Welcome to the BP presentation to the Financial Community Webcast and Conference Call. I now hand over to Craig Marshall, Head of Investor Relations.

Good morning and welcome to BP Second Quarter 2019 Results Presentation. I'm Craig Marshall, BP's Head of Investor Relations. I'm here today with Bob Dudley, Group Chief Executive; and Brian Gilvary, Chief Financial Officer. Before we begin today's presentation, please take a moment to review 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. Now over to Bob.

Thanks, Craig, and thank you to everybody joining us on the call today. This is an important quarter, not just because we're at the midpoint of the year, but also because we're at the midpoint of the five year strategy we laid out in 2017. I'll begin by taking you through some key highlights from the second quarter and provide some reflections on what has continued to be a challenging macro environment. I also want to talk about the focus we're giving to the energy transition and our low carbon agenda. Brian will then take you through the financial results in detail. And I'll come back to talk about three specific areas of our business that you have been asking to hear more about, BPX Energy in the U.S, our global fuels marketing business, and the activity we are progressing across our low carbon businesses, including the biofuels announcement we made last week. All of these businesses are central to our growth agenda into the next decade and beyond and core to the integrated global energy business we are continuing to shape. I'll then close and we will ensure we have plenty of time to take your questions. So getting straight into highlights from the quarter. We reported underlying replacement cost profit of $2.8 billion for the second quarter of 2019. Underlying operating cash flow was $8.2 billion, which included a $1.5 billion working capital release. This strong financial performance, alongside our strategic growth agenda, underpins our commitment to growing sustainable free cash flow and distributions to our shareholders over the long term. You see that in the Upstream, where four of our five major projects planned for this year are now online following the startup of the Clean project in the North Sea. This takes us to 23 major…

Thanks, Bob. Turning firstly to the environment. Brent crude averaged $69 per barrel in the second quarter compared with $63 per barrel in the first quarter. Crude prices increased early in the quarter, supported by OPEC plus production cuts, as well as supply impacts from lower Iranian exports and the ongoing production disruptions in Venezuela. Prices have since declined, driven by increasing concerns around global economic slowdown and the potential impact on oil demand, together with continuing robust growth of U.S. tight oil. OECD oil stocks remain around five year average levels, with continuing supply growth from the U.S. onshore and Brazil being largely offset by OPEC plus countries production cuts and continued albeit weaker demand growth. As Bob mentioned, we expect prices to remain volatile. Recent geopolitical events, particularly in the Strait of Hormuz and the potential for worsening global economic conditions, are creating concerns around supply and demand fundamentals, driving volatility in prices. Turning to U.S. gas prices, which remained weak during the second quarter, with Henry Hub averaging $2.60 a million British thermal units compared with $3.20 in the first quarter. The weakness in price reflects continued strong supply growth and inventory levels increasing relative to the low levels of the previous two quarters. In Europe and Asia, spot prices have reduced significantly as LNG supply continues to grow with demand easing, particularly in China. BP's global refining marker margin averaged $15.20 per barrel in the second quarter compared with $10.20 per barrel in the first quarter, primarily driven by stronger gasoline demand and U.S. refining disruptions. In the medium term, refining margins are expected to see some support with the implementation of IMO 2020, which should also contribute to increased widening of light heavy crude differentials. Moving to our results. BP's second quarter underlying replacement cost…

Thanks, Brian. As I mentioned earlier, let me now review the three business areas that you've asked about. Firstly, BPX Energy. While the team has only been operating the assets acquired from BHP since March 1 this year, the early results from the ongoing integration process are encouraging. First, as we discussed when we announced the acquisition, we're now very confident in delivering over $350 million of annual synergies by 2021. At the time of the transaction, we had expected to achieve about $90 million of this in 2019, but now expect to achieve around $240 million or 70% of the full run rate. The majority of this has been made through our organizational efficiencies, designing the combined organization for scale and enabling us to grow less overhead. We also continue to ramp up activity in the newly acquired assets, with 10 rigs operating, seven in the Eagle Ford and three in the Permian. The early results from our operations have been promising. In both basins, the wells we have drilled are performing at or above their planned production levels and costs for new wells are coming down. We are also working to optimize life of field development. In the Permian, we are designing infrastructure that will improve reliability and reduce costs and help us minimize emissions. We plan to continue testing, promising new zones this year in the Permian and Austin Chalk in the Eagle Ford. The progress to date in capturing the synergies early and the well results continues to give us confidence in the future of the business. Given it is only four months in, we will have more to update you on at the end of the year. Turning to the Downstream. We continue to grow our fuels marketing business, supporting our target to increase Downstream…

[Operator Instructions]

Okay. Thank you again everybody for listening. We're going to turn again to questions and answers. The usual reminder, please to limit your questions to no more than two per person, so that everybody gets a chance to ask one. We're going to take the first question this morning from Alastair Syme at Citi. Alastair?

Brian, I wonder if you could you to talk a little bit about the profitability of the Midwest refining business this quarter, so you saw differentials, I know lower than 2Q last year, but wider than – in the word of first quarter. So how is that impacting it? And are you still bringing a portion on availability? And second one for Bob, I guess in the last quarter, there's obviously been this BP - BBC Panorama program around Senegal. I just wonder if you could respond to those claims and what BP's looking at or not looking at in response? Thank you.

