BP 3Q24 result | Climate Transition Analysis
This report comprises general statements of factual information and not financial advice. Read our Important Notice.
3Q24 results saw BP confirm it will provide an update on its medium-term plans in February 2025, and in the investor call said it would “obviously” update its financial targets and aims.
We expect this could include a downgrade of transition capex, an upgrade of oil and gas production, and a likely downgrade or withdrawal of its upstream Scope 3 target. This would signal a tipping point for BP’s transition towards a clear scaling back of ambition.
Our view
We view BP as a front-runner in the energy transition, driven by its strong ambition and progress in building low-carbon offerings, peer-leading low-carbon capex ambition, and oil and gas reduction targets. However, 3Q24 results suggest this leadership could be reassessed, with oil and gas reduction targets all but scrapped and a clear focus on prioritising shareholder returns over further investment. The key challenge now is how BP navigates the balance between advancing its transition strategy and delivering short-term returns to shareholders.
Priority questions ahead of 2025:
1) Quantification of levers to achieve net carbon intensity (NCI) targets:
What is BP doing to prevent further downgrades to its emissions targets? With oil and gas production targets effectively scrapped, we see a likely downgrade or withdrawal of its upstream Scope 3 target.
2) Increases in low-carbon investment:
How will BP achieve its 50% capex target for low-carbon investments by 2025? Having only spent 23% in 1H24, with over $14bn committed to shareholder distributions in FY24-25, how will BP meet its low-carbon capex ambitions?
3) Can BP provide quarterly capex and earnings disclosures for its Transition Growth Engine (TGE) businesses?
BP is the only Euromajor not reporting quarterly earnings for its power segment (Low carbon). Disclosing capex and earnings for TGEs is critical to assess its progress. Eni now reports combined financials for its low-carbon segment, setting a benchmark.
Key findings
-
In 3Q24, BP’s oil and gas production grew 2% to 2.38 mboe/d from 3Q24, driven by increased production in the Oil Production and Operation segment. The company confirmed FY24 guidance for slightly higher production than FY23 (~2,312kboe/d). However, group underlying profits after interest and tax was down 31% on 3Q23 to $2.3bn, impacted by to lower refining margins, oil prices and weaker trading results.
Capex increased 26% from 2Q23 to $4.5bn, largely driven by scheduled offshore wind payments in Low carbon, but FY24 capex guidance remains unchanged at $16bn, implying ~$3.5bn for 4Q24.
Net debt rose 7% to $24bn while BP paid out $3.4bn in distributions, announcing 4Q24 buybacks of $1.75bn and maintaining a $7bn buyback target for FY25. Capex could come under pressure to support distributions. On the call, BP reminded investors that their $14bn buybacks target was set based on February’s market conditions and suggested capex could be adjusted if oil prices decline.
This signals a potential risk to BP’s TGE capex targets in the near term. To hit the upper end of its $6-8bn per annum target for transition capex by FY25, BP would need to increase its current capex run-rate by 80%.
-
Back in October 2023, we highlighted the risk to BP’s absolute emissions targets after the company highlighted ~18bn boe of oil and gas resources that could sustain current levels of production into the 2040s. This month it was reported that BP has abandoned its plan to cut production to ~2 Mboe/d by FY30. During 3Q results, the company said it has the capacity to grow production if returns are sufficient, citing the aforementioned resources.
During the investor call, BP highlighted it would ‘update its aims’ in February. BP’s ‘aim 3’ is to cut scope 3 emissions from upstream production by 20-30% between FY19-FY30. As of FY23, they’ve achieved a 13% reduction, reflecting a 12% drop in production. A reduction to 2 Mboe/d by FY30 would have kept them on track, but with the target now scrapped, there’s no clear path forward.
-
3Q24 Low carbon segment capex hit $908m, up 4x from 3Q24, driven by offshore wind payments. 4Q24 capex will remain elevated with BP completing the $0.5bn acquisition of Lightsource. This deal includes a spin-off of 2.4 GW US assets into a joint venture with the Lightsource founders, with plans to sell as interest rates ease, splitting proceeds between BP and the JV owners.
4Q24 will also include the completion of biofuels producer, Bunge Bioenergia, for $0.8bn (part of the Customers & Products segment).
BP says it has been in the process of ‘high-grading’ its low-carbon portfolio. Its renewables pipeline dropped 12.1 GW from last quarter, now at 53.4 GW. Hydrogen capacity fell 28% to 1.8 Mtpa from last quarter, shifting the focus to 5-10 core projects this decade, cancelling 18 early-stage ones. This comes after BP’s biofuels plans were reduced last quarter from five to three plants, scaling back projects in Germany and the US, focusing instead on Bunge’s Brazil operations.
Despite this, BP’s pipeline appears sufficient to meet FY30 targets without any further scale-backs. This includes 10 GW of renewable capacity (50 GW to FID), 0.5-0.7 Mtpa of hydrogen, ~100 kb/d biofuels, and ~70 kboe/d of biogas.
During the call, BP stated it's finished with acquisitions in its TGE portfolio and will now focus on maximising the assets it has already acquired. This also includes power retailer EDF, industrial heat and power player GETEC, biogas producer Archaea, and the convenience network from TravelCenters of America. BP plans to standardise these assets, drive efficiencies, and grow them over the next 12-18 months.
The key question is whether BP’s current low-carbon portfolio is enough to meet its FY30 NCI target. In our Oil and Gas Majors' 2024 AGMs report, we estimated BP would need an additional ~$70bn in cumulative renewables investment between FY24-30 to hit the upper end of its -15–20% NCI target.
