be called Jio-bp given the footprint and reputation that, that mobile network has.

In terms of the 40%, I think a couple of things I would say, and we'll talk more about this at our 4Q results in February.

A 40% reduction in production does not equate, as you know, to a 40% reduction in cash flow, anything but.

This is all about a high-grading of our portfolio.

This is a value optimization strategy, pure and pure.

We intend to grow earnings through the middle of this decade despite shrinking our volumes by 20%.

We take costs out.

We make sure that we're focused on the highest margin barrels.

so we drive the unit margin per barrel up.

And you'll see us continue to do that through the decade.

I think this is increasingly understood as a strategy that's focused on optimizing value, that's focused on value and I think is absolutely the thing that we need to be doing.

It allows us to really focus our capital.

It allows us to make sure that our exploration strategy, as you pointed out, is focused on infrastructure, near existing assets.

It's all of those things that I think is 100% focused on how do we create the maximum value from these hydrocarbon assets that we have.

So Murray, anything to add?

Just on base decline and that type of stuff.

So plant reliability, Gordon and the team had a very good quarter, 95.4%, I think is the year-to-date reliability.

So very good performance on the facilities themselves, which forms a part of the base.

We guide, Os, as you know, the 3% to 5% decline.

We don't have an annual number yet.

We've still got another 60 days to go.

But I suspect, as usual, we'll do better than that is my guess.

The places where we have base decline is gas basins.

You can see BPX because of the lack of capital investment last year creates some base decline.

And then Trinidad, we've had some base decline as well.

The rest of the business is holding up super well.

And I suspect at year-end when we report back to you, we'll be at the lower end of that range, if not slightly below it.

So 3% to 5% remains good, Os.

Thank you, Os.

We'll take the next question from Irene Himona at Societe Generale.

My first question -- well, Bernard, congratulations on delivering the 900 KBD of new projects, new barrels, which you set 5 years ago.

At the time, you had said that at $50 or $55 Brent, these barrels had a 1/3 higher margin.

In today's environment, $80, $85 Brent, can you give us a sense of how superior the margins on those new barrels are compared with legacy, please?

And my second question, on gas trading, which this quarter you described as strong.

The press had mentioned recently a figure of 500 million.

Is that realistic?

How should we think about it?

Is the 2% enhancement to [group Araji] from trading which you provided before still valid in this environment?

Irene, I'll let Murray take the gas trading question and then I will take the question on the 900,000.

Thank you for acknowledging that.

The thanks or the congratulations don't go to me.

It goes to our organization, who I hope some of them are listening in.

They have done an extraordinary job, and I hope you don't mind me boasting about them for a moment.

But this has really been an incredible achievement.

This is 34 major projects across 11 separate countries delivered for $36 billion net to BP.

That's 15% under budget and on schedule.

It is a pretty extraordinary set of outcomes.

And of course, it speaks to a couple of things.

One that we like to do what we say.

So when we tell you something, we intend to deliver on it.

And secondly, project management.

And project management is a capability that doesn't know oil and gas as a boundary.

And what I mean by that is project management is as applicable to building a hydrogen facility or building an offshore wind facility as it is to building an oil and gas facility.

So thanks for acknowledging it.

In terms of margins, I think Murray and I would say that it was 35% higher margin than the existing portfolio.

And I think today, we would say that at these prices, that 35% margin delta is about what it would be at these prices as well.

So that margin uplift remains intact.

And of course, it's one of the reasons why we can grow cash flow, grow EBITDA, while reducing production as we focus on those high-quality barrels.

So that 900,000, much of it is on, much of it is coming on.

Mad Dog Phase 2 comes on next year.

And the Gulf of Mexico, quite frankly, coming online into an incredibly strong oil price environment.

And you will see that in the cash flows of the company.

Murray, gas trading?

Yes.

Irene, nice to hear you voice.

So just thinking back to last year when we guided on trading, we said that trading enhances the returns of BP by around 2% to 3%.

No change to that guidance.

We'll update you in the new year with any different thoughts on that perspective, but no change so far.

In the third quarter, yes, there was some press speculation around a number.

We don't talk about speculation, and we don't disclose those numbers.

It was a strong quarter for gas trading.

You can see that in gas and low carbon.

But I must say, the realizations were very strong as well in the quarter and production was very strong as well.

So I think the team inside gas and low carbon had a great quarter for production, a great quarter for realizations.

It was a strong quarter for gas trading as well.

But we don't provide numbers, obviously.

And the numbers in the press, we're not going to comment on.

Thanks, Irene.

We'll turn to the U.S. for the next couple of questions, I think.

First one from Paul Cheng at Scotia.

Bernard, you mentioned about in the EV charging business, it's really all about utilization rate.

Can you share with us what is the utilization rate in the major operating regions for you at this point?