Thanks, Alastair. So in terms of Midwest refining, basically Whiting refinery. We saw the TICS diff average around $11.70 for the second quarter, which is down a little bit on the first quarter 2009 - 1Q '19, which is around $12.70. On a like basis, we're still seeing curtailment issues coming out of Alberta, although that's eased to a degree. And then, of course, you've also got the issues around the big heavy cut grades from the Gulf Coast in terms of Venezuelan crude. So I think you are seeing a little bit of pressure on WTICS [ph]. I think if you look at the forward margins, we're starting to see that open up, so it may start to open up in the second half of the year. But I would suspect for the second half, you will still see spreads trading in the range of about $12 to $18 a barrel. And of course, therefore, that directly feeds through in terms of Whiting. In terms of overall performance for the Downstream committed in the second quarter, and of course, you have those big turnarounds we talked about in the first quarter, which also included Whiting this quarter. But that will start to clear out in the second half of the year. And you may see some recovery in TICS differentials as we ease curtailment coming out of Alberta, and of course, they also had the wildfire issues as well in the second quarter.

Alastair, thanks for your question about BBC Panorama. For those of you who don't know, there was a story on Senegal in there. Quite frankly, it is a sensational, inaccurate and irresponsible story by the BBC, including numbers that are wildly inaccurate, including showing documents that are purportedly from BP and they are not. And we have responded very strongly with the BBC around that. It has led to some investigations, as you'd expect. In Senegal, quite frankly, the really disappointing thing about this is it perpetuates the idea that European companies or British companies cannot and should not do business in Africa. And I think that's the really disappointing think about it. Be happy to talk to anybody about it. And again, we've responded really strongly to the BBC. That's probably all I should say, Alastair.

Got it. Thank you, both.

Thanks, Alastair. We'll take the next question from Oswald Clint at Bernstein. Oswald, good morning.

Thank you very much. I guess one of the messages you have today is right on target at the midpoint of the five year plan. I just wanted to put that in context of the Upstream free cash flow performance. I guess if I play with some of your numbers for the first half and think about those annualized for 2019, and I think I'll probably put in the right $13 billion to $14 billion Upstream CapEx, I'm getting to around $13 billion of pretax Upstream free cash flow. So that's the number relative to your $14 billion, $15 billion by 2021. And obviously, I'm adjusting for your oil price. So I just wanted to get a sense, is that $13 billion roughly right for 2019? Is that according to your plan? Does it therefore step up by $1 billion or so each year from here into 2021, is the first question? And then secondly, I just wanted to focus in on the BHP acquisition. It looks like - I mean, you said operator ship since the 1st of March, so I do note a decent reduction in production cost per barrel, 14% or so sequentially. So you talked about less overhead, which I guess is in SG&A. So I just wanted to know what's going on, particularly with the production costs, to bring it down so substantially sequentially. And sorry, just linked to that. I see you have a lot of three Permian rigs which I think you talked about going to the Permian perhaps next year or at least after the pipelines open up. So just curious, are you kind of fast tracking your push in to the Permian? Thank you.

So Oswald, I'll try and pick those, and I'll work backwards. So in terms of Permian, we're going to take our time. I think, Bernard, in the most recent discussion we had, would have said that we'll look to make sure that we can evacuate the oil that we still have to create out of the Permian. So we have got the rigs running. We will build into that slowly. We've ramped up Eagle Ford, which is priced straight into WTI. But in terms of Permian, it will be slow progress through this year as we make sure that we have the evacuation routes available. So the midstream is going to be a really big important part of that. In terms of your question on the $14 billion to $15 billion target in terms of Upstream. It's going to be a big function of what happens, of course in the second half of this year in terms of production volumes. We do have - we've already signaled that 3Q volumes will be down somewhat. We've got some seasonal turnarounds in Upstream in some of the big high-margin areas like the North Sea, Angola and Gulf of Mexico. We have opportunity at around 50,000 barrels a day could be out through the third quarter. And of course, we've also already had issues with hurricane Barry this quarter with the 14 days outaging Gulf of Mexico, so I think that will impinge a little bit on volumes. But in terms of the cash coming out of the Upstream, the $14 billion to $15 billion is pretty underpinned now for 2021 with the projects we got on stream. For the precise number, adjusted for oil prices, I think we're certainly 70% of the way there, Oswald, whether we're up as high as the numbers that you're talking about, I've not gone back and done that calculation, but we can come back to you off-line on that. We'll certainly pick up at 3Q, but as I say, 3Q volumes will be a little bit under pressure with the seasonal turnarounds that we've got planned in those big high-margin areas.

If I could add a footnote. On the BHP, for example, Oswald, the production costs have come down. Some of that is the reduction in staff. So synergies have come through very, very quickly. And in addition, the costs came down because of a cessation of transition services costs from BHP that were in there. And just - that's just a little more insight on the Permian piece.

Super. That’s great. Thank you.

Okay. Thanks, Oswald. We'll take the next question from Thomas Adolff at Credit Suisse. Thomas?

Good afternoon. Two questions from me as well. Firstly, just on dividend. In the second quarter of 2018, you chose to increase dividend. A year on, you chose to keep the dividend steady. You discussed the dividend every quarter. And I was wondering why the decision went against it this time around considering you're delivering the five year plan? Secondly, out of the 35 projects in your five year plan, you said 23 have now been delivered and delivered ahead of schedule and below budget. So you have another 12 to go. And I was wondering where that Tangguh LNG expansion is the only project with some challenges to meet the original time line? Thank you.

