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BP p.l.c. (BP) Q4 2020 Earnings Call Transcript

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BP p.l.c. (NYSE:BP)
Q4 2020 Earnings Call
Feb 2, 2021, 4:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

Craig MarshallSVP Investor Relations

Good morning, everyone, and welcome to BP’s fourth quarter and full year 2020 results presentation. I’m Craig Marshall, Senior Vice President, Investor Relations and I’m joined today by BP’s Chief Executive Officer, Bernard Looney, and our Chief Financial Officer, Murray Auchincloss.

Before we begin today’s presentation, let me first draw your attention to 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 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.

I’ll now hand over to Bernard.

Bernard LooneyChief Executive Officer

Thanks, Craig, and hello. And I hope everyone is managing to stay safe and well. And my best wishes go out to all of you and your families. I think it’s fair to say that we are reporting on a tough quarter at the end of a tough year for everyone, a year in many ways unlike any we’ve ever had. The COVID pandemic has been first a human tragedy. It’s taken lives and challenged our mental health. It has also impacted the global economy significantly and we’ve seen the impact in our sector, where road and air travel are down significantly as are demand for products and commodity prices.

But looking forward, as we must do, I am optimistic, particularly given the vaccines, but also because of the actions that we have taken across the company. Before we discuss that future, let me take a moment to reflect on 2020. It was a pivotal year for BP. We set a new direction, launched a net zero ambition, introduced a new strategy to transition from an international oil company to an integrated energy company and started to execute on it on multiple fronts, including entering offshore wind in the United States. Began reinventing BP, reshaping it to support the delivery of our strategy and through all of this, we focused on performance. Our operational teams have kept the energy flowing with fewer injuries and fewer safety incidents compared to 2019 and at levels of efficiency and reliability that are I think remarkable given the additional challenges. We have brought four major oil and gas projects online and seen the completion of a 3,500 kilometer gas supply pipeline and we have strengthened our finances, taking out costs and closing some major divestments. This is great delivery by our team, all the more so given the year that we just had. And as always, we have more to do. We will update you on that today and also address some of the big questions we’ve been asked since our Capital Markets Day in September. In a minute, Murray, will take you through our latest results and the financial frame, but first let me recap on some of the key areas of progress.

Turning firstly to our performance in 2020, starting with safety, as we always do, it’s our core value and it’s at the heart of performance across BP. We had fewer tier 1 and tier 2 process safety events compared with 2019 and fewer people injured at work, an achievement we are proud of, but there is always more to do. And it is not just about having fewer incidents, but also supporting the welfare of our people, particularly at such a difficult time. Later this quarter, we will release our 2020 sustainability report and we expect to report a decrease in our Scope 1 and 2 greenhouse gas emissions. We also expect a reduction in the estimated Scope 3 greenhouse gas emissions from the carbon in our upstream production, reflecting our strategy to high grade and focus our hydrocarbons business.

Turning to our financial performance. For the full year, we delivered a $5.7 billion underlying replacement cost loss with underlying operating cash flow of $13.8 billion. The result reflects lower oil and gas prices, significant non-cash exploration write-offs taken in the second quarter, resulting from a review of our long-term strategic plans and lower refining margins and depressed demand due to the pandemic. During the year, we took a series of decisive actions to strengthen our finances and create a strong foundation from which to advance our strategy.

In April, we outlined measures to support our cash flow, resulting in a 28% reduction in total capital expenditure and a 12% reduction in cash costs. In June, we revised our long-term price assumptions. Later that month, we issued our first hybrid bond. We received $6.6 billion of divestment and other proceeds during the year and as part of our new financial frame, we introduced a new distribution policy, including a reset dividend. As a result of these actions, at the end of the year, our net debt reduced to $38.9 billion and we remain confident in reducing this further to our target of $35 billion. And Murray will talk about this more shortly.

Turning now to our operational and strategic delivery where we continue to focus on performing while transforming. I’d like to draw out a few examples that I think really highlight the progress we have made, starting with resilient and focused hydrocarbons where we delivered four major projects in the year. Since 2016, we have brought 28 major projects online, delivered on average, on schedule, and under budget. On Raven, wells are online and we are in the live commissioning phase. Once ramped up, major project capacity is expected to approach 900,000 barrels of oil equivalent a day, with four more projects scheduled to start up in 2021.

On the 31st of December, first gas flowed from the Shah Deniz field in the Caspian Sea through the Southern Gas Corridor pipeline to customers in Europe. This project was delivered ahead of schedule and 25% under budget, an enormous achievement for one of the most complex energy projects in the world. Responding to the environment in the upstream, we delivered 20% lower capital spending than in 2019, with a continued focus on capital efficiency. An example is our Mad Dog 2 project where we completed six wells using 218 fewer rig days and delivered just over $280 million of savings compared to the sanction case.

On Mad Dog Phase 2 sale-away of the Argos FPU from the Samsung yard in Korea is imminent. An important milestone for key project. And with all pre-first oil wells drilled, this further underpins our confidence in delivery. We have also taken steps to focus and high grade our portfolio that create value for BP, completing the divestment of our Alaska and Petrochemicals businesses, both of which did not compete for capital inside our portfolio. Taking the decision to convert our Kwinana refinery in Australia to an import terminal as we focus our portfolio on top quartile assets. And just yesterday, we announced the divestment of a 20% stake in Oman’s Block 61 for a total consideration of $2.6 billion while retaining a 40% interest and operatorship.

In convenience and mobility, we continue to make strategic progress, unlocking access to a key growth market with Jio-BP, our Indian mobility joint venture with Reliance, growing the number of EV charging points to over 10,000, now with more than 1,400 in China through our joint venture with DiDi, adding around 300 strategic convenience retail sites and increasing our convenience gross margin by 6%.

In low carbon, effective last week, we completed the formation of a strategic partnership with Equinor to pursue offshore wind opportunities in the United States. The partnership initially intends to develop 4.4 gigawatts gross of offshore wind power across four projects and we have already made great progress. Last month two projects were selected to provide New York State with power earlier than expected and subject to contract means three of four projects will have secured offtake.

Lightsource BP continues to grow. It developed 1.4 gigawatts gross to final investment decision or FID in the year. It also added around 6 gigawatts gross to its pipeline. And elsewhere, we are pursuing opportunities to partner with corporates, cities, and industries looking to de-carbonize. We have announced partnerships with Microsoft and Amazon and with the cities of Aberdeen and Houston. And last week, we announced our first de-carbonization strategic partnership in the aviation sector with Qantas. Together, we will seek to reduce carbon emissions and contribute to the development of a sustainable aviation fuel industry in Australia. These examples highlight the real value we place on partnerships. Building strong and enduring relationships with partners around the world is part of our heritage and integral to the success of our strategy. By working together with partners who bring complementary skills, we can accelerate our low carbon transition.

Let me now hand over to Murray to take you through our results and financial frame.

Murray AuchinclossChief Financial Officer

Thanks, Bernard, and good morning, everyone. Turning first to the environment in 2020, without a doubt, a challenging year. Oil demand fell by around 9 million barrels a day. Production cuts from OPEC plus helped slow the build up of inventories and cushioned crude oil prices, which averaged $42 in 2020, 35% lower than 2019. Refining margins were extremely weak with BP’s RMM averaging $6.70 in the year, compared with $13.20 in 2019. Gas demand fell by an estimated 2.5% globally in 2020. All regional gas prices dropped, notably in the second quarter, when JKM and NBP prices fell close to Henry Hub levels, discouraging U.S. LNG exports.

Looking ahead, the oil price has risen steadily since the end of October, supported by vaccine roll-out programs and continued supply management by OPEC plus. We expect prices to remain supported by active supply management and improving demand as we see the expected benefits of the vaccination roll-out and further virus control measures.

In gas, tightening LNG markets at the end of the year have supported a strong recovery of NBP and JKM prices. U.S. gas markets are likely to benefit from lower production and a recovery in the international LNG demand, driven by Asia. And in refining, with a projected demand recovery and several third-party refinery closure announcements, we see a gradual improvement in the refining margin in 2021 once the stock overhang is absorbed by the market.

Moving then to BP’s underlying results. In the fourth quarter, we reported an underlying replacement cost profit of $100 million. Compared to the third quarter downstream performance was significantly impacted by lower marketing performance, with volumes remaining under pressure due to COVID and the continuing pressure on refining margins and utilization. In addition, the result was impacted by a significantly weaker result in gas marketing and trading and higher exploration write-offs, partially offset by a higher Rosneft contribution and a lower underlying tax charge. The fourth quarter dividend, payable in the first quarter, remains unchanged at 5.25 cents per ordinary share.

Turning to cash flow and the balance sheet. Excluding oil spill related outgoings, underlying operating cash flow for the fourth quarter was $2.4 billion. Compared to the third quarter, this reflected the significant impact of lower marketing volumes in the downstream and a significantly weaker contribution from gas marketing and trading, the absence of the working capital release in the third quarter and other working capital effects, the absence of the Rosneft dividend, and severance payments for reinvent BP, partially offset by lower tax payments.

Organic capital expenditure was $2.9 billion in the fourth quarter and $12 billion for the year, at the lower end of our targeted range. Supported by divestment proceeds, including $3.5 billion from the sale of our chemicals business to INEOS, net debt fell by $1.4 billion in the fourth quarter. At the end of 2020, net debt was $38.9 billion, benefiting from the issuance of $11.9 billion in hybrid capital in June. This represents substantial progress from $51.4 billion at the end of the first quarter and brings us closer to our targeted $35 billion.

With that summary of 2020, I now want to focus on what comes next. As laid out last year, we have a new financial frame with three firm principles, a clear set of priorities and business plan. Together, this is expected to drive a strong growth, improved returns, and a sustainable reallocation of our capital employed toward the energy transition. You should be very clear about what to expect from us. In 2021, we plan to pay a resilient dividend, deleverage toward our $35 billion net debt target, try further cash cost efficiencies through our reinvent BP program, invest in a disciplined manner to advance our strategic objectives, including increased investment into the energy transition and deliver on our commitment to commence share buybacks once our net debt target is reached and subject to maintaining a strong investment-grade credit rating.

Let me talk into each of these elements in more detail. Starting with our disciplined approach to expenditure, we have a disciplined approach to capital allocation across all our businesses, testing for strategic fit, affordability within a rigorous capital frame, and quality against stringent hurdle rates. In 2021, we expect capital expenditure to be around $13 billion, including inorganics. We have flexibility within this frame should the environment deteriorate. We plan to invest around $2 billion in low carbon, around $2 billion in convenience and mobility, and around $9 billion into our oil, gas and refining operations.

We are also driving efficiency in our cost base. As Bernard mentioned, 2020 cash costs were down around 12% relative to 2019 and there is further to go as BP’s reinvent program and associated cost reductions gain momentum. Total headcount was reduced by around 11% in 2020 as a result of the reinvent program, net divestments, and other efficiencies. Of the expected headcount reduction of approximately 10,000 associated with the reinvent program, more than half have already left BP and the remainder will depart during 2021 and early 2022. We expect a total provision of around $1.4 billion associated with the reinvent program and expect the majority of the cash outflow to be incurred during the first half of 2021. Delivery of this program supports our confidence in delivering on our cash cost reduction targets. We now expect to achieve a pre-tax savings run rate of $2.5 billion relative to 2019 during 2021, ahead of our prior guidance of end 2021. And we continue to expect $3 billion to $4 billion pre-tax cost savings from reinvent by 2023 relative to 2019.

