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 first 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. 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 first quarter 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. 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. 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 underpin to strong financial delivery. As we like to say, a safe business is a good business. In the first quarter, cash flow was strong, with an inflow of around $11 billion, including the accelerated disposal proceeds. As a result, net debt reduced by $5.6 billion, and we achieved our target of $35 billion during the quarter, around one year earlier than expected.
We are commencing share buybacks during the second quarter, starting with the intent to offset the full-year dilution from employee share schemes. Murray will talk more about this shortly. 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. 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. Let me first hand you over to Murray to take you through our results and provide more detail on our financial frame. Murray.
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 fourth 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, supported by continued supply intervention by OPEC+. The Henry Hub gas price averaged $3.50, up from $2.50 in the fourth quarter. The increase was due to storm Uri in the middle of February, which resulted in very high gas demand, combined with a substantial drop in production, pushing prices to record levels. 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 Uri disruptions and a 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 million bbl per day in 2021, we expect industry refining margins to improve compared to 2020 but remain below pre-COVID levels. Looking to the second quarter of 2021, realized refining margins are expected to show a smaller improvement due to the slower recovery in diesel and jet demand. In addition, we expect a narrower North America heavy crude differential and a higher level of turnaround activity in our [audio distortion]. Before I turn to results, let me remind you that this is the first quarter reporting under our new segmental structure. Further details on this and our new disclosure framework, including restated and resegmented data for 2019 and 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 to BP's underlying results. In the first quarter, we reported an underlying replacement cost profit of $2.6 billion compared to $0.8 billion a year ago and $0.1 billion in the fourth quarter of 2020. Compared to the fourth quarter, the result reflects an exceptional gas marketing and trading performance, notably from LNG and the impact of storm Uri in the U.S. The result also reflects significantly higher oil prices and higher refining margins. Of course, my favorite figure on the slide, in the last four quarters, net debt has fallen from over $51 billion to around $33 billion in the first quarter.
Finally, the first quarter dividend payable in the second quarter remains unchanged at $0.0525 per ordinary share. Turning to cash flow and the balance sheet. Operating cash flow of $6.1 billion was underpinned by strong business performance and included a working capital build of $1.2 billion with $0.5 billion 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 $4.8 billion of disposal proceeds realized in the first quarter. We now expect proceeds for the year to reach $5 billion-$6 billion during the latter stages of 2021. Our target of $25 billion of disposal proceeds between the second half of 2020 and 2025 is now underpinned by agreed or completed transactions of around $14.7 billion, with approximately $10 billion of proceeds received. During the quarter, capital expenditure was $3.8 billion.
Of this, $1.2 billion 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 U.K. offshore wind lease round. We continue to expect capital expenditure around $13 billion during 2021, including inorganics. Reflecting this strong cash flow delivery, net debt fell by $5.6 billion during the quarter to $33.3 billion. Surplus cash flow of $1.7 billion was generated during the first quarter after reaching our $35 billion net debt target. Looking ahead to the second quarter, we continue to expect cash flow to be impacted by the $1.2 billion pre-tax 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 our RMM.
As a result of these factors, we expect a cash flow deficit in the second quarter. Having reached $35 billion net debt target, we now progress to the second 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 the resilient dividend, intended to remain fixed at $0.0525 per ordinary share per quarter, subject to the board's discretion each quarter. Second, having reached $35 billion net debt, we now retire this target. We remain committed to maintaining a robust balance sheet with a strong investment-grade credit rating. Third, capital investment. We expect CapEx of $14 billion-$16 billion per year during the second phase , including inorganic spending. However, we continue to expect CapEx of around $13 billion, including inorganics, during 2021.
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. Let me explain how we plan to implement our distribution policy in 2021. First, our priority of a resilient dividend remains unchanged.
Second, 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 million. Third, for 2021, the board is committed to using 60% of surplus cash flow for buybacks, subject to maintaining a strong investment-grade credit rating. We plan to allocate the remaining 40% to continue strengthening the balance sheet and support our credit rating. Fourth, given continued macro uncertainty and the expected second quarter cash outflow, we will provide an update on our third 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 a 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. 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. Then I'll look at three examples in a bit more depth. 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 Argos platform in Texas after a 16,000-mile journey across the world, to planning the largest blue hydrogen project in the U.K. I won't call out everything in detail. I do want to emphasize some key points. Starting with the cash engine, resilient and focused hydrocarbons.
Two new major projects are now online, further underpinning our production target of 900,000 bbl 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 bbl a day oil equivalent of high-margin production capacity. Second, the KG-D6 Satellite cluster in India, the second of three projects we are developing with our partner, Reliance. At peak, the projects are expected to produce around 65,000 bbl oil equivalent a day net, enough to meet around 15% of India's gas demand. In the Gulf of Mexico, the Mad Dog Phase 2 Argos platform arrived safely in Texas. Once online, the project is expected to deliver around 65,000 bbl 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 first quarter, we increased our hopper of offshore wind and solar opportunities by 15 GW 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 GW of opportunities that could be progressed into our renewable pipeline. During the quarter, we grew our pipeline of identified projects by 3 GW, including 1.4 GW of solar pipeline and preferred bidder status on 1.5 GW awarded in the U.K. Offshore Wind Lease Round 4. I will come back to talk about this in more detail shortly.