Thanks, Thomas. So I think on dividend, I think it's pretty clear actually in terms of the - what we signaled at the start of this year. We had the BHP transaction to close this year which we chose to do with cash rather than issue shares when we originally envisaged the original transaction. That was a $10.25 billion transaction. So the fact we used cash so that we expected gearing to go up to accommodate that. And then as the disposal proceeds came in, we used the disposal proceeds to delever the balance sheet. And what that avoided was the friction costs then in terms of issuing shares around BHP and then buying those shares back. So in terms of the conversation of the Board on dividend, you're right, 2Q last year, we did signal the increase in the dividend. I think as you see now given where gearing is at 31%, as we see the disposal proceeds get derisked this year and we'd still anticipate - of the $10 billion program, we've announced $1.5 billion up to the end of 2Q, we'd anticipate $4 billion to $5 billion this year should get announced. And we signaled that at 1Q, there's no change there. We're still seeing a pretty good suite of buyers for the assets that we have up for sale. Some are taking a little bit longer; some are offering up other opportunities. So I think as you see that deleverage, that will be then a signal in terms of distributions and a move on the dividend later in the second half of the year. But I think the board will definitely want to come back to dividend, but it will really be triggered by, as we said to our investors, we’ll see the balance sheet deleverage will bring net debt down and then that will be an opportunity certainly in the second half of this year to go back and look at divi. I think what you're seeing in terms of strong cash flow, and now what is a – the 10th quarter certainly above the expectations we have in terms of where we'd be in this process in terms of the five year target, I think we are more than well underpinned on the cash flow targets we laid out to 2021. So I think that will give us a great confidence in terms of any move or look at distribution on the dividend. And of course, remember, we've also got somewhere close to $1.8 billion of buybacks to come in the second half of this year that will offset the scrip from the third quarter of 2017. So I think you will see from a shareholder perspective, distributions in the second half of the year through buybacks and a potential move on the dividend as the disposal proceeds get derisked.

Thanks. And Thomas, as we look out, we've got 23 major projects and 35 under our belt now to get to 2021. And Tangguh Train 3 is one of those that we see as with a delay. It's been delayed in our planning now for the fourth quarter of 2020 to the third quarter of '21. It's not going to impact delivery of the targeted 900,000 barrels a day of new production from projects. Train 3 will add about gross capacity of about 3.8 million tonnes of LNG per year. It will take Tangguh up to 11.4 million tonnes a year. The status of the project right now is the offshore scope is nearing completion, ahead of plan. Onshore has been impacted by a number of things, including some very unpredictable environmental factors in the area of the 2018 tsunami events in Sulawesi and Sunda Strait disrupted some of them local supply chains, and now that's going to require additional work, not our site, but the supply chains, and I think it's well known that one of the contractors is having some financial difficulties. But we remain on track for bringing that on and confident by the end of '21.

Perfect. Thank you.

And Thomas, I'll just add a little bit more context. Just to put the 23 of the 35 major projects into context, that's equivalent to around 600,000 barrels a day at the end of six -- at the end of 2Q onstream, so progressing well against that 900,000 barrel a day plan that we had. Okay. Thanks. We'll move to the next question from Lydia Rainforth at Barclays. Lydia?

Thanks and good morning. Two questions, if I could. The first one, just going back to the buyback, slide. Is it like - I think it's close to about 400 million shares in the second half that you need to buy back. And can you - just in terms of, is that the sort of the right way we should think about going into 2020 as well? And then the second one, just about going back to the low carbon businesses. The point you make around the financing that you put $200 million in equity in for and that gets you of $7 billion of overall finance, how do you see that low carbon business of BP evolving over time? Is it that you want to keep going down the joint venture rate as you've done with Bunge side, or do you think, over time, more and more of that will come on to the BP balance sheet? Thanks.

Lydia, on the share buyback, the balance from the third quarter '17 is around about 270 million shares to buy back in terms of scrip. There is some of the dilution which will come on to later. But in terms of this pure scrip buyback, it would be about 270 million shares, which is around about $1.8 billion. But obviously, we also have a scrip that will get issued through the third quarter and then we'll look to sort of buy that back as well as we get into 4Q. But you'll see the run rate of buybacks in terms of some offsetting the scrip ramp up through the second half of the year now, especially the disposal proceed program is derisked.

Thanks, Lydia. On the low carbon, I mean the Ligthsource BP is a really interesting story because we get told many, many times, we don't - we spent only 3% to 5% of our capital on new energy ventures. But when you look at what we enable, things that I don't think would happen, Ligthsource BP is a great example, U.K.'s largest solar development company in one country. Within a year or 1.5 years, we're in 10 countries now. It's attracted that $7 billion of investment for infrastructures funds. Big ones into India, for example, and now into Brazil. It's a great way to leverage capital. And it's not using our capital to do that. But these things I don't think would happen without our involvement in opening the doors and good partnership with Lightsource around the world. Going forward, these business models I guess - I think there's a number of different ways we think about it. We could see our role as taking and working on these projects, Ligthsource BP, then selling on the projects and using our capability of build and raise finance outside, do more projects down the road. We may not even have all these projects going forward. We're turning over the portfolio. The JV model with BP and Bunge is a great combination of things. And some of these, of course, will depend on what our co-venture would like to do, for example, with Bunge going forward. But these are really good business models that allow us to really leverage off of our balance sheet, but not use the capital directly, and that will happen as well with BP Bunge. So stay tuned, we’ve got lots of ideas. We're sort of inside. We like to think of these things as smart M&A. In the past, we used to want to do everything 100%. That's our history with solar and wind and biofuels. And I think we've just seen there's a different way to use our capability to raise financing going forward and making these new energy businesses happen that might not otherwise.