And what is your target over the next couple of years?

And also, do you have a number of what is that business, the EBITDA contribution in the quarter you can share?

The second question, a quick one.

Do you have an estimate what is the idle production impact in the Gulf of Mexico and the earning impact related to that?

And also that, in your -- one of your peer that sold their terminals and said, that's because lack of economy of scale or at least one of the reason.

So I want to see how you guys view your BPX business.

Paul, thank you.

I think on -- I'll ask Murray to comment on the GoM and the BPX, his favorite -- probably favorite 2 subjects amongst many.

And in terms of utilization rates, we're not giving utilization rates by region yet.

I think the reality is that they're sitting today, probably on average, below 10%.

And there's -- we're concentrating on probably 3 key markets, with 2 markets today and one to come over time.

The 3 key markets being China, Europe and the U.S. U.S. will probably be more of a fleet story.

The EU is on the go.

Charging, which is where we think the majority of the gross margin pull, exists.

And China will be a combination of fleet and on the go.

Utilization rates today are below 10% on average, I would say, but they're only going one direction.

There is no doubt about that in our mind.

And some of the numbers that I have just given about the pace of growth of EV penetration in China is just one example, but you see it all throughout the world.

So they're going to go up.

And as they go up, the business becomes more profitable.

We're not providing EBITDA on a charging basis just yet.

I think we're providing a lot of transparency.

Some people would say too many metrics.

But no doubt, as that material -- as that business becomes more material over time, you can expect us to start talking about that.

But that's not for today.

Murray, the GoM, the hurricanes and BPX.

Yes.

Great.

Paul, bright and early in the morning for you.

Apologies for that.

On the GoM, the impact in the quarter was about 60 MBD.

I'll let you do your calculations on what that is.

I think there's about a 15% royalty rate in the U.S. offshore and operating costs are pretty low, sub 6 a barrel.

So I'll let you do the calculations on what that gets to rather than provide a number.

And then on the Permian and BPX, we're very happy with our BPX position.

It's doing much better than we hoped when we acquired it.

Costs are well ahead of what we expected.

Drilling efficiency is well ahead of what we expected.

Reservoirs are showing up in the Bone Springs that we hadn't anticipated at the time.

So I think operationally, all things, we're very, very happy with.

As you can see from our disclosure on the website, they're back to growth now as we invest more capital into them.

And we're gradually ramping up, from about $1 billion this year, we'll probably ramp up $1.5 billion next year.

The program inside the Permian will focus on building out the infrastructure to make sure that there's no flaring or methane going into the atmosphere as we go into the next leg of drilling in the Permian, we think that's extremely important for not only the environment but also for profitability.

And obviously, we're drilling in the Haynesville and Eagle Ford as well.

We'll take a big dividend out of the business this year, and we anticipate continuing to take dividends out of it on a growing basis.

Probably by the time we get through the ramp-up in CapEx, we'll probably take at least $1 billion a year out in dividend from that business.

And that's what's super important to us, is making sure that we gradually grow this, but at the same time, we can get a dividend back that pays back the price we paid for the assets.

So very happy with it.

It remains a core bit of the portfolio, both from reducing emissions, reducing flaring, reducing methane, and driving profitability and driving cash flow for shareholders.

Thanks, Paul.

We'll take the next question from Jason Gabelman at Cowen.

I wanted to ask the first one.

On the Convenience & Mobility business, you've highlighted a lot of growth and kind of strategic initiatives within that business that are going as planned.

I can't help but notice that adjusted EBITDA was kind of down quarter-over-quarter and year-over-year despite all this progress and seemingly moving forward on your EV/convenience store strategy.

So can you just help us understand what's going on versus those other periods?

And then my second question, just on CapEx.

Moving forward, given the rise in oil and gas prices, you mentioned you're going to ramp up BPX spend a little bit next year.

Can you just talk about if there's other opportunities within the portfolio to ramp up short-cycle spend?

If that's something you're looking to do, and what that does for your CapEx outlook in 2022?

Jason, thanks very much.

Good to hear your voice as well.

And I'll just hit 2 of them quickly.

And Murray, jump in and help me.

On capital, we'll update our capital guidance to the market for 2022 in February at our fourth quarter results.

You know that we're running around $13 billion for this year.

And you'll know that our guidance over this period is $14 billion to $16 billion.

What I can tell you about February is that we will not be changing our capital guidance of $14 billion to $16 billion.

But quite exactly where we'll come in within that, we will update you on that in February.

We'll remain disciplined.

We won't be overreacting to particular prices on the day.

This will be a very, very disciplined capital framework.

And as I said, it will be unchanged from the guidance that we have issued.

On convenience and mobility, you're quite right to point that out on the third quarter.

I would remind people that, that business has had a record year-to-date, so the 9 months year-to-date have been a record.