Our pipeline now stands at 13.8 GW, firmly underpinning our 2025 target of 20 GW net to BP developed to final investment decision. We also announced our plans to develop the U.K.'s largest blue hydrogen facility, targeting 1 GW of production by 2030. Integrated with the BP-operated Net Zero Teesside and Northern Endurance Partnership, this project marks an important step in BP's hydrogen business and would significantly contribute to the U.K.'s Ten 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. 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, 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 underpin 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 advantage locations, have leading-edge digital technology, and drive higher EV adoption and utilization of our network.
By 2030, we aim to have more than 70,000 BP-operated EV charging points and expect to have grown margin share from convenience and electrification to around 50%. How are we progressing? We already have an established presence in the U.K., 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 points will be integrated with those of DCS. We expect this to drive up our utilization rates and increase footfall at our convenience stores.
In Germany, we are accelerating deployment of ultra-fast charging points at our Aral retail sites. We plan 500 ultra-fast charging points at our sites by the end of this year. We expect to capture significant integration value with our convenience offer. We have recently signed a memorandum of understanding with Volkswagen Group to explore the expansion of ultra-fast 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. Finally, bp pulse has announced the rollout of EV-only ultra-fast charging hubs in the U.K., 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 2030, creating around 1 TWh of annual demand. By 2040, even in our low case, electron demand from our EV charging network in the U.K. could underpin over half of our net output from the recent U.K. Round 4 offshore wind lease awards, creating offtake optionality and further supporting our aim to be the most efficient price setter in EV charging. In summary, we know what our customers want, and 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.
We are moving at pace to keep up with this fast-evolving market. We believe this strategy will underpin our aim in convenience and mobility to nearly double EBITDA by 2030 from $5 billion in 2019 and deliver 15%-20% returns. Turning to offshore wind. In the nine months since launching our strategy, we've made good progress growing our offshore wind pipeline to 3.7 GW 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 U.K., where we have been selected as the preferred bidder for two leases in the Irish Sea, along with our partner EnBW. We believe this is an advantage project which compares favorably to other leases offered in Round 4. It benefits from four key attributes. One, advantaged wind resources.
Two, a favorable location. Optimal connection to infrastructure will enable lower connection costs and stronger operating reliability. Three, less complex consenting and grid connection issues, which should result in a shorter development cycle time. Four, adjacent leases offer opportunities for synergies in execution and operations. We expect this project to meet our investment threshold of 8% - 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 projects organization, bringing our offshore hydrocarbon expertise to offshore wind. We plan to leverage our established offshore supply chain using our scale and experience to manage costs and supplier relationships, for example, with turbine manufacturers. 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. 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%-10% returns and accessing multiple sources of upside. Turning to our single operating model, the most significant change to come from our new organization structure. We see a huge prize in running operations across the whole group in one place. This includes oil wells, refineries, and offshore wind farms. We expect this to significantly contribute to $1.5 billion of annual cost savings from our hydrocarbon business by 2023, part of our $3 billion-$4 billion Reinvent BP target, drive improved reliability and availability, and create integration value as we leverage our capabilities into low carbon energy. How do we plan to achieve this? First, 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 two great examples from the last three months.
We've taken furnace experts from our European refineries to support the safe startup 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. 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. Second, we are in action to change the way we work. Following a successful pilot in Azerbaijan, we are now rapidly scaling the use of business agility techniques across oil and gas production in our refineries. By the end of this year, we expect to have over 14,000 people working in agile teams across BP.
Third, we continue to invest in digital tools as a key enabler for performance delivery and risk reduction. We will manage production from sand face to export in an integrated, fully digitized workflow, assisted by our APEX and VERTEX products, as well as the use of digital twins across our portfolio. We are 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 are using it in our operator rounds, and it has enabled savings of $1.5 million 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 will be at the heart of our transformation to an integrated energy company. 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 nine 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 first quarter. Our financial frame is robust. We are committed to distributions and are commencing share buybacks in the second 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.
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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 two. We've got a lot of people on the phone to get through. On that note, I think we'll turn firstly to Michele Della Vigna at Goldman Sachs. Michele?
Thank you very much. Congratulations on the strong result. I really had a question on dividend and cash return to shareholders. You are about to embark on 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. 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.
I was thinking, is there an opportunity where the dividend comes back to growth? My second question is actually simpler, what are the key macro assumptions you are currently implying into your guidance for the second quarter? Thank you.