I now want to update you on our plans to reduce net debt and how this underpins our approach to committed distributions. During 2021, we expect to continue to reduce our net debt. Divestments and other proceeds will be an important contributor. With yesterday’s announcement of a 20% divestment of Oman’s Block 61, we have now completed or announced transactions totaling over half our target of $25 billion of proceeds by 2025 and we expect to deliver between $4 billion to $6 billion of proceeds in 2021, of which around $4 billion have already been announced or completed. We expect the realization of proceeds to be weighted toward the second half of the year.

Turning to net debt, we continue to expect to reach our $35 billion net debt target sometime around 4Q 2021 and 1Q 2022. This assumes oil prices in the range of $45 to $50 a barrel and BP planning assumptions for RMM and gas prices. In the first half of the year, we expect net debt to increase as operating cash flow is expected to recover from the fourth quarter, benefiting from stronger oil prices, slightly higher production, and a recovery in trading performance. However, we expect a heavier weighting of cash outflows in the first half of the year as we incur the majority of the severance payments associated with the reinvent program, make our annual GOM oil spill payment and make the final payment relating to our U.S. offshore wind JV with Equinor.

In the second half of the year, net debt is then unexpected to fall, supported by the absence of first half specific outflows already noted, further improvements in operating cash flow supported by upstream delivery, easing of COVID impacts on downstream performance, and further cost savings from reinvent and with the receipt of the second half weighted divestment proceeds. As a reminder, on reaching $35 billion net debt, this will trigger our commitment to commence buybacks from at least 60% of surplus cash flow, subject to maintaining a strong investment-grade credit rating. This creates direct exposure to the delivery of our business plan and higher commodity prices. Subject to the Board’s decision each quarter, we intend to maintain a fixed dividend of 5.25 cents per ordinary share per quarter, our first call on funds. Together with our buyback commitment, this means that in aggregate, across 2021 to 2025, we expect to deliver per share distributions equivalent to over 10 cents per quarter at around $55 Brent and BP planning assumptions, with upside to higher prices.

Taken together, these measures underpin our financial frame and business plan. This slide summarizes the progress that we’ve made toward our key points of guidance and targets. You should think of this as our annual financial scorecard and part of our commitment to transparency. Further detail on our guidance for 2021, including the first quarter, can be found in today’s SEA and are summarized in the appendix to this presentation.

And finally, that scorecard will be underpinned by a significant evolution in our external disclosures. As of January 1, 2021, our new organizational structure became effective and we start reporting on this basis with 1Q 2021 results. This matrix reminds you of where our business is set within the new reporting structure and how they map to our strategic focus areas. In early March, we plan to release restated financial and operational data for the new business, including two years of historical data. Together with supporting materials to help you understand our new disclosure framework, disclosures will include certain elements below the business group level to help model and benchmark our business. The disclosures will help you track our strategic progress and we believe will enhance the understanding of and provide transparency around how to model and value our business.

Now, let me hand you back to Bernard.

Bernard LooneyChief Executive Officer

Thank you, Murray. I’m now going to spend a bit of time addressing some of the questions we’ve received following our Capital Markets Day in September last year. In doing so, I’m going to focus on each of our three strategic themes, in turn highlighting some of the key messages we provided, outlining the progress we’ve made during 2020, and explaining what you can expect from us in 2021.

I want to start with resilient and focused hydrocarbons, the cash engine of BP. A distinctive part of the strategy we have outlined is our intention to shrink our oil and gas production and refining footprint over this decade. This is expected to help us deliver absolute emissions reductions, reallocate capital, and focus on value. But some of you have expressed concern about what this means for our ability to deliver the cash flow the Group needs to transform. So I want to be very clear. We expect to grow EBITDA to 2025 both headline and underlying from a high graded, higher margin and smaller portfolio.

So, why should you have confidence in the statement? Well, the answer lies in three things. Number one, a 20% expansion in oil and gas unit margin. Number two, delivery of cost synergies and number three, a high graded refining portfolio. Starting with the 20% margin expansion, we expect to deliver this through project delivery, investment decisions, operational improvements, and portfolio choices.

Taking each in turn, we continue to deliver from high margin major projects. 28 major projects are currently online with the 29th Raven in the live commissioning phase. During ’21, we expect a further four start-ups and to ramp up Ghazeer and Raven, underpinning confidence in reaching the 900,000 barrels of oil equivalent a day from major projects. And with Mad Dog Phase 2, Tangguh expansion and Cassia Compression planned to start in 2022, we expect to sustain that level of production until at least 2025. We plan to drive value through our investment decisions as we focus on near field opportunities and optimize a deep and low cost resource base. Within this resource base, there are 20 years of investment choices identified at an average development cost of just $9 a barrel. This compares to a 2020 unit DD&A rate of over $14 a barrel. Simply put, we can do more with less, driving capital productivity as we concentrate on near field opportunities and manage our business toward a lower, more efficient R/P ratio of around 8 years.

We plan to drive value through improved plant reliability with a goal of reaching 96% by 2025. And finally, we intend to divest lower margin assets, which don’t compete for capital within our focused investment frame. We’re not in a rush and we’ll do this when we can secure the right value. The result will be a more focused higher margin portfolio. By 2025, we expect eight core positions to account for over 80% of production and EBITDA.

Moving to number two, cost synergies, we’re changing the way we work. We’re becoming more centralized, more digitally enabled and more agile, lowering costs and speeding up cycle times. We are on track to deliver $1.5 billion of savings from reinvent from our hydrocarbon business by 2023, around half from oil and gas operations and the remaining from our refining portfolio and we are already close to our production cost target of $6 a barrel, a level we aim to maintain.

Finally, number three, refining. We already have a concentrated high quality portfolio operating with high levels of availability, but there is more we can do. We intend to high grade the portfolio, drive synergies from our new operating model and continue to pursue an unrelenting focus on operational excellence. Taken together, these actions support our plan to move our portfolio to top quartile net cash margin by 2025. This will strengthen our resilience and increase leverage to an expected improvement in the refining environment over the medium term and as the world emerges from the COVID pandemic. I hope this helps you see why we have confidence in this plan.

Turning next to convenience and mobility, with a continued focus on the customer, this business is an important contributor to our growth and returns objectives. By 2030, we aim to nearly double the $5 billion of EBITDA delivered in 2019, while generating ROACE of between 15% and 20%. Some have asked why we believe we can do this, especially given the transition in the energy system and uncertainty around oil product demand. Here is how I think about that question.

First, we are building on a strong foundation. This is a business with scale and a track record of growth. We’ve realized around $5 billion of EBITDA in 2019, around 7% per annum EBITDA growth between 2014 and 2019. Resilience, 2020 was a tough environment with around $900 million of COVID-19 impacts. Despite this, we achieved a record year in our convenience business, growing gross margin by 6%. We expect COVID impacts to reverse over time as restrictions are lifted. And looking ahead, we see further opportunities to build resilience as we digitize the business to drive efficiency and grow margin and excellent returns. We have consistently generated ROACE of 20% or more.

Second, our strategic focus areas offer real growth potential. We plan to scale up our differentiated offers in growth markets, redefine convenience in key focus markets, and scale up next generation mobility solutions including electrification, sustainable fuels, and hydrogen. We are confident about this because we have businesses which are adaptable and can thrive in the energy transition and leverage our quality brands, partnerships, global scale and deep know-how.

Third, we’ve made good progress in the last 12 months, more than doubling the number of retail sites in growth markets, growing the number of strategic convenience sites to more than 1,900, delivering a record $1.3 billion of convenience gross margin and increasing the number of electric charge points to more than 10,000. Taken together, this gives us confidence in our growth plans to 2025 and beyond.

Looking to 2021, you should expect another strong year of strategic progress. We will continue to expand in growth markets, rolling out Jio-BP branded stations in India with 5,500 stations expected in this market by 2025. We plan to increase investment in our Castrol brand to drive growth and value, and further expand our 28,000 strong network of branded independent workshops. We expect to grow our margin from convenience and electrification, supported by a planned further expansion of around 10% in our network of strategic convenience sites and the continued roll-out of ultra-fast charge points across our retail sites in the U.K. and Germany. And we will evolve and personalize our customers’ experience by further enhancing our digital and loyalty offers. Finally, as Murray mentioned, we plan to provide enhanced disclosures in early March. This will allow you to better understand why we think these businesses are so valuable.

Moving finally to low carbon electricity and energy, we are very clear about where we can add value here and we have four focus areas, low carbon electricity, integrated gas, bioenergy and hydrogen and CCUS. Since unveiling our strategy, you’ve raised some questions about low carbon electricity, in particular, whether we can meet both our volume and our returns objectives. So today, I’m going to focus on three questions that we’ve heard. The chart here shows BP’s projects, pipeline, and hopper on a net basis.

So, question one, will we really put value over volume? The answer is emphatically, yes. Capital discipline is central to our growth agenda. We are clear that value creation will come from the quality of the opportunities that we mature through our hopper into our development pipeline and we will only pursue opportunities that we believe can generate disciplined project returns of at least 8% to 10%. Let me give you an example. In the second half of 2020, our teams evaluated an option to acquire a pipeline of solar assets in the United States. This opportunity had real scale and could have significantly added to our existing pipeline. But despite making into the final few bidders, we withdrew because the purchase price did not underpin our returns expectations. In the fourth quarter alone, we took the decision not to advance over 12 gigawatts of opportunities.

Question two, are there projects available that meet our returns hurdles? Absolutely. At the end of 2020, we had developed a total of 3.3 gigawatts net. This includes projects in our strategic joint venture, Lightsource BP, which has developed around 30 projects to FID with weighted average expected returns in the range of 8% to 10%. And with our U.S. offshore wind joint venture, we reached a major milestone with the announcement of the power offtake agreements. These significantly de-risk the projects, reducing cycle time, and creating certainty over future revenues early in the investment cycle. This means, we are even more optimistic about the value opportunity than when we entered the agreement in September.

Question three, can you find enough projects to meet your volume objective? We’re making great progress. On top of the 3.3 gigawatts I’ve just described, we have a strong pipeline of around 11 gigawatts of options being developed. We have projects in our pipeline across nine countries. Our developed assets plus pipeline grew by around 90% in 2020 and we have a hopper of a further 20 gigawatts of active opportunities under evaluation.

In addition, the formation of our strategic partnership with Equinor has completed and I believe has a great future, leveraging the capability and experience of both companies. As I said earlier, the partnership intends to develop 4.4 gigawatts gross of offshore wind power from four initial projects in the United States. In January, two projects were selected to provide 2.5 gigawatts of power to the State of New York. This means that alongside an 800 megawatt agreement already in place and subject to negotiation of a purchase and sale agreement, we will have secured offtake for 3.3 gigawatts across three projects, significantly de-risking the investment opportunity. Beyond the initial four projects, the partnership expects to participate in future developments in the United States.

