Hello, everyone, and thank you for your interest in BP's fourth quarter 2025 results. I'm here with Kate Thomson, Chief Financial Officer. This video presents our full year and fourth quarter financial results, and later this afternoon in London, we will have our live presentation to discuss our full-year performance and strategic progress in more detail. In this video, 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. Over to you, Kate.
Thank you, Craig, and hello, everyone. 2025 has been a year of strong progress and delivery of the plan we set out 12 months ago to turn our company around and deliver against a reset strategy. I want to start first with safety, our number one priority. Tragically, in 2025, four colleagues lost their lives while working in our U.S. retail business. Two were killed in separate incidents where they were struck by passing vehicles as they carried out emergency roadside assistance. In response, we have permanently stopped providing roadside assistance next to active traffic lanes. Our thoughts remain with the families of those who lost their lives, and we will learn from every incident. On process safety, we continue to make progress in reducing events, which Carol will talk to later today. We recognize we are never done on safety, and our commitment is unwavering.
Looking at highlights for the year, we have delivered strong operational performance and underlying financial results this year against a backdrop of a weaker oil price environment. 2025 total underlying replacement cost profit was $7.5 billion, enabled by a record-high upstream plant reliability and refining availability, partially offsetting market headwinds. Operating cash flow was $24.5 billion, including a $2.9 billion adjusted working capital build in the year. We have demonstrated capital discipline and efficiency with a 10% reduction in capital expenditure compared with 2024, and organic CapEx reduced to $13.6 billion. Including the fourth quarter dividend of $0.0832 per ordinary share announced this morning, shareholder distributions were around 30% of our 2025 operating cash flow.
The board has decided to suspend the share buyback and fully allocate excess cash to accelerate strengthening of our balance sheet as a priority. This creates a stronger and more resilient platform to invest with discipline into our distinctive deep hopper of oil and gas opportunities. The guidance for shareholder distributions to be in the range of 30%-40% of operating cash flow is now retired. Operationally, we have had a strong year across the group. We started up seven new major projects and set a new record in upstream plant reliability. This supported broadly flat underlying production versus 2024, exceeding our guidance from 12 months ago. Our reserves replacement ratio was 90%, up from an average of around 50% in the prior two years.
Our initial estimate of the Boomerang discovery, our largest in 25 years, is that there is around 8 billion barrels of liquids in place, and as is normal at this stage, there's a wide range of uncertainty around this estimate. We are now putting plans in place for an appraisal program, which is expected to start around the end of the year. We also concluded the strategic review of Castrol with an agreement to sell a 65% shareholding. Expected total net proceeds to BP of around $6 billion will be fully used to reduce net debt following completion. This means we've completed and announced over $11 billion of divestments, more than halfway towards our $20 billion disposal program in only 1 year. Our supply, trading, and shipping business has now delivered around 4% uplift to BP's returns on average over the last 6 years.
We have delivered good progress against the primary targets we laid out at our capital markets update 12 months ago. We've increased adjusted free cash flow by around 55% in 2025 on a price-adjusted basis. Net debt at the end of 2025 was $800 million lower than at the end of 2024, and during the year, we also redeemed $1.2 billion of perpetual hybrid bonds and made $1.2 billion of pre-tax payments against our Gulf of America settlement liability. We've now delivered $2.8 billion of our $4 billion-$5 billion structural cost reduction target since the start of the program. And reflecting the outcome of the strategic review to divest Castrol, we've now increased this target to $5.5 billion-$6.5 billion by 2027.
Return on average capital employed was around 14% in 2025 on a price-adjusted basis, and that's an increase from around 12% in 2024. Let me now turn to our fourth quarter financial results, and starting with earnings, which were impacted by a broadly weaker price environment versus the third quarter. In Gas & Low Carbon Energy, the underlying result of $1.4 billion compared to $1.5 billion in the third quarter reflects lower realizations. The Gas Marketing & T rading result was average.... In Oil Production & Operations, the underlying result of $2 billion compared to $2.3 billion in the third quarter reflects lower realizations, the impact of production mix, and a lower share of net income of equity accounted entities, partly offset by lower exploration write-offs.