Michele, good morning to you. I hope you and your family are well. 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, Murray will dive in and help me here. Look, I think it's important to realize we just laid out our new financial framework on the 4th of August last year, so we're six or seven months in. There were two stages to the framework, phase I and phase II. Today, with net debt coming down, in fact, it's now down $18 billion over the pandemic period. We move into phase II. 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 one, 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 five potential calls on cash, and the dividend is the first call, and that's why we call it a resilient dividend. We want to make sure that people can rely on that and depend on that, and that's what it gives us. Secondly, we want to give them the upside that they deserve through the buyback program. With equity prices where they are today, we think that makes a whole lot of sense, buying back our shares at this price. That's why we're very delighted actually to announce the buyback program getting kicked off here in the second quarter. No change to our financial framework.
The dividend policy is as stated, the buyback program has now kicked in. We believe, and believe quite strongly, that in a moderate price world, as we look out over the next year or two, investors can get back to that pre-pandemic distribution levels, cash distribution levels. That that's very possible within certainly as we head into next year. 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? Maybe the second question around the macro assumptions.
Yeah. 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+ is managing right now, and there's still a lot of uncertainty in the environment with the pandemic. 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 and April pricing is in the $60s for Brent, and RMM's starting to move up a bit. We won't realize as much of that in the second quarter, given that a lot of our refineries are focused on jet fuel. Of course with the WTI- WCS differential in North America is remaining quite narrow.
If you think about will we have a surplus in the second quarter? The macro assumptions around that, I think it's just best to look at what's happened already through the quarter. You can look at the markets to understand that for March and 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 at Credit Suisse. Thomas.
Good morning, guys. Just two questions from me as well. The first one, I guess, is just to 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. Are you saying with the 2Q results, we'll get the annual 2021 discretionary buyback announced? That's question one. Question two is on the disposals. You're aiming for $5 billion -$ 6 billion this year, and you've done almost $5 billion in the first quarter, and you've got another $10 billion to go over the next few years. I guess the question I have is why not more than the $5 billion -$ 6 billion, since you've done already $5 billion? How should we think about the rest between downstream and upstream? Thank you.
Great. Thanks, Thomas. Why don't I take the one around disposals and I'll let Murray take the one around the forward look on the buybacks. Look, I think the team's done a fantastic job accelerating those proceeds into the first quarter. Things came into place for us in a few places that we hadn't quite thought would go so quickly. Took a lot of work, and it meant that we did get that significant almost $5 billion of cash in the door in 1 Q, which we're very pleased with, obviously. We have upped the target for the year to $5 billion - $6 billion. 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 billion through the pandemic. Down $18 billion through the pandemic, down $5.6 billion in the quarter.
$33.3 billion below our $35 billion target. With the buyback program, we'll continue to allocate 40% of surplus cash to balance sheet. The main message is there's no real rush, there's no real panic. We've got four to five years to do the next $10 billion, and we'll be driven by value. If we get great prices for assets, as we think we did in Oman and what we did with Petchems, 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. 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.
As the environment improves and things begin to stabilize over the coming months and years, I also think we'll probably find a healthier M&A environment. 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.
Hey, Thomas. Good to hear you. Just three points around this really. First of all, we had a surplus of $1.7 billion in the first quarter. Second, we've said we'll have a deficit in the second quarter. In aggregate, our sense is we'll have a surplus, let's see how life goes. In the first half, that is. For the second half of the year, the guidance we've given you is that we're break even around $45 oil, $13 RMM, and $3 Henry Hub. That's on that glide path down to the 2021 to 2025 target that we talk about of a $40 breakeven, $11 RMM, and $3. 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, Tangguh, and growing the C&P business. 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 how we'll think about the second quarter, what we've said is while uncertainties remain, and those uncertainties are the overhang on the oil supply and obviously the pace of vaccinations and COVID. While that uncertainty remains, we'll only be guiding one quarter ahead. We just think right now that we need to be prudent with the balance sheet. That's our number two priority once we've paid off the dividend. We're just going to announce one quarter ahead.
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 60/40, and we'll have an eye towards the future oil price, and the 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 add-
Thanks.
If I could, Thomas and Murray, a question I got from the media this morning is somehow a suggestion that these $500 million of buybacks in the second quarter aren't really buybacks, or words to that effect. Of course, they are real buybacks. We've been issuing shares for employees over the last decade. In fact, the shares that we'll be buying back in the second quarter were issued in the first quarter. I think an equity investor would look at that as a very positive thing. I just wanted to clarify that, but I know you're all very much aware of that on this call. Thank you, Thomas.
Yeah.
Back to you, Craig.
Thanks, Thomas. We'll take the next question from Jason Kenney at Santander. Jason.
Thanks. 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? The upsides thereof because of the stronger oil macro in year to date. Second question, 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? 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 said we'd do 900,000 bbl a day of new production by the end of 2021. We're at about 770 today. Raven has just come online. It's running at about 600 million a day today, on its way to 900 to a billion through the rest of the year. We got the second project on in India. Satellites project. Reliance has done a very good job there. They're the operator. That's come online. That's a good piece of business for us. I've actually looked over the next out to the end of 2023. We've got 14 more projects to come online, actually through the end of 2023. Some big ones in there, not least Mad Dog Phase 2 in the Gulf of Mexico.