Castrol obviously has been hit by a couple of things, base oil prices being much higher.

There's usually a lag there, and that will flow through over time as we pass some of those prices on to consumers.

And there's one thing that covers both Castrol and the convenience business.

So that's Castrol on the convenience business.

We're investing a little bit more in advertising.

We've seen a few increases in staff costs.

And the thing that's common across Castrol and convenience is some of the lockdowns in Asia have clearly had a bit of an impact.

So nothing structural there.

And just draw people's attention to the record 9 months year-to-date, and that's what we're focused on.

Murray, anything to add on either subject?

No.

Perfect.

Thanks.

Okay.

Thank you.

That was feedback from me, from Murray, which I'll take.

Thanks, Murray.

Thanks very much, Jason.

Okay.

Thanks, Jason.

We'll take the next question from Jon Rigby at UBS, please.

So 2 questions.

First is, are you able just to speak a little more about the structure of the gas hedges, what it is you're doing there?

And are you hedging just your merchant gas volumes or also your produced of equity production volumes?

Because I guess that has an impact on whether you see price leverage or not in the underlying.

The second question, I guess, is -- just to step back a second is that the conventional wisdom of this sort of transition is that you move from -- I don't know if this had been talked about this thoroughly, but there's sort of peaks and troughs on returns.

But supposedly higher return oil and gas activity to slightly lower return, renewable and power activity, but the renewable and power activity is lower risk.

But if you sort of measure risk as volatility, is that strictly true?

Or is it likely to be true for the next 4 or 5 years as we go through this sort of transition phase?

Because it seems to me, if you look at power markets, energy markets, gas markets, witness the hedging movements you're seeing in your gas activity, is that it doesn't look to me like a particularly low risk or stable market at the moment.

So just interested in your comments around that.

Very good, Jon.

So let me have a little go at your second question and Murray will more intelligently speak to gas hedging and so on and he'll probably also pile in on the transition question that you asked.

That's a very good question.

On that one, I mean, I'd just say a couple of things.

#1, and probably most importantly, I see the characterization in some media of BP as moving from oil to renewables, and that's not actually the case.

Yes, we are focusing our oil and gas portfolio over the next decade In a volume sense.

We actually believe we'll create more value, but we're doing that in a volume sense.

Yes, we are building a renewables business.

But we've always said, we're not building a renewables business just for renewables.

We're building a renewables business to be part of an integrated energy value chain that goes all the way from the production of energy into, in some cases, people's cars in terms of electrons or into hydrogen or into whatever it is that you wish to do with it.

So the first point is important, which is this is not an oil to renewable story.

It's a focusing of oil.

It's a doubling of convenience, including EV charging, $5 billion to $10 billion.

And it's an investment in renewables.

But not just renewables for renewables' sake, investing into the low carbon energy value chain.

In terms of your characterization of returns, I would think that -- I would say a couple of things.

One is, of course, traditionally, some of our investments in hydrocarbons have been very profitable.

And just like others in industry, not all of them are exactly high returns.

So I would just say that.

Two, they are volatile and open to the vagaries of the environment as we saw with negative prices last year.

And three, our investors valuing the cash flows from those businesses in the way that they used to.

And of course, that's happening less and less.

And therefore, as we transition -- and that this will happen over this decade, as we transition from a hydrocarbon-only company to a more diversified company, I do think some of those cash flows, while still having some volatility, you are correct, but I think they are, in some ways, less volatile.

I think that they are, in many ways, more valued by investors.

And therefore, I think it creates a better investor proposition.

So 2 big points.

It is not an oil to renewables story.

It is a focusing of hydrocarbons.

It's a doubling of convenience and mobility.

And it's a renewables as part of a low-carbon energy chain, number 1. And we believe we can amplify returns in that latter part.

And number 2, some of what you characterized is correct.

But I think there are attributes that the cash flows from this new business -- these new businesses that make for a compelling investor proposition.

Murray, anything you'd add on that and gas hedging?

I think the only thing to add, Bernard, on the volatility of returns.

If you invest in a wind program or a hydrogen plant, et cetera, and you're underpinned by a PPA or a contract for difference by a nation, that's a fairly stable set of cash flows.

If you're a merchant and you're taking merchant risk on power, obviously, that's much more volatile than natural gas.

You know all about the trading windows, Jon.

I think the companies that win in the future are the people who can manage risk really well inside that system and that can counterbalance natural gas and electricity.

They generally tend to be priced off the same basis.

So as we saw in the first quarter in the United States, as we're seeing in the third quarter here in Europe, companies that can manage gas electricity interchange can do really well.

And of course, that's what we do really well, with our 20 years of history in this particular business.

So it is more volatile, but we risk manage well.

And you can see that in our results day by day this year.

