Financial Community Webcast and Conference Call. I now hand over to Craig Marshall, Head of Investor Relations.
Good morning, everyone, and welcome to BP's Q1 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 UK 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. Good morning and welcome everyone. It's great to have you join us today. As ever, I hope everyone is staying safe and in what continues to be the most challenging of times. Today, we report our Q1 results and it has been a strong quarter.
We're making great progress right across the business, Underpinned by our continued focus on what we call performing while transforming. And this starts with safety, Our core value. As part of our strategy, we have harmonized our safety leadership principles, which define our safety culture And how we expect everyone to lead with care and with trust and speak up at its foundation. This has my personal oversight at our Group Operating Risk Committee, Which I chair. We're seeing good progress.
Staff in essential roles are beginning to return to the office in the field. Our maintenance activity levels are broadly back to pre pandemic levels and we have focused our assurance activities on our biggest risks During this time of change and we continue to support our staff, our frontline workers as well as those who continue to work remotely, Remaining focused on their health and well-being during this unprecedented period. This supports our operational performance, Which continues to be resilient and is an underpinned to strong financial delivery. As we like to say, a safe business is a good business. In the Q1, cash flow was strong with an inflow of around $11,000,000,000 including the accelerated disposal proceeds.
As a result, net debt reduced by $5,600,000,000 and we achieved our target of $35,000,000,000 during the quarter, Around 1 year earlier than expected, we are commencing share buybacks during the Q2, starting with the intent to offset the full year dilution From employee share schemes, and Murray will talk more about this shortly. And at the same time, we continue to make disciplined progress executing On our strategy, including continuing the rollout of our single operating model to drive efficiency throughout our organization, Strengthening our position in offshore wind here in the U. K. And accelerating the development of our electrification agenda in Europe. So overall, we're in good shape and I'm encouraged by the progress we are making in support of our proposition to deliver long term shareholder value.
I'll come back in a little while to share some more about how we are advancing our strategy. But let me first hand you over to Murray To take you through our results and provide more detail on our financial frame, Marley?
Thanks, Bernard. As usual, let me start with the environment. Oil price rebounded in the quarter with Brent averaging $61 A 38% increase from the 4th quarter. We expect oil prices to remain firm as demand improves, driven by strong growth in the U. S.
And China, The ongoing vaccine rollout programs and supported by continued supply intervention by OPEC plus The Henry Hub gas price averaged $3.50 up from $2.50 in the 4th quarter. The increase was due to Storm Yuri in the middle of February, Which resulted in very high gas demand, combined with a substantial drop in production, pushing prices to record levels. And refining margins improved. BP's RMM averaged $8.70 up from $5.90 in the previous quarter, Supported by improved U. S.
Margins following storm Yuri disruptions and the higher cost of renewable fuel credits in the U. S. As demand improves, refinery utilization rates are expected to increase. Although with net capacity additions of almost 1,000,000 barrels per day in 2021, We expect industry refining margins to improve compared to 2020, but remain below pre COVID levels. Looking to the Q2 of 2021, Raw's refining margins are expected to show a smaller improvement due to the slower recovery in diesel and jet demand.
In addition, Before I turn to results, let me remind you that this is the Q1 reporting under our new segmental structure. Further details on this and our new disclosure framework, including restated and resegmented data for 2019 2020 can be found on bp.com. I also want to draw your attention to a change in accounting presentation commencing this quarter. As previously disclosed, We have moved to net presentation of certain derivative contracts related to our trading business. While this is a significant change to revenue and costs, It has no impact on replacement cost profit or cash flow.
Moving then to BP's underlying results. In the Q1, we reported an underlying replacement cost profit of $2,600,000,000 compared to $800,000,000 a year ago and $100,000,000 in the Q4 of 2020. Compared to the Q4, the result reflects an exceptional gas marketing and trading performance, notably from LNG And the impact of Storm Yuri in the U. S. The result also reflects significantly higher oil prices and higher refining margins.
And of course, my favorite figure on the slide, in the last four quarters, net debt has fallen from over $51,000,000,000 to around $33,000,000,000 in the 1st quarter. Finally, the Q1 dividend payable in the 2nd quarter remains unchanged at $0.0525 per ordinary share. Turning to cash flow and the balance sheet. Operating cash flow of $6,100,000,000 was underpinned by strong business performance And included a working capital build of $1,200,000,000 with $500,000,000 of severance payments. This build was largely offset by other timing differences.
Cash flow was supported by the earlier than anticipated delivery of disposal proceeds with $4,800,000,000 of disposal proceeds realized in the Q1. We now expect proceeds for the year to reach $5,000,000,000 to $6,000,000,000 during the latter stages of 2021. Our target of €25,000,000,000 of disposal proceeds between the second half of twenty twenty and twenty twenty five Is now underpinned by agreed or completed transactions of around $14,700,000,000 with approximately $10,000,000,000 of proceeds received. During the quarter, capital expenditure was $3,800,000,000 Of this, dollars 1,200,000,000 was one off expenditures, Including the final payment to Equinor related to the formation of our U. S.
Offshore wind joint venture and the initial payment following our success in the UK Offshore Wind Lease round. We continue to expect capital expenditure around $13,000,000,000 during 2021, including in organics. Reflecting the strong cash flow delivery, net debt fell by $5,600,000,000 during the quarter to $33,300,000,000 Surplus cash flow of $1,700,000,000 was generated during the Q1 after reaching our $35,000,000,000 net debt target. Looking ahead to the Q2, we continue to expect cash flow to be impacted by the $1,200,000,000 pretax annual Gulf of Mexico oil spill payment, Further severance payments associated with our reinvent program and a smaller improvement in realized refining margins relative to the quarter to date rise in As a result of these factors, we expect a cash flow deficit in the second quarter. Having reached $35,000,000,000 net debt target, we now progress to the 2nd phase of our financial frame.
We have a clear set of priorities for the uses of cash and a disciplined approach to capital allocation to support the delivery of our strategy. Our first priority is a resilient dividend intended to remain fixed at $0.0525 per ordinary share per quarter, subject to the Board's discretion each quarter. 2nd, having reached $35,000,000,000 net debt, we now retire this target. We remain committed to maintaining a robust balance sheet with a Strong investment grade credit rating. 3rd, capital investment.
We expect CapEx of $14,000,000,000 to $16,000,000,000 per year during the second phase, Including inorganic spending. However, we continue to expect CapEx of around £13,000,000,000 including inorganics during 2021. And finally, share buybacks. We're introducing an intent going forward to offset dilution from vesting of awards under employee share schemes Through buybacks, surplus cash flow is now defined after the cost of buying back these shares. In addition, having reached our net debt target, we remain committed to allocating at least 60% of surplus cash to share buybacks, Subject to maintaining a strong investment grade credit rating.
In considering the quantum of buybacks, the Board will take account of the cumulative level of And outlook for surplus cash flow, with the intention to provide guidance on a quarter forward basis, while macro uncertainties remain. Now let me explain how we plan to implement our distribution policy in 2021. First, our priority of a resilient dividend remains unchanged. 2nd, this quarter, we intend to offset through buybacks the expected full year dilution from the vesting of awards under employee share schemes At a cost of around $500,000,000 3rd, for 2021, the Board is committed to using 60% of surplus cash for buybacks subject to maintaining a strong investment grade credit rating. We plan to allocate the remaining 4% to continue strengthening the balance sheet and support our credit rating.
4th, given continued macro uncertainty and the expected second quarter cash outflow, We will provide an update on our 3rd quarter buyback plans at the time of the second quarter results, taking into account the surplus cash in the first half of the year, As well as the outlook for surplus cash. In the second half of the year, we expect to generate surplus cash Above an oil price of around $45 per barrel with an RMM of around $13 per barrel and Henry Hub of $3. Looking ahead through 2025, we believe our approach to dividend and buybacks provides for attractive total distributions per share With upside to higher prices. Thanks for listening. And now let me hand back to Bernard.
Great. Thanks, Murray. As I mentioned earlier, In addition to driving performance of the business, we've been making disciplined progress in advancing our strategy. I thought it might be helpful to share some examples with you. Let me start with some highlights from the quarter and then I'll look at 3 examples in a bit more depth And we'll then have time to take your questions.
This slide shows the progress we have made so far this year From taking delivery of the Argus platform in Texas after a 16,000 mile journey across the world To planning the largest blue hydrogen project in the UK. I won't call out everything in detail, but I do want to emphasize some key points. Starting with the cash engine, resilient and focused hydrocarbons. 2 new major projects are now online, Further underpinning our production target of 900,000 barrels equivalent a day by the end of this year. First, the Raven project in Egypt.
