Earnings Call Transcript - BP Q3 2023

Operator, Operator

Good morning, everyone, and welcome to BP's third quarter 2023 results presentation. I'm here today with Murray Auchincloss, Chief Executive Officer; and Kate Thomson, Chief Financial Officer. Before we begin today, let me 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 the factors we note on this slide and in our U.K. and SEC filings. Please refer to our annual report, stock exchange announcement and SEC filings for more details. These documents are available on our website. Let me now hand over to Murray.

Murray Auchincloss, CEO

Thanks, Craig. Good morning, everyone. Thanks for joining us. We hosted our investor update in Denver a few weeks ago, focused on our oil, gas and biogas businesses, including a site visit to BPX' Permian operation. We had three core messages that I want to reemphasize today. First, our strategy, transforming to an integrated energy company, is unchanged. Second, we are focused on delivering our strategy safely quarter-on-quarter to meet our 2025 targets and 2030 aims. And third, we are focused on growing long-term shareholder value. We continue to expect to grow EBITDA to 2025 and aim to keep growing to 2030, all while delivering compelling shareholder distributions. Earlier this month, we said we expect 2030 adjusted EBITDA aims from resilient hydrocarbons and group will be around $2 billion higher than BP's previous targets, to a range of $41 billion to $44 billion and $53 billion to $58 billion, respectively. Underpinning this increase, we presented what we believe is a high-quality, distinctive oil and gas portfolio; and a leading delivery model enabling efficient execution. We expect to grow EBITDA from oil and gas to 2025, sustained it at that level through 2030, with the capacity to sustain well into the next decade. And we believe there's more to come. This slide summarizes the key message from the event. And if you haven't seen the materials, we encourage you to take a look on bp.com. Turning then to our third quarter 2023 results. For the third quarter, we delivered strong operational performance with upstream plant reliability and refining availability at around 96% year-to-date. This came on top of 3% volume growth year-to-date and a 6% decline in unit production costs. Underlying earnings were $3.3 billion. And we delivered robust operating cash flow of $8.7 billion, including a working capital release of $2 billion. We are executing against our disciplined financial frame. Today, we have announced a further $1.5 billion share buyback. This reflects the confidence in our performance and the outlook for cash flow. Turning to strategic delivery, where we see continued momentum. In oil and gas, we started up the Tangguh expansion project in Indonesia, our third major project this year. In August, we started up Bingo, BPX' second major processing facility in the Permian, doubling our oil and gas processing capacity in the basin. And we received regulatory approval for Murlach, a two-well oil and gas redevelopment of the Marnock-Skua field in the North Sea. In LNG, we signed a long-term agreement with OMV to supply up to 1 million tonnes per annum of LNG for 10 years from 2026. And we secured our third long-term LNG offtake contract from Woodfibre, where we are the sole offtaker of almost 2 million tonnes per annum from 2027. Turning to our transition growth engines. In bioenergy, we are scaling up our biogas business Archaea Energy, with the first Archaea modular design renewable natural gas plant now online in Medora, Indiana. This underpins our confidence in our expansion plans going forward. In EV charging, we continued to accelerate our EV charging ambition across key markets. We have announced an agreement with Tesla for the future purchase of $100 million of ultrafast chargers in the U.S. This is part of our approved $500 million EV charging infrastructure investment in the U.S. previously announced. In the U.K., bp pulse, together with partners, launched the country's largest public EV charging hub at the NEC campus in Birmingham, enabling 180 EVs to charge simultaneously. In convenience, TravelCenters of America continues to integrate well. And in the first nine months of 2023, excluding TA, we delivered around 8% year-on-year growth in convenience gross margin. And we extended our successful strategic convenience agreement with Auchan in Poland, with plans to add more than 100 stores to our network by the end of 2025. In hydrogen, the Midwest Alliance for Clean Hydrogen, of which BP is a member, announced it has been selected by the U.S. Department of Energy to develop a regional clean hydrogen hub in the U.S. Midwest. And finally, in renewables and power, we have increased our pipeline to 43.9 gigawatts with the addition of 4 gigawatts from two offshore projects in Germany recently awarded. Now let me hand over to Kate to take you through our third quarter results in more detail.

