BP 1Q24 result | Climate Transition Analysis
BP leads peers on its ambition for low-carbon EBITDA - can it deliver?
As BP seeks to grow its low-carbon business, it is under additional scrutiny to prove that low-carbon earnings will be sufficient to replace oil and gas.
Our view
At BP's 1Q24 results, CEO Murray Achinoless faced questions on the company’s ability to meet its FY25 Transition Growth Engines EBITDA of $3-4bn. This is just one example of the pressure on BP to deliver value from its low-carbon business.
Our analysis finds that BP’s EBITDA goals are achievable but require sustained focus on investing low-carbon despite distractions to pursue oil and gas.
Key findings
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In 1Q24, BP earnings were $2.7bn, down -45% on 1Q23 and -9% from 4Q23. Lower earnings in the quarter were driven by lower oil and gas prices and refinery outages.
As BP seeks to grow its low-carbon business, it is under additional scrutiny to prove that low-carbon earnings will be sufficient to replace oil and gas. In 1Q24, the company announced $1.75bn buybacks and ~$2bn in cash savings to be delivered by the end of FY26. Divestments for FY24 were reiterated at $2-3bn, with the company still targeting $25bn between the second half of 2020 and 2025 ($18.2 bn delivered to date).
BP’s ability to deliver on low-carbon will be linked to its financial position nearer-term. In this quarter we estimate BP delivered negative surplus cash of ~ -$1.4bn, down from $2.7bn in 4Q23. This highlights the real challenge of maintaining high distributions and continuing to invest in the business. In the longer-term BP will need to make a choice on how it prioritises the build of its new business against short-term returns, otherwise risking delivery of its integrated energy model.
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1Q24 saw an 80% increase in low-carbon capex compared to 1Q23, the highest increase across all of BP’s segments. BP’s renewable pipeline grew 45% from 1Q23 to 65GW.
For FY25, BP reaffirmed its confidence in achieving $3-4bn EBIDTA in Transition growth engines (TGE). This is expected to be delivered through the continued growth of Archea, a full year of operation by Travel Centres of America, and EV charging breaking even by FY25 (83% of fast chargers currently cost-positive).
For FY30, BP has guided to $10-12bn for its TGE segment, with $4bn allocated to bioenergy ($2bn biogas, $2bn biofuels). To meet an EBITDA target of $2bn for biofuels*, we estimate that BP would require a feedstock price of $42/MWh of production. This price sits within the 2020 price range of feedstock, highlighting the current achievability of the FY30 EBIDTA targets should BP be able to secure feedstock at scale.
*using oil-biodiesel price differential projections by OECD-FAO Agricultural Outlook 2023-2032 and $60/bbl oil price.
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CEO Murray Achincloss emphasised the company's commitment to prioritising returns over volume in the coming years, meaning BP may produce more than its prior guidance of 2,000 kboe/day by FY30 (~13% decline on FY23). Production numbers in FY30 would be determined by FID decisions made in FY24 and FY25 on ~30 opportunities in upstream, refining, and TGEs.
Our recent sector analysis identified BP as the most ambitious Euromajor in its transition plan (see Accela League Table). This was partly driven by its ambition to reduce oil and gas production in FY30.
While an increase in production could jeopardise BP’s position as a transition leader, maintaining its commitment to meet FY25 low-carbon capex and EBITDA goals should still allow it to succeed in building a sizeable low-carbon business alongside oil and gas production.