Turning to solar, Dev Sanyal calls Lightsource BP an execution powerhouse. And I agree. This partnership brings together the global reach of BP and the project development experience of Lightsource. In the last 3 years, Lightsource BP has expanded its global presence from 5 to 14 countries and grown its pipeline from 1.6 gigawatts to 17 gigawatts. And in the last 3 months alone, it has developed almost 400 megawatts to FID across four projects in the U.S. and U.K. and has just completed construction on Project Impact in Texas, bringing 260 megawatts to the U.S. market through a long-term trading contract with our trading and shipping division, a great example of integration. As well as this, in just the last 2 weeks, Lightsource BP has acquired a 1 gigawatt pipeline from RIC Energy and signed a deal with Verizon to build a 152 megawatt Bellflower Solar project in Indiana, which will add to our active projects and pipeline mentioned earlier.

Many of you have asked for tangible examples. Here is one. Based in the Zaragoza province, Vendimia is a cluster of five solar plants and is Lightsource BP’s first major project in Spain. The project was developed to FID at the end of 2019 and is currently under construction. It is expected to come online in a few months, evidence of the execution capability and the speed at which Lightsource BP can complete solar projects. Once online, it is expected to bring 247 megawatts of renewable generating capacity to the region, providing clean energy to around 50,000 homes. As you would expect, the project uses efficient structured financing. But what is really exciting is the 7-year PPA locked in with our trading and shipping business, a great example of how we are using the power of integration to optimize returns across the value chain. And Lightsource BP intends to continue its growth in Spain through the recently announced acquisition of a 1 gigawatt development pipeline from which it hopes to mature projects toward FID in the near future.

In summary, I hope that by highlighting our discipline when approaching new projects alongside the momentum in solar and offshore wind, I’ve given you confidence in our ability to grow our renewables business while maintaining disciplined returns. Let me then briefly sum up before we take your questions. This has certainly been a challenging quarter at the end of a difficult year, but today’s presentation also shows just how far we have come in reinventing BP. We are focused on executing our plan step by step, day by day, all while focusing on performing while transforming. Through extraordinary circumstances, we have delivered safe and reliable operations, strong operational delivery, and comprehensive progress on our strategy and our plan to reinvent the company. We recognize that we are a transitioning company, one of many across the economy and one of several in our sector. We have the ambition to become a net zero company, but our transition will not happen overnight. We are not yet green, but we are greening and we are committed not just because it is the right thing to do for the world, but because it is a tremendous business opportunity and we believe one that will deliver long-term shareholder value.

Thank you, everyone, and over to you for questions.

Questions and Answers:

Operator

[Operator Instructions]

Craig MarshallSVP Investor Relations

Okay, thank you again everybody for listening. We’re going to turn to questions and answers. As we’ve done over the past several quarters, we are working remotely, so please bear with us, both on the lines and with the questions, just in case there is any delay. And a reminder as usual from me, please limit your questions to only two. We’ve got a long list of people to get through this morning. So on that note, we’re going to take the first question from Jon Rigby at UBS. Jon?

Jon RigbyUBS — Analyst

Thanks, Craig. Hi, Bernard, hi, Murray. I’ve got two questions, please. The first is on some of the proposed changes in federal regulation in the U.S. And I’m particularly interested in your offshore [Indecipherable] Gulf of Mexico position, because I think historically you’ve developed very successful from drill to fill strategy around the hubs that you have. So I just wanted to understand maybe how much inventory you have out there that sits on your existing leases and licenses. And then how much drilling you have to do each year within that sort of perimeter to keep that strategy on course. Just some color around that, please.

The second is, I think I may have to apologize to Murray in advance on this. I’m interested, because you obviously talk to an absolute net debt number. I had a bit of a struggle this morning reconciling that and it appears to be the impact of some hedge effects around the debt. Can you just talk a little bit about that? What creates that change? And then maybe extend that to cash flow statement whether there is any other sort of hedging effects that are running through cash at the moment? I’m very aware it’s been a very unusual macro environment. Thanks.

Bernard LooneyChief Executive Officer

Jon, good morning. Good to hear your voice. And Murray is all set to take your question and help you with your struggle this morning. So I’ll let him do that in a moment. On the question regarding the plans in the United States, first of all, I think we just say that we look forward to working with the administration as they go about their climate and their energy agenda. We’re obviously delighted, I think many people are, that the U.S. has rejoined Paris. I think these are all good things. And I would add that one of the things in their climate agenda is around doubling offshore wind in the United States and we look forward to participating and helping on that journey.

As regard to leases, I think you probably know, but less than 1% of our onshore acreage is federal. None of the Permian is federal acreage. So I think no real impact there. Offshore to the Gulf of Mexico, I think we need to learn a little bit more. It is a pause for now. We need to understand whether it applies to new leases, existing leases, whether it’s permitting versus the letting of leases, we need to understand that. And we will be working with the relevant agencies over the coming months to understand that. In terms of the near-term impact, we don’t expect any. We’ve got enough sort of permits to do what we need to do. I think, over the next 1 year to 2 years, importantly Mad Dog Phase 2, which I think will — by the way, will leave Korea very, very soon. Delighted to see that milestone. All the wells are pre-drilled from Dog Phase 2, so no issues there.

So no near-term impacts in the GOM, Jon over the next year or two, I would say. And really before we can give you an assessment of the impact beyond that, we need to really understand what the details would be and what they are. And we’ll be working to understand them. I think obviously there is going to be a period of engagement now. So, hope that helps. Murray, over to you on cash and net debt.

Murray AuchinclossChief Financial Officer

Yeah, great. Hi, Jon. Thanks for the accounting question again, love it. So I guess, first of all, just on net debt, our financial frame remains intact. We said we’d have five priorities. First priority is paying a resilient dividend. Second is drawing our net debt down to $35 billion. Then investing into the transition, investing into the hydrocarbons and then commencing share buybacks, with at least 60% of cash flow once we hit our $35 billion net debt target. Nothing has changed around that over the past quarter and we continue to estimate as we did last quarter that we will reach that $35 billion target, somewhere in 4Q, 1Q of 2022. So no change to guidance. Hopefully that helps that bit of the question.

On the second bit of the question, maybe you’re asking about 4Q cash flow and what’s happening there. Maybe it’s easy just to think about it from 3Q and then into next year. So from 3Q to 4Q, 4Q is a pretty difficult quarter. A very difficult environment with COVID, very difficult environment with oil price at $44, RMM around $6, gas prices suppressed and demand very, very difficult in the downstream business. So that’s why cash flow was so low. If you thought about the bricks along the way, it’s obviously EBITDA down, it’s obviously no Rosneft dividend, it’s obviously a working capital disadvantage. We had an inflow in 3Q and basically flat in 4Q. We had severance payments. We had a Petchems divestment and then, as you’re hinting at, we had some moves in derivatives where on gas and the hybrid we had exchange traded derivatives outflow in cash given the high spike in gas during the quarter.

Looking forward to the first half of next year, things improved pretty significantly on an underlying basis. If you think about 4Q versus 1Q right now, oil prices up $11 quarter-to-date from $44 to $55 quarter-to-date. The Gulf of Mexico is producing well. It’s recovered from its hurricanes, Shah Deniz ramping back up as we fill up gas to Italy. Oman is ramping up as well and downstream is recovering slightly and trading should we get back to a normal quarter.

So I think, Jon, I hope that helps to explain it.

Bernard LooneyChief Executive Officer

Is that OK, Jon?

Jon RigbyUBS — Analyst

Yes. Thank you.

Bernard LooneyChief Executive Officer

Yeah. Look, I think lot of questions around cash understandably in the fourth quarter. I think if we step back, in September of last year, Murray said, and we said that, we would reach our net debt target of $35 billion by the end of 2021, which is now this year and the beginning of 2022. These results change none of that. So there is no change from the position that we laid out in September. The key is that the underlying business continues to perform really well. Reliable operations, costs coming out of the business, trading is looking good in January. Safety is good. Projects are coming online and ramping up. And on top of that, we’re making real strategic progress. So I recognize that 4Q was a difficult environment. The numbers are a little bit messy at least for a driller there, but the fundamentals are unchanged. And we’re very optimistic actually as we look into the year and confident in the underlying business and in the plans that we laid out, particularly around net debt that we talked to in September. So, no change from that guidance.

Craig?

Craig MarshallSVP Investor Relations

Yeah, thanks, Jon. We’ll take the next question from Alastair Syme at Citi. Alastair, good morning.

Alastair SymeCiti — Analyst

Thanks, Craig. Good morning, everyone. Can I just ask two questions. What about asset values? In the Annual Report last year on fair value analysis, there were some scenarios outlined on the long-term oil prices and the most aggressive said that, there might be $4 billion to $5 billion of impairments. And in 2020, you ended up impairing $10 billion. And your notes now say there is another $4 billion to $5 billion of assets that carry low headroom. So, I appreciate I am asking possibly difficult question on oil prices, but you are a company that inherently believes in the more rapid transition than many of your peers and yet your oil price forecast is still pretty similar to what your peers are using. So the question really is, how do investors get confidence around the rest of your book value from here?

And then the second question, a little bit shorter. You’re moving to post tax reporting as part of your reporting change. I was a little surprised to see the EBITDA waterfall charts and some resilient hydrocarbons. Can you just confirm that the changes in cash flow expectations will be in line with the EBITDA or are there some tax considerations to consider? Thank you.

Bernard LooneyChief Executive Officer

Very good. Murray, I’ll let you take both of that Alastair’s questions.

Murray AuchinclossChief Financial Officer

Yeah, great. So post tax reporting, that’s a future attraction to come in early March. We’ll publish the new segmentation, including the move from pre-tax to post-tax. So that’s something to come. As far as pre versus post-tax, you saw a signal that we’re back to around 40% or slightly higher on effective tax rate moving forward. So I think, give us a little bit of time. We’ll restate history, we will show you new projections moving forward on a post-tax basis. And Alastair that should help clarify those issues. But you should have seen guidance in the details of what our tax charge should be in 2021.

As far as book values, obviously during 2020, we — given the effects of COVID and given the effects of what we’re seeing with the world, we reset our price deck. Additionally, we also decided not to pursue a significant number of exploration opportunities and that’s what saw the big write-offs during the year. I don’t — I probably don’t need to repeat those numbers for you. So that’s really what caused the change in book value during 2020. The price bands that you’re talking about, they suggest I think, from memory, about a 15% movement and they showed 5% of impairment. What we ended up actually doing was a much bigger move in price and 10 of impairment. So I don’t think that was particularly inconsistent with what we provided last year.

Moving forward, what’s our best view of price. Right now, no change. It seems like a pretty reasonable set of assumptions we’ve got. You can see the details inside. I think it’s note 1, Craig. And we’ve given you that sensitivity as well. And I think it works relative to what happened last year as well. I hope that helps, Alastair.