Okay. Thank you.

Okay. Thanks, Lydia. Yes. We'll take the next question from Michele Della Vigna [Goldman Sachs] Michele, good morning.

Good morning. And thank you for taking my questions. Two if I may. The first one is about refining margins. You've provided guidance for a lower refining margins in Q3. I was wondering, is this a conservative guidance, or do you actually see reasons for concerns over the margins in Q3 given that, quarter-to-date, we'll probably see an improvement in most regions? And then secondly, I wanted to see if you could give us some guidance on what is behind the write-downs this quarter. It looks like you are progressing well with some disposals, probably these write-downs are behind some of those with U.S. gas and the Egyptian assets. But if you could give us more visibility, that will be great? Thank you.

Okay. So maybe just start with the last question. The impairments we had, the bulk of that $800 million in the Upstream. It's a mix across the piece. Some of it is associated with some of the BPX legacy assets. So some of the gas assets - some of the smaller packages we've already sold and some impairment triggers on some of the bigger assets, as you can see from some of the gas prices that you see today. So that was part of it. Also a loss on sale around one of the big assets that we got away in the first and second quarter. And actually, we also had about a just north of $100 million, it looks slightly higher from that decommissioning provision move. So it was across a suite of pieces. It was nothing specific. And so that's where the bulk of the impairments came from, which is mostly inside the Upstream. And then in terms of refining market margins, you saw some recovery in margins due to the big high turnaround schedules that we saw, that we signaled out for ourselves, particularly in Europe. And we're also seeing some weakness in demand in the first half of this year, although there's been more recent pickup in that. If you look at demand for the first half of this year, it's been tracking roundabout 1 million barrels a day compared to 1.5 million last year. So it was down a little bit. A lot of that was driven by what was going on economically between the U.S. and China and general economic concerns around the globe. We are now starting to see a little bit of pick up, so that may help a bit. But you've also got all the refineries coming back out of turnaround. And I think what that will therefore do is put a little bit of pressure on refining margins. And of course, the fourth quarter will always historically be a weak quarter typically for margins in terms of refining. Now IMO 2020 should start to underpin margins at the back end of this year in terms of distillate cracks, and we're starting to see some benefits of that into 2020. But no, we do think margins in the second half of this year as refineries come back out of those turnarounds will start to be a little bit weaker.

Thank you.

Thank you, Michele. We'll take the next question from Biraj Borkhataria, RBC. Biraj?

Hi. Thanks for taking my questions. Just one follow-up on the Michele's question. Could you just confirm that the impairment for BPX, none of it was related to the newly acquired asset? And the second question is on Flaring. Is it - there were a number of articles recently going around highlighting BP - BPX as one of the larger flarers of gas in the Permian? Could you just talk about what you're putting in place to reduce that and what kind of time line you are thinking about? Thank you.

So I can confirm that none of the impairments are associated with the assets we've just acquired. If anything, it would probably be in the opposite direction given the oil-rich nature of them and the price at which we brought them. So, no. But there's no big change in terms of balance sheet around the acquired assets.

And on the Flaring, I've seen the story. I'm not sure the accuracy of it. Haven't looked, in fact checked it. But I can tell you that we're absolutely going to be installing across those assets very efficient infrastructure across the field, electricity, vapor, recovery units, rightsized facilities. We'll get on this very, very fast, because having taken over the operations on the 1st of March, there's lots of things that we're doing. It's not to say they weren't run well. The Permian quite frankly right now, the United States is the largest flarer of natural gas in the world right now. So I'd really like to go in and see those figures because they seem to touch high to me. But don't worry, we'll be all over it, Biraj.

Okay. Thank you, Biraj. We'll take the next question from Christyan Malek at JPMorgan. Christyan?

Good morning. Gentlemen, two questions from me. First, the path to returning more cash to shareholders, Brian, what gives you the confidence on delivering on your diverse business in the second half, especially given the volatile micro backdrop and weak U.S. gas prices? And just to be clear, should we expect cash return in any way or form to be entirely a function of the outcome of divestments? And the second question, Bob, I have a question on energy transition. The investment you're putting through feels to be disproportionate from vis-à-vis your total CapEx and relative to some of your peers. And I understand the long term ambition is to decarbonize the portfolio, but I'm not as clear what the industrial logic and returns you are looking to achieve over the medium term?

Okay, Christyan. So on divestments, I think you know we've done close to $75 billion or well done about $75 billion since 2010 and think we’re rising, so we're pretty confident in the process. The team is a very well-oiled machine in terms of the M&A group. We have more than sufficient assets to cover the $10 billion. We have $1.5 billion of the 10 in two quarters in. Deals typically take nine to 12 months to complete, announced. So actually, we're pretty much on track. And we're very confident we'll get four to five done this year, which is what we laid out at 1Q. I think as we announce those deals, then I think the market gets confidence in terms of leveraging the balance sheet and you'll start to see gearing come down. And then that opens up the path over and above the buyback program for the second half of this year to look at further distributions beyond that. So no, we are pretty confident in terms of the disposal program. It's just taking longer. There is more private equity involved in some of those low 48 assets. And frankly, it's not a fire sale. We don't need to sell some of those assets, so we may well – and retaining some if we need to, but we have more than sufficient cover for the $10 billion.

