Hello, everyone, and thank you for your interest in BP's third quarter 2026 results. Today's video presentation features Meg O'Neill, Chief Executive Officer, and Kate Thomson, Chief Financial Officer. Let me draw your attention to our cautionary statement. 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 the 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. With that, over to you, Meg.
Thank you, Craig. Energy markets remain volatile, with disruption continuing to reshape commodity and product trade flows. Against that backdrop, we continue to demonstrate the strength of our integrated model, with our upstream, downstream, and trading businesses working together to optimize flows and ensure our customers get the fuels they want and need. Our connectivity, from the reservoir to the fuel pump, is a significant source of strength and resilience, particularly given our ability to connect supply with demand. Our teams have been working hard to maintain safe, reliable, and cost-efficient operations to meet the needs of our customers. We've taken action to improve performance and build a more resilient BP, and we've made good progress, but there's more to do. For example, we've seen an increase in tier one and tier two process safety events this year.
We hold ourselves to high standards on safety, and our performance needs to meet those standards. We are taking actions to learn from each event so we can improve across BP. Last week, we announced an important step for BP, with the agreement with the state of Louisiana to accelerate the delivery of our Deepwater Horizon settlement commitments, providing the state with access to these funds now and strengthening the foundation for our work in the state. Building on this, our intent now is to prioritize the use of excess cash flow to address our remaining Deepwater Horizon liabilities in full. Deepwater Horizon was a tragedy. 11 men lost their lives, and communities and the environment across the Gulf Coast were impacted. We will never forget. It changed BP. Its legacy guides us in how we operate today, with safety at the heart of everything we do.
The strategy and outlook update in December is an important milestone in updating the market on our next steps to deliver a simpler, stronger, and more valuable BP. We will explain our strategic direction, the business drivers that underpin it, and the financial framework that will guide delivery, and we will set out the metrics and targets that we'll hold ourselves accountable to for delivery. We're looking forward to the event, but for now, let's turn to the third quarter results. This quarter, we delivered a strong set of results. Some of the benefit is associated with the global macro environment, but importantly, improved operational performance allowed us to capture the opportunity. On the headlines, upstream production was 2.2 million barrels of oil equivalent per day, broadly flat on the second quarter.
Upstream plant reliability improved to 95.3%, mainly due to recovery from outages in the North Sea and Indonesia in the second quarter. Refinery throughput was around 1.4 million barrels per day, lower than the second quarter, reflecting the divestment of Gelsenkirchen. Refining availability improved to 96.5%, back above our target of 96%. We delivered $8.5 billion of underlying profit, $2.7 billion higher than the second quarter, and $14.8 billion of operating cash flow, $4 billion higher than the second quarter. Our financial obligations reduced by $9.3 billion compared to the second quarter, and we have announced a dividend per ordinary share of $0.0866 for the third quarter. While our results were strong, our focus extends beyond any single quarter. Our five priorities are designed to deliver a step change in performance and grow shareholder value.
They will also shape the strategy and outlook update in December. We are making good progress, but have a lot more to do. Starting with the balance sheet, we have delivered our net debt target ahead of plan. At the start of the year, we fully allocated excess cash to strengthening the balance sheet. Combined with strong cash generation in a supportive environment, this has reduced financial obligations by around $16 billion since the first quarter. However, our financial obligations remain too high on an absolute basis and relative to our size. Alongside the announcement regarding our Deepwater Horizon liabilities, we will continue to maintain our focus on reducing our financial obligations. This is an important opportunity to fix the balance sheet, and we intend to do just that. The strong balance sheet sits at the core of our capital allocation framework.
It should provide resilience in a low-price environment while enabling us to deliver stronger returns to shareholders and to invest to grow the business as conditions allow. We have a clear philosophy focused on three priorities. First, we recognize the importance of a committed dividend. This is our first call on cash flow. Our shareholders need to have confidence that we will deliver the dividend through the cycle. Second, the dividend needs to be supported by disciplined through-cycle investment so that we can optimize asset performance and maximize cash flows. As we look to grow the value of the company, we will invest in value-adding growth where we see accretive and distinctive returns. Third, the upside can be shared with shareholders, and we view share buybacks as a tool we can use to reward shareholders as and when appropriate.
This philosophy will guide us as we look forward, and we will provide more detail on this frame in December. Moving on to our second and third priorities, to simplify the portfolio and invest with greater discipline. Over the past six to nine months, we have taken decisions to simplify our portfolio, exiting assets that are not the right strategic or financial fit within our new upstream and downstream organizational model. We launched sale processes for the U.K. North Sea and Archaea. We agreed the sale of our Austria mobility and convenience business, and we completed the disposal of the Gelsenkirchen refinery in the quarter. The completion of the Castrol sale is expected imminently. We are continuing to assess every asset rigorously, whether it can generate competitive cash and returns, whether it competes within the group, and whether BP is the best owner.