Bernard LooneyChief Executive Officer

Is that OK, Alastair?

Alastair SymeCiti — Analyst

Yeah. Thank you.

Bernard LooneyChief Executive Officer

Great. Thanks for the question. Good to hear your voice. Craig?

Craig MarshallSVP Investor Relations

Okay. We’ll take the next question from Lydia Rainforth at Barclays. Good morning, Lydia.

Lydia RainforthBarclays — Analyst

Thanks, Craig and good morning. Two questions, if I could. The first one, just to clarify, on that chart around unit margin expansion, that 20% increase in EBITDA for the upstream, is that before or after the cost synergies effectively? I’m just trying to get to, is it just the mix volume effect or is there then cost synergies on top of that? And then secondly and probably for Bernard, just going back to that reinventing BP program that you have now got stages splitting out the — or integrating the upstream and the downstream operations together, can you just walk us through how that’s going and whether it’s — whether you’re seeing the progress that you wanted to at this stage? Thanks.

Murray AuchinclossChief Financial Officer

Hey Lydia, good morning. Good to hear your voice as well. On the 20%, it’s before cost because I think if I’m reminded correctly on that chart, you’ll also see a separate cost synergy brick, so to speak. So, it’s purely volume and margin and mix. So it’s before cost. And then on reinvent BP, I mean, reinvent BP, this is work that we’re doing internally as well is more than just the restructuring of the company. It gets more into some of the things that you saw when you’ve been with us in Oman around digitization, around becoming a more digital company, becoming a more agile company, centralizing work and creating a culture that is more in line with the future direction of the world than maybe one that we’ve come from.

Restructuring is a big part of reinvent BP. We made great progress on that. The team has done, I think — personally, I think, an absolutely amazing job. This is the largest restructuring in the company’s history. We changed over from the old structure to the new structure on January 1. The management of change exercise that was needed to do that was massive in terms of MOCs by individuals across the world. We said that up to 10,000 people would leave the company, more than half of those people have already left by the end of the year and we’re continuing with — really it’s Europe that’s remaining where we have various works councils that we need to partner with to finalize that work this year. We’re seeing the cost coming through, the $2 billion to $3 billion as we said by the end of 2021 is now looking like the middle of this year to $3 billion to $4 billion that we said by 2023. I’m very confident in and Murray and I and the team will be working as hard as we can to bring that forward. There is unquestionably benefits to how we work.

If I look at what we can learn from the refineries where I think they are very good at managing things like turnarounds, we can bring that into the upstream from the old upstream, I think a lot of work done on inspection and inspection technologies that we can take to the downstream. So today, it feels very natural that all of the operations of the company would be run in one place. And that’s what Gordon’s role is. So, we’re only just getting going. We set Gordon’s organization up in an agile structure. I think it’s the first agile structure in oil and gas that I’m aware of. And I think we’ll look forward to learning as the year goes on. We won’t get everything right. I’m sure we will make some mistakes along the way. That we’ll correct. But hugely optimistic about the potential that lies ahead. And you’ll see it in multiple dimensions, you’ll see it hopefully in engagement of staff, which we’re focusing on heavily this year. You’ll also see it in the cost line. I think we’re below $20 billion now. And I think, Craig, it’s probably the one of the first times we’re below $20 billion on cash costs in probably 20 years, maybe even since the Amoco merger. So lots of progress and I’m really excited about what lies ahead because I think we haven’t even touched the surface of what’s possible with this new organization yet.

Hope that helps, Lydia?

Lydia RainforthBarclays — Analyst

Yeah, great, thank you.

Murray AuchinclossChief Financial Officer

Cheers. Good.

Craig MarshallSVP Investor Relations

Thank you, Lydia. Yeah, we’re going to jump to the web actually. We will take the next question which I’ll pose on behalf of Jason Kenney at Santander. Jason asks, can you talk to the relative positions, Oman gas versus East Coast US wind, please? Which position do you see as more supportive of CFFO in 2025 and/or 2030?

Bernard LooneyChief Executive Officer

Thanks, Jason. Thanks for the question. First of all, in Oman, why did we divest 20% of Oman, well, as you all know, we have the $25 billion divestment target out there. I think we’ve announced about $14 billion of the $25 billion. Why do we sell 20% of Oman? We’re not in a rush. We’ve got 4 years to do the rest. We’re certainly not in a rush and what we’ve always been clear with you and with shareholders is that we will divest for value. We will only divest when we see value and we see value in this case. This is a good price for a good asset. So we’re pleased with that. We remain at 40%, which is a significant equity position. We remain at as operator. We will explore in Oman. So I think it’s the right thing to do. That won’t be the case for every asset that’s on the market today across the industry, but it was the case in the specific circumstance for Oman gas and we’re very pleased as is the Oman government I believe with this transaction.

Offshore wind in United States, it’s a longer cycle business obviously compared to solar, so you won’t be looking at cash flow from operations from that business in 2025, but you will be looking at it in 2030. The good news is, we’re ahead of schedule already. I think that project is going very, very well. And as I think I said that investment looks better today than it just did a few months ago and that’s around pace. So our compliments to the team at Equinor and we’re looking forward to building that joint venture in the months ahead, very excited about it. But you get out to 2030 and this is going to be a material brick of cash flow that will go on for 20 years out to 2050. You start thinking about the need over time for hydrocarbons to be de-carbonized. That’s obviously not a threat that will face that business and we head out into the 2030s and 2040s carbon price and so on and so forth. So very, very comfortable with — delighted actually with the entry into the U.S. offshore wind business, delighted with early progress. I’m sure there’ll be plenty of things ahead of us in the coming years and very pleased that we got a very good price for a very good asset in Oman.

I hope, Jason, it gets to the essence of your question.

Craig MarshallSVP Investor Relations

Okay, thanks for the question, Jason. We’re going to move to the States. Two questions in the States, obviously up bright and breezy this morning. Thank you for joining, the first one from Paul Cheng at Scotiabank. Paul?

Paul ChengScotiabank — Analyst

Two questions. One, on Rosneft, I’m still trying to figure out why long term — I mean, right now that the price is poppy, not good for you that to sell it, but why long-term it is? Just it could be integral to the rest of your business or why is it important for you to own it? And I know that, Murray, that you’re going to provide more information in March, but just curious that in the fourth quarter what is the low carbon business cash flow or EBITDA, any kind of rough estimate that you can provide? Thank you.

Bernard LooneyChief Executive Officer

Paul, good morning and thank you for your question. The question around Rosneft, let me take that and Murray will take the — excuse me, the fourth quarter question. The first thing that I would say, maybe make four points, if I may, on Rosneft. The first point that I would make is, I think, as you well know, we have three parts to our strategy. One is around low carbon electricity and energy, one is around convenience and mobility, both of which we’re going to grow and the other is around resilient hydrocarbons. And Rosneft has some of the most resilient hydrocarbons in the world. Our production cost per barrel in BP, I think we’re about $6.70, on their way to $6. Rosneft’s lifting costs are $3 a barrel. So the first thing is, it’s actually consistent with strategy in terms of resilient hydrocarbons.

The second thing that I would say is that from an environmental performance perspective, I think it’s important that people look at the facts and the facts are maybe surprising to some people. Rosneft’s greenhouse gas intensity per barrel of oil produced is below 30. In fact, it’s below many of the majors, including BP. They have reduced fugitive emissions in 2020 by 73 — sorry, in 2019 by 73% versus 2018 and they’ve just announced a new carbon plan. And they’re going to target methane intensity of 0.25%, which is good. And they are going to drive that greenhouse gas intensity down by a further 30%.

The third thing around Rosneft is the financial aspects of the investment. Since 2013, we have received $4 billion in dividends. And in 2020, we received $400 million in dividends from Rosneft. So it’s a good financial investment. And then finally, I would just say, if I can Paul that, it’s a strategic partnership for BP. Rosneft is an excellent operator. They are committed to sustainably developing their resources. We have a lot to learn from each other. They can learn from us, we can learn from them. We are about to sign a strategic cooperation agreement in the next few days around carbon. So I think that hopefully gives you a sense of how we think of Rosneft and how it fits within our portfolio.

Murray, 4Q cash numbers from growth business. So, go ahead.

Murray AuchinclossChief Financial Officer

Yeah, great. Thanks. Hi, Paul, nice to — thanks for the question. As far as EBITDA comes from low carbon that isn’t really something we’re focused on right now. To be honest, we’re in build mode. So if you think about the planks we have, plank one is offshore wind. Obviously that’s about access right now, accessing acreage, so we can build out the portfolio in the 2030 time-frame, plus as Bernard just described.

The second bit is on solar, where we’re very, very focused on building gigawatts right now. Why? So we can get offtake into our business. So Lightsource BP really isn’t focused on EBITDA. They are focused on construction and flipping and making sure that we expand that market, so that we’ve got energy for retail providers. Bunge, a third plank obviously in biofuels in Brazil is about efficiency and gradually expanding that business as well. So sitting in the fourth quarter of 2020, we’re not really focused on near-term EBITDA. You’ll see a number for EBITDA shortly. It’s not going to wow you, it’s not intended wow you, but it’s intended to be transparent, I don’t know, it’s probably somewhere runs around $100 million would be my guess, but let’s see in March when we do that.

And as we disclosed on August 4 and as we disclosed in September as well, we’re not expecting a ton of EBITDA from low carbon by 2025 either. This is really a longer wavelength business that starts to replace earnings from the historic hydrocarbon business in the late 2020s and early 2030s. And we’re balancing the portfolio to maximize the value from hydrocarbons over the next decade, growing CNP ratably across the decade, especially in the convenience space and then gradually building up low carbon. But like the market, I just encourage us to focus on growth as opposed to particular EBITDA, because that’s the phase of the strategy that we’re in.

Bernard LooneyChief Executive Officer

Great. Thanks, Murray. Thanks, Paul.

Paul ChengScotiabank — Analyst

Thank you.

Craig MarshallSVP Investor Relations

Thanks, Paul. And we’ll stay in the States and move to Dan Boyd at Mizuho. Dan.

Dan BoydMizuho — Analyst

Hi, thanks, good morning guys. I had a question on BPX. When you gave your strategy update, it’s one of the few areas where the sort of pre-coronavirus or pre-pandemic targets were — are still intact of more than doubling the liquids production by 2025. So just wanted to get a little bit more of a road-map from you on the ability to hit that target. You’re only running one rig, understandably given everything that’s going on. You were previously running 13. So is there a path to get back to double-digit rig count at BPX and to ramp up to that number?

Bernard LooneyChief Executive Officer

Dan, good morning. Thanks for your question. Murray is a bit of an expert. So I’ll ask him to come in as well. But BPX is going really well. Cost synergies are ahead of plan. I think we said $350 million had been delivered early and we’re upgrading that target to $400 million. The rocks look really, really good, better than we had hoped. So that’s a very good news and capital productivity and cost productivity continues to come through under Dave and Jack’s leadership. So we’re very happy with the overall process.