And Christyan, on the CapEx number, where our CapEx - accounting CapEx is about $500 million a year and our total spend on the new energies from BP are really over $1 billion. That $500 million of CapEx is more the CapEx than half the FTSE 100 spends, so it's not a small amount of money. As I mentioned, earlier, in the past, BP would invest in new businesses. We do at 100% model. We've now realized that working with other people's capital and spending like we're doing with Lightsource BP and BP Bunge is a great way to leverage spending in the new energy sector not necessarily coming out of our CapEx. I am a believer because I read an article by someone outside the industry that just noted, in terms of low carbon spending on capital inside the company, I mean, I think we are like many of the good companies who spend more than 50% on low carbon because I am a believer that natural gas has got to be a part of the solution in the energy transition, combined with renewables. So I think we're - this is our strategy. I think you can't measure it just by one number. Christyan. Thank you. You had second question?

No, no. Those it from me. Thank you very much. Appreciate it.

Okay. Thanks, Christyan.

Thank you. And we'll take the next question from Irene Himona [Societe Generale]. Irene, good morning.

Good morning. Thank you. Two questions. Firstly, Brian, you referred to lower trading in the second quarter. I also wonder if you can talk a little bit about it. And also, what you're seeing so far in 3Q on that? Secondly, you referred to strong marketing results in areas such as Mexico. I wonder if you can give us a sense, either for the first half or the second quarter, of the split between refining and marketing article? And then finally, on the disposals, I mean, you have sold $70 billion of assets in the past, so looking to sell 10 sounds a low number. However, you did say that it's taking a bit longer. The buyers sound very different. My question is, as a seller, given that you were selling the $70 billion when the environment was very different, we had $100 oil, is this a radically different environment that you are trying to sell the $10 billion to? Thank you.

So on the last question, Irene, I think the answer is no. Actually, we sold assets in 2015, 2016, the oil price is $28 a barrel. So I think people see through that and look at the forward curve. They won't focus on the spot price. It's always an interesting conversation when you are in negotiation, because depending on whether you're buying and selling, you will try and use whatever numbers you can, but all we see through that in terms of long-term forward strip prices help sort of cut through some of that. So I don't think that's got any more difficult. In terms of IST, it probably - the way to describe it is, on the gas trading side where the results appear in the Upstream, it was a very strong first half. It was a strong 1Q and it's a strong 2Q. 2Q was slightly down on 1Q on the gas trading, but it's strong in both quarters. On oil trading, it was a very strong 1Q and a more typical average 2Q. And so therefore, not all gas reported in the Downstream, so that will maybe just sort of help you with guiding through the relative performance as you then look it in terms of the segment results. In terms of marketing, actually, I mean, was a very - I mean it's actually a strong quarter and first half, with about a 15% improvement in fuels marketing earnings 1H compared to the previous years. So that's actually - it is a good performance that we're seeing coming through. We are seeing some weakness in demand, but we are seeing growth in the convenience partnership sites, and they've increased by 65% since 2016. And the strategy that Tufan laid out. And that's delivered around $1.2 billion of non-fuel retail gross margin. So I think what you're seeing is maintain strong performance coming through the marketing businesses. Mexico, I think has been a great story of expansion as the business since Tufan have got after that. And we now have more than 1,200 sites in China, Mexico and Indonesia in terms of growth markets. So I think there is more to come on that. You'll get a full year update in terms of where Downstream are. But what I would say it's making solid.

Thank you.

Okay. Irene, thank you. We'll take the next question from Jason Gammel at Jefferies. Jason?

Thank you very much gentlemen. First question I had was on Angola where during the quarter, you made some progress in terms of being able to potentially reinvest more money into Angola and achieve an extension. Is there a possibility for a further progress on - in particular your operator blocks there? And then the second question does come back to the low carbon business again. And I guess it's really a high level question is how you think about investment criteria in that business. My supposition would be that the IRR is going to be lower than your traditional Upstream business. But given your ability to significantly lever it up, you kind of take it more on a return on equity basis. Do you think about a potential lower rate of return because of its non-acquiring nature, et cetera? Just anything that you could give me on that would be great.

Okay. Jason, hello. On Angola, we’ve had some – we have had some breakthroughs there. We've extended our terms on Block 18 out to 2032, so that's been a breakthrough for us. Block 17, other people operating. Negotiations are going on there because the life extensions are coming out for review. Same on Block 15, the Exxon operated block. They've signed an agreement with the National Petroleum Agency that extends that license from out to 2032. So there is some good things happening there. They also bring Senegal into the partnerships. We've been looking at some field developments there now as a result of the extensions in '18 that will give us some more running room there. Costs have come down quite a bit in Angola. It's a challenging environment, of course, in general. But the government I think has taken some time after the oil prices fell to adjust things. So we have a potential FID coming up that I can mention maybe later this year, but I won't say the project because, of course, we have partners in it as well. So all in all, a lots happened in the last, I would say, eight months in Angola. They're very positive.