This is a significant milestone and is expected to continue to ramp up throughout this year to deliver around 140,000 barrels a day oil equivalent of high margin Production capacity. 2nd, the KGD-six satellite cluster in India, the second of 3 projects we are developing with our partner Reliance. At peak, the projects are expected to produce around 65,000 barrels oil equivalent a day net, enough to meet around 15% of India's gas demand. And in the Gulf of Mexico, the Mad Dog Phase 2 Argus platform arrives safely in Texas. Once online, the project is expected to deliver around 65,000 barrels a day equivalent to BP, supporting high margin growth Through 2025.
In addition, we recently announced an oil discovery at the Puma West prospect near Mad Dog, Further highlighting the strength of our business in the region. Turning to low carbon electricity and energy. During the Q1, we increased our hopper of offshore wind and solar opportunities by 15 gigawatts, while continuing to high grade, Turning down projects that did not meet our strategic or returns requirements. Net to BP, our hopper now stands At 35 gigawatts of opportunities, that could be progressed into our renewable pipeline. During the quarter, we grew our pipeline of identified projects by 3 gigawatts, including 1.4 gigawatts of solar pipeline And preferred bidder status on 1.5 gigawatts awarded in the UK Offshore Wind Lease Round 4.
I will come back to talk about this in more detail shortly. Our pipeline now stands at 13.8 gigawatts, firmly underpinning our 2025 And we also announced our plans to develop the UK's Largest blue hydrogen facility targeting 1 gigawatt of production by 2,030. Integrated with the BP operated NetZero T side And Northern Endurance Partnership, this project marks an important step in BP's hydrogen business and would significantly contribute to the UK's 10 point plan. We have also continued to extend our partnerships with countries, cities and industries, recently signing a memorandum of understanding With Infosys in India, together we will explore development of a digitally enabled energy as a service offer at Infosys campuses, Which could later be scaled to industrial parks and cities. And finally, we continue to advance our convenience and mobility strategy.
Compared to the same period a year ago, we have added around 300 strategic convenience sites and increased our convenience gross margin by over 10%. Electrification is core to our next gen mobility strategy, and we have announced plans to work with a number of OEMs such as BMW, Daimler and Volkswagen Group to increase the scale, reach and utilization of our EV network. Let me now explain how these announcements come together to Under pen delivery of our EV agenda. Our EV customers want fast, convenient, reliable and seamless charging Integrated with leading convenience offers and services. To deliver this, our strategy is to provide The fastest, most convenient and reliable network of chargers situated in advantaged locations have leading edge digital technology And drive higher EV adoption and utilization of our network.
By 2,030, we aim to have more than 70,000 BP EV charging points and expect to have grown margin share from convenience and electrification to around 50%. So how are we progressing? We already have an established presence in the UK, Germany and China, And we need to continue to rapidly scale up to meet growing customer demand. The announcements we have made this quarter clearly demonstrate that we are in action And leveraging our integrated model, particularly in Europe. First, our announced investment in digital charging solutions alongside Daimler And BMW, through apps and in car dashboards, DCS connects millions of EV drivers To a European network of nearly 230,000 charging points.
Through our investment, BP's network of 8,700 charging will be integrated with those of DCS. We expect this to drive up our utilization rates and increase footfall at our convenience stores. 2nd, in Germany, we are accelerating deployment of ultra fast charging points at our Rall retail sites. We plan 500 ultra fast charging points at our sites by the end of this year, and we expect to capture significant integration value with our convenience offer. 3rd, we have recently signed a memorandum of understanding with Volkswagen Group To explore the expansion of ultrafast EV charging networks and the integration of our own charging networks into their vehicles across Europe.
This has the potential to add a further 8,000 charging points by 2025. And finally, BP PULSE has announced The rollout of EV only ultrafast charging hubs in the UK with the first due within a year. As we build scale, we expect to create significant demand for electrons and the opportunity for integration synergies with our Renewable Power business. For example, we plan to grow the BP Pulse network to 16,000 charging points by 2,030, Creating around 1 terawatt hour of annual demand. And by 2,040, even in our low case, Electron demand from our EV charging network in the UK could underpin over half of our net output From the recent UK round for offshore wind lease awards, creating uptake optionality And further supporting our aim to be the most efficient price setter in EV charging.
In summary, we know what our customers want, We have an integrated strategy designed to meet their needs. The progress we have made this quarter is a clear demonstration of that. We are expanding our network to help drive the adoption of EVs and provide customers with a great experience, And we are leveraging the power of partnerships to enable better and faster utilization of our network. And we are moving at pace to keep up with this fast evolving market. We believe this strategy We'll underpin our aim in convenience and mobility to nearly double EBITDA by 2,030 from £5,000,000,000 in 2019 and deliver 15% to 20% returns.
Turning to offshore wind. In the 9 months since launching our strategy, we've made good progress, Growing our offshore wind pipeline to 3.7 gigawatts net to BP and materially growing our hopper. Some have asked us about our strategy and why we believe we can deliver attractive returns. To explain, I'm going to talk about the UK, Where we have been selected as the preferred bidder for 2 leases in the Irish Sea along with our partner EMBW. We believe this is an advantaged project which compares favorably to other leases offered in Round 4.
It benefits from 4 key attributes: 1, advantaged wind resources 2, a favorable location, optimal connection to infrastructure will enable lower connection costs and stronger operating reliability 3, less complex consenting and grid connection issues, which should result in a shorter development cycle time And 4, adjacent leases offer opportunities for synergies in execution and operations. We expect this project to meet our investment threshold of 8% to 10% returns. Our integrated model gives us confidence that we will deliver value from this project. A few examples: the development phase will benefit from our centralized Offshore supply chain using our scale and experience to manage costs and supplier relationships, for example, with turbine manufacturers And decades of offshore project management experience will help us plan and execute the projects efficiently. In the operational phase, we will use technical skills established during 10 years of onshore wind operations, including our digital know how.
Finally, in the offtake phase, our world class trading organization will utilize our expertise in power markets To manage risk and market access optionality, likely to include CFD mechanisms, we are building a portfolio of customer demand contracts with companies like Amazon and supply agreements with customers such as Pure Planet and Utilita. And in our own business, we are creating demand pools which will allow us to establish integrated value chains. Through our rapid expansion in EV charging that I described earlier, The potential electrification of our offshore oil and gas facilities and in the longer term, the potential for green hydrogen underpinned by the optionality Of a 60 year offshore wind lease term, in summary, our integrated model gives us confidence in achieving 8% to 10% returns And accessing multiple sources of upside. Turning to our single operating model, the most significant change to come from our new organization We see a huge prize in running operations across the whole group in one place. This includes oil wells, Refineries and Offshore Wind Firms.
We expect this to significantly contribute to $1,500,000,000 of annual cost savings Drive improved reliability and availability and create integration value as we leverage our capabilities into low carbon energy. So how do we plan to achieve this? 1st, through a centralized and standardized approach to development and operations. While we had centralized teams in our Upstream Oil and Gas business, our operating model is now being extended to all of our businesses, including refineries and low carbon. Through our newly created BP Solutions team, we are sharing best practices across our global portfolio, deploying our best experts to work on our biggest opportunities In order to add value, here are 2 great examples from the last 3 months.
We've taken furnace experts from our European refineries To support the safe start up of our Raven major project and we've deployed compressor expertise from the Whiting Refinery To a construction yard in Mexico to support the commissioning plan for the Cassia compression major project. And looking to our low carbon business, In addition to leveraging our established supply chain and project management experience in offshore wind, hydrogen CCUS and biofuels are other areas where Our existing capabilities and integrated single operating model can create a competitive advantage. 2nd, we are in action to change the way we work. Following a successful pilot in Azerbaijan, we are now rapidly scaling the use Business agility techniques across oil and gas production and our refineries. By the end of this year, we expect to have over 14,000 people working in agile teams across 3rd, we continue to invest in digital tools as a key enabler for performance delivery and risk reduction.
We will manage production from San Face to export in an integrated fully digitized workflow assisted by our APICS and Vertex products As well as the use of digital twins across our portfolio. We're also deploying a proprietary tool called Operator Workbench. This equips field teams with mobile technology and digitized workflows to improve collaboration, safety and efficiency. Two examples. In Oman, its use has freed up thousands of hours to allow operators to focus on priority work And has reduced the amount of driving and risk of human error by signing off on work at site.
On our Atlantis platform, we're using it In our operator rounds and it has enabled savings of $1,500,000 per annum on water treatment alone. We believe the use of this integrated approach will allow us to leverage our deep skills and knowledge across all operations And we'll be at the heart of our transformation to an integrated energy company. So in summary, those are just Three examples of our strategy in action and they illustrate the momentum we see in our business. I hope they help you understand what an IEC looks like And why we believe that the energy transition represents such a great business opportunity for BP. As we transform, we will continue to share our progress with you.