Katherine Thomson, CFO

Thanks, Murray. And good morning, everyone. It was great to meet a number of you in Denver recently. For the third quarter, we reported an underlying replacement cost profit of $3.3 billion compared to $2.6 billion last quarter. Compared to the second quarter, in gas & low carbon energy, the result reflects a weak gas marketing and trading result following the exceptional performance in the first half of 2023. In oil production & operations, the result reflects higher oil and gas realizations despite the impact of price lags on Gulf of Mexico and UAE realizations and higher production. And in customers & products, the products result reflects a higher realized refining margin, a lower level of turnaround activity and a very strong oil trading result. In our customers business, we continue to show strong momentum in convenience and aviation, benefiting from seasonally higher fuel volumes partially offset by lower margins given the rising cost of supply. Turning to cash flow and the balance sheet. Operating cash flow was $8.7 billion in the third quarter. This includes a working capital release of $2 billion after adjusting for inventory holding gains and fair value accounting effects and other adjusting items. Capital expenditure was $3.6 billion, including inorganic expenditure net of adjustments. During the quarter, we repurchased $2 billion of shares. The $1.5 billion program announced with second quarter 2023 results was completed on the 27th of October. Surplus cash flow was $3.1 billion, and net debt reduced by $1.3 billion to $22.3 billion. Our disciplined financial frame remains unchanged with a focus on five key priorities. A resilient dividend remains our first priority. We have today announced a dividend of $0.0727 per ordinary share for the third quarter. We remain committed to maintaining a strong investment-grade credit rating and continue to target progress within the A range. We aren't targeting a AA rating. We are investing with discipline in our transition growth engines; and in our oil, gas and refining businesses. Our capital expenditure guidance for 2023, including inorganics, is now expected to be around $16 billion. And we're committed to allocating 60% of 2023 surplus cash flow to buybacks, subject to maintaining a strong investment-grade credit rating. Finally, we intend to execute a buyback of $1.5 billion prior to reporting fourth quarter results. This reflects the confidence we have in our performance and the outlook for cash flow. I'll now hand back to Murray for his closing remarks.

Murray Auchincloss, CEO

Thanks, Kate. Let me wrap up. We are growing the value of BP, investing in today's oil and gas system and investing in our transition growth engines. We are firmly focused on delivering our strategy safely with discipline and, in doing so, quarter-on-quarter, to meet our 2025 targets and 2030 aims, all in service of growing long-term shareholder value. With that, Kate and I will be happy to take your questions.

Operator, Operator

Thank you for joining us. We'll now move on to the Q&A session. The first question comes from Henri Patricot at UBS.

Henri Patricot, Analyst

A couple of questions, please. To the first one, on results. You mentioned a weak gas trading contribution. Could you expand on what was driving the weakness, whether there's any implications in terms of the performance that we should expect in the fourth quarter? And then secondly, I would like to come back on the U.S. offshore wind project. Obviously, you put through an impairment in the quarter. Could you comment on perhaps the next steps that you expect? And any further risk, financial risk, for yourselves with regards to this project should it not go ahead ultimately?

Murray Auchincloss, CEO

Great. Thanks, Henri. I'll take the first question and I'll let Kate take the second one. Just a reminder on the quarter: We had a pretty strong operating performance across the business. The highlights, you'll see 96% plant reliability across the upstream and downstream; production growth 3% year-on-year. I think that's leading the sector. Unit costs down 6% in the upstream, again a very strong performance; and cash delivery, well, I think, in line with expectations. So obviously the difficult bit was the weakness in gas trading, as you mentioned. If you think back to the year, in the first quarter, we had an exceptional performance. In the second quarter, we had exceptional performance. And then in the third quarter, we're calling it weak. That was really due to lack of structure in the market. So there was a little bit of volatility in the prompt, but the actual structure of the market, as you looked out across multiple months, wasn't moving around. The reason for that obviously is the gas inventories in Europe and the United States were relatively full, so that said, it didn't make sense to put a lot of risk on to the gas side. Instead, we reallocated risk to the oil side. And you saw that oil had a very strong result. As far as the outlook for the next quarter, without guiding, all I'd say is you need to look at structure. As we head into 4Q, I think gas storage is at 98% full inside Europe. It's at average levels, I think, inside the United States, so volatility will tell. If there are outages, if there is weather, that will tell whether or not there's much structure inside the gas market. And then on the refined product side, I think gasoline and diesel inventories are quite high right now, so it's lacking a bit of structure right now as well. All of this can change in November and December based on outages or volatility, so that's the gas side. Kate, over to you on wind.

Katherine Thomson, CFO

Yes. Thanks, Murray. So you'll be aware that, back in June, we requested a renegotiation of our power purchase agreements with New York. That was rejected in October, and as a consequence of that, our accountants have had a look at our fair value of our assets. And as you're aware, in this quarter, we have taken a $540 million pretax impairment on that. Looking forward, well, we'll need to see how circumstances evolve and continue to run our typical processes. We'll work with our partners closely on the way forward. As you'd imagine us to say that those decisions will be based on value; we need to see those projects continue to meet a 6% to 8% unlevered return, which is what we've been clear on with regard to offshore wind and our requirements, so let's see how it evolves.

Operator, Operator

Thanks, Kate. Thanks, Murray. We'll take the next question from Irene Himona, please.

Irene Himona, Analyst

My first question, on working capital, please. How much of the $2 billion release that you had in Q3 corresponds to the $5 billion working capital unwinding which you had mentioned before relating to LNG? And then secondly, going back, Murray, to your comments on BPX, I'm just curious. In light of the two huge deals by Exxon, Chevron in the past 2 weeks, do you feel that perhaps that business maybe lacks a little bit the scale to compete efficiently in this apparently newly developing landscape? Would a potential step-up via a JV help to grow that scale?

Murray Auchincloss, CEO

Great. Thanks, Irene. I'll take the second question and I'll ask Kate to start with the working capital answer, please. Kate?