And then in terms of the low carbon value in terms of returns and IRRs that we look out, we have a separate committee that oversees all of our ventures, investments in alternative energy investments it's called the - around the renewal agenda in terms of new energy frontiers. I mean, maybe just to describe this. We focus on the base business in terms of trying to decarbonize. And so the work that you know, Bern and Tufan are doing in our base businesses that generate all the revenue and drive earnings, drive returns and drive the targets out to 2021. There is a very strong monumental effort in terms of decarbonizing that business, and we really take that 2.5 million tonnes of CO2 in that business over the last three years and have a target to take another 1 million tonnes out to 2025 and making good progress in that this year. We then look to improving our products, which we talked about in terms of framework. But then in terms of creating the new opportunities, the IRR is actually - some of those renewables businesses look a lot more now like what we could call a traditional business 10 years ago. So wind sits comfortably inside our portfolio, onshore wind in terms of the U.S., makes good returns that compete with the rest of the portfolio and into rates with the rest of our business in terms of Lower 48 where we are in the United States. You then have the deal that we talked about in terms of BP Bunge, which is a real step up opportunity for us in terms of getting that business and leverage - leverage that business up going forward, with a 50% increase in our own portfolio in terms of volumes coming…

Very helpful. Thank you.

Thank you, Jason. We'll take the next question from Chris Kuplent at Bank of America. Chris, good morning.

Good morning. And thank you for taking my questions and thank you for laying out some of your activities on the energy transition front, and that's really where I want to focus on with my first question. You laid out Bob, that your goal is to be consistent with the Paris Agreement. So can you help us a little bit, building a bridge for more of these activities and the detail levels you've given us, and I assume you will give us going forward to how you measure that consistency with the Paris Agreement. What kind of framework can you give us to build that bridge between the activity level and that statement that your overall activity is consistent with the Paris Agreement? And then the second question, really just a tiny detail question left. Brian, you've got $2.1 billion oil spill payments in the first half and the full year guidance of $2 billion. That pretty much means that BEL claims are done, doesn't it? Thank you.

I'll pick up the latter one first if that's okay. We said just around $2 billion for this year, but we're pretty much – BEL I think we're down to - all the BEL claims have done. I mean, they've done full stop, but they're in what we call the recycle appeal phase. So there is still some to go back through. I think we have five claims get settled through this quarter, but there are still - there'll be a tail of claims that will be going to the Fifth Circuit appeals process, but pretty much BEL is done in terms of any major moves in terms of Deepwater Horizon. So you should - I don't believe there is been any surprises in terms of all the agreements that have been set and put in place. And the fund itself is pretty inactive right now in terms of activity. It's really about the appeals process and closing out the final piece of that.

Okay. Thank you.

And Chris, on the energy transition and the Paris goals, we absolutely support the Paris Agreement and the goals. We do believe the world is not on a sustainable path. We've recognized the importance of climate change for some time. We recognize this IPCC is the primary source of information on climate science, and they’ve call for action for 20 years. And we include in our goals reaching net zero in the second half of the century. Specifically, we're looking at limiting temperature rise to well below two degrees C. So we support this rapid transition. It's both good for society and it's going to be in BP's best interest as well. A slow or very delayed transition increases the risk of some sort of costly and disruptive event later on. So as a global energy company, we've got to contribute to the dual challenge, and that includes the 2 billion more people that will be on the planet and the world is going to need lots of energy in all forms, while at the same time reducing emissions. And we've said that's not a race to renewables, it's a race to reduce emissions from all kinds of fuels. So we're not going to promote only one energy source, improve energy efficiency. We're going to use all kinds of new technologies such as - and including carbon capture use and storage. We absolutely believe there's a price on carbon to help drive action. We do think our strategy is consistent with the Paris goals and we got to so we can prosper and deliver throughout the transition. We are going to be investing four points of our strategy around advantaged oil and gas, developing low carbon businesses as part of that. We will - we signed and supported a resolution from a group of shareholders earlier this year to describe in our corporate reporting how the strategy is consistent with the Paris goals. So we'll be laying that out really now every year, March, April, of course, next year in our corporate reporting. And as Craig said earlier, we'll get together a group in November and lay this out in more details. So I could probably talk quite a bit about this. And obviously, all the people we have, the thousands of people we have working on these new energies, is part of a demonstration in not just words, but action. But our traditional businesses and moving our portfolio, which will shift in oil going forward, but it's certainly not a business that we intend to exit. We don't think that's going to help the energy transition. And we've got to be able to make sure that we remain a very good investable proposition for our investors as well. So Chris, that's probably a longer answer than you wanted. I'll give you one chance to clarify anything I've said or...

No, not at all. I look forward to November then. Thank you, Bob.

Okay. Thanks, Chris.

All right. Thank you, Chris. We'll take the next question from Peter Low at Redburn. Peter?

Hi. Thanks for taking my questions. Just to follow-up on the second half step up in the buyback runway to around $1.8 billion. Is that contingent on disposals getting away or can you deliver that from underlying free cash flow? And then secondly, on the biofuels combination in Brazil, clearly, it's a big increase in volumes, but Bunge's business has been challenged in recent years. Can you give us any more color on how you expect the new combination to improve performance and over what time frame? Thanks.

So in terms of the buyback second half year, yes, no. I mean, if you take out the inorganic spends, the BHP payments in Deepwater Horizon in the first half, we were surplus cash at the sort of prices you're looking at. And comfortably in 2Q, we were balanced around $50 a barrel. So second half this year, operating cash will sufficiently cover the buybacks. So no, it's not going to be contingent on the disposals. But as I say, we're pretty confident on the disposal program. And so yes, we'll be able to execute those buybacks in the second half of this year irrespective of where we get to with disposal proceeds.