And we welcome your feedback on how we can provide greater insight into our strategy. In the 9 months since launching this strategy, we have achieved a lot. We've reset BP and entered 2021 in a strong position to compete. We are leaner, flatter, nimbler and 100% focused on execution. We've delivered a strong set of results for the Q1.
Our financial frame is robust. We are committed to distributions and are commencing share buybacks in the 2nd quarter. As you can see, we are progressing our strategic agenda with discipline and a focus on value. This is what we mean by performing while transforming and how it supports the delivery of long term value for our shareholders. We're excited about what's to come and look forward to updating you more as the year goes on.
Thank you for your time today and let's now turn to your questions.
Okay. Thank you again everybody for listening. Let's turn to questions and answers. Usual guidelines from me before we start, Please do limit your questions to no more than 2. We've got a lot of people on the phone to get through.
And on that note, I We'll turn firstly to Michele Della Vigna at Goldman Sachs. Michele?
Thank you very much and congratulations on this strong result. I really had a question on dividend and cash return to shareholders. You are about to embark in a major buyback program, which If we take into account the current share price, the current oil price could effectively reduce the share count by about 20% by the middle Of the decade. I was wondering, in this context, why keep the DPS flat? Why keep it static?
I can understand why an oil and gas company wouldn't want to actually grow the commitment to the dividend Payout. But on the other side, as the share count shrinks, I was just wondering why not grow the DPS without actually increasing The dividend burden for the company, perhaps you need a bit more time to start reducing the share count now that you've reduced the level of net debt. But I was thinking, is there an opportunity where the dividend comes back to growth? And my second question is actually simpler. What are the key macro assumptions you are currently implying into your guidance for the Q2?
Thank you.
Michele, good morning to you, and I hope you and your family are well, and good morning actually to everyone on the call. Good To at least hear you all and see your names on the screen if we can't be with you in person. Michele, your Murray will dive in and help me here. Look, I think it's important to We just laid out our new financial framework on the 4th August last year. So we're 6 or 7 months in.
There were 2 stages to the framework, Phase 1 and Phase 2 today with net debt coming down, in fact, it's now down $18,000,000,000 over the pandemic period. We move into Phase 2 and we start that buyback program. Just two things that I would say around the choices that we made around the dividend and around The buybacks. Number 1, we want people to be able to rely on trust the dividend. That's why it's the first Call on cash in the financial framework.
There are 5 potential calls on cash and the dividend is the first call and that's why we call it A resilient dividend, so we want to make sure that people can rely on that and depend on that and that's what it gives us. And then secondly, we want to give them the upside that they deserve through the buyback program and with equity prices where they are today. We think that makes a whole lot of sense, buying back our shares at this price, and that's why we're very, very Delighted actually to announce the buyback program getting kicked off here in the Q2. So no change to our financial framework. The dividend policy is as stated.
The buyback program has now kicked in and we believe and believe quite strongly that In a moderate price world, as we look out over the next year or 2, investors can get back to that pre Pandemic distribution levels, cash distribution levels, and that's very possible within Certainly as we head into next year. So that's really where we're at and I wouldn't say anything beyond that at the moment. Murray, anything you'd add on that? And maybe the second question around the macro Yes,
I don't I think maybe Michele, the thing that we have to hold in mind is there's still an awful lot of surplus oil that OPEC Plus is managing right now. There's still a lot of uncertainty in the environment with the pandemic. So it's just prudence is on our mind as we think about decisions quarter on quarter. As far as your question on 2Q and what our macro assumptions are, obviously, you can take a look at what's been realized to date. I think The March April pricing is in the 60s for Brent and RMM is starting to move up a bit.
We won't realize as much of that In the Q2, given that a lot of our refineries are focused on jet fuel and of course with the WTI WCS differential in North America is remaining quite narrow. But if you think about should will we have a surplus in the second quarter, the macro assumptions around that, I think it's It's best to look at what's happened already through the quarter, and you can look at the markets to understand that for March April inside the oil business. And we publish our RMM on the website. Thanks.
Thank you.
Thanks, Michele. We'll take the next question from Thomas Adolff Credit Suisse, Thomas.
Good morning, guys. Just two questions for me as well. The first one, I guess, is just to I get a better sense for the discretionary buyback. You've mentioned you'll give us guidance with the 2Q results Looking back at the first half, but also looking forward, so are you saying with the 2Q results, we'll get the annual 2021 discretionary buyback announced? That's question 1.
Question 2 is on the disposals. You're aiming for 5 to 6 This year, and you've done almost 5 in the Q1, and you've got another 10 to go over the next few years. So I guess the question I have is why not more than the 5% to 6% since you've done already 5% and how should we think about The rest between downstream and upstream. Thank you.
Great. Thanks, Thomas. Why don't I take one around disposals and I'll let Murray take the one around the forward look on the buybacks. Look, I think, so the team's done A fantastic job accelerating those proceeds into the Q1. Things came into place for us In a few places that we hadn't quite thought would go so quickly.
So it took a lot of work and it meant that we did get Signet almost $5,000,000,000 of cash in the door in 1Q, which we're very, very pleased with, obviously. We have up to target for the year to 5 to 6. I mean the key thing going forward around divestments is We're just not in a hurry. We're just not in a rush, particularly now with net debt down $18,000,000,000 through the pandemic, Down $18,000,000,000 through the pandemic, down $5,600,000,000 in the quarter, dollars 33,300,000,000 below our $35,000,000 target. And with the buyback program, we'll continue to allocate 40% of surplus cash to balance sheet.
So The main message is there's no real rush. There's no real panic. We've got 4 to 5 years to do the next 10,000,000,000 And we'll be driven by value. And if we get great prices for assets as we think we did in Oman and What we did with pet chems, that's when we'll execute those transactions. There'll be a whole variety of things.
There'll be Upstream assets, downstream assets, there'll be infrastructure assets, there'll be things that you would continue to look for, But the main driver is going to be making sure we get value for the good assets that we have in our company, no rush to do so. And as the environment improves And things begin to stabilize over the coming months years, I also think we'll probably find a healthier M and A environment. So Main message is comfortable with where we're at, continue to focus on the balance sheet, continue to focus on value from the divestments, but importantly, No rush, value driven. Murray, Thomas' first question.
Yes. Hey, Thomas, good to hear you. So just three points around this really. First of all, we had a surplus of £1,700,000,000 in the 1st quarter. 2nd, we've said we'll have a deficit in the 2nd quarter.
In aggregate, Our sense is we'll have a surplus, but let's see how life goes. And then in the first half that is. And then for the second half of the year, the guidance we've given you is that We're breakeven around $45 oil, dollars 13 RMM and $3 Henry Hub. And that's on that glide path down to the $21,000,000 to $25,000,000 target that we talk about The 40 breakeven 11RMM and 3. So you can see we're making good progress.
It's just going to take time to continue to take costs out, To continue with capital discipline and obviously get new projects online like Mad Dog Phase 2, Tengu and growing the C and P business. So that's a little bit about the guidance points that we've given so far. We feel pretty pleased about that progress. As far as we'll think about the Q2, what we've said is while uncertainties remain and those uncertainties are the overhang on the oil supply and obviously the pace of vaccinations So while that uncertainty remains, we'll only be guiding 1 quarter ahead. We just think right now that we need to be prudent with the balance sheet.
That's Our number 2 priority once we've paid off the dividend. So we're just going to announce 1 quarter ahead. So in 2Q, when it comes to make the decision with the Board, we'll think about that first half surplus. We'll be thinking about the sixty-forty and we'll have an eye towards the future Oil price and environment and refining conditions we see in the second half of the year. Hope that helps, Thomas.
Very good. I think the only thing I could, Anne, if I could, Thomas and Murray, a question I got on the from the media this morning is somehow a suggestion that these $500,000,000 of buybacks in the 2nd quarter aren't really buybacks or words to that effect. And Of course, they are real buybacks. We've been issuing shares for employees over the last decade. And in fact, the That will be buying back in the Q2 were issued in the Q1.
So I think an equity investor would look at that as a very Positive thing. And I just wanted to clarify that, but I know you're all very much aware of that on this call. But thank you, Thomas. Back to you, Craig.
Thanks, Thomas. We'll take the next question from Jason Kenney at Santander. Jason?
Thanks and congratulations on the gas marketing and trading result and the delivery of Raven 2. Can you remind us about the overall Support for cash flow from new project startups, including Raven, by 2022 versus, I think it was 2019 when it was first announced. And The upside is thereof because of the stronger oil macro in year to date. Second question, I'm sorry, this is a bit left field. Is BP looking at or has it considered Turning its access to mature or late life upstream resources into in situ clean hydrogen production assets.
And if not, is there a reason why not?