As you say, we did cut the rigs right back from double-digit to one or two by the right in the first quarter, I think, and that’s one of the advantages of that business, as you well know. I’ve been looking at some of the profiles for that business over the coming years. We’re not focused on production, we’re focused on growing free cash flow and that’s what you should expect from us. I think the numbers that I looked at, Murray will correct me if I’m wrong, but showed more of a flat production over the coming years, but a growing free cash flow profile. Double-digit rigs maybe not, but certainly high single-digit, low double-digit is very possible as we head into the year. So this is a business that is focused on cash and cash generation, strong returns. I think thousands of locations with returns that are well in excess of 20% at the current sort of prices. So good quality business. We’re not trying to grow it in a volume sense, we are trying to grow it in a free cash flow sense and that’s what we focused on.

Murray, anything I missed?

Murray AuchinclossChief Financial Officer

It’s cash flow positive at current strip prices during 2021, so that’s good news. And we see that growing over time. We’ve gone from one rig to five rigs and we’ll be probably having about eight rigs in 2021. They’ll be spread across the basins. Given the current prices, we’ll be focused on the oil side as opposed to the gas side this year. We have four basins, two gas, two oil/liquid, so we can move back and forth between those as we need. And it just stands the chance to grow cash flow very ratably through time if we invest on a continuous basis as opposed to going up and down. But as Bernard said, it remains a great investment case.

There’s been some noise out there on benchmarking that is suggesting maybe we’re not as good a driller as we think we are, but we’re going to go try to clarify that stuff. Everything we look at on benchmarking shows they are first quartile across the Permian and across the Eagle Ford. Some people might be getting confused that Devon actually doesn’t drill and complete those wells in the Eagle Ford. So that’s just something for the back of your mind, but we remain very, very confident in that business. And I look at it as a nice source of ratable cash flow growth over time.

Bernard LooneyChief Executive Officer

Great, thanks, Murray. Thanks, Dan.

Dan BoydMizuho — Analyst

Very helpful. Thanks.

Bernard LooneyChief Executive Officer

Thank you.

Craig MarshallSVP Investor Relations

Thank you, Don. We’ll take the next question from Thomas Adolff at Credit Suisse. Thomas, good morning.

Thomas AdolffCredit Suisse — Analyst

Hi, good morning guys. Two questions from me as well. Perhaps both for Murray. The first one is just on U.S. offshore wind regarding Empire Wind 2 and Beacon 1. Can you comment on pricing, especially how it compares to Empire 1? And then second question is on the balance sheet and the credit rating. Perhaps you can remind us of the importance of having, at the minimum, a single A minus credit rating and the impact the business would face should you get a downgrade and why BP doesn’t want to create a big a buffer, the target net debt following the new ratio guidelines via rating agencies? Thank you.

Bernard LooneyChief Executive Officer

Thomas. Good morning to you. I’ll surprise you, I’ll actually take one of the questions, but I’ll — no prizes for judging which one. I’ll let Murray handle the credit rating agencies and the balance sheet. On offshore wind, no, we can’t disclose those prices at this time. Further work to do, but we will when the time is right. Murray, over to you.

Murray AuchinclossChief Financial Officer

Thanks, Bernard. Thomas, I’d just add on the offshore wind cycle times, everything. Everything is about accelerating the pace to first electron. You’ve heard us say that on the upstream side, it’s even more important on offshore wind. So just — that’s something that’s really pleasing for us to see that move forward. On the credit rating, let me wind you back to August 4. This will probably be a longer answer than you want, Thomas, but why not. So if you go back to August 4 when we laid out the financial frame, we talked about the five priorities. You know the first priority was the resilient dividend. The second priority, just to expand on it a bit was to reduce our net debt to $35 billion and then we will retire that and then we’ll move to measuring ourselves with a strong investment grade credit rating. And we told you that it would be supported or indicated through a range of FFO over adjusted debt of 30% to 40%. So that was a good indicator for you to look at. Nothing has changed on that.

Yes, we’ve had a ratings move by S&P on the sector. What they’ve said is, we’ve moved from A minus stable to A minus negative. And with that type of rating, they are saying that if you don’t get to 35% to 40% FFO over adjusted debt over the next couple of years that you’ll be downgraded. And what I’d say is, that’s totally consistent with what we told you on August 4. So we have a range of 30% to 40%. Now, I remain confident that we’ll get to that range of 35% to 40%. Why am I confident? We’re starting to see oil price pick up. Obviously we’re seeing RMM over time will pick up as the vaccines come into place. Natural gas is holding firmly around $3, which is good news.

As you look forward, in the first half of the year, obviously barrels come back online from the Gulf of Mexico. We get growth in our major projects from Shah Deniz, Oman. Raven will come online and then really importantly in 2022, two of the very best highest margin projects in our portfolio, Mad Dog Phase 2 and Tangguh Train 3 come online and Cassia in Trinidad as well at. At the same time that’s happening, CMP is growing. Convenience looks like it’s doing really well. Costs are coming down. We’re well on track for the 2.5 by end of 2021. We talked about we’ll beat that early. And you know Bernard and my passion on cost. I’m sure we’ll do better than we’re suggesting. So costs coming down, production volumes coming through, big projects ramping up and I don’t feel particularly concerned about hitting that 35 to 40 target that S&P talks about.

Last comment I’d make is, there are three ratings agencies, not just one. And I think Moody’s has us on A1, Fitch has us on A, and obviously S&P has moved us to A minus negative. And as you look at those three things that sure feels like strong investment grade credit rating to me, Thomas. So, no change. I saw a note somebody produce, maybe it was you Thomas that there was a risk on trading if we move to below A minus. That’s not right. If we were BBB plus or something like that, the traders can still trade. That’s not an issue for us and we adapt structures to make sure that we can manage that type of risk. Hope that helps us, Thomas.

Bernard LooneyChief Executive Officer

The only thing that I’d add, Murray — Thomas, Murray, is just around our strategy really. And I think as we continue to enact our strategy which is ultimately a de-carbonization and a diversification strategy. I think that takes away risk rather than add risk to the company and I think we’re seeing that in the commentary from I think Fitch, Craig, I think it was who had some positive commentary on the agenda that we have and Moody’s around the direction that we’re taking. So I’ve always said that I think the strategy that we’ve laid out and that we are executing on is a de-risking strategy as well as a de-carbonization strategy as well as a diversification strategy and as well as a strategy that we think will create long-term value. So I also believe that over time that will be taken into account as well. Having said that, to Murray’s point, we’re not relying on that. We’re relying on the fundamentals that he just laid out.

So thanks for the question. I think Alexia also had a question online on that and hopefully we’ve answered Alexia’s question there as well. Craig, back to you.

Craig MarshallSVP Investor Relations

Thanks, Bernard. We’ll take the next question from Christyan Malek at JPMorgan. Christyan?

Christyan MalekJPMorgan — Analyst

Hi, thanks, gentlemen. Hi, my — I’ve got two questions, if I may. First on returns aspirations in the renewables. You mentioned you declined 12 gigawatt opportunities given they don’t meet your threshold returns. Can you explain what exactly you’re doing differently versus what seems to be an ever-growing number of participants? Is any confidence you can secure enough renewables projects to deliver 8%, 10% returns and therefore your pipeline, especially in the context of the rating agencies were putting more pressure on your balance sheet, leaving you all to be less competitive versus the traditional players.

The second question, if oil and gas prices do indeed hold or move higher, how does that effect your net debt target being achieved sooner and launching the buyback in Q3? And before prices move materially higher, would you consider raising capex above the low end of the range this year? Thank you.

Bernard LooneyChief Executive Officer

Very good. Thank you very much, Christyan. Good to hear your voice. I’ll let Murray take the lovely question around accelerating oil prices, accelerating reduction in net debt and what we do with all the money.

On the what are we doing with on the return side? Well, the first thing that we’re doing is, we’re being disciplined. And many of you and many shareholders have said, actually we are a little anxious about this volume target and we’re worried that you will go off to the races on that. Why don’t you tell us about some of the things that you don’t do. And by the way, there are many, many things, especially in that space, it’s a hyperactive space, I would say. And we’re looking at all sorts of things all the time. And it was important that we laid out to you that we do walk from things and we walked from them for a fundamental reason that we believe that in that particular instance it’s got too heated and we’re not going to be able to deliver our returns and there wasn’t — there was one opportunity that we looked quite closely in America. It would have been very material, it would have been — it had lots of sort of color to it that would have been quite attractive, but we got down to the last two or three and we couldn’t make the numbers work and we walked away.

Conversely, at the same time, Lightsource BP is continuing to do projects and they’ve done 30 now that have averaged 8% to 10% over that time period. And what we’re doing is continuing to do the things that we’ve talked about. I would not underestimate what we bring on our operating capability. I think we’ve added 1% of availability to our wind business, our onshore wind business in the United States through ONYX, which is a BP-owned company that does data analytics and predictive maintenance. I wouldn’t underestimate what we can do on construction. We benchmark five out of six — in five out of six categories, best in class. If you look at offshore wind, these are massive projects, billions of dollars, multi-year as Murray said. And what we have today is, Ewan Drummond, who is the Vice President of Shah Deniz, who built a project through seven countries, over mountains, under the sea, bringing gas from the Caspian to Europe, 25% under budget, on schedule. He is now sitting in that joint venture, on top of that joint venture with Equinor BP bringing his experience.

Integration, you will see two deals that we’ve done now where the trading division of BP is on the purchasing end, both in Spain and in Texas. And that helps us manage returns across the cycle. So there is lots that we can do. The customers that are demanding, the things that we want, you’ve seen the deals that we’ve done with Microsoft and Amazon. There’s going to be more in that space to come. So all I can keep telling you is, sharing examples like we’ve done with the project in Spain where we get the 8% to 10%, what it looks like, sharing examples of where we’ve walked away and we’ve done that in the fourth quarter.

And I have no doubt we’ll continue to do that. And sharing examples where we bring things to that part of the business that we think can enhance returns. And what I would tell you is that the Equinor BP joint venture in the U.S., even after a few months because of pace, because of cycle time is already looking better. And it had met our threshold and is now looking better than what it did several months ago. So we’re going to be disciplined. And if we can’t make the returns work, we won’t do the deals. I hope that helps. We’ll continue to give you more evidence, more proof quarter-on-quarter at these results and whenever we talk of the examples on both sides. Murray?

Murray AuchinclossChief Financial Officer

Great. Hi, Christyan. I’m going to bore you to death with this answer, if you don’t mind, but I’m going to go back to financial frame. Five priorities, resilient dividend, debt down to $35 billion, invest into the transition, invest in the resilient and then surplus cash at least 60% to shareholders. The answer to your question really lies on that. We have laid out our capital stall for 2021. It’s around $13 billion. We’re not going to change that because we are above $35 billion net debt. I think if we hit $35 billion net debt earlier, we’re not going change our capex this year, we’re around $13 billion and that’s the right thing to do to show discipline for shareholders.

And then, as you move forward, obviously, what we said is, once we’ve hit our $35 billion net debt target, our capital range becomes $14 billion to $16 billion and that includes inorganics. So I just encourage all of you to look back at the financial frame. We’re following the rules tightly on that and Christyan cross fingers, if some institutions are right and we see some price upside, then both ourselves and our shareholders will enjoy that immensely as at least 60% of those surplus funds will go toward share buybacks.