In Customers, the underlying result of $900 million compared to $1.2 billion in the third quarter reflect seasonally lower volumes and weaker midstream performance. Fuels margins were broadly flat compared with the third quarter. In Products, the underlying result of $500 million was broadly flat, reflecting stronger realized refining margins, offset by the impacts of lower throughput because of higher turnaround activity and the temporary impact of an incident at the Whiting Refinery. The oil trading contribution was weak. Taking all these factors together, group underlying replacement cost profit before interest and tax was $4.4 billion. So below the operating segments, our underlying finance costs were around $1.2 billion, broadly in line with the third quarter.
Our underlying effective tax rate in the fourth quarter was 43%, compared to 39% for the previous quarter, reflecting changes in the geographic mix of profits. For the full year, our underlying tax rate was 42%. Our non-controlling interest was around $300 million, $50 million lower than the third quarter. Non-controlling interest will continue to vary with the business results where we do not own 100%. As a reminder, the divestment of our non-controlling interest in our US onshore midstream assets at the end of 2025 is projected to drive a charge in the range of $100 million-$200 million per annum. Taken together, we reported group underlying replacement cost profit of $1.5 billion. As guided in our trading statement, this quarter, we have recognized impairments of around $4 billion after tax.
This, together with an inventory holding loss and other adjusting items, resulted in a fourth quarter IFRS loss of $3.4 billion. These impairment charges are related largely to our transition businesses, including biogas and renewables, where we took the deliberate decision to manage our pace of growth and high grade our portfolio to maximize returns. While these are non-cash adjustments in our financial results, we recognize that every impairment reflects a prior capital outlay. We are committed to doing better for our shareholders on capital allocation, driven by a disciplined and rigorous focus on returns as we progress only the best opportunities from our hopper. Turning to fourth quarter cash flow and the balance sheet. Operating cash flow was $7.6 billion, including about $900 million adjusted working capital release for the quarter.
Excluding the working capital release, our cash conversion improved this quarter by 6 percentage points. CapEx in the fourth quarter was $4.2 billion, of which $600 million was related to the deferred payment for the BP Bioenergy transaction, which completed in 2024. Organic CapEx in the fourth quarter was $3.5 billion, which is $700 million lower year-on-year, reflecting our commitment to capital discipline and efficiency. Divestment and other proceeds received in the quarter was $3.6 billion, bringing the full year to $5.3 billion and exceeding our initial expectations set out at the start of the year. Taken together, our fourth quarter cash inflows exceeded our cash outflows, resulting in a reduction in net debt to $22.2 billion.
Turning to guidance, and starting with the first quarter of 2026, we expect reported upstream production to be broadly flat. In Customers, we expect seasonally lower volumes, and in Products, we expect lower industry refining margins, partly offset by a lower level of refinery turnaround activity, and CapEx to be broadly flat to the fourth quarter of 2025. In terms of the full year 2026 guidance, reported upstream production is expected to be slightly lower. We expect underlying production to be broadly flat, and I'd note this is higher than the expectation we gave this time last year. Within this, we expect Oil P roduction & Operations to be broadly flat and gas and low carbon energy to be lower.
In Customers, we expect lower underlying operating expenditure, driven by structural cost reductions, partly offset by the earnings impact of completed and announced divestments, including, for example, Netherlands Mobility and Convenience. In Products, we expect significantly lower level of turnaround activity. Capital expenditure for the year is expected to be in the range of $13 billion-$13.5 billion, weighted to the first half. Divestment proceeds are expected to be in the range of $9 billion-$10 billion, including around $6 billion from the announced Castrol transaction. Total proceeds for the year are expected to be significantly weighted to the second half. Reflecting the timing of these factors, and of course, subject to macro environment and prices, we expect net debt to firstly increase through the first half of 2026, before falling significantly in the second half.
You can find the completed guidance on this slide and in our stock exchange announcement. In summary, this was another strong quarter of operational performance and underlying financial performance. We are taking decisive action to high grade our portfolio and strengthen our company, including the execution of our disposal program and the decision by the board to suspend the share buyback and to fully allocate excess cash to accelerate strengthening the balance sheet. The decisions we're taking position us to deliver long-term value growth through the distinctive opportunity set we have created in our upstream business. Carol, Gordon, and I look forward to providing further details this afternoon on our strategic progress and how we are in action in driving long-term shareholder value growth. Thanks for watching.