Very good, Jason. Thank you. On the projects one, I think Murray dive in and help me out. I think we're we said we do 900,000 barrels a day of new production by the end of 2021. We're at 770 today.
Raven has just come online. It's running at about 600,000,000 a day today on its way to €900,000,000 to €1,000,000,000 through the rest of the year. We got the 2nd project on in India, satellites project. Reliance has done a very good job there. They're the operator, so that's come online.
That's a good piece of business for us. And I've actually looked over the next Out to the end of 'twenty three, we've got 14 more projects to come online actually through the end of 'twenty three and some big ones in there, Not least, Mad Dog Phase 2 in the Gulf of Mexico, and you'll have seen the photograph of the Argus facility having made its 16,000 mile trip around the world and ending up in Texas there in the last few weeks, so a big milestone. All the wells are pre drilled there. That's kind of 65 MBD net type of business. So helping the GOM approach That 400,000 barrels a day from the Gom that we talked about some time ago over the coming years, Tangu expansion, some great projects to come on in the next Couple of years as well, all supporting an increase in cash and Raven in particular quite leveraged They are Mad Dog Tengu expansion obviously very, very leveraged as well.
You can clarify if that helps you or not, but A good sweep. Murray, anything you'd add on the projects?
Yes. Jason, I don't know if you're thinking about the 35% higher margin that we talked about from our major project suite. That was if you have to go way back in time back to 2015, where we talk about this 900 MBD of projects coming Mine is at 35% higher margin than the existing base business. I think we upped that to 2016, and Craig could clarify After, but the 35% higher margin continues. And particularly this wedge coming through now Raven, Mad Dog Phase 2 and Tango Train 3, 3 very, very large projects with very high margins.
And on hydrogen, on your left field Question as you called it, I don't think it's left field. It's a good question, Jason. Look, we look at all options for all of our assets. And Clearly, if we can take advantage of a traditional asset and a late life asset and somehow Take advantage of the transition, then we will do that as those opportunities arise. You can certainly see that Potentially in the case of carbon capture and storage, we're in many ways, we'll be doing in Teesside here in the UK what I call, Taking the carbon back, the carbon that was taken out of those reservoirs will end up putting it back into some of those reservoirs and hydrogen will be part of That solution, so we continue to look at sort of all options and all uses for the assets that we have and are particularly If we can take advantage of the transition and what you see us doing here with hydrogen and carbon capture in the UK is one Such example in the Southern North Sea.
So hopefully that helps, Jason, and good to hear your voice.
Yes, thanks.
Okay. Thanks, Jason. We'll take the next question from Lydia Rainforth at Barclays. Lydia, good morning.
Thanks and good morning, everyone. Two questions, if I could. The first one just on CapEx. As you move into Phase 2 and clearly the CapEx numbers were going to move up as well to that £14,000,000,000 to £16,000,000,000 I'm just wondering how you're thinking about that and whether you see opportunities that you want to accelerate because of where the net debt numbers have got to. And then secondly, just on the U.
S. Side and the electricity side, I think there was a report yesterday that speaking with had applied for a retail license there. And in terms of that, is that a change to you actually wanting to have customers now on the electricity side? I think in the past you said that it wasn't something that you really thought would you needed. Thanks.
Hey, Lydia. Good morning. Good to hear your voice as well. Yes, indeed, this FERC application has raised some chatter in the media and amongst people. It's something that so I guess the first thing to say is there's no change in strategy.
We're certainly after customers, but our focus is predominantly on commercial and industrial customers. So that's where our focus has been and that's where our focus will remain. So zero change in our strategy and our approach. This you should think of as a local team taking a local option. I actually wasn't personally aware of the application.
That gives you a sense of the significance of it inside the company, one of many things that I'm sure are happening around the world each and every day. So Just think of it as optionality, but not a change in strategy in any dimension at all. So we can Talk more about that later if you want to, but no change to our strategy, commercial and industrial being our focus on customers. Secondly, on capital, we have moved to Phase 2. Phase 2 does imply $14,000,000,000 to $16,000,000,000 of capital guidance.
I think the key word that I would draw our attention to is discipline. I think it's Desperately important for us that we both exercise internally and demonstrate to the market Discipline as we go through this transition. And of course uncertainties Remain, as Marie said, and the world recorded its largest number of COVID cases ever On Sunday, so while those of us here in the UK and the U. S. May think we're coming out of the pandemic, that does not mean that the world is coming out of the pandemic.
That's why we made the decision to not change our capital guidance for this year. It remains at around $13,000,000,000 And as we look to next year, we'll assess The situation as we approach the end of the year and make a choice within the framework that's out there, but we are very, very focused. Murray used the word Prudent, I use the word disciplined on managing this business carefully and well, taking care of cash returns for the shareholders, Taking care of that balance sheet, while at the same time being able to transition the company and I hope that's what people have Taken from this morning's results. So hopefully that helps Lydia.
Brilliant. Thank you.
We'll take the next question from Paul Cheng at Scotia. Paul, good morning.
Hi, good morning. Thank you. Two questions. First, can you guys discuss a little bit more about the economic of your e charger business? And Also that in the configuration, I think that most of them that you're seeing included in your existing service station.
So I mean, how many e charger in each Station. So that's number 1. And second question is on your gas and low carbon business. Obviously, very, very strong. And you indicate that it's exceptional trading.
So any kind of maybe that Trying to understand that what is the underlying oil and gas operating performance within the context of in the 1st quarter When you earn 2,300,000,000, is it 600,000,000,000, 700,000,000 is on the underlying oil and gas operation result? Thank you.
Thanks so much, Paul. I'm going to give the trading question to definitely avoid saying what the trading number was to Murray in a moment, but thank you for your question. On charging, we have an ambition last year we had about 7,500 charge points in the company. We had an ambition to grow that to 70,000 By 2,030, maybe about 25,000 by 2025. Today, we're at a little over 10,000 charge points in the company.
The majority of them are in the UK around 8,500. We've got a couple of 100 in Germany on our retail sites And we've got about 1500 in China, which is around the DiDi joint venture and reminding you that DiDi is the World's largest mobility provider and the world's largest owner of electric vehicles and that joint venture is going incredibly well As we build that out, we hope to add about 500 ultrafast charging points to our Raul network in Germany by the end of the year. I think we'll get up to about 30,000 in China by the end of the decade. And our focus in the UK is around ultrafast charging, Adding about another 1,000 to 2,000 by the end of the decade here in the UK. We're also working with fleets.
So it's not just on the go, we're working with fleets here in London with Uber. We're their partner here in London. We're also their partner in Houston. And the economics of this game are obviously in their early days, But what's going to drive this is ultimately its utilization in terms of the economics of the actual Transaction itself and of course we will add to that the economics of the convenience business that we have around it. Utilization It's driven by getting people to your site.
That's why we've done a deal with DCS, which is all about the in car dashboard software for vehicles and we want to be in that Dashboard, we want to be pointing people to the BP charge stations and that's what that does. And the second thing that it relies on is making sure that there are electric vehicles out there. And for there to be electric vehicles out there, you need the infrastructure to be out there, which is why we did a deal with Volkswagen, which is looking at 68,000 charging points across Europe Over the coming years and again putting us in the dashboard of Volkswagen. So utilization is key, Building the convenience offer around the charging is going to be key. Obviously, it's key on fleets as well.
So that's a little bit of a summary of our charging Plan for the next couple of years, personally I have to say very excited about it, very excited about these partnerships with Daimler, with Volkswagen Group, Hugely, huge opportunity for us there. Murray, trading.
Yes. Hey, Paul. Look, I'm not going to satisfy you because I won't give you a number because we don't disclose numbers on trading. I'll give you the secret key that we use is average, strong, very strong and exceptional. And I think from memory, had 3 exceptional quarters over the past decade or so.
The last exceptional quarter we had was 2nd quarter of last year in oil. And obviously, we've had an Quarter on the gas trading side this quarter. So that's we just don't provide numbers. It's a choice that we've made as a Board and a management team. And I think if you just look at the run of quarters on gas and low carbon from the new disclosures we put in place, you'll be able to draw your own conclusions from that.
In terms of the underlying business, I guess, Murray, a way to look at it is the fact that in a normal trading environment, So we're not relying on exceptional trading going forward, but in a normal trading environment, this business is breaking even at $45 In the second half of the year, dollars 3 Henry Hub and $13 RMM. So that gives you a sense of we don't rely On exceptional trading to deliver the cash performance that we're delivering, we take that out of the equation when we factor in Our breakeven for the second half of the year.
And maybe the last disclosure point we can help you with Paul is we talked about on September 16th that our trading business makes about
Okay. Thanks, Paul. We'll take the next question from Biraj Borkhataria, RBC. Biraj.