You'll have seen the photograph of the Argos facility having made its 16,000-mile trip around the world, ending up in Texas there in the last few weeks. A big milestone. All the wells are pre-drilled there. That's kind of 65 Mboed net type of business. Helping the GoM approach that 400,000 bbl a day from the GoM that we talked about some time ago over the coming years. Tangguh 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 there. Mad Dog, Tangguh expansion, obviously 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?
Yeah, Jason, I don't know if you're thinking about the 35% higher margin that we talked about from our major project suite. You have to go way back in time, back to 2015, where we talk about this 900 Mboed of projects coming online is at 35% higher margin than the existing base business. I think we upped that to 2016. Craig could clarify that after. The 35% higher margin continues, and particularly this wedge coming through now of Raven, Mad Dog Phase 2, and Tangguh Train 3. Three very large projects with very high margins.
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, where in many ways, we'll be doing, in Teesside here in the U.K., what I call taking the carbon back. The carbon that was taken out of those reservoirs, we'll end up putting it back into some of those reservoirs, and hydrogen will be part of that solution.
We continue to look at sort of all options and all uses for the assets that we have and are particularly interested if we can take advantage of the transition. What you see us doing here with hydrogen and carbon capture in the U.K. is one such example in the southern North Sea. Hopefully that helps, Jason, and good to hear your voice.
Yeah, thanks.
Okay. Thanks, Jason. We'll take the next question from Lydia Rainforth at Barclays. Lydia, good morning.
Thanks. Good morning, everyone. Two questions if I could. The first one just on CapEx. As you move into phase II, clearly the CapEx numbers were going to move up as well to that $14 billion-$16 billion. 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? Then secondly, on the U.S. side and the electricity side, I think there was reports yesterday that BP had applied for a retail license there. In terms of that, is that a change to you actually wanting to have customers now on the electricity side? Because I think in the past you've said that it wasn't something that you really thought 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. 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. That's where our focus has been, and that's where our focus will remain. 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. Just think of it as optionality but not a change in strategy in any dimension at all.
We can talk more about that later if you want to. No change to our strategy at commercial and industrial being our focus on customers. Secondly, on capital, we have moved to phase II. Phase II does imply $14 billion-$16 billion of capital guidance. I think the keyword 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. Of course, uncertainties remain, as Murray said, and the world recorded its largest number of COVID cases ever on Sunday. While those of us here in the U.K. 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 billion. 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. We are very focused. Murray used the word prudent. I used 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. Hopefully that helps, Lydia.
Brilliant. Thank you.
Thanks, Lydia. We'll take the next question from Paul Cheng at Scotiabank. 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 is included in your existing service station. How many e-charger in each station? That's number one. Second question is on your gas and low carbon business, obviously very strong. You indicate that is exceptional trading. Any kind of maybe the trying to understand that what is the underlying oil and gas operating performance within the context of in the first quarter when you earn $2.3 billion, you said $600 million, $700 million is on the underlying oil and gas operation result? Thank you.
Thanks so much, Paul. I'm going to give the trading question to deftly avoid saying what the trading number was to Murray in a moment. 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 2030, 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 U.K., around 8,500. We've got a couple of hundred in Germany on our retail sites. And we've got about 1,500 in China, which is around the DiDi joint venture. 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 ultra-fast charging points to our Aral 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. Our focus in the U.K. is around ultra-fast charging, adding about another 1,000 - 2,000 by the end of the decade here in the U.K. We're also working with fleets. 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. 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. Of course, we will add to that the economics of the convenience business that we have around it.
Utilization is 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. We want to be in that dashboard. We want to be pointing people to the BP charge stations, and that's what that does. The second thing that it relies on is making sure that there are electric vehicles out there. 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 6,000 - 8,000 charging points across Europe over the coming years. Again, putting us in the dashboard of Volkswagen. Utilization is key. Building the convenience offer around the charging is going to be key. Obviously, it's key on fleets as well.
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. Huge opportunity for us there. Murray, trading.
Yep. 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. I think from memory, we've had three exceptional quarters over the past decade or so. The last exceptional quarter we had was second quarter of last year in oil. Obviously, we've had an exceptional quarter on the gas trading side this quarter. We just don't provide numbers. It's a choice that we've made as a board and a management team. 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, $3 Henry Hub and $13 RMM. 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 break even for the second half of the year.
Maybe the last disclosure point we can help you with, Paul, is we talked about on September 16th that our trading business makes about 2% on top of ROACE for the business. Hopefully, that helps you understand scale. Craig, back to you.
Thank you.
Okay. Thanks, Paul. We'll take the next question from Biraj Borkhataria, RBC. Biraj.