Our ongoing review of the portfolio triggered a $4 billion impairment charge in the quarter, mainly in transition businesses. This reflects investments that have not delivered the returns our shareholders should expect and reinforces the need for greater rigor. Portfolio is closely linked to our third priority, investing with greater discipline. During the quarter, we agreed terms to bring partners into Kirkuk in Iraq, Tupinambá in Brazil, and Conifer in the U.S., and signed agreements to advance an offshore gas development in Venezuela. We continue to see a real depth of opportunity in our portfolio, but we need to earn the right to grow. The decisions on what we invest in and what we do not are fundamental to improving the portfolio over time. That means being more rigorous about where we invest, how we stress test decisions for downside resilience, and focus capital on our most competitive opportunities.
I'd like to spend a bit more time on driving operational excellence. With every molecule in demand and with our customers relying on us to reliably maintain supply, the basics of running safe, reliable operations are imperative. In refining, we have been investing in our operations and optimizing ways of working, with a target of keeping availability above 96%. This enables us to run our refineries consistently, meet customer demand, and capture more value. These actions have translated into improving utilization over time, with the first nine months of 2026 at 98%. This supported the realization of almost $2 billion higher refining margin capture this quarter. While operational performance this quarter was strong, sustaining this consistently remains a key focus. In October, we had an unplanned unit outage at our Rotterdam refinery.
Whilst we expect to be back online in early November, this event illustrates the work required to deliver consistently. We have also been focused on safely reducing refining operating costs. This ensures that our portfolio is more resilient to lower margin environments and generates competitive cash flows. The chart shows that cost per barrel has improved, enabled by business improvement plans and delivery of structural cost reductions. Unit cost reductions are also supported by higher throughput due to improved reliability and lower levels of turnaround activity in 2026. The divestment of Gelsenkirchen results in a further step change in the resilience of our portfolio. Of course, there is always more to do as we continue our focus on improving competitiveness. Moving to oil and gas, we are working to ensure that every asset operates safely, reliably, and efficiently.
Across our regions, many assets are performing consistently well and demonstrating what good looks like. However, there are assets where performance has shown far too much variability. Our goal is clear, consistent and strong performance from every asset in our portfolio, driven by stronger accountability and disciplined execution. I want to take a moment to highlight bpx, our U.S. onshore business. In 2023, the bpx team embarked on a journey towards building a culture of ownership. They did this by giving every team member the right data and empowering them to make decisions as if it were their own business. For example, field employees became accountable for specific wells. Armed with data and AI tools to suggest improvements, operators are more proactive about well care and respond more rapidly to issues, which has increased production uptime.
The team has embraced a continuous improvement mindset to help reduce the cost of each barrel, always looking for opportunities to do things in a smarter way. The drilling and completions team are applying the same approach, with a focus on execution speed and efficiency. This includes using standard and repeatable well designs and systematically taking the learnings from each well pad to improve the next. This is an example of the culture of ownership and accountability that we are building across the company. The same operational discipline underpins the work of our trading business. Our global asset base, integrated supply network, and deep customer relationships enables us to respond quickly when markets are disrupted or customer requirements change.
During the quarter, our supply trading and shipping teams used that global reach and flexibility to help support the security of supply for our customers by optimizing volumes across our portfolio. For example, when European aviation markets spiked after Middle East product supply disruptions, we were able to source aviation fuel from the U.S. Gulf Coast to maintain supply to our customers. Also, our highly flexible LNG portfolio helped meet short-notice tenders in South Asian countries to offset the disruption to their long-term supply. This is how we deliver operational excellence for our customers, and it is how trading delivers value for BP, with a 4% uplift to our group return on capital employed on average over the last six years, and so far this year, trending above that rate. Finally, our fifth priority is to hardwire a stronger performance culture across BP, creating clearer accountability for results.
We are providing our people with clarity on what they own, how success will be measured, and what they are expected to deliver, enabled by a much simpler organizational structure and governance. We recently brought BP's extended leadership team together to hold up a mirror on our historical performance and decision quality. We debated heavily and openly about what needs to change, and quickly rallied behind a couple of themes we will drive towards: faster decision-making enabled by clear ownership, and better decision quality based on data. I left energized and confident in our ability to capture BP's full potential going forward, and to do so with urgency. With that, let me hand over to Kate, who will take you through the third quarter results.
Thank you, Meg. Let me now turn to our third quarter financial performance, starting with profit. Group underlying profit increased by 48% from the second quarter. Improved operational performance enabled us to capture the environment, including significantly higher realized refining margins, with gas marketing and trading delivering a significantly higher result compared to the second quarter. Moving to the segment earnings. In gas & low carbon energy, segment underlying operating profit increased by around $1.1 billion, reflecting significantly higher gas marketing and trading, and higher realizations, which includes the impact of changes in non-Henry Hub natural gas market prices. In oil production & operations, segment underlying operating profit was broadly flat. This reflected lower liquids realizations, partly offset by lower exploration write-offs. In customers and products, segment underlying operating profit increased by around $2 billion.