Hi, thanks for taking my questions. 2, please. First one's on the €500,000,000 for the share awards. Can you just highlight whether that's the typical run rate for each year? I recall an announcement a couple of months ago Around the new strategy and offering a kind of special round to the employees.
I don't know if this is part of that or whether we should That's roughly €500,000,000 a year for this. Just wondering how to think about the run rate there. And then the second question is on some new flow overnight. Flows for Jacques Denis have been halted according to some reports due to a contract issue. So I was wondering if you could shed some light On that and what's happening there?
Thank you.
Biraj, thank you. On the share awards, What we are referring to is the ongoing equity that's issued on an annual basis. What you're referring to the announcement a couple of months back is what we call a reinvent share plan. That will not be Come equity until 2025, I think, Murray. So this is not in relation to that.
And we've been issuing This is part of our equity plan every year for the past decade. And this is the point in time where we've chosen To buy back those shares and prevent that dilution. So it's not associated with the Reinvent BP share plan, which Will become a factor in 2025 and will depend on the price and so on and so forth On that day, Chardonnay, Marie, anything you have
on that? Nothing I'm aware of. We'll check back in with you in a minute.
We'll follow back up with you, Biraj, on that. And I think just on the previous question around Gas and low carbon as well. You'll also have seen production growth in the quarter as we've got Coming
out of
maintenance, but importantly as Raven has ramped up. And you'll also see lower costs in gas and low carbon In the quarter as well, so not just the trading story, an underlying business improvement story as well as an exceptional trading result in gas and low carbon. Murray, back to you on Chardonnayce.
Yes. Biraj, maybe I don't know exactly what you're referring to, but we do have a contract for Stage 1 of Chardonnayce That ends with Turkey. That might be what it's talking about. And of course, that's being renegotiated and extended. So maybe there was a press article on the contractual
We'll take the next question from Irene Harmona. Irene?
Thank you. Good morning. My first question and congratulations on reaching your Beating your net debt target is 9 months too early. But having done that, you say that you now intend to devote 40% of The new definition of surplus cash to the balance sheet. So how should we think about what you're trying to She with the balance sheet going forward.
You don't have a gearing target any longer. And I was wondering How far you intend eventually to de gear the balance sheet? And the second question, you used to disclose Cash flow and working capital, excluding Deepwater Horizon, is that still available for us to see, please? Thank you.
Very good. Murray, second question?
Yes. On Deepwater Horizon, Irene, it's gone to such a level that it's just not material anymore. In the Q2, when we make our annual payment, we'll give you a disclosure on that payment. I think you know that payment cycle of £1,200,000,000 pretax. But the overall levels just declined to such a level that we don't disclose it.
It's probably somewhere around $150,000,000 would be my guess. It was just an attempt to clean up some of our disclosures.
Great. And Murray, why don't you take Irene's first question as well around how far to delever?
Yes. Irene, I think it starts from a place of prudent and making sure that we protect the balance sheet and protect our ratings. As Bernard talked about, our first priority is that resilient dividend. Our second priority is ensuring that we have a strong investment Great credit rating having reached our €35,000,000,000 net debt target. We obviously work with all three ratings agencies, Moody Fitch and S and P.
They all describe Strong investment grade credit rating are the ratings. The mechanisms for calculation are all quite different. So it's very hard to give a specific calculation that would emulate what they do. So instead, we're just trying to focus the market on maintaining strong investment grade credit rating across those ratings agencies. We believe out of an abundance of caution due to the oil overhang and the unfolding situation with vaccines and COVID That it just makes sense to continue to de gear the balance sheet.
And so we've stated with the Board this week That 40% of surplus cash flow will go towards the balance sheet and that's the disclosure we can make at this moment in time. We're not guiding on What future targets might be. But we just think given the uncertainty in the world, it's very, very sensible that 60% of the surplus goes And 40% continues to go to the balance sheet and we'll reevaluate that at year end and communicate appropriately at year end.
Great. Thank you. 100% agree. Thanks Irene.
Okay. Thanks Irene. We'll take the next question from John Rigby at UBS. John?
Thanks a lot, Craig. Hi, guys. Can I just go back to the gas trading figure or not the figure, but The occurrence? Can you just talk a little bit about what happened? This is just basically sort of serendipity.
It just happens to be So the way you're positioned structurally benefited from Yuri or was there In the moment adjustment to capture excess returns. And if there is, and this is probably the crux of my question, Is that always going to be asymmetric, I. E. That you can always gain, but you can avoid the same kind of Exceptional losses. And I guess what I'm really concerned about is how much risk and how you're managing that risk In the gas business.
The second question, just on the comments that you made about Electrification. 2 things, I think. 1 is a question on the relationship you have with the OEMs. Is that Something that's unique to you, or is it share or can they be replicated by competitors? And then just sort of picking up on that and then the BP Pulse comment.
It just occurs to me that When you look at those things, if indeed these are sort of common agreements, how can you differentiate The supply of power to cars and not just commoditized if indeed you have the same relationship with OEMs and you're providing Power to cars without the non fuel side of the business. I'm still struggling with this concept The electrification of the transportation fleet leads to you being able to expand Your margin in the convenience space. Thanks.
Thanks, John. I'll say a few words on On Yuri and North America, I'll let Murray talk about the specifics around risk and so on. On electrification, the deal With Volkswagen places BP in the dashboard and no one else, so that's very, very clear. That's where you will get directed to A BP charge point in Europe, that is true of Daimler today or Mercedes Benz actually here in the UK today As well, so these deals are differential in that regard and the deal with DCS Will obviously put us in a prominent position on where you get directed. So that's number 1.
How do you differentiate an electron from an electron on the back of that? You differentiate it by The experience, quite frankly. If you can charge your car to go 100 miles in 10 minutes, I think that's a differentiated experience. That's why we're focused very heavily on ultrafast charging. If you have a digital solution that is End to end that is easy to use, allows easy payment, that will differentiate you.
If you have a loyalty mechanism, which we have and we're growing, That will bring you back. That will differentiate you. And if you wrap that around a convenience offer, which is differential as we think we have here in the UK with Marks and Spencer's and as we have in Germany with Harel, that will differentiate you and that's what gets you the utilization, which in turn gives you The returns, so hopefully that gives you a little bit of a sense. Is it going to become more competitive over time? Absolutely.
No question about it in my mind. And the rent will move around from maybe early on, it will be the electrons and over time will shift To the total offer, so it will become more convenient and we're preparing for that without question. But I absolutely believe that there's an opportunity to provide a differentiated service in this space. So that's a little bit on the thinking around electrification. On the North America position, You know, I think it is important that people understand that, 1st and foremost, Texas is not just a market for us.
It's our home in America and we've got thousands of employees, many of whom went without water or power For many, many days, and our first priority was to take care of them as we did, putting some of them up in hotels, providing them with During that time, our teams worked quite frankly heroically, 24 hours a day driving around the city trying to find Wi Fi At Starbucks stores, to keep the machine running, calling tens, if not a 100 utility companies to find if we could offer More ways of getting power and gas to them. So the whole focus was on maintaining as much supply To our customers as we could, operating within the market and obviously doing everything with the utmost Of Integrity. So that was very much the focus during the period. I have to say, I'm incredibly proud of how hard that team worked To do what they did and but your specific question around risk and whether we're taking on too much risk and was it Serendipity and so on, I'll leave it to Murray. Murray?
Yes, John. I think the way to think about us is we don't take short and long positions bare or naked. We have offsetting shorts and longs and the moments in time we're trading, so I'm escaping here to the highest level on oil and gas trading. We make money when we can arbitrage. So when a price goes up in say Asia, we redirect cargoes from one place to the other and we make arbitrage By moving across the different shorts and longs we have.
That business is risk managed constantly. You can imagine the complexity of the mathematical models around it And monitored daily, I get the note that shows us what risk exposure we have and how we're placing risk on and off. So it's pretty finely managed. We make sure we don't get too short or too long in any particular product for the concern that you just voiced. And I think we have a very, very strong long history of knowing how to manage these disruptions and doing well.
And of course, we had disruptions in the Q1 in
And the only thing I would add, John, is that and very clear delegations from the board in the matter of risk in this space as well, which are Actively managed, as you would expect them to be. So very strong governance in place around things like Envara and so on. So hopefully that helps, John.
Thank you, Jack.
Thanks, John. We'll take the next question from Christian Malek at JPMorgan.
Hi. Good morning, guys, and great to hear your voices. So I'm going to it's going to be back The Q3 2H buyback calibration, when you look at the variables to calibrate the buyback quantum, I think it's fair to say it's heavily priced because coal prices moved just to say $70 a barrel. The math suggests you could return up to So 2 thirds of your market cap by the middle of the decade. So what I think is a nice scenario to contemplate, I can't help wonder whether in reality, Would you prefer to reallocate excess funds into debt reduction or further debt reduction or accelerating transition CapEx?