I think on gas hedging, you've got it, Jon.

We don't hedge our equity gas.

That's something that our shareholders on LNG, et cetera, enjoy the upsides and downsides.

We don't hedge that as a principle.

On the merchant equity margins, yes, we do hedge those sales contracts.

Remember, what we're trying to do is buy a cargo, lock that price in, sell the cargo, lock that price in, and make a margin on that.

And then we'll make superior margins when disruptions occur, and we can redirect cargoes.

That's really the principle of our LNG business.

It's very ratable and growing over time, from 15 to 20 to 25 MTPA.

So that's a very ratable business.

And we do risk hedge those sales contracts, which is what you're seeing showing up in FDA.

Hope that helps, Jon.

Yes.

And just to confirm, you'd expect that to reverse over the next, what, 2 to 3 quarters, 1 to 2 quarters?

It's -- sorry, Bernard and I were looking who wants to answer it.

Yes, it -- the FEA will reverse as cargoes get delivered.

And of course, a lot of those get delivered over the next 3, 6, 9 months.

And it could reverse if gas prices fall as well.

So it's dependent on price and dependent on timing of delivery of cargoes, but nothing untoward.

We're happy with direction of travel right now and we're happy with the direction of the business.

I favored accuracy, so I thought I'd go with Murray on this point.

Thanks, Jon.

Thank you, Jon.

We'll take the next question from Chris Kuplent at Bank of America.

Chris?

Yes.

Murray, one for you.

I just wanted to better understand the "formula" you're applying in terms of paying out buybacks.

You've published 9 months and 3Q results for your definition of surplus free cash flow.

And I'm not sure I can square the circle here to put the $1.25 billion announcement into context.

So would be helpful how much of your, let's say, confidence or outlook towards Q4 is embedded here or whether you're thinking about this as a year-to-date call with or without the $500 million that you've bought back during the first half.

So please help me.

I'm a little confused.

And if I may, a second question to Bernard.

Bernard, you've referred to the Aker BP share price performance earlier on.

And I just wanted to understand.

Obviously, dividends there are growing as well.

But the dividend return you're getting from there is still below your own dividend yield.

At what stage does Aker BP become a purely financial investment rather than a strategic one?

Very good.

Chris, I will let Murray take the formal question, which you may be confused, but I hope positively surprised.

On Aker BP, it is a strategic investment as well as being a financial investment.

I think both Aker and BP would argue that we are a strong partnership.

We are very much involved.

Murray sits on the Board as does Kate and are very actively involved in helping to make that company better and stronger.

Bringing capability in from BP as and when we can, that might be helpful.

And quite frankly, learning from what Aker PP is doing as well because they're doing some fantastic stuff, particularly on the digital front.

So it is more than a financial investment.

We like that investment very much.

We see a strong future in that investment.

And that's what you should expect from that business going forward.

Chris' question on the buyback formula.

Yes.

Chris, so just a few grounding principles here.

We've said that when we set the level of buybacks, we will not only look at surplus we've accumulated to date, but we will also look at the outlook for the future.

Additionally, we've guided that at $60, we should be able to do around $1 billion a quarter out to 2025.

So those are the 2 principal -- guiding principles you should think about as we do these things.

It's not just a formula.

If you go to the formula inside the third quarter, you saw our surplus cash flow, if you applied 60% to the $900 million of surplus cash flow, that would be a $540 million buyback, Chris, is maybe the math that you're thinking about.

And we've obviously done $1.25 billion.

The reason that we've done more is confidence.

Confidence in plants operating efficiently.

We're up to 95%.

New projects ramping up.

We've got a lot more projects coming in.

They've accelerated from '22 into '21.

And we've got more coming in '22, especially Argos, the Mad Dog 2 facility and the Gulf of Mexico.

We have much higher earnings from Rosneft coming through.

That has a much higher dividend in the future than it has had in the past.

The oil environment and the natural gas pricing environment is very strong.

And of course, we had a big build in working capital that will reverse over time.

So overall, we feel a lot of confidence in the underlying performance of the business.

The macro is strong and supportive.

And we've also signaled additional divestments through the rest of the year.

So we think all of those things mean that we should lean in a little bit, do $1.25 billion of additional buybacks.

And we'll update you in the fourth quarter results with what we'll do for the final installment for 2021, where we have said that 60% will be for share buybacks and 40% will be for debt reduction.

I hope that helps, Chris.

Very good, great.

And I think we've always said that we would like it to be within reason, a relatively ratable buyback program.

And that's what we're trying to achieve here.

And I think there are also questions, Chris, from some people that said, well, why shouldn't it be a little bit bigger?

And of course, we're also making sure that we continue to focus on our balance sheet, which is hugely important to us, and the sixth quarter in a row of driving net debt down.

So it's a pretty strong place, I think, for us to be.