And Peter, on the new BP Bunge combination, it will take - today, we have three world-class, world size sugarcane ethanol plants in Brazil. This combination will take it up to 11. It will - that will take the volumes up to over 1 billion liters. We just look at all the synergies that will come from combining those two businesses. They're geographically relatively in the same areas. The cost structures of the two systems are very different. We've got our reliability up to 96%. Our safety record is good. We intend to bring this together. Bunge operates well, but we're going to bring new technology and automation, and this should reduce the scale of the size of the organization. Trading activities will continue to be an important piece of it, both sugar and ethanol. And we now produce quite a bit of biopower with what's left over after the crushing happens. We now put that into the system as bio electricity. I'm really excited about this business. It's got the potential to grow going forward. It has amazing characteristics. Somebody said to me the other day that it's not really a renewables business, which is just the wrong way to look at it. It's basically energy from photosynthesis that puts it into a choice of sugar, and even the automobile sector, that has a choice of running on gasoline or pure ethanol, lots of flexibility here. Brazil is quite blessed with these resources. And even sugarcane itself is one of the most carbon sync plants on the planet. So stay tuned on that, Peter.

Thank you. That was very clear.

Right. Peter, thank you. We'll take the next question from Jason Kenney at Santander. Jason?

Good morning. Two questions, if I can. Brian, how relevant is the refining margin indicator, given - I think the actual gasoline yield in the second quarter was below 40%. And in your assumption, the indicator margin is typically around 55% to 60%? And secondly, do you have a figure in mind for what kind of total cash return BP could afford or support over the period to 2025? I know one of your major competitors has a number in place, either annually or percentage relative to market cap. And then maybe a third question if I might to Bob. Do you think there's a disproportionate pressure on BP currently around climate change and climate consciousness relative to other international oil companies at this time? You do seem to be in the press consistently defending your actions in respect to climate.

So thanks, Jason. Maybe just on the refining market margin you've basically raised, I mean you've kind of highlighted, I think articulated quite well the issue, which is, it's an indicative market margin. It assumes a certain crack spread across a portfolio of refineries. And of course, what it doesn't do, as you saw in 2Q, is it would have overstated the margins we would have made from gasoline because our proportion of gasoline came to our systems lower than where the market margin would have been. It is an indicative thing, Jason. There's not much we can do about it. We've had various machinations of it previously of different types of market margins. This is the one that we've converged on. It's one that the industry tends to use in terms of I think it's a sort of like a three, two, one crack out of the U.S. But it varies by region. And therefore, you will get these distortions quarter-on-quarter. I know that's not particularly helpful for you as you try and predict results quarter-to-quarter, but that's certainly impacted the Downstream. One of the things that impacted Downstream in 2Q was, of course, that we didn't have as much gasoline there that the market margin would have contributed to the results. On total cash returns, we've got a major out to 2021. We're not moving to 2025 just yet. I think we're only halfway through the original set of targets we gave you. But if you distillate down those two sets of targets in Upstream and Downstream, take off assumptions around corporate costs and pension requirements, and our pensions are more than funded at the moment, so they're in relatively good shape. But if you just assume $1 billion to $2 billion of corporate costs, and pension charges and other charges a year, and you've looked at the two sets of measures, Upstream, Downstream, it gets you to somewhere around $15 billion of free cash set against an $8 billion dividend in 2021. And of course, that dividend may well move between now and the 2021 date when this arrives. So therefore, there will be less cash available. But we see very strong - in 2021 plan that we laid out and the targets we laid out we see very strong cash flow delivery. And I think as Bob highlighted earlier, we're now 10 quarters in and we’re slightly ahead of where we thought we’d be, actually quite away ahead of where we thought we’d be, but at this point we’re not complacent. We have a lot more to do. It’s only 10 quarters in. We still got 10 quarters more to deliver. But in terms of distributions, I think you'll start to see some of that change as we move into the second half of this year.

Thanks, Brian. And Jason, thanks for your question about, do we feel like there's disproportionate pressure on BP than others in the industry? Well, I think it feels a little bit that way. I mean, London has become sort of the epicenter for climate demonstrations and where this is our hometown. So I think we're clearly singled out in that. And I think we're happy to engage. We don't mind demonstrations. We want to talk with people. We need to talk to people that also want to have dialogue. I do think this demonization and polarization of companies and people is not going to help solve what is a really difficult problem. We're not going to shy away from that. I mean, I do find it a little bit of irony because London and the U.K. here, you go around the world, the U.K. is often used as a great example for what is done to reduce greenhouse gas emissions. So the country's emissions are now down to 18 to 80 levels, mainly because of the phasing out of coal and replacement with both renewables and natural gas. We are - we just got - I think people don't realize all the things we are doing. And I think we're just - I'm a big one to say, it's not what you say, it's what you do. And I keep looking at what we do across - around the world. Wind farms on 10 sites. We’ve got Ligthsource BP in 10 countries now. We've got this renewable products portfolio, plan for new JVs with DuPont, making bio butanol in the United States, Fulcrum Bioenergy, keep your eye on that one. It makes biojet fuel just from municipal waste. We're just doing a lot. I think we just need to keep doing it. But I do urge everyone who takes a very single view of the world that there should be no natural gas, there should be only renewable energy, that's not really helping the debate. So we're going to contribute to the debate and - but we have pretty thick skins. We have a plan. We know what we're going to do. And even though we get a lot of pressure, we've also got to maintain the fact that we have to be an investable proposition for you all. Many of you are owners of the company on the call and that's firmly in our sights as well. So Jason, do you want to add anything or clarify anything or...