Because I'm just trying to get a sense of how free your free cash flow is Against that slide that you've put up on upside around the buyback. The second question on trading, I get that you don't You can't quantify, but given the outsized contribution in Q1, what are the indicators you'll be looking at to get a sense of how the business will perform in future quarters? Stay right with Tango versus backwardation curve structure of price spreads, just to get a sense of the standard deviations given clearly it was outsized in Q1. Thank you.
Murray, I'll ask you to comment on trading and maybe help me out on the buybacks. I mean, look, I think, guys, it's great that I think Michele talked about 20% of our share count, I think Christian is talking about 2 thirds of our market cap by the middle of the decade. I think It's sort of great that people are thinking like that. And equally, you know, the world is still in the middle of a pandemic. There's a supply overhang and there's a lot of uncertainty around.
So we are Delighted that we have started buybacks today on the back of the hard work of the team over the last 12 months, I've been very, very focused on this and today we see some of the fruits of that work. But I think we are Also very conscious that we just laid our framework out just on August 4th and therefore it is far too early In our minds to be considering any change to any part of that, it's very, very clear. The capital framework question within that is very, very clear. And what I am particularly comfortable with is that even at $13,000,000,000 of capital this year, which we will stick to and not increase, We have the ability to do the things that we need to do to transition the business while generating the surplus Cash that enables the buybacks to be, I hope quite healthy. So we're taking it day by day.
We're taking it quarter by We've announced 500,000,000 today. We'll check back in at the end of 2Q results and we'll announce our plan for the Q3 And so on. So while those uncertainties remain, we remain very focused on taking those decisions on a quarter to quarter basis. And secondly, We're not moving or tempted to move from the financial framework that we have just set out. It's a good framework we think.
It gives us what we need and we're now going to execute on it. Murray, anything you'd add on that?
No, it's very good. And then on trading? Christian, I'll be careful in what I say here. I don't really want to give up commercial advantage. We have short and long positions when market disruptions occur.
We arbitrage between them On a temporal basis as well as a product basis. So that's the general characteristic of our trading business. I don't think I'm going to go any further in describing what we do commercially. It's just helpful for the traders if I do that. So I hope you don't mind.
I'll stop there.
Yes. And I guess our traders probably wouldn't I would say that there's more to life than serendipity as John said. So, but thanks Murray for that and Christian thanks for The question, hope that helps.
Okay. Thanks, Christian. We'll take the next question from Chris Kuplent at Bank of America. Chris?
Yes. Thank you. I've got 2 quick questions, please. One, a bit less field. Can you comment On Mexico, which seems to be stepping back a little bit from liberalization of the energy industry, have you already seen any impact?
Are you concerned on Your growth expectations and margins in the country downstream. And the second question, I'm afraid, goes back to buyback and your 60% rule. So just wanted to see whether, okay, you want to be disciplined and cautious for now, whether still the 60% payout rule, I understand correctly, you've highlighted excess free cash flow of €1,700,000,000 €500,000,000 of that is going to be allocated offsetting the employee award scheme, but then you would still be left with €1,200,000,000 So you could, for now, Already announced a 60% payout of that, which would be quite substantial. So are you saying you're going to apply that sort of maths with A half year under your belt considering your 2Q guidance. Just checking why that rule has not yet been applied And whether and when it will be?
Thank you.
Thanks, Chris. Let me see if I can have a go. It is 1H And the reason it's 1H is because we have had a very strong, whatever language you want to call 1st quarter and we have some unusual outgoings in the second quarter, particularly around the deepwater horizon. And We have chosen to look at it on a 1H basis and going forward it will be on a quarter basis as Murray has indicated. But 1H comes together At the end of 2Q obviously and we'll announce what surplus there was and what the buyback for the Q3 is there.
The 500,000,000 You can tie it to the 1.7 if you wish, but it is simply a decision that we will no longer dilute our shareholders In this way and that we will purchase repurchase those shares and that's what the basis for that decision is. But the reason for 1H rather than 1Q and 2Q Is the unusual nature of strong performance in the Q1 and some unusual outgoing items in the second quarter. Murray? Yes.
Just to clarify that, Chris. So in the second quarter, we will look at the 1H and the outlook for the second half of the year and make a decision just to be super, super clear.
And on Mexico, look, I think there's probably a lot going on in Mexico. I won't get into commenting on the politics and What is happening there? Mexico is important, but it's not like it's the Core of our growth strategy in convenience and mobility, the real area of focus really over the coming years is India where we're going from 1500 sites to 5,500 sites. And that's not to say that Mexico doesn't matter. Of course, it's a part of the story, But it's not the story.
The story in growth markets, in Convenience and Mobility in particular, is in India. And our plans take account of risks like that in both countries in countries like Mexico. And we've drawn up our plans With that risk in mind, Chris. Okay.
Thank you.
Thanks very much.
Okay. We'll take the next question from Peter Lowe at Redburn. Peter?
Hi. Thanks for taking my question.
Just one follow-up actually on the phasing of disposal proceeds. Some of the largest outstanding payments relate to Alaska, where at year end, I think you had over $4,000,000,000 of assets recognized on the balance sheet In relation to loan notes and earn out provisions, could you give any additional color on the expected phasing of payments from Hillcorp As it's quite a material moving part, as your guidance would imply, you aren't going to receive much of it this year. Thanks.
Excellent question, Peter.
Murray? Thanks, Bernard. Yes, Peter, nice to hear your voice. There are 2 components to it. There's a loan for $2,000,000,000 that I think has a 5 year duration.
So I think That will be a choice of, does it get paid out earlier? Does it get paid out in 5 years? And that's obviously a Hillcourt decision. So that's the first component of it. The rest is through your profit sharing mechanism.
I think with the strong prices we're seeing now, You should presume that the balance of payments will occur over the next 3, 4 years. Pretty hard to predict, depends on the performance of the field, the oil price, And there are ratchets in the sharing mechanism. So it's pretty hard to predict easily. But you're right To be prudent and assume ratable probably over 3 or 4 years would be my gut instinct right now. But let's see how it plays out.
There are quite a few variables in there. As you can imagine, production Moving up and down, efficiency moving up and down, weather moving up and down, price moving up and down, etcetera, etcetera. So there's a lot of moving parts in it. Hope that helps Peter.
Okay. Yes, that's helpful color. Thanks.
Thanks, Peter. We'll take the next question from Jason Gabelman at Cowen. Jason?
Thanks for taking my question. I wanted to go back to the EV strategy that you Discuss. You mentioned that the utilization guys economics. And so I'm just wondering What kind of EV penetration are you assuming in the global market To get utilization of the levels that supports profitability and given the increase In EV penetration, do you continue to install EV chartering points such that You kind of flat running EV penetration improvement and so utilization stays low until kind of The penetration starts to flatten and just wondering if that's a dynamic that could play out and potentially impact your profitability in that business.
Jason, thank you. It's a little hard to hear you, but I think I got your question and let me see if I can help with the answer. I mean, It is this classic chicken and egg. Without the infrastructure, the EVs won't come. Without the EVs, there's No need for the infrastructure, so to speak.
So but here's what we are seeing. I guess we've got 3 scenarios in our Energy outlook, business as usual, rapid transition, net zero transition. The rate of EV penetration today is probably one of the few things in the energy outlook that is actually Proceeding at a pace that is consistent with somewhere between a rapid and a net zero world. So it is actually the you know, Not the one, but one of the few that is actually proceeding at real pace. And we are seeing that in Europe in particular, and we're beginning to see it On the coasts in America, and we're obviously seeing it very much in China.
So our job is To make sure that we build the infrastructure at the pace that is consistent with not having assets that sit there doing nothing and conversely that Have lines of cars such that nobody is going to buy an EV and we think we've got that pace about right. It is important that as we do this, we're directing traffic to our charge stations, which is why these deals with Volkswagen And Daimler and DCS are so important to us because they give us the confidence to invest. They're also why these deals Well, fleets are so important to us, and that's the deal here with Uber in London. We're looking at Uber in Houston as well, and we'll continue to build Out the fleet offering as well. So we're trying to get that balance right.
It is a growth business and we need to think of it accordingly. But the world is electrifying light duty transport. I think that is now without question. And We want to make sure that we've got the right infrastructure with the right digital offer, with the right convenience offer and that we've got the right partners That allows to make the most money out of that that we can over the coming years and so far so good. I hope that gets to your question, Jason.
Okay. Thanks, Jason. We'll take the next question from Lucas Herman at Exane. Lucas?
Yes. Thanks very much, Craig. And Bernard and Larry, thanks for adding increasing insight and coherence into Integration, the way you're running the business. A couple of quick ones, if I might. In terms of cash flow, Working capital clearly worked against you this quarter, but you talk about offsets.