Hi. Thanks for taking my questions. Two, please. First one's on the $500 million 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 expect roughly $500 million a year for this. Just wondering how to think about the run rate there. The second question is on some news flow overnight. Flows for Shah Deniz have been halted, according to some reports, due to contract issues. 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 in the announcement a couple of months back is what we call a Reinvent share plan. That will not become equity until 2025, I think, Murray. This is not in relation to that. We've been issuing shares as part of our equity plan every year for the past decade. This is the point in time where we've chosen to buy back those shares and prevent that dilution. 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. Shah Deniz, Murray, 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. I think just on the previous question around gas and low carbon as well. You'll also have seen production growth in the quarter coming out of maintenance, but importantly, as Raven has ramped up. You'll also see lower costs in gas and low carbon in the quarter as well. 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 Shah Deniz.
Yeah, Biraj. I don't know exactly what you're referring to, but we do have a contract for stage one of Shah Deniz that ends with Turkey. That might be what it's talking about. Of course, that's being renegotiated and extended. Maybe there was a press article on the contractual situation, but Shah Deniz is flowing as far as we know. Thanks.
Thanks, Biraj.
Okay. Thank you.
Thanks, Biraj. We'll take the next question from Irene Himona. Irene.
Thank you. Good morning. My first question, congratulations on reaching your or beating your net debt target nine months too early. Having done that, you say that you now intend to devote 40% of the new definition of surplus cash to the balance sheet. How should we think about what you're trying to achieve with the balance sheet going forward? You don't have a gearing target any longer, I was wondering how far you intend eventually to de-gear the balance sheet. 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?
Yep. On Deepwater Horizon, Irene, it's gone to such a level that it's just not material anymore. In the second quarter when we make our annual payment, we'll give you a disclosure on that payment. I think you know that payment cycle of $1.2 billion pre-tax. The overall levels just declined to such a level that we don't disclose it. It's probably somewhere around $150 million, would be my guess. It's just an attempt to clean up some of our disclosures.
Great. Murray, why don't you take Irene's first question as well, around how far to de-lever?
Yeah. 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-grade credit rating, having reached our $35 billion net debt target. We obviously work with all three ratings agencies, Moody's, Fitch, and S&P. They all describe strong investment-grade credit rating or the ratings. The mechanisms for calculation are all quite different. It's very hard to give a specific calculation that would emulate what they do. 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. 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. We just think given the uncertainty in the world, it's very, very sensible that 60% of the surplus goes to shareholders and 40% continues to go to the balance sheet, and we'll reevaluate that at year-end and communicate it appropriately at year-end.
Great. Thank you. 100% agree.
Thank you.
Thanks, Irene.
Okay, thanks, Irene. We'll take the next question from Jon Rigby at UBS. Jon.
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? Is this just basically sort of serendipity? It just happens to be that the way you're positioned structurally benefited from Uri, or was there an in-the-moment adjustment to capture excess returns? 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? 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. Two things, I think. One is the question on the relationship you have with the OEMs.
Is that something that's unique to you? Can they be replicated by competitors? 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, is how can you differentiate the supply of power to cars and not just see it 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 that the electrification of the transportation fleet leads to you being able to expand your margin in the convenience space. Thanks.
Thanks, Jon. I'll say a few words on Uri and North America, and 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. 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 U.K. today as well. 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. That's number one. 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 mi in 10 minutes, I think that's a differentiated experience.
That's why we're focused very heavily on ultra-fast charging. If you have a digital solution that is end-to-end, that is easy to use, that 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. If you wrap that around a convenience offer which is differential as we think we have here in the U.K. with Marks & Spencer, and as we have in Germany with Aral, that will differentiate you, and that's what gets you the utilization, which in turn gives you the returns. 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.
The rent will move around from maybe early on it'll be the electrons, and over time we'll shift to the total offer. It will become more convenient, and we're preparing for that without question. I absolutely believe that there's an opportunity to provide a differentiated service in this space. That's a little bit on the thinking around electrification. On the North America position, I think it is important that people understand that first and foremost, Texas is not just a market for us, it's our home in America. We've got thousands of employees, many of whom went without water or power for many, many days. Our first priority was to take care of them, as we did, putting some of them up in hotels, providing them with supplies, and so on and so forth.
Having done that, we focused on how we can keep power flowing and gas flowing in North America, or in Texas in particular, 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 100 utility companies to find if we could offer more ways of getting power and gas to them. 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. 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.
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?
Yeah, Jon, 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. I'm escaping here to the highest level on oil and gas trading. We make money when we can arbitrage. 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. 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. I think we have a very, very strong, long history of knowing how to manage these disruptions and doing well. Of course, we had disruptions in the first quarter in Asia and the United States.
The only thing I would add, Jon, 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. Very strong governance in place around things like MVAR and so on. Hopefully that helps, Jon.
Thank you. Yeah.