Hope that helps, Christyan.

Bernard LooneyChief Executive Officer

Great. Thanks, Murray. I think the last thing in the world investors would want us to do right now is start changing our mind on capital depending on the oil price. So hopefully that helps that question. Christyan, thanks for both of those. Craig?

Craig MarshallSVP Investor Relations

We will take the next question from Irene Himona at Societe Generale. Irene.

Irene HimonaSociete Generale — Analyst

Thank you. Good morning. I had two questions, please. First of all, going back to BPX, the quarterly disclosures show quite a steep 20% step-up in the Q4 unit production cost to $8.10. I wonder what drove that if it was something non-recurring, if it is seasonal and importantly, what could we expect for BPX costs in 2021? And then secondly, in relation to the targeted 7% to 9% growth in per share EBITDA, you don’t actually disclose that figure for historically. Are you prepared to tell us what it was for 2020 or do we need to wait for the March new disclosures? Thank you.

Bernard LooneyChief Executive Officer

Irene, good to hear your voice. Murray, over to you on both.

Murray AuchinclossChief Financial Officer

On BPX, the lifting cost or production cost per barrel going up, Irene, is really about production volumes. So cash costs were relatively stable across the time period, but an awful lot of that production comes from natural gas, places like the Haynesville, et cetera, there are steep decline on those when you don’t invest in it. Obviously, given the low price environment, we pulled our rigs down from I think it was 16 down to 1. And a natural consequence of that is gas volumes declined and unit costs go up. So that’s not — probably nothing surprising there to you, as I described, but the absolute cost, they run — Dave’s part of the — Dave Lawler who runs the business as part of the overall reinvent program, he has his own efforts on reinvent as well going and digitizing et cetera, et cetera. So I would continue to assume that they will continue to drive cost efficiency into that business. And over time, it should get a little bit better as we get back to drilling with the five rigs and then eight rigs as we drive up production gradually.

Craig, do you want to tackle that other question?

Craig MarshallSVP Investor Relations

Yeah, Irene, on the EBITDA per share, it is actually disclosed on our medium-term financial frame slide in the materials. You can see what we did in 2019 and 2020. There’s a reconciliation for that in our supplementary information if you get to that point of your review. And then I think the last thing is, going forward with our new disclosure framework, we will publish that as well going forward. So I think all the information is there for you.

Bernard LooneyChief Executive Officer

Great. Great to get Craig in on a question. Irene, thank you very much. Craig, back to you.

Craig MarshallSVP Investor Relations

Okay. We’ll take the next question from Oz Clint at Bernstein. Oz, good morning.

Oz ClintBernstein — Analyst

Yes, hi. Good morning. 300 strategic convenience sites and 2,500 EV chargers added in 2020. I just wanted to get — and so they — are they attracting customers, are they attracting the footfall that you might expect. And really I ask because of, we’ve seen this deal from Couche-Tard looking for Carrefour, so which is very different format and I guess if I was being cynical, you could interpret that as being they see some threat to longer term fuel retailing as a business model. So I wanted to see, Bernard, what you would say to that?

And then secondly it’s also probably a bit of high level question, but you’ve been busy, I have seen lots of panels here with prime ministers and heads of large fund managers and actually future kings as well. So a lot of information in there. As you put all that together and think about that, do you still feel your pace of change or pace of transition is right or because some might say it’s too fast, or certainly faster than others, within your group. That’s the second question. Thank you.

Bernard LooneyChief Executive Officer

Great. Oz, I’m going to actually let Murray take your first question around consumers and mobility business that he is passionate about. He’s got his own views on what Emma should do with our coffee. But I’ll let him share that in a moment. I don’t know if that was a question or feedback for me on the panels that I am on. But, no, look, it’s — what can I say, I read your — I think it was your survey that you did of investors. And I think it was 40% of people said our strategy was too ambitious, 30% said it was — 35% I think said it was just about right, and about whatever the balance is, 30% said it wasn’t fast enough. So I think there is a mixed views out there on it.

My own view, having talked to people like those and we’ve been fortunate to be given access to some of these dialogs, which by the way I think is hugely important part of our future, because if you’re in the dialog, if you’re in the debate, you can shape some of these things and help them get to a good place. So it’s been great being part of these dialogs. My sense is, I walk away honestly feeling incredibly encouraged about the direction that we’re taking. I certainly don’t walk away thinking that is too aggressive. That is not something that I leave those conversations on. It’s only 12 months since we almost the day we announced our net zero ambition. What had changed in 12 months? Something that was considered I won’t say outrageous back then, but certainly at the ambitious edge of ambitious. Look at what has happened in the last 12 months. So this world is changing, it continues to change around us. We need to keep in step. I like the strategy that we have. I do believe that it’s increasingly being understood and embraced. I keep coming back to the fundamentals. We offer a fixed and resilient dividend. We offer a commitment to buybacks once that net debt target is reached. And I do believe that we offer long-term value growth and that’s the reason to be in BP.

So I’m more encouraged, probably more optimistic, more confident than I was probably as I headed into the end of the year as we start the year. Now that isn’t code for this is all about hype. We have to be focused on the business. We have got to deliver each and every day. That’s why safety matters. That’s why reliability matters. That’s why we need to take cost out of that system. These are the basics of running a good business and it is those basics that give us the permission to transform the company which is why we say perform or transform. And Murray and I and the rest of the leadership team and the organization are all over it, but encouraged about the direction and focused on the job at hand, Oz, is how I would put it. Murray, convenience and mobility.

Murray AuchinclossChief Financial Officer

Yeah, convenience and mobility. Oz, good to hear your voice. I think I’ll parse this one. So just starting with convenience, probably the best year for convenience earnings for us despite COVID environment. So footfall is obviously down with COVID, but margins are up, absolute levels are up. So that’s awfully good news. If I personally reflect on it, I prefer convenience now more than I did before. That’s just a result of COVID and I think consumers such as myself, yourself maybe feel that way. So we think the convenience offer is a good one. We think it’s got good strong growth. I think the statistics are the world expects 5% growth in convenience moving forward. So there is no reason to play into that.

On electrification, strong growth in electrification as well. Obviously, you just quoted the stats to us. A lot of — it’s really focused on three countries, U.K., Germany and China. In the U.K. and Germany, this is all about starting to put pulse in the U.K. or in the Aral stations in Germany close to our retail offers and close to our fuel offers. And I suspect, you’ll see a gradual substitution of those over time. And I think that’s a pretty powerful business model. When you can get a five-minute charge on your electric vehicles, that’s a fantastic way, go get 100 or 200 kilometers after five minutes, go get a coffee. Bernard and I will debate what kind of coffee you should get. Go get a snack and that’s where you make the money for a business such as ours. So we think that’s a nice nexus that comes together.

And then the last bit is fleets. And DiDi is an example of fleets and Uber here in London is as an example of fleets where we’ll build out charging stations for fleets of Uber drivers or DiDi drivers. And we’ll become their natural place to rest, charge, gradually get convenience over time and enhance that offer as well. And so, I think those fleet deals we do are super, super important and maybe not something some of the other guys are talking about that you mentioned, Oz. And certainly we’re seeing that in DiDi in China given the pace of growth there. So I think our premises, convenience is more desired. It’s a higher growth rate. We can couple it with our fuel for now and convenience offers and that will make great money and great growth. And we also think the fleets are a winning way. And let’s see how we get on in London and let’s see how we get on in China, but we do think it’s the right thing to do and we do think it creates a ratable growth over time.

Bernard LooneyChief Executive Officer

Murray is encouraging them not to make the charging too fast, so that you still have to go and get your cup of coffee. But we’ll see where that goes. Very interesting, if you look the, Oswald online, DiDi has I think just manufactured the world’s first vehicle that’s dedicated for ride hailing, pretty impressive. So the car is basically not meant for private ownership and it’s the first in the world. It’s DiDis, D1 or something worth looking out online. But it’s just a reminder of the pace of change in the world. This is what I love being in part of these things because the world is moving and cars are going to get built no longer for private owners but for fleets. And we got to make sure we leverage that and we will. So great, Oz. Back to you, Craig.

Craig MarshallSVP Investor Relations

Yeah, thanks, Oz. We will take the next question from Peter Low at Redburn. Peter, good morning.

Peter LowRedburn — Analyst

Hi, thanks for taking my questions. The first was just a clarification. Is the Equinor wind acquisition included in the $30 billion capex guidance to 2021? And then can you clarify how much of that $30 billion in 2021 will be allocated to renewables and low carbon more generally? The second was just on the downstream business. Can you help us better understand some of the moving parts in the fuel results in the quarter. In the release, you stated the marketing business was resilient and delivered significant profit despite the weaker volumes. That would obviously imply a significant loss in refining and trading given the net negative result. Is that the right way to think about it and is there anything you can do to stem those refining losses given the continuing weak margin environment? Thanks.

Bernard LooneyChief Executive Officer

Peter, very good. Excellent questions. Very, very clear. And Murray will take the first one. On the second one, I think the way you think about it is correct. It’s been a difficult quarter in the refining industry, thankfully. I think average utilization of refineries worldwide is about 78%. Ours, I think were in the mid-80s in the fourth quarter and that’s a reflection of the fact that we have top quartile refineries. But as you can see from one of the bricks in our resilient hydrocarbons plans out to ’25, we believe that there is more that we can do around availability and cost in those refineries to make them even better. And that’s what we’re very much focused on. And obviously given the environment we’re very focused on that today. You will also have seen us take the decision to convert refinery in Australia into a terminal. I think these are important portfolio rationalization decisions that we’re taking as well. So good to see refining margins improve here in January a little bit, strengthening a little bit, which is good, but still a long ways off what historical numbers would be.

Murray, anything you would add and the question on the capital?

Murray AuchinclossChief Financial Officer

Yeah. And, Peter, thanks for the question. The new disclosures in early March will show you the refining and trading number together and convenience and mobility separate from that. So you’ll be able to see that number, but as you’ve got the direction of travel right. I won’t tell you the numbers till we get clear on them.

As far as capex goes, yes, $13 billion includes organics and inorganics, so we’ve changed the nature of how we guide to make sure that those two things are all in, so it is included. And, yes, the Equinor deal is included in those figures. And I think if you go back to my script, of the $13 billion, we said $9 billion would go into upstream, downstream and refineries, $2 billion would go into convenience and mobility, and around $2 billion would go into low carbon energy. So I hope that helps clarify everything, Peter.

Peter LowRedburn — Analyst

Thank you.

Murray AuchinclossChief Financial Officer

Pleasure.

Craig MarshallSVP Investor Relations

Okay. Thanks, Peter. We’ll take the next question from Chris Kuplent at Bank of America. Good morning, Chris.