I just wonder whether you could indicate whether those offsetting Items are likely to reverse through the course of the Q2. On savings, Can you give us any better idea of the profile of savings by division, by business over the course of this year and into next year? I And you alluded to £1,500,000,000 of savings in the oil products or in the oil business. But just an idea how things split And Murray, just a quick one. Sorry, it's a very simple question.
It's I can't see a split at the present time of results by US, Rest of the World, etcetera, etcetera. Am I waiting for the FNOI? Or do you decide to withhold those disclosures now?
No, I think it's coming out tomorrow to your third question, Lucas. So I think that'll be out tomorrow. Is that right, Yes. Okay. So that comes tomorrow.
Look at that.
Look at that. The CEO got that one.
Yes. I know. Well, I was asking that during the week. So Lucas, thanks. We're on the same page.
On working capital, I'll let Murray talk about it and he'll probably correct me on the savings question. Just high level, $3,000,000,000 to $4,000,000,000 of savings by 2023, dollars 2,500,000,000 by end of this year, $2,500,000,000 by end of this year is ahead of schedule, so we'll deliver it this in the middle of this year, and it won't be an exit run rate. So that's going well. The program overall is going well. It's focused on the restructuring.
It's focused on agile, where we've got 14,000 people now working in agile teams and P and O, and it's focused On digital, which you're familiar with our history in that space. The majority of the savings, as you'll see from the 1.5 number, Do come from the oil and production operations area because that's where the majority of the workforce Is in many regards and where the majority of the cost is. So it is heavily weighted there. So 1.5 of the 2.5 is coming from there. And then it's probably And the remainder, it's probably 2 thirds, 1 third or maybe 2 thirds, fifty-fifty between gas and low carbon and Emma's business.
So Hopefully, that gives you a little bit of a sense, but the engine room of where the cost is consumed is obviously in the refineries and the Production Facilities and that's where the majority of the savings and opportunity quite frankly comes. Murray on working capital and any offsets?
Yes. Lucas, you spotted that a little bit. So working capital did build in the Q1, dollars 1,000,000,000 ish or something, I think was the number. Offsetting that was things like variation margin. You'll remember in 4Q, we had a big variation margin outflow on the gas side that's Come back in, in the Q1 as an example.
So the 2 are largely offsetting. I wouldn't expect too much of a working capital release in 2Q Would be my suggestion at this moment in time. And of course, Lucas, you know that it's wickedly volatile, especially with oil price, gas price, Refining margins moving around as much as they are right now. So in a steady state world between 1Q and 2Q, you wouldn't expect much release. But if there's volatility, then it'll just depend on what happens with pricing.
It'll determine which way that goes. Hope that helps, Lucas.
Yes. So, Werner, can I just come back on the cost savings very briefly? The delta between the savings you will achieve through the course of this year relative to the savings you achieved In 2020, I have benefit that you still expect. Can you give any insight?
Do I understand it quite? Murray, do you want I'm not sure I understand.
Yes. There were
I mean there are some charges. There are some costs that were deferred from last year because we couldn't get to a turnaround or something like that and we're taking those out of that cost saving number because it's a true synergistic Cost saving is what we're after, not simply a deferral of costs, but Murray?
Yes, maybe let me give this a go, Lucas. So we had 20.9 worth of total cash costs In 2019, that's what we're measuring it against. We think we said originally we'd hit a €2,500,000,000 run rate by the end of 2021. Bernard just described that probably by 2Q we'll declare victory on that. You can take a look at what our 2020 numbers were.
I think they were £18,500,000,000 I can't quite remember. £18,500,000,000 yes. And then we're saying £3,000,000,000 to £4,000,000,000 by 2023 Relative to 2019. So hopefully, if you do the math, that will give you the 2019 or 2020 and then we've given you a strong What 2021 is looking like. And just to clean up on allocation between Historic upstream gets about 60% of it, as Bernard talked about, 20% goes to historic downstream And 20% to OB and C, give or take, are the rough numbers I hold in my head for how that will shape up.
Hope that helps. And you can divide you can just take a look at the cost we can take a look at the cost inside gas low carbon versus OPO and that will give you that historic upstream split. Hope that helped Lucas. If not, I can follow-up again on the sell side call.
Thanks, Scott.
Okay. Thanks. We'll take the penultimate no, it's not. We've got 3, if I can count. We'll take the 3rd final question from James Hubbard at Deutsche Bank.
Yes. Hi. Thanks for taking my question. Two questions. We've seen peers build solar and wind Projects and then sell on stakes in various levels of aggressiveness, some in an almost Private equity like manner.
And then there's other people that build and keep it. And I'm wondering, when you talk about your 50 gigawatts by 2,030, where do you sit on that spectrum? Do you plan to build it and keep All of that because that's your future earnings that's going to replace oil as it declines? Or will you be open at some level Of aggression to taking opportunities to sell down stakes should the market allow you to make a quick return as it were. So that's one question.
And the second one is back to EVs. It seems to me as an electric car owner, the model that works right now is You park, you plug in, you charge for 10, 20, 30 minutes, you get a coffee, sit down, have a donut, whatever, go to the loo. And it doesn't seem that the average BP petrol station, even at the UK service stations, fits that model where even if it's only 10 minutes, Either people are going to sit in the car for 10 minutes or wander around the aisles buying chocolate for 10 minutes. But ideally, they have someone to sit and have a coffee. And I'm wondering if You've obviously looked at that.
Do you agree? And if so, how will you adapt to that kind of model? Or do you just think that charging will get so fast that will become redundant? Thank you.
James, thanks. I don't own an EV yet, so I need to get with the experience. I think our place is actually pretty well suited to charging, but you're obviously more closer to it than I am. But The Marks and Spencer, the convenience offer that we make, people will want to go and grab a coffee and sit down and have a donut, as you say, but they may also want to do a bit of a shop. That's we're seeing our gross margin in that business up 10% year on year, continuing to be a very strong part of the business.
We're seeing the same by the way in Germany With the REVE offer with Arauul, so I do think the our experience says that our Convenience sites are actually well suited to going and getting that coffee. And of course, if there's somewhere to sit, even better. But that is the experience that we have today, and it seems to be working. Murray, add anything on that if you wish. And then on the farm downs, which I think is what you're referring to, it's a good question.
We're not in this for a quick return, so to speak. Solar is a farm down business, so that model is very much A farm down business and that's what Light Source BP does and I have to say it does exceptionally well. The offshore wind business We feel is different. The option exists to firm down and many people Suggested that we overpaid for those Elizabeth licenses in the Irish Sea. And as I said to somebody this morning, if I had a pound for everyone who wanted to Buy into those leases having won them, we'd be doing quite well.
So there is a very strong market for these assets. But as you suggest, there is the choice between earning a quick buck, so to speak, Or actually retaining those for long term's earning streams and in offshore wind, I think we're probably more in the latter Agreed than in the former category, but we have that option. And of course, there are strategic reasons that you may want to bring in a certain partner for a certain reason That goes beyond the pure financials. So solar very much in that mode, offshore wind, I think we've got the assets to have the discussion And the options, which is great and more work to do down the road. Murray, anything to add on either?
Maybe just on the electrification. Hammersmith Roundabout It's a good place to go look at. I travel by it once a day, it seems like. EV charging bay is always full, retail always full, car wash always full. I think over time the EV charging will increase in pace given technology advancements.
And we think that some moment in time, you'll be doing 5 or 6 minute charges, which about equates to what it takes to fill up your tank with gasoline. So it's a perfect chance to go in and Sandwich or chocolate bar or coffee. So we think over time it will merge towards that. And as I look at Hammersmith, it's awfully busy. And I think It's a great example for all of us to go feel and touch and see why we believe we can move from fuel and convenience to charging inconvenience Over the coming decades in the UK and help the Prime Minister and his aspirations to move towards a low carbon economy.
And I think, James, just maybe a couple of things from me. We are starting to roll out these ultrafastcharging hubs With convenience as well, which are much more dedicated to ultra fast charging. So certainly, I think an evolution in the model there as we think about it. The benefit we have with the access to the customer network as we start to understand customer preferences, needs, So we'll be looking at that. And I think Emma Delaney and the team at the Capital Markets Day laid out You know a sense of how we see that model developing over time.
So as an EV user yourself, I think you'd recognize this model is going to evolve. So If you haven't, go back and take a look at some of what Emma and the team rolled out at the CMD. And the last thing on, I guess I'll just reiterate this. I'm sure you know this. The 50 gigawatts is developed to FID, which basically, as Bernard said, that we retain optionality from a value point of view as to what decision we take around Farndown depending on the business.