Thanks, Jon. We'll take the next question from Christyan Malek at JP Morgan.
Hi. Good morning, guys, and great to hear your voices. It's going to be back to 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 pro- cyclical and the full price is maybe just to say $70 a barrel. The math suggests you could return up to sort of 2/3 your market cap by the middle of the decade. While that's a clearly 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? 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 can't quantify, 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? Whether contango versus backwardation curve structures or 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 think, guys, it's great that Michele talked about 20% of our share count. I think Christyan is talking about 2/3 of our market cap by the middle of the decade. I think it's sort of great that people are thinking like that. Equally, the world is still in the middle of a pandemic. There's a supply overhang, and there's a lot of uncertainty around. 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 focused on this, and today we see some of the fruits of that work.
I think we are also very conscious that we just laid our framework out just on August the 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, Christyan, within that is very, very clear. What I am particularly comfortable with is that even at $13 billion 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. We're taking it day by day. We're taking it quarter by quarter. We've announced $500 million today.
We'll check back in at the end of two key results. We'll announce our plan for the third quarter and so on. While those uncertainties remain, we remain very focused on taking those decisions on a quarter-to-quarter basis. 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. We're now going to execute on it. Murray, anything you'd add on that?
No, it's very good.
On trading.
Christyan, 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. 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 not helpful for the traders if I do that. I hope you don't mind. I'll stop there.
Yeah, I guess our traders probably would say that there's more to life than serendipity, as Jon said. Thanks, Murray, for that. Christyan, thanks for the question. Hope that helps.
Okay. Thanks, Christyan. We'll take the next question from Chris Kuplent at Bank of America. Chris.
Yeah, thank you. I've got two quick questions, please. One, a bit left 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? The second question, I'm afraid, goes back to buyback and your 60% rule. 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 $1.7 billion, $500 million of that is going to be allocated to offsetting the employee award scheme. You would still be left with $1.2 billion. You could, for now, already announce a 60% payout of that, which would be quite substantial.
Are you saying you're going to apply that sort of math with a half year under your belt, considering your 2 Q 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 1 H, and the reason it's 1 H is because we have had a very strong, whatever language you want to call it, first 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 1 H basis, and going forward it will be on a quarter basis, as Murray has indicated. 1 H comes together at the end of 2Q, obviously, and we'll announce what surplus there was and what the buyback for the third quarter is there.
The $500 million, you can tie it to the $1.7 billion if you wish. It is simply a decision that we will no longer dilute our shareholders in this way and that we will purchase, repurchase those shares. That's what the basis for that decision is. The reason for 1H rather than 1Q and 2Q is the unusual nature of strong performance in the first quarter and some unusual outgoing items in the second quarter. Murray.
Yeah, just to clarify that, Chris. In the second quarter, we will look at the 1 H and the outlook for the second half of the year and make a decision, just to be super clear.
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 1,500 sites to 5,500 sites. That's not to say that Mexico doesn't matter. Of course, it's a part of the story. 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 countries like Mexico. 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 Low 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 billion of assets recognized on the balance sheet relating to loan notes and earn-out provisions. Could you give any additional color on the expected phasing of payments from Hilcorp, 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. Peter, nice to hear your voice. There are two components to it. There's a loan for $2 billion that I think has a five-year duration. I think that'll be a choice of does it get paid out earlier, does it get paid out in five years? That's obviously a Hilcorp decision. That's the first component of it. The rest is through a 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 three to four 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. You're right to be prudent and assume ratable probably over three or four years would be my gut instinct right now.
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.
Oil price
price moving up and down, et cetera. There's a lot of moving parts in it. Hope that helps, Peter.
Okay. Yeah, that's helpful . Thanks.
Thanks, Peter. We'll take the next question from Jason Gabelman at Cowen. Jason.
Yeah, hey. Thanks for taking my question. I wanted to go back to the EV strategy that you've discussed. You mentioned that utilization drives economics. 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? Given the increase in EV penetration, do you continue to install EV charging points such that you're kind of front-running EV penetration improving and so utilization stays low until kind of EV penetration starts to flatline? I'm 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. 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. Here's what we are seeing. I guess we've got three 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.
It is actually, 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. 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 with 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. We're trying to get that balance right. It is a growth business, and we need to think of it accordingly. The world is electrifying light duty transport. I think that is now without question. 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 allow us to make the most money out of that we can over the coming years. So far so good. I hope that gets to your question, Jason.
Okay. Thanks, Jason. We'll take the next question from Lucas Herrmann at Exane. Lucas.
Yeah. Thanks very much, Craig, and Bernard and Murray, thanks for adding increasing insight and coherence into integration the way you're running the business. 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 wondered whether you could indicate whether those offsetting items are likely to reverse through the course of the second quarter. 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 think you alluded to $1.5 billion of savings in the oil products or in the oil business, but just an idea how things split across the three divisions over time and where we are in terms of capturing those. Murray, just a quick one. Sorry. It's a very simple question. I can't see a split, at the present time, of results by U.S. versus the world, et cetera. Am I waiting for the F&OI, or have you decided to withhold those disclosures now?