Christopher KuplentBank of America Merrill Lynch — Analyst

Good morning and thanks for taking my questions. Two, please. The first one and I appreciate I think this is not usually part of your quarterly reporting, but whether you could give us a bit of a sneak preview on your Annual Report and Sustainability Reporting in terms of how 2020 shapes up regarding your carbon footprints measured on various measures. Do you have some preliminary data that you can share with us that would be quite interesting? And of course equally interesting to hear whether you’ve got commentary around where that’s going to go for 2021?

My second question is, of course going back to disposals. I was interested to hear that you are targeting to sell assets from your lower margin pile. And I just wondered whether you could look back, I’m not going to ask you, which assets you are going to sell, but whether you can just help us putting your Oman asset and Alaska asset into these EBITDA margin buckets that you’ve highlighted, Bernard, and how you feel those transaction fits with what we should expect going forward in terms of your disposal strategy? Thank you.

Bernard LooneyChief Executive Officer

Good morning, Chris. Thank you. Good to hear your voice. I will let Murray take the second question. I think we should wait until we publish our Sustainability Report. I’m glad you’re interested in it. That’s great. I think what we did say in our messaging today is that you should expect a decrease in both Scope 1 and Scope 2 emissions and importantly you will see a decrease in our Scope 3 greenhouse gas emissions. That comes from the carbon content of our upstream production and that’s something that I think over time will come to the question on divestments that you can continue to expect to see on our way to the targets that we laid out for 2030. So they are probably the most significant things. I think it will be — Julia is doing a lot of work with the team on that report at the moment. And I think, Craig, we’re going to have an event of some sort around that on sustainability and we will follow up at that point. Anything you want to say on that, Craig?

Craig MarshallSVP Investor Relations

Yeah. I think we’d be looking for the Sustainability Report, as we said, around the end of the first quarter and be looking for an ESG event off the back of that sometime middle of April. I think that’s what we’re looking at, but we will confirm that to the market in due course.

Bernard LooneyChief Executive Officer

Great. Thanks on that. And, Murray, divestments and then EBITDA and margins.

Murray AuchinclossChief Financial Officer

Yeah. Hey, Chris. Thanks for the question. So if you think back about the ones that we’ve completed, those would be Alaska and then a lot of the ones in BPX. BPX, given gas price will be at the lower end of that margin table, so you can go calculate the volumes there. San Juan, Wamsutter etc, etc. So that’s something that I think you’ll be able to see with the transparency, we’ve given. Alaska is at the bottom end of that range as well just given the level of production etc. Oman is probably middle of the pack, would be my answer. But Bernard has already talked about why we decided to diversify our portfolio with that one. So looking forward, you should expect more high grading at the lower end of the barrel where we can get value.

Bernard LooneyChief Executive Officer

Thanks, Murray. Thanks, Chris.

Christopher KuplentBank of America Merrill Lynch — Analyst

Thank you.

Craig MarshallSVP Investor Relations

Thanks, Chris. We will take the next question from Michele Della Vigna at Goldman Sachs. Michele?

Michele Della VignaGoldman Sachs — Analyst

Thank you. Thank you for the presentation and the time. Two questions, if I may. On the timing for your financial de-gearing, you’re assuming a quite conservative oil price $45 to $50. We’re about $10 higher than that. I was wondering if you were to input those higher $10 per barrel and assume they can stay there for the full year, how would that change the pace of your de-gearing? And then I was wondering, once you go through the $35 billion of net debt and let’s say again the oil price is somewhere between $55 and $60, how quickly can you get to the $0.10 per quarter of dividend plus buyback? Is that a phased approach or can effectively we get there quite quickly given your free cash flow generation? And then last quick question, I saw your liquids pricing was quite weak in the fourth quarter and didn’t increase with the oil price. I was wondering if there was any specific factors there and if it could reverse in Q1? Thank you.

Bernard LooneyChief Executive Officer

Michele, thank you for the optimistic questions. Great to have some optimism about what if and I know that I think the Goldman Sachs reports are saying $60 to $70 in the second half of the year. I’ll let Murray take the last two. But on the first one, look, I think we shouldn’t get into trying to do what ifs. There are three factors at play. One is the oil price, one is the refining margin, and one is the gas price. And I think oil today seems stable at the moment, it seems underpinned. We see inventories coming back to around the 5 year average here in the second quarter, middle of the year, which is why I think some of your people think that it could be stronger in the second half of the year.

Refining, I think is more challenged at the moment. Congestion data is down in the United States and Europe between 15% and 40% depending on what country. We are seeing some strengthening though and we are seeing that demand recover and undoubtedly as the vaccines roll-out that would be the case. And for gas, weather matters. Stocks are getting low in Europe, that should help underpin prices. So there is definitely upside. It would move the curve forward, but rather than getting into the specifics of how much forward, I think we will just concentrate on executing that plan that we have and reporting quarter-on-quarter. And like you, we hope that there is some upside. And I think the thing for me is that we’re very well poised to take advantage of that upside and we should not underestimate the cost reduction, the capital discipline. So the company continues to get healthier on an underlying basis, the projects that are coming on such that if that price were to come, we are really well-positioned to take advantage of it.

Murray?

Murray AuchinclossChief Financial Officer

Thanks, Bernard. Hey, Michele. You cheated a little bit with three questions, so I’ll be brief on the third, which is lagged pricing. We have lagged pricing inside the upstream and so you just see a bit of a lag. And this one, it tends to suppress versus the marker a little bit. On your question on when do we get to the $0.10, I’m afraid I’m not really going to answer the question. It’s across a range of years as described in my speaking points. But what I’d — probably the best way for you to think about it is to think about the evolution of the portfolio. So we’ve told you low carbon really doesn’t play into big earnings across the next 5 years.

We’ve told you CNP has ratable growth across the next 5 years and you’ve got hints from Bernard and I about what the big milestones are on cash flow for the upstream. So you’ve got Raven will come online this year, you’ve got Mad Dog Phase 2, Tangguh next year, Cassia next year. Those will be the big inflection points as those start to come online and driving higher cash flow and then of course you’ve got cost coming down as we forecast. So I think I’d just encourage you to plug those assumptions into your model. You choose what price you have as we do it. We’re just quoting it as a figure across the time spent, but it will largely be driven by underlying results. So I’m sorry, I’m not giving you a direct answer, Michele, but I hope I gave you enough input to think about it.

Bernard LooneyChief Executive Officer

And we appreciate your questions, Michele. Back to you, Craig.

Craig MarshallSVP Investor Relations

That’s great. We’ll jump across the pond to Jason Gabelman in Cowen in the States. Jason, good morning.

Jason GabelmanCowen Inc — Analyst

Yeah. Hi, thanks for taking my question. You mentioned that you have some downward flexing capex next year from $13 billion. I’m wondering, one, what that floor is and, two, where the first reductions would come from if you look to reduce capex? And then my second question is, you mentioned four areas in the low carbon business where you’re growing including hydrogen and CCS. Obviously a lot of continued focus in the market on hydrogen right now. How far away is that from becoming, do you think, an economic solution and potentially a material part of the business and how much can that realistically grow within the business? Thanks.

Bernard LooneyChief Executive Officer

Great. Jason, thank you. In terms of flex on capital, we probably have between, I don’t know, $1 billion and $2 billion, Murray, and the place you’d start is in your home country there in the onshore, United States, which is what that business affords us. So probably $1 billion to $2 billion of flex and it all depends, doesn’t it, on the day and on how brutal that environment would be. So we can flex down that much and that’s where we’d start in the onshore U.S.

In terms of hydrogen and CCS, in terms of material parts of the company, you are really looking at 2030 plus. You are looking at that decade we believe in hydrogen. The world needs CCS. We need to get after building these projects. We’ve got a hydrogen project in [Indecipherable] in refinery in Germany. We’ve got looking at the potential for export of ammonia out of Australia, we’re exploring many different options in this space. It is definitely a gas, a fuel of the future. There is no question about that, but it’s not something that’s going to happen overnight in terms of being a material part of BP’s portfolio. The best example we have is what we’re doing here in the U.K. at T side where we will build, we hope, in the coming years with our partners a power station, we will capture the carbon, we’ll take it offshore, we will stuff it underground, taking the carbon back is what I like to describe it as — we will hook it up with some local steel and fertilizer and the ammonia factories up there and help them with their hydrogen production. This will be I think one of the world’s first net zero industrial sites in the Northeast of the U.K. here. We need much more of these opportunities being built around the world, so that we can get the scale that will lead to the cost reduction that will lead to the economics of these things working. So — but I think it is in terms of materiality, it’s 2030 plus as opposed to before 2030. Hopefully that helps, Jason.

Jason GabelmanCowen Inc — Analyst

Thanks.

Craig MarshallSVP Investor Relations

Okay. Thanks, Jason. And I think there was a question on the online from James Lowen at JO Hambro. James, I hope that answered your question as well in that space. We’ll take the next question from the phones from Lucas Herrmann at Exane. Lucas?

Lucas HerrmannExane BNP Paribas — Analyst

Great, thanks very much and Bernard, Murray, very nice to hear your voices again. Two if I might. One pretty straightforward. You mentioned eight core regions in the upstream I think Bernard. Forgive me, I’ve probably forgotten what they are, but perhaps you could remind me. And secondly, just staying with power and renewables. I mean we keep pestering you on returns. But is asking around returns, just the wrong question, in that the models that most of you seem to be adopting is resource projects, resource finance debt and de-lever. We then sell down equity, and that supports the 8% to 10% we’re targeting.

So to the extent you can sell down equity, you should always be able to push yourself to a position where the return on equity is actually pretty attractive, but unfortunately, the absolute capital invested is almost becomes de minimis. It’s an observation, but I just wondered Murray, Bernard, whether you could comment on it because at the time when returns on projects are clearly falling in ways given the competition to the resource or the opportunity, it does feel as though the equity you’re going to be able to invest or the capital you can push in, and therefore the absolute cash you can drive really isn’t going the right way. And that feels very much as though it’s been Lightsource’s model, i.e., find projects, find someone to finance, retain an element of decent return that’s not meant as an install, it’s just an observation on achieving returns. That’s the question.

Bernard LooneyChief Executive Officer

Very good. Thank you. We’ll get you the eight core regions here in a moment. I think on the returns question, I think farming down, which is I think what you’re referring to is certainly in the solar world an accelerator of returns. It is one of the levers that you can choose to exercise. You are correct. It is something that Lightsource BP does. And of course we’ve seen it happen in other parts of the sector as well. I think as we look at offshore wind, there will be choices that lay ahead as to whether that is the right model or not. As you quite rightly say, by the time you leverage, by the time you have a partner, by the time that you then do farm down, the question is, what earnings and what EBITDA do you actually begin to generate over the long term. And that’s certainly something that we’re very, very focused on. So I think these are choices that lay ahead, particularly in the offshore wind space. The good news is that we’re securing and have secured in the United States today good acreage, good access, 50% equity and choices around what you’re discussing will lie ahead of us. We have got the capital to put behind it up to $5 billion by the end of the decade. So it’s not a shortage of investment that will force us. It will be, what do we think is the right thing to do from an economic model spend standpoint.

Murray, anything you’d add on that and the eight regions?