But that 50 gigawatts, as I say, is developed to FID. It's not held operating in our hands.
Right. Okay. Right. That's clear. Thank you.
Thanks. Thanks, James. We will take the real penultimate question from Oz Clint at Bernstein now.
Thank you. I was hoping for the last one. Two questions, please. Convenience and Mobility, just picking up on some of the stuff you've mentioned, 300 Strategic sites up over the last year, 1400 new retail sites in growth markets and the convenience margin is up Over 10%. But we've also had the lockdowns and I guess a lot of people using the rest of your 19,000 footprint.
So I just wanted to get a sense of how much The new locations, the new strategic centers are really driving that 10% plus margin uplift and how you're feeling about that sustainability At this point going forward. Secondly, yes, just back on UK wind. I mean, it's a helpful slide you have this morning and you mentioned people saying You overpaid. I mean, you also asked for feedback, but there's a lot of renewable companies out there saying, yes, you overpaid. There's even Other chief executives in the press saying you overpaid, which frankly isn't helping you convince investors.
So I mean, I see renewable companies announcing Returns on projects to 1 decimal place. So I'm really asking why can't you just put some of these comments to rest and say what you think the internal rate of return is On such a project, it's not the trading business. Why do you have to be so secretive?
Oz, thanks. On the 10% increase, I think retail fuel volumes are down about 9% year on year, Aviation is down 45% actually, but on the 10% gross margin on the convenience, it's the size of the basket, but more importantly, it's the value of the basket And it's also premium fuels driven during this process. And this is a business that's Scott track record of growth and I think we're optimistic Emma's optimistic that we'll continue to grow it. So It's not necessarily just about those new sites or those new conversions. It is also about what we are actually giving people in those sites, which is The quality of that basket and also the fuel offering, the premium fuels that we're giving them.
So more on that to come. And on the offshore wind one, look, it's easy to get dragged into a he said, she said, and I'm Probably not going to do that other than to say, look, we were successful. We were the winning bidder. We weren't alone. We have a partner who's Very experienced in this space, E and BW.
So we didn't do it on our own. We would also we should also point out that we were prepared to bid on Leases in the North Sea, same team, same partnership, same methodology, obviously different environment, And we would not have won those leases on the other side of the British Isles in the North Sea. So that should give you a sense that We were grounded in reality, so to speak. And as I said, lots of people coming in and wanting to buy in. You know, we can publish a return to a decimal point, but it's not going to be right because I think it's simply going to, I hope and I believe actually as get better over time and it sort of gives a level of accuracy That isn't consistent with the range of opportunities that we have To create additional returns in that business and therefore I worry personally that we'd end up underselling the value of the business.
And when I talk about Optionality, I'm not just talking about the fact that we're going to bring our decades of experience and Pretty strong project management experience to the offshore wind that we're going to bring our operating experience both offshore and Onshore wind firms and our digital tools which give us uptime and we bring our U. K. Supply chain and we bring our U. K. Relationships.
But I'm also talking about the point we made in the script today, which is about linking it into the charging business. That could be up to half, if not more. Murray thinks it could be 2 thirds of the power demand from Pulse could be offset there and we just announced the hydrogen deal. So we can take power over to the Teesside place and build hydrogen over there. So the sort of the optionality In an integrated energy company around an anchor asset like Elizabeth is or what we call Elizabeth It's absolutely and utterly fantastic and the more we learn and the more we do, the more it sort of builds and grows.
So Other than to say, look, I am supremely confident in our ability to deliver 8% to 10% returns from that project. Personally, over time, I think it'll get better than that because of the optionality that we have. And we're just going to crack on and execute on it and give people the And the milestones along the way that saying we can execute and people will judge for themselves what they think is right. But Very, very pleased with it at all and people will say what they want to say. And you know, we We're different.
We leave them to it, so to speak. So I hope that helps. So we won't publish a decimal point return, I'm sorry. But I know you're supportive of the transaction, but it's just There's just too much optionality and quite frankly there's too much upside and we'll end up underselling, undervaluing an asset in my own view. Murray, you disagree?
No, it's right. The way that I relate to this thing guys is 100 years ago people discovered oil fields, Built refineries to process it, built service stations to sell it to consumers. All you're seeing with the offshore wind is the rebuilding of that 100 year business. So the upstream isn't an oilfield anymore, it's a wind farm. It takes it through we could choose to go through utility, we can go direct to ourself.
The plants that we have will be hydrogen plants that are green hydrogen over time and the service stations are the service stations. So I think it's the recreation of a business that we've known for the past 100 years on oil and gas. And all you can say about the businesses that we built like that That the Integrated Energy Companies have made material returns on that over time, and we're convinced we'll do the same moving forward with us. I guess pure players probably can't say that.
It is different. We do have real optionality and real upside. So but anyway, Oz, good to hear your voice. Thank you.
Thank you, guys.
Okay. Thanks, Oz. And we'll take the last question from Alastair Syme. Thanks for your patience, Alastair at Citi.
Thanks, Craig, and thanks everyone for sticking around. So can you talk again about the sort of the global offshore market for wind and seabed leases? It does feel like there might be a little bit of a lack of supply versus industry demand and that's maybe driven up some of the pricing. Is that a view you share and Do you think the market dynamic is going to change at any point? And then my follow-up was just on Tortue LNG.
It's a relatively recent acquisition of the BP portfolio, but it was also a big part of the 2020 impairments. So I just wanted to get a sense of what's happening there to get to a Phase 2 and Phase 3 development?
Thank you. Alistair, thanks. I'll let Murray take Tortue, on offshore wind, it is a competitive space. There's no question about that. And You have companies like us playing that that Houston to play.
You know, our job is to compete. Our job is to bring something that others can't and therefore earn a return in a license round when others can't. And I think the more time we spend in it, and Dev's done a brilliant job in getting us into this business, we had 0, 0, 9 months ago or 8 months ago, we've got 7 or 8 gigawatt gross today. It's an extraordinary achievement, I think, In a very short space of time and he deserves a lot of credit and his team deserve a lot of credit. But our job is to be able to compete when others can't.
That's bringing things that others can. So we bring the offshore experience, and quite frankly, that is real. It is not made up. It is absolutely Real Yoon Drummond, Bill Schacht Deniz, he's now sitting on the board of our Equinor offshore wind joint venture in the United States. And we've got many more people who are gone from the upstream now working in the offshore wind business and we're going to deliver the same sort of repeatability that we delivered in the upstream over the past Several years.
And we bring the integrated energy company. And we've talked about the things that today that integrated energy company brings. So all we have to do is know what we bring and be disciplined. And yes, it's competitive. But as long as we're disciplined and we don't get carried away and We are turning down as much as we're accepting.
We'll be fine. But that discipline is a word that we keep coming back to that's going to have And that's how we'll address this. So competitive, yes. We got to know our business, which we do. We got to know what we bring.
And we got to say no When we say no. Murray?
On Tortue, yes, we did have a bit of a write down last year, you're right, based on changing views of gas prices. As far as the project itself goes, it's been tricky with COVID. We obviously had to slow down as COVID We're back to work now. We saw some fantastic pictures last week of the first pylon Being loaded out of the shore base in Mauritania and taken out to sea to start to create the breakwater Offshore, so we're glad to be back at work and out of the FM situation and working away. And we continue to optimize Phase 2 and Phase 3.
We're We're working with our partners and the government to look at how we can take those forward. I think in summary, there's a lot of gas there. It's close to Europe, so it's close to a big market. And over time, I'm sure this will be a very good investment. Bernard, anything you'd add?
No. It's all about resource The teams are doing a very good job, so the resources there and we'll continue to work it. So Craig?
Yes. That's the end of the questions. Thanks very much for the interest. We've ran slightly over, but thanks for staying with us. Maybe on that note, let me just hand back To you, Bernard, to close the call.
Well, thanks, Craig. Thanks, Murray, and thanks to all the teams that helped Put this together. Thanks for everyone online for listening. Just a bit of a close if I can. You know, as we've had many, many conversations with our investors over the last year and we've had many conversations, I think the key question On many investors' minds has not been so much about strategy, but on whether we whether it is possible to deliver cash returns, competitive cash At the same time as transitioning a company like BP and I think that's a very understandable question.
And that's why We have been focused so hard on the balance sheet, on capital discipline, on cost discipline, on bringing those major projects on, on growing that convenience business. And as the environment improves as it has, I think you're beginning to see those efforts bearing fruit and Our job is to show that over time we can do both. We can transition BP for the future While at the same time, not or at the same time deliver our investors competitive cash returns and that's why we have this phrase performing while Transforming and I hope you'll agree that I think this quarter is a great example of us doing just that. So thanks for the time. We look forward to being in touch and following up with any other questions you have.
So thanks very, very much. Take care.