No, I think it's coming out tomorrow. To your third question, Lucas. I think that'll be out tomorrow. Is that right, guys?
Yep.
Okay. That comes tomorrow.
Look at that. The CEO got that one.
Yeah, I know. Well, I was asking that during the week, Lucas, thanks. We're on the same page. On working capital, I'll let Murray talk about it, he'll probably correct me on the savings question. Just high level, $3 billion-$4 billion of savings by 2023, $2.5 billion by end of this year. $2.5 billion by end of this year is ahead of schedule. We'll deliver it in the middle of this year. It won't be an exit run rate. 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&O, 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 billion 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. It is heavily weighted there. $1.5 billion of the $2.5 billion is coming from there. On the remainder, it's probably 2/3, 1/3 or maybe 2/3, 50/50 between gas and low carbon and [C&P] business. Hopefully that gives you a little bit of a sense. The engine room of where the cost is consumed is obviously in the refineries, in the production facilities, and that's where the majority of the savings and opportunity, quite frankly, comes. Murray, on working capital and any offsets.
Yeah, Lucas, you spotted that little bit. Working capital did build in the first quarter, a billion-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 first quarter, as an example. The two 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. 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. In a steady state world between 1Q and 2Q, you wouldn't expect much release. If there's volatility, then it'll just depend on what happens with pricing. That'll determine which way that goes.
Hope that helps, Lucas.
Yep. Bernard, can I just come back on the cost savings very briefly? The delta between the savings you'll achieve through the course of this year relative to the savings you achieved in 2021 and 2020, the benefit that you still expect. Can you give any insight?
Do I understand it correct? Murray, do you want to?
Yeah.
There were 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 cost. Murray.
Maybe let me give this a go, Lucas. We had $20.9 billion worth of total cash costs in 2019. That's what we're measuring it against. We said originally we'd hit a $2.5 billion run rate by the end of 2021. Bernard's 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 $18.5 billion.
18 .5.
$18.5 billion. Then we're saying $3 billion-$4 billion by 2023, relative to 2019. Hopefully, if you do the math, that'll give you the 2019 or 2020, then we've given you a strong indication of what 2021 is looking like. 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&C, give or take, are the rough numbers I hold in my head for how that will shape up. Hope that helps. You can divide. We can take a look at the cost inside gas and low carbon versus OPO, that'll give you that historic upstream split. Hope that helped, Lucas. If not, I can follow up with you on the sell side call.
Okay. Thank you.
Okay, thanks. We've got three, if I can count. We'll take the third final question from James Hubbard at Deutsche Bank.
Yeah, 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. There's other people that build and keep it. I'm wondering.
When you talk about your 50 GW by 2030, 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? 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? That's one question. The second one is back to EVs. It seems to me as a 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.
It doesn't seem that the average BP petrol station, even at the U.K. 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. Ideally, they have somewhere to sit and have a coffee. I'm wondering if you've obviously looked at that. Do you agree? 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, 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. The Marks & 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. 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 REWE offer with Aral. I do think that 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.
That is the experience that we have today. It seems to be working. Murray, add anything on that if you wish. 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 Lightsource bp does, and I have to say does exceptionally well. The offshore wind business, we feel is different. The option exists to farm down, and many people suggested that we overpaid for those Elizabeth licenses in the Irish Sea. 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.
There is a very strong market for these assets. As you suggest, there is the choice between earning a quick buck, so to speak, or actually retaining those for long-term earning streams. In offshore wind, I think we're probably more in the latter category than in the former category, but we have that option. 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. 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 is 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. We think that at some moment in time you'll be doing five or six-minute charges, which about equates to what it takes to fill up your tank with gasoline. It's a perfect chance to go in and get a sandwich or chocolate bar or coffee. We think over time it'll merge towards that.
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 and convenience over the coming decades in the U.K. and help the Prime Minister and his aspirations to move towards a low carbon economy.
I think, James, just maybe a couple of things from me. We are starting to roll out these ultra-fast charging hubs with convenience as well, which are much more dedicated to ultra-fast charging. 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, et cetera. Be looking at that. I think Emma Delaney and the team at the Capital Markets Day laid out a sense of how we see that model developing over time. As an EV user yourself, I think you'd recognize this model is going to evolve. If you haven't, go back and take a look at some of what Emma and the team rolled out at the CMD.
I guess I'll just reiterate this, I'm sure you know this. The 50 GW is developed to FID, which basically, as Bernard said implies that we retain optionality from a value point of view as to what decision we take around farm down, depending on the business. That 50 GW, 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.