No. It’s perfect. Thanks very much.

Thanks, Jason.

Okay. Thank you, Jason. We'll go to Pavel Molchanov [Raymond James], who must be drinking strong coffee at 4:00 a.m. in the morning in Houston. Pavel, good morning.

Thanks for taking the question. One more about Bunge, if I may. Clearly, land use in Brazil, particularly under the current administration, deforestation have been getting a lot of headlines. From an ESG perspective, I'm curious how the Bunge investments fits into kind of some of those pushbacks, we hear about sugarcane-based biofuels. And then on traditional business, an update on exploration in Azerbaijan would be helpful since my understanding is that's both to accelerate towards the end of the year? Thank you.

Pavel, thanks. Well, on the BP Bunge sites, those sites are not in the Amazon really. They are areas that I would describe as having seen them, sort of scrubby grassland that prior to this had several cattle per hectare. So people say oh, it's taking away land for food. I actually wouldn't see it that way. So this joint venture - I mean, I read what I - I read about, like you do, around the Amazon, but that's not where this is sort of Central Brazil. I think it's just a really good use of land in Brazil. And I think this is a different issue then what's happening up further north, where I believe the country has had small populations, they need to use land for other things. But that's not what BP Bunge is really involved with. And I'm not sure that it does create sugar as well, so it isn't that it displaces food. On exploration in Azerbaijan, I mean, we’ve got to be careful what we say here because we have so many partners. It's a very big area, but we're going to spud once the rig becomes available, spudding the Shafag-Asiman well in 2019. We need to have the rig, which is being used by another company first. There is a Shallow Water Absheron. We plan to spud that in the first half of 2020, and we've got two other wells to follow. So I think like you said, we're - we've got a lot to do in Azerbaijan. It's very exciting. We've got an advantage gas project beneath the exiting Shah Deniz development. And we think it has multi Tcf potential and that's currently planned to spud maybe in 2020 as well. So people say Azerbaijan, is a late life province. We think there is lots of potential still there.

Thanks, Pavel. We are down to the last question now from Colin Smith of Panmure Gordon. Colin?

Hi, good morning. Thanks for taking my question. A completely different topic. I was wondering whether you were like to be bidders in the Brazil transfer of rates auction later on this year. And if you were successful, that presumably could absorb a fairly decent chunk of additional and organic CapEx. And I just wondered if that might make a difference to some of the comments that you've been making around the potential to increase distribution or more generally settled within the framework about how you're thinking about gearing and further significant chunks of inorganic CapEx? Thank you.

Well, Colin, these transfer of rights, of course, the terms are not all out there. They look very expensive. And we're just going to remain very disciplined within our capital framework. We haven't made a decision yet. We're still in discussions, of course, with Petrobras and looking at it. But we're going to be really, really careful before we leap into that.

Okay. I think that's the end of the questions. Let me just turn over to Bob for a couple of closing comments.

All right. Thank you. Thank you, Craig, and thank everybody for joining us today. Again, we're now halfway through, are 10 quarters through the five year strategy we laid out in early 2017. I do think this quarter was a strong quarter. We got a set of cash payments that are behind us this year. I mean a good, strong cash generation this quarter. I'll just note that the cash payments to wrap up the BHP acquisition are in the rearview mirror now and the annual payment we make to the Gulf of Mexico is behind us. Overall, the strategy I think is on track. Projects coming onstream. New significant investments in new energy, consistent with the energy transition that's underway, being careful with our capital. Maybe it's just worth summing up reminding how we think about it. We think as an investment proposition really four points and then four basic strategic priorities. So our proposition to you as owners, we want to be safe, reliable and efficient execution of projects. That's simply good business, underpins the delivery of our growth aims for the near term and longer term. As a company, an investment proposition, we want to be fit for the future. So a distinctive portfolio that will change for the challenging world we're in. We want strong Upstream, strong Downstream, as well as the new energies that we've got to be competitively positioned. The third, we do focus on returns. Value based, disciplined investment and cost focus, with the investment proposition to you growing sustainable free cash and distributions to shareholders over the long-term. Now how do we do that? Our strategic priorities, again, growing advantaged oil and gas in the Upstream and a lot of focus on clean gas and low-cost gas and high-margin advantaged oil. Secondly, market-led growth in the Downstream. We market a lot of things. We have millions of customers a day for advanced fuels, lubricants, petrochemicals, bioproducts, electric vehicle charging, carbon neutral offers, retailing in combination with other businesses as well. Third priority, strategic priorities, it's just venturing in low carbon across multiple fronts. We’re going to keep testing new and potentially disruptive technologies, try to develop those businesses with a return. And then the fourth strategic priority is just modernize the whole group, including our plans, processes, portfolio, ways of working. And I think with these strategic priorities, we're going to embrace this energy transition and it will shape how we continue to create really value for you in what is going to be a changing world. So that's may be too long of a summary for what we talked about today. But again, I would just like to thank you all for taking your very valuable time and spending it with us today.