Within customers, profit was lower by around $500 million, reflecting weaker fuels margins and a lower result in Castrol and midstream, partly offset by higher volumes and lower underlying operating expenditure. Within products, profit benefited from significantly higher realized refining margins. We optimized our refinery configuration, focusing output on the products most needed by our customers and the markets we serve. The oil trading result was slightly higher. Other businesses and corporate charges were lower compared to the prior quarter. Taking all these factors together, group underlying replacement cost profit before interest and tax was $13.4 billion, compared with $10.3 billion in the previous quarter. Below the operating segments, the underlying tax charge increased by around $400 million, with an underlying effective tax rate of 28%. Group underlying replacement cost profit was $8.5 billion.
We recorded net adverse adjusting items of around $5.4 billion, including post-tax net impairments of $4 billion. These are primarily attributable to transition businesses, including Lightsource bp and offshore wind. After inventory holding gains of around $1.6 billion, our third quarter IFRS profit was $4.7 billion. Turning now to cash flow and the balance sheet. Strong cash generation in the quarter translated into a $9.3 billion reduction in our financial obligations. I will take you through the quarter's sources and uses of cash, and I will start with working capital. During the third quarter, we saw a $500 million net release in working capital. Seasonal effects and pricing resulted in a net release of around $400 million. Inventories drew through the peak summer travel season, but this was partly offset by the impact of price movements. We also saw a $400 million release from the timing of payments.
These releases were partly offset by a $300 million permanent build, driven mainly by assets held for sale and decommissioning payments. This takes our cumulative working capital build for the first nine months of the year to $6.5 billion. Of the $6.5 billion, $700 million relates to the timing of payments, which we expect to reverse through the normal course of business. The $2.8 billion permanent build includes around $1.5 billion relating to Gulf of America settlement payments, around $800 million relating to assets held for sale, and around $500 million relating to decommissioning payments. Because of their accounting treatment, these are not expected to reverse. The remaining $3.1 billion relates to seasonal effects and pricing. The timing of the unwind will depend on commodity prices and the broader environment.
Bringing this together with the other sources and uses of cash in the quarter, underlying cash generation was $15 billion in the quarter. Outflows in the quarter were $6.6 billion, including $3 billion for capital expenditure, $1.3 billion for dividends paid, and $2.6 billion of payments related to financial obligations and instruments, including $1 billion to redeem hybrid securities. After these cash outflows, net debt reduced by around $8.4 billion to $13.9 billion. Turning now to the balance sheet, as we have outlined previously, when considering our capital structure, we look beyond net debt to our broader financial obligations, and these totaled $44.3 billion at the end of the third quarter. We have line of sight to further reduction, and this is supported by two main drivers. First, underlying cash generation in the current environment, and second, divestment proceeds.
In addition, as I touched on earlier, we expect the seasonal and pricing effects in working capital to unwind, with the timing very much dependent on commodity prices and the broader environment. Our current estimate for the remainder of the year is a working capital release of around half a billion dollars. The timing of the payment of the recently announced settlement with Louisiana is still to be determined. Taking these factors together, we now expect financial obligations to reduce to around $33 billion-$35 billion by the end of 2026. Looking forward, as Meg noted, our intention is to address our remaining Deepwater Horizon liabilities in full. We are currently working through the best approach for value on both a state and federal level, and we will update the market once these are in place. Once delivered, these actions will increase BP's financial resilience.
Turning now to outlook and guidance. I am not going to go through all the details, but let me call out a couple of items by exception. Looking ahead to the fourth quarter compared to the third quarter, we are expecting customers a significantly lower result, reflecting seasonally lower volumes, a lower midstream result, and Castrol earnings subject to the anticipated completion of the Castrol divestment. Fuels margins and midstream performance are expected to remain sensitive to market conditions. Finally, income taxes paid to be around $800 million higher, mainly due to the impact of higher profits on installment payments. Turning to the full year 2026 guidance, we now expect our divestment and other proceeds to be around $8 billion.
We have updated our full year underlying effective tax rate to be between 31% and 34%, and the timing of the payment of the recently announced $350 million settlement with the U.S. state of Louisiana is still to be determined. With that, let me hand back to Meg.
Thanks, Kate. To close, we set out four primary targets in 2025 to provide focus for our plan and enable investors and other stakeholders to judge our progress over three years to the end of 2027. We have delivered two of these targets and have clear line of sight now to delivering the remaining targets. Adjusted free cash flow is around $18 billion year to date, an increase of 75% year on year. This was primarily due to higher trading contribution and operational performance. Net debt at $13.9 billion is now lower than the target range. Structural cost reductions at $4 billion are within range. This excludes further reductions from the Castrol and Gelsenkirchen transactions. Return on average capital employed is around 18%.
This is good progress, and the direction of travel is encouraging, but let me be clear, there is more to do to realize the potential of this company. At our strategy and outlook update in December, we will set out our longer term capital framework and the metrics and targets to assess our performance as we progress. This is how we hardwire a high performance culture, ensuring everyone knows what they are responsible for, and we hold ourselves accountable for delivery. It is the right moment for us to do so, to look forward to the next phase of BP. There is a lot of work ahead of us, but we are focused and excited by the opportunity.