Oh, thank you. I was hoping for the last one. Two questions, please. Convenience mobility, just picking up on some of the stuff you've mentioned. 300 strategic sites up over the last year, 1,400 new retail sites in growth markets, and the convenience margin is up over 10%. We've also had the lockdowns and I guess a lot of people using the rest of your 19,000 footprint. I just wanted to get a sense of how much the new locations, the new strategic centers are really driving that 10% + margin uplift and how you're feeling about that sustainability at this point going forward. Secondly, just back on U.K. wind. It's a helpful slide you have this morning, and you mentioned people saying you overpaid.
You also asked for feedback, 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. I see renewable companies announcing returns on projects to one decimal place. 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's down 45%, actually. 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. It's also premium fuels driven during this process. This is a business that's got track record of growth, and I think we're optimistic and as optimistic that we'll continue to grow it. 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. More on that to come.
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, EnBW. We didn't do it on our own. 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. We would not have won those leases on the other side of the British Isles in the North Sea. That should give you a sense that we were grounded in reality, so to speak. As I said, lots of people coming in and wanting to buy in.
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, Oz, get better over time. 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. Therefore, I worry personally that we'd end up underselling the value of the business. 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 farms, and our digital tools, which give us uptime. We bring our U.K. supply chain, and we bring our U.K. relationships.
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 2/3 of the power demand from Pulse could be offset there. We just announced the hydrogen deal. We can take power over to the Teesside place and build hydrogen over there. The optionality in an integrated energy company around an anchor asset like Elizabeth is or what we call Elizabeth, is absolutely and utterly fantastic. The more we learn and the more we do, the more it sort of builds and grows. Other than to say, look, I am supremely confident in our ability to deliver 8%-10% returns from that project.
Personally, over time, I think it'll get better than that because of the optionality that we have. We're just going to crack on and execute on it and give people the steps and the milestones along the way that's saying we can execute, and people will judge for themselves what they think is right. Very, very pleased with it, Oz. People will say what they want to say. We're different. We leave them to it, so to speak. I hope that helps. We won't publish a decimal point return, I'm sorry. I know you're supportive of the transaction, but 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. The upstream isn't an oil field anymore, it's a wind farm. We could choose to go through a 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. I think it's the recreation of a business that we've known for the past 100 years on oil and gas. All you can say about the businesses that we built like that is that the integrated energy companies have made material returns on that over time. We're convinced we'll do the same moving forward with this. I guess pure plays probably can't say that.
It is different. We do have real optionality and real upside. Anyway, Oz, good to hear your voice. Thank you.
Thank you, guys.
Okay, thanks, Oz. We'll take the last question from Alastair Syme. Thanks for your patience, Alastair at Citi.
Thanks, Craig. Thanks everyone for sticking around. Can you talk again about the sort of global offshore market for wind 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? My follow-up was just on Tortue LNG. It's a relatively recent acquisition in the BP portfolio, but it was also a big part of the 2020 impairments. I just wanted to get a sense of what's happening there to get to a phase II and phase III development. Thank you.
Alastair, thanks. I'll let Murray take Tortue. On offshore wind, it is a competitive space. There's no question about that. You have companies like us playing that used to play. 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. I think the more time we spend in it, and Dev's done a brilliant job in getting us into this business. We had zero, nine months ago or eight months ago. We've got 7 GW or 8 GW 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. Our job is to be able to compete when others can't. That's bringing things that others can't.
We bring the offshore experience, and quite frankly, that is real. It is not made up. It is absolutely real. Ewan Drummond built Shah Deniz. He's now sitting on the board of our Equinor offshore wind joint venture in the United States. We've got many more people who are gone from the upstream now working in the offshore wind business. We're going to deliver the same sort of repeatability that we've delivered in the upstream over the past several years. We bring the integrated energy company, and we've talked about the things that today that integrated energy company brings. All we have to do is know what we bring and be disciplined. 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.
That discipline is a word that we keep coming back to that's going to have to stay. That's how we'll address this. 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, yeah, 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 swept across Mauritania and Senegal. 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. We're glad to be back at work and out of the force majeure situation and working away. We continue to optimize phase II and phase III. We're working with our partners in 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, it's close to a big market.
Over time, I'm sure this will be a very good investment. Bernard, anything you'd add?
No. It's all about resource and marketplace, and the teams are doing a very good job. The resource is there, and we'll continue to work it. Craig.
Yeah, 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. Thanks to all the teams that helped us put this together. Thanks for everyone online for listening. Just a bit of a close, if I can. As we've had 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 it is possible to deliver cash returns, competitive cash returns, at the same time as transitioning a company like BP. I think that's a very understandable question. 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 growing that convenience business. As the environment improves, as it has, I think you're beginning to see those efforts bearing fruit.
Our job is to show that over time, we can do both. We can transition BP for the future, while at the same time deliver our investors competitive cash returns. That is why we have this phrase, Performing While Transforming. I hope you'll agree that I think this quarter is a great example of us doing just that. Thanks for the time. We look forward to being in touch and following up with any other questions you have. Thanks very, very much. Take care.