But thanks for your question.

Thanks, Chris.

We'll take the next question from Lydia Rainforth at Barclays.

Lydia?

Bernard, I like what you said about the investment case being clearer day by day.

Two questions, if I could, and I am going to come back to this carbon management Energy-as-a-Service strategic partnership side.

How do we think about the -- how you make returns on those?

And maybe it's just me, but it does seem very different as a way to looking at it as opposed to just being asset-based analysis.

So that idea of valuing customers and what sort of returns you might make on that, I still think isn't particularly clear to me at this stage.

And then on the second one, and the idea is there's a CapEx kind of normalizing to that $14 billion to $16 billion level.

At this point, have you thought about whether that goes into a short-cycle upstream or into the renewables or low carbon business?

Because it does seem like you've got quite a lot of opportunities there.

And so it's really effectively, how do we judge if it's good CapEx?

Lydia, thanks, and thanks for the question.

I'll let Murray have a go at the sort of value chain question, and.

I think he's done a good job in the past of describing how, in many ways, we're recreating a value chain here, which is a low-carbon, almost electron-based value chain as opposed to a hydrocarbon molecule-based value chain and how returns shift around.

But he'll answer that in his own way.

I think on CapEx, I'm afraid, I'll just leave it as a relatively short answer without wanting to be evasive because I don't want to do that with you.

But I think let's just wait until February, and it's only a few months away.

We just got Christmas to get through in the meantime.

But we'll give you an update early Feb on that.

But we're not short of opportunity, both on the hydrocarbon side, and on the low carbon, and indeed, on the convenience and mobility side, as you have seen and will continue to see in electrification, as you saw with our Thorntons acquisition.

So it's great to have options.

It's great to have choice.

And it's great to be disciplined because it means that we should only be doing the very best stuff.

But rather than speculate right now and mislead you, I'll leave it to February to give you an update, if that's okay.

And Murray?

Yes.

So Lydia, the way that I think about this is we're trying to create these integrated energy chains for the future, like we did with natural gas in the past.

So if you just went to the U.K. and painted the picture of that, we're saying that in offshore wind will make an 8% to 10% return levered.

That offshore wind electrons will be put into probably a mixture of a contract for difference with the government and then merchant positions that we will take risk on ourselves.

Those electrons will go into green hydrogen plants, I assume, whether that be the Aberdeen one we've announced now or hopefully something we announced in Teesside in the future or they'll go into things like pulse fast charging.

So it's clear, we feel pretty comfortable we'll get to 8% to 10% levered in the offshore wind.

Some people may doubt that, fine.

But we feel comfortable with that for now.

In hydrogen, I suspect the returns will be higher.

The risk is quite a bit higher.

So the operational risk is tougher.

So we anticipate higher returns in that space, but it's early, so it's hard to forecast what those will be.

And then on fast charging, I would expect similar returns in fast charging that we get from fuel.

And fuel, we've always said would be 15% to 20% unlevered returns.

That's our long history at it.

And I don't see any reason why fast charging won't be at least that.

The reason is that you'll probably make the same amount on electrons that you do on fuel.

The residence time at the convenience site will be much higher with charging than it was with fuel.

So you'll probably make more money on convenience there.

So I think that 15% to 20% return in that space feels good.

And then the magic in between, the energy as a service, whether that's to fleets, et cetera, Lydia, I think the thing we've tried to paint is that our trading business in history has added 2 to 3 percentage points to overall returns of BP with our $100 billion of capital employed.

And I can't see any reason that we won't make that amount of money in the future as we have in the past.

And that -- those 2% to 3% returns include 20 years of experience of this in North America with our North American Gas and Power business, where we built up to be the third or fourth largest power trader as well as the largest natural gas trader in the United States.

So we have a strong history in this place.

And I think as you look at that and you meld it together, you'll get to a business that returns somewhere in the 12% to 14% range.

That's the best I can see right now.

And I can't see why that won't be the case in the future as it has been in the past.

Hope that helps, Lydia.

Okay.

Thanks, Lydia.

We'll take the next question from Lucas Herrmann at Exane.

Lucas.

I've got 2, if I might.

Murray, just want to return to the gas trading business and profitability.

And I wondered whether you'd be kind enough to give us some indication of the volume of LNG that you take into your portfolio and the volume of LNG that you are committed to deliver to customers and in effect, as a consequence to what the net is, and therefore, what your exposure and your opportunity around trading is on a quarterly or -- well, on an annual basis.

And if I could just extend that to -- you must have very good visibility on how the trading business, as you define it, portfolio business is likely to perform in the fourth quarter given where prices have been.

Can you give us any indication, as some of your peers have, as to the extent to which we'll see this benefit continue, at least into the fourth quarter, if not the first quarter of next year?