Murray AuchinclossChief Financial Officer

Yeah. Nothing to add on that one, Bernard. Very clear. Lucas, the eight regions that make the majority of cash flow, which is not to be confused with the portfolio decisions that we make in the future, Gulf of Mexico, Angola, North Sea, Asia, BPX, AGT, Middle East, North Africa, and [Indecipherable]. Thanks very much.

Lucas HerrmannExane BNP Paribas — Analyst

All right. Thanks. I have a third, which is what is your favorite coffee?

Bernard LooneyChief Executive Officer

Exactly. He better say while being there. He won’t be allowed — his badge will be deactivated tonight, which is the number one coffee in New Zealand of all places, so if you ever get a chance to travel again in your life, Lucas, it tastes very good there apparently. So back to you, Craig.

Lucas HerrmannExane BNP Paribas — Analyst

I’ll hope for the opportunity.

Craig MarshallSVP Investor Relations

Great, thanks very much. We’ll take the next entertaining question from Biraj Borkhataria at RBC.

Biraj BorkhatariaRBC Capital Markets — Analyst

Hi. Thanks for taking my questions. Murray, you called out a few changes to production as you’re moving into 2021. I just noted that gas production in Trinidad is down quite a bit from the start of the year to the end. Could you just talk a little bit about any specifics there? Is it just the impact of storms or maintenance and can you just comment on whether that production is back closer to kind of normal levels in early 2021? And then the second question is on the Permian. When you acquired the BHP assets, I believe the flaring intensity was at the higher end of the kind of Permian operator range and Bob Dudley used the phrase, we’re going to get after it. Obviously this will be a function of overall volumes and gas volumes down 50%-ish year-on-year. But can you provide an update on where you are now and the progress that’s been made in the last couple of years? Thank you.

Bernard LooneyChief Executive Officer

Biraj, good morning, thanks for the questions. I’ll let Murray handle Trinidad. On flaring, Bob would be proud of us. We are indeed after it. We’re actually all over it and I think flaring has gone from 14% or 15% down to 4% — from 15% down to 4% over a 12-month period. That’s not a function necessarily of a passive approach to that. That’s an active approach to that in terms of what we’re doing in terms of investing into how those Permian wells are developed. So great progress, but 4% isn’t good enough. We have a goal to get to zero routine flaring in Texas and that’s what we’re focused on. So I’m really proud of the team. We’re getting from 15% to 4%. 15% is not what we want to be at and not what we stand for. We need to do better than 4%. And as Bob said, we’re on it.

So, Murray, Trinidad.

Murray AuchinclossChief Financial Officer

Yeah. Hey, Biraj, good to hear your voice. On Trini, really the two things going on big tar [Phonetic] and then obviously Cassia compression we were planning on having online this year. It’s been delayed due to COVID issues inside the yard that we couldn’t move construction forward. Trinidad is really characterized by a conveyor belt of projects that come in and sustained gas production over time. So unfortunately COVID damaged us on that trajectory, the big projects, but hopefully that’s clearing up. We get Cassia compression online in 2022. And then we’ll move on to the string of next projects across that with discoveries from ILX drilling what’s happened over the past few years.

Thanks, Biraj.

Bernard LooneyChief Executive Officer

Craig?

Biraj BorkhatariaRBC Capital Markets — Analyst

Thank you.

Craig MarshallSVP Investor Relations

Thank you, Biraj. We’ll take the next question from Bertrand Hodee at Kepler. Bertrand?

Bertrand HodeeKepler Cheuvreux — Analyst

Yes. Hello, everyone. Thank you for taking my question. I just wanted to come back on the Q4 cash flow and understanding the building blocks here. Can you disclose what was the severance payments cash made in Q4, possibly also during 2020 and what is the severance cash payments you expect to make in 2021? That will be helpful to understand the underlying cash flow.

Bernard LooneyChief Executive Officer

Great, Bertrand. Good to hear your voice. Thought you’d be asking about Mad Dog Phase 2, you still was asking me about that back in the day. But on — Murray, correct me if I’m wrong, on restructuring, we’ve taken a $1.4 billion charge, $500 million of outflow in cash terms up-to-date and we expect to see the majority of the remainder on the first half of this year.

Craig MarshallSVP Investor Relations

$500 million through 2020, yeah.

Bernard LooneyChief Executive Officer

I hope that helps, Bertrand.

Bertrand HodeeKepler Cheuvreux — Analyst

Yeah. Thank you.

Bernard LooneyChief Executive Officer

Thank you.

Craig MarshallSVP Investor Relations

Okay. We’ll take the penultimate question from Martijn Rats at Morgan Stanley. Martijn?

Martijn RatsMorgan Stanley — Analyst

Yeah, OK. I’ve got two, frankly admittedly they are sort of a bit at the margin, but I wanted to build on the question that Oswald asked a little while ago about some of the targets, particularly in convenience and mobility. Sort of just two of these targets that always stand out to me. So the number of EV charging points where there is the large growth ahead and also the number of retail sites in growth markets where there is also not quite a tripling ahead, but very strong growth over the next 5 years. And these are sort of numbers targets. But it would be really helpful to have an understanding what’s the sort of average typical EBITDA contribution of an EV charging point actually is or the average typical EBITDA contribution of a retail site in a growth market. I find that really difficult to figure out independently but if these numbers are going to increase over the next couple of years, it would be helpful, at least on our side, that if we see these studies, these numbers go up that we can also sort of have some sort of an idea of what the EBITDA impact of that is if there is anything to say about that sort of quantitatively, I’d hugely appreciate it. And then finally, from one of the slides on the reporting segment, do I understand that you will be reporting oil production and gas production in different reporting segments. Do I have that correct?

Craig MarshallSVP Investor Relations

Martijn, good to hear your voice. I’ll let Murray take both questions, they’re not at the margin I think, but, Murray, over to you.

Murray AuchinclossChief Financial Officer

Yes, Martijn, you’ve got it, oil in one column. Sorry, I can’t remember what slide it is in the presentation, but that’s the second time we’ve shown you that. So yes, oil in one section and gas and low carbon in the other. So, absolutely, that’s what’s happening. I guess you guys will be happy because you get more transparency into the historic upstream being able to divide out the oil and the gas.

On convenience and marketing, so I think on EVs, this is kind of a changing market if I’m honest, Martijn. And what I could say is that on the latest chargers that charge at around 5 minutes, if you get to 18% occupancy, you start making money. So that’s all you need during a day to do it. If you’re sitting here in the U.K., you can drive by the Hammersmith site and you’ll see that it’s pretty hard to get in, because they’re almost always occupied. So I think that gives you a sense of what’s valuable inside the electrons. Of course, the margin now comes more from the convenience side rather than the electric charging. So I think the way I personally relate to it is, you’ve got retail, you’ve got fuel sales, you’ve got electric sales and you’ve got convenience offer. By providing electricity in places like the Germany and the U.K. where government mandates are driving toward electrification, this becomes a stopping point for fast charge and the snack and the margin obviously comes in the snack and the coffee that we’ve talked about earlier.

But that little stat that I told you 18%, that’s a snapshot right now that will change significantly over time. I’m sure quite significantly as we move through time as technology improves. It’s pretty hard to believe how fast it’s moving these days. So that’s probably what I can give you on EV for now and we’ll start — we’re thinking more and more about how we can start to describe this to you better in the future. As far as growth markets, you’re right, it’s massive growth. I think the big one is obviously in India where we’re planning to go from something like 1,400 sites to 5,000 sites. So that’s the vast majority of the growth inside that and, let’s wait for March 2nd if you don’t mind Martijn and we’ll see if there is more we can disclose inside that space. And Martijn, I don’t have a number at my fingertips right now, but we’ll come back and we can maybe answer some questions in that space in March when we start to expose more of the stuff.

Bernard LooneyChief Executive Officer

Great. Reasonable question. And I don’t have a number either, so we’ll come back in March. Craig?

Craig MarshallSVP Investor Relations

Okay, great. Thank you, Biraj. We will take the final question from Anish Kapadia at Palissy. Anish?

Anish KapadiaPalissy Advisors — Analyst

Hi. Thanks for taking the question. Just a couple of questions, please. Firstly, you disclosed a substantial gain in non-operating businesses I think from one of venture capital stakes. I was just wondering is that your — sorry, I don’t think it was a sale. I think it was a revaluation. Would that potentially be the current stake? Or if not could you give a bit more details on what that was? And just kind of thinking about in the context of are there opportunities to realize some of those gains in over the course of the year? And then just a second quick one, on your marketing, I think you revealed for 2019 about $3.7 billion of earnings. I was wondering if you could just give the comparable figure for 2020? Thanks.

Bernard LooneyChief Executive Officer

Murray?

Murray AuchinclossChief Financial Officer

We’ll come back on your second question on March 2nd. I just don’t want to misquote anything. So we’ll come back on March 2nd with the year-over-year in that particular area. And, yeah, you’ve got it right on where it came from in 4Q in OB&C, it’s equity on [Indecipherable] as you say. So that’s something for the future.

Bernard LooneyChief Executive Officer

Very good. Anish, thank you.

Craig MarshallSVP Investor Relations

Okay. That’s the end of the questions. Again, thank you everybody for listening. As usual, IR are available to answer any follow-up questions. And we do look forward to talking to you. As Murray and Bernard described, we look forward now to early March and the update around our disclosures. There’ll be more information in due course around that. But maybe on that note, let me hand over to Bernard for some closing remarks. Thank you.

Bernard LooneyChief Executive Officer

Very good. Well, thanks, Craig, thanks, Murray, and thanks to you all for taking the time to join us. A difficult quarter with some difficult numbers and complexity to explain. But I think if you step back from all of that, the plan that we have laid out remains the plan. Our business is running well. The world will recover and is recovering and we’re very well positioned to take advantage of that and we’re executing on our strategy step-by-step, day-by-day in a very disciplined fashion. So all the while, focused on the basics of running a good business. So we appreciate your interest. We appreciate your questions and I’m sure we’ll be following up with you in the hours and days and weeks and months ahead, and I wish all of you and your families a safe and healthy 2021. So take care and we’ll be in touch with you.

Duration: 117 minutes

Call participants:

Craig MarshallSVP Investor Relations

Bernard LooneyChief Executive Officer

Murray AuchinclossChief Financial Officer

Jon RigbyUBS — Analyst

Alastair SymeCiti — Analyst

Lydia RainforthBarclays — Analyst

Paul ChengScotiabank — Analyst

Dan BoydMizuho — Analyst

Thomas AdolffCredit Suisse — Analyst

Christyan MalekJPMorgan — Analyst

Irene HimonaSociete Generale — Analyst

Oz ClintBernstein — Analyst

Peter LowRedburn — Analyst

Christopher KuplentBank of America Merrill Lynch — Analyst

Michele Della VignaGoldman Sachs — Analyst

Jason GabelmanCowen Inc — Analyst

Lucas HerrmannExane BNP Paribas — Analyst

Biraj BorkhatariaRBC Capital Markets — Analyst

Bertrand HodeeKepler Cheuvreux — Analyst

Martijn RatsMorgan Stanley — Analyst

Anish KapadiaPalissy Advisors — Analyst

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