And secondly, can I just come on to divestments and the $6 billion to $7 billion target?

I'm a little bit lost on what you've actually said in the second quarter.

I know that we started the year at $4 billion to $6 billion, clearly higher now.

What's driven the improvement?

And associated with that, can you make any comments on Angola and where that process is at the present time?

Craig is telling us we need to speed up on our answers here, which I think is right.

I will just do divestments very quickly.

We've done 5.4 year-to-date.

We did $300 of million proceeds in the third quarter.

We guided at 5 to 6. We're working on some stuff that will push that number to between 6 and 7. I can't tell you specifically what they are.

But obviously, we have a relatively high degree of confidence that we'll get to that place.

So without getting into specifics, that's that.

And on Angola, I think it's going actually well, and we'll have that closed and up and running next year.

Strong support from the government in country, which sees this as a very good thing.

A combining of 2 strong operators, 2 strong infrastructure positions in the country, getting good support, a natural thing to do to improve efficiency in a sector in Angola that needs -- we all need to improve in.

So far, so good.

And we'll close that early next year and get that machine up and running.

And we're excited about it.

Murray, on trading.

On trading, the long-term portfolio, Lucas, so we're saying 20 MTPA right now under long-term contract.

That's about 8 of equity and 12 of merchant.

I think we've disclosed that before.

Nothing changed there.

As far as what the volumes of LNG are in a day, I can't keep up with that.

That's a decision by the trading organization on each and every day.

Obviously, we remain positive on natural gas pricing.

And then I just expect an average quarter every quarter, and we'll update you on what it actually turns out to be.

I would hesitate to guide otherwise.

But there's nothing undue like losses unwinding or gains unwinding or anything like that, Lucas.

I would just assume average, and that's a safe place to be.

And you've seen we've had a strong track record of managing volatility this year.

I'm sure Carol and the team will continue to manage that well.

I'm sorry.

Bernard, there are no restrictions on just thinking about taking cash out of Angola from a transaction nature beyond, obviously, the need to finance the JV itself.

No.

I mean that's -- this business may well raise some debt as joint ventures and entities like that would do.

And any debt that is raised is cash that is available to the partners.

No restrictions, no covenants, Lucas.

I saw you asking the Eni CFO the same questions, but we've got the same answers as he does.

Thankfully.

Thanks, Lucas.

Thanks, Lucas.

We'll take the next question from Martijn Rats at Morgan Stanley.

Martijn?

I've got 2, if I may.

The statement mentioned, a short comment about additive supply shortages in Castrol.

And supply chain bottlenecks are a huge topic sort of across the economy.

So I thought that was quite interesting.

And I was wondering if you could elaborate a little bit on like what is exactly sort of at play here.

The fact that you mentioned this probably means it has some materiality for the fourth quarter.

And therefore, can you talk a little bit about sort of what this means and how long this could last?

And the second question that I wanted to ask is exactly what you just sort of replied to in terms of Lucas' question in terms of the partnership in Angola with Eni, in the sense that, well, one of the attractions of a structure like that would be that a company like that could raise debt in its own right.

And I was wondering if you already have some experience or some read on the appetite is for banks to lend to an entity like that.

Particularly as it looks to me like sort of broadly bank lending to pure-play oil companies is under some degree of strain.

So I was wondering if there is already some indication of sort of how that is playing out with an entity like that.

Martijn, Murray will take the financing question.

On Castrol, I think I wouldn't read too much into it as in this is going to be a fourth quarter issue, and that's why we're highlighting in the third quarter.

I think there are issues around the world in terms of supply chains in general, and no surprise that we're seeing a little bit of that in Castrol.

I think the broader thing in Castrol is that we have a very, very strong improvement plan.

I think that's what we're focused on.

Yes, we've seen a bit of dislocation of demand and supply, and that's around refinery run cuts, that's around the storm in Texas.

But the real focus in Castrol is on improving the business.

We think that, that business can do much better.

We have a plan to do that.

And as you watch it over the coming quarters and particularly over the coming couple of years, you'll see that.

So we think that the effects that we just highlighted in the third quarter will probably be the peak in the third quarter of that specific effect.

But let's wait and see into the fourth quarter.

Hopefully, that helps.

And on raising debt?

Raising debt in pure play, you could look at Aker BP, if you'd like.

They have absolutely no problem raising debt, both in Europe and the United States.

And their rates are very attractive.

Their ratings are very attractive.

So we obviously have experience in that entity, which is a public entity, so you can go and see what that looks like.

On Angola, it's early in the process.

We haven't completed the deal yet so we haven't got the final agreement with Eni.

That will hopefully happen this year.

And then, of course, the government has to ratify.

In the meantime, we are talking to banks about that.

But it's too early to talk externally about how that's going.

But I think the proof in Aker BP is relatively straightforward, that they can raise funds.

Thanks, Martijn.

We'll take the next question from Biraj Borkhataria at RBC.

Biraj.

One specific one which -- and one thematic.

But on a specific question, in your surplus cash flow definition, there's a $560 million charge relating to transactions involving noncontrolling interest.

So I was just wondering what that was.

And then the second question, just taking a step back and thinking about growth in LNG going forwards.

In the context of absolute emissions reduction targets, can you add new LNG liquefaction capacity to your portfolio?

Because, obviously, the Scope 1 and 2 metrics are usually quite high.

The inference from that is, should we expect your LNG portfolio to be moving towards more offtake activity versus the equity production going forward?

Biraj, thank you.

Murray will take the noncontrolling interest question.

On LNG and emissions in general, we should not use emissions reduction as a proxy for no new investments into hydrocarbon projects.

So you will continue to see this company invest in hydrocarbon projects, sanction new ones, including LNG projects as we high grade the portfolio in a value sense.

So we will deliver on our targets of reducing production, but that does not mean that there won't be new investment, including in LNG as we will -- as you are seeing in West Africa with us today.

So hopefully, that helps there.

Murray, noncontrolling interest, $560 million?

Yes, yes.

Good catch, Biraj.

It's primarily the purchase of Thorntons buying out our partner ArcLight, their 100% interest.

There's some other stuff in there, too.

Just for Thorntons, we haven't advertised on that one very much on this call.

It establishes us as the leading convenience marketer in the Midwest.

We take over 208 stores fully now, 3,000 employees, blending plants and transport systems.

It allows us to integrate the back office with ampm as well as supply logistics and trading.

And we can streamline all the product offers that we have.

For those, we haven't really talked about it much, but EBITDA growth has been 20% per year from 2018 to 2020 inside Thorntons.

It is a tremendous business.

And we're super, super excited to take it over 100% and expand it in the United States.

It is a growth machine.

Yes.

Just on that point.

Is there anything else of a similar vein that's already been agreed that would impact the 4Q number?

In terms of acquisitions?

Yes, yes.

Those things that pop up.

No.

No.

Thanks, Biraj.

We'll take the next question from Bertrand Hodee at Kepler.

Bertrand.

Yes.

In fact, I have just one left.

We've talked a lot about LNG and the -- but not a lot about the gas pipe.

And I'm thinking about Shah Deniz Phase 2. Can you update us on the -- how much gas is flowing to Europe?

And how should we think about the evolution of your natural gas price realization?

Because when I look at your disclosure, obviously, there is Europe gas price realization.

But that does not include Shah Deniz, I guess, because your natural gas price realization are based on the origin and not on the destination.

So how should we think about your exposure to strong European natural gas price going forward, especially through Shah Deniz?

Very good.

I'll let Murray top and tail this one or tail this one.

But I think first of all, Shah Deniz is doing very, very well.

So we just had what we call third gas, the start-up of another cluster of gas in that business.

I think we're doing about 10 BCMA of exports into Europe from what I understand.

And I think we had a good quarter with Shah Deniz gas coming into Europe.

I think 40% of the Shah Deniz gas flows to Europe.

So I think it's a strong business.

Of course, we've always said in the past that our gas business is split.

About 1/3 of it is a hub business, more of a Henry Hub type business, 1/3 of it is a domestic business like we have in Oman, and 1/3 of it is an LNG type business.

So it is a more balanced portfolio.

Murray, anything you wish to add on Bertrand's question?

Yes, Bertrand.

So Shah Deniz provides power domestically through natural gas in Azerbaijan, about 20% from memory, about 40% into Turkey and 40% into Europe.

With Europe, we get the netback straight back to Azerbaijan.

And interestingly, the Turkish prices are about netback with Europe as well.

So it's enjoying pretty nice profits in the second -- third quarter, sorry, much higher than we ever would have forecast when we sanctioned from that project.

And that's why we like these big infrastructure projects.

They give you tons of upside optionality.

While also providing Europe with much needed gas.

Absolutely.

So yes.

Good.

Thanks, Bertrand.

Thanks, Bertrand.

We'll take the next question from James Hubbard at Deutsche Bank, James.

Two high-level questions, I guess, since I think all my detailed questions are answered.

One is, on the superfast charging or ultrafast charging in the U.K., are you able to benefit at all from the government funding announced for that about a year or 1.5 years ago?

I think that they earmarked 1 billion funds to aid the rollout of motorway-enabled ultrafast charging.

So do you get to benefit from that at all?

And secondly, all the theme of green energy and the exciting strategy and -- that you are undertaking and where the industry is going, I can see how that would be very attractive to graduates.

But when it comes to oil, how are you finding it in terms of attracting the top talent or the talent that you want to manage what is going to remain a very large oil producing business for years to come?

I see this as now a signing bonus on your website for graduates.

So I'm wondering, how are you facing that particular challenge?

Is it an issue at all or not?

Thank you very much for the question.

On the charging infrastructure in the U.K., I think the majority of the government funding is going for broader infrastructure projects.

And what we mean by that is, there are a lot of things that need to be done to upgrade the grid and the transmission systems and the connections.

So if you're a fleet provider and you want to put in a number of charging points near your factory or near one of your depots, that's where the cost can get quite high, and that's where I think a lot of the government funding is focused.

We tend to be able to do our own investments on our own basis.

And so that's what I would say to that.

On graduates, did you get a sign-on bonus, Murray, when you [got hired] as a graduate?

As a graduate?

Yes.

Yes.

You did?

Okay.

All right.

I don't think I did, but Murray's was worth it.

It's a very good question.

And the reality is that we're not struggling to attract people in.

And actually, obviously, there are people who still want to join the hydrocarbon business.

It's a great business that we have.

But I think they also want to join a company that has more than a hydrocarbon strategy and that has a broader strategy in that they see that they can, A, work for a company that has a bigger role in the transition; and B, over time, they can think about if they want to evolving their career so that they have more career choices.

So today, I certainly don't hear any noise inside the company of us struggling to attract graduates into our hydrocarbon business.

I would say anything but.

And in terms of recruitment more generally, one of the things I'm most pleased about in the last 12 months is the number of senior executives that we've managed, over 20 now, to bring into the company.

And I can almost guarantee that not one of them would have joined if we had kept a hydrocarbon-only strategy.

So great to see us attracting talent in and being a place that people want to come and work, as evidenced by Anja Dotzenrath joining us from RWE.

She could have probably worked for any renewable company in the world.

And she chose to come and work for BP, which I'm incredibly grateful to her for.

And our job is to live up to that.

So back to you, Craig.

Thanks, Bernard.

We will take the last 2 questions, and thanks for being patient.

First of all, from Peter Low at Redburn.

Peter?

Just one more on corporate structure.

Short of a breakup, there are other transactions some of your peers are looking at to try and unlock value, such as listed a minority stake in the renewables businesses.

Is that something you would ever look at?

Or are the drawbacks you see to going down that route?

Peter, thank you.

I think we just keep coming back to the integrated energy company.

That's what we're focused on.

We believe in the integration.

We believe in BP being better together.

And I think as every quarter passes, I think that story, personally, gets stronger as we give you evidence in delivery.

And that's delivery in the cash flows of today's business and that's delivery in terms of investing in the new businesses for tomorrow.

So there are loads and loads of things out there that one could do.

Our job is to focus on what we've got, focus on execution of that.

And I hope, Peter, that you're seeing that in today's results and I hope you'll see it.

And we've every plan on showing it in the quarters to come.

Okay.

Thanks, Peter.

And the final question from Henry Tarr at Berenberg.

Good to hear your voices.

A very quick question just on LNG.

I guess on the Trinidad project, there have been some issues there.

Are they temporary or slightly more structural?

And then in terms of the future growth prospects, how are you thinking at the moment about Qatar and then further phases at Tanzania and Tortue?

Very good, Peter.

Nothing structural in Trinidad.

Murray, future in Qatar and Tanzania and Tortue?

We don't participate in Tanzania or Qatar.

You'll need to -- that's not something that we participate in.

And Tortue, we're going well with Phase 1. And we're taking a look at Phase 2 and trying to come to agreement with partners, government and our own engineers on what is the right thing to do.

So stay tuned.

Thanks, Peter.

Thanks for your patience.

Craig, anything else?

Over to you, Bernard.

Very good.

Very good.

Thanks, everybody.

Thanks, Murray.

Thanks, Craig.

Thanks to the BP team.

And thank you all for the questions.

I hope you would agree, it's been another good quarter.

We're focused on the day job, what we control, executing the strategy.

And it's a sort of a day-by-day, week-by-week, quarter-by-quarter job.

I think the team here at BP, if you don't mind me saying, is doing an awesome job.

And I think there's a bit of track record coming through now.

We're confident in the cash generation of the company.

At these prices, it really is a cash machine.

And we remain absolutely committed to our buybacks and our guidance for 2021.

So look, we're just staying the course.

And as I said in a boring sort of way, we're sticking to our mantra of performing while transforming.

We feel that it works for us.

We feel that it works for our investors.

And we feel that with each passing day and quarter, as long as we continue to deliver, which is what our job is, and hopefully, you're seeing that we do, we think we're in pretty good shape.

So thanks for the time.

And if we don't talk to you, in the meantime, have a great break toward the holidays.

And we'll be in touch in 2022, even though I'm sure we'll talk in the meantime.

Thanks, everybody.

Take care.