Katherine Thomson, CFO

Sure. Thanks, Irene. So in the third quarter, you can see we have a release of $2 billion on working capital. Much of that was associated with delivery of LNG cargoes. As you note, Murray has previously said we had around $5 billion of working capital to unwind over that as a consequence. We're expecting around $3 billion to continue to unwind over the next three quarters, but as you know, look, working capital fluctuates quarter-on-quarter. It's important to look through the year. And if you look year-to-date, we're pretty flat. We've got a $679 million release year-to-date, so I'd just encourage you to keep looking through the quarter on the year on working capital and about $3 billion left on the LNG cargoes.

Murray Auchincloss, CEO

Thanks, Kate. And then Irene, on BPX and the U.S., as we laid out in Denver, we've got a great upstream portfolio of 36 billion barrels of total resource; 18 billion in the plan right now, economic at our thresholds, to be developed over the next couple of decades. We have the capacity to grow earnings through 2025 and then maintain at that level through 2030 and beyond, so we feel we've got a very high-quality upstream portfolio. Inside the United States in particular, we have a great portfolio as well. Between the GOM and BPX, it was producing about 600 kbd in 2022; and we aim to produce about 1 million a day by the end of the decade. That's 7% compound annual growth and it will make up 50% of BP's production by the end of the decade, so we feel we have great resource positions already, 8 billion barrels of resource in the Paleogene to develop, 7 billion barrels of resource in BPX to develop. And we don't really feel we need more acreage. We will consider countercyclical moves, so as we look around the world, in other places, if we see countercyclical opportunities, we might pursue those. Some of you will remember that we did that in Australia a while back on a countercyclical opportunity, but we're very happy with our position in the U.S. and we just need to organically develop that now.

Operator, Operator

Okay, thanks, Irene. We'll take the next question from Os Clint at Bernstein.

Oswald Clint, Analyst

Just on the CapEx reduction down to the low end of the expected range. Where does that $1 billion or $2 billion reduction come from? I guess some phasing perhaps, but perhaps if you could just break it out. And linked to that, there's only $1 billion of divestments insofar this year. I think you're still expecting $2 billion to $3 billion, so what are we still expecting to see come in towards the end of the year, please? And then secondly, just on gas again, you have picked up some more acreage actually offshore Israel despite what's happening. Maybe just talk about that, those plans and also perhaps closing this NewMed deal, in terms of building up a hub, a gas hub, in the eastern side of Mediterranean.

Murray Auchincloss, CEO

Great. Thanks, Os. Let me start with Israel. And first, let me say we're deeply saddened by the tragic events in the Middle East and the devastating human impact it's having. And we're just hoping for a sustained and peaceful resolution. On NewMed, we'll update the market as appropriate, but for now there is no new update. You're correct: On July 16, we applied for acreage in Israel. SOCAR is the operator. NewMed is a partner, and BP. And that was obviously awarded over the weekend. We've been in the Eastern Mediterranean for a long time. We'll see how we go. It is exploration acreage, so we'll just have to see how that goes, Os. If I turn to the divestment question for Kate, please.

Katherine Thomson, CFO

Yes. We are currently at about $1.5 billion in divestments year-to-date. We are still guiding towards a total of $2 billion to $3 billion for the full year. While these ongoing processes are not entirely within our control, that is our guidance as of today.

Murray Auchincloss, CEO

Great. Thanks, Kate. And on CapEx, Os, I think you'll see a year-to-date number of $11.5 billion spent this year, organics running somewhere around 3.5 to 4 billion each quarter. And the reason that we're not going to hit the higher end of the range, the $16 billion to $18 billion we guided originally, was that was for space for inorganics. You'll remember, as we set out our long-term frame, we said $14 billion to $18 billion, including organics and inorganics. Gradually, organic capital ramps up as you think about TravelCenters of America. If you think about Archaea, the organic side ramps up, but in '23, '24, '25, we do have capacity to do inorganics, so those inorganics that we were thinking about, we're just going to pass on those for now. So we're estimating $16 billion for the year. Thanks for the questions, Os.

Operator, Operator

Thanks, Os. We will take the next question from Biraj Borkhataria from RBC.

Biraj Borkhataria, Analyst

I wanted to ask on the debt number. So you're sitting on, your definition, $22 billion of net debt. I guess, if you're a rating agency, you look at it with the various other items added back, but if we take your number, is there an absolute level of net debt you want to get to before you next review your payout ratio, to that $22 billion? And then the second question is on Tortue. I know there's been various issues at that project. I noticed in the Denver slides Phase 2 is now in the 'beyond the '30' bucket, so could you talk about that project, key next deliverables and how you're thinking about the development overall from here?

Murray Auchincloss, CEO

Great. I'll take Tortue. And Kate, if you can take the financial frame question, as you're now keeper of the financial frame. Hard one for me to let go, but Kate will do a fantastic job on it. As far as Tortue goes, on Phase 1 itself, we're at about 90% complete now. The offshore breakwater and facilities are complete and handed over to operations; the FLNG vessel, we anticipate leaving Singapore by the end of the year. The FPSO has left China and Singapore and it's on its way to West Africa. And obviously we've replaced the contractor on the subsea systems, so we're hopeful that that starts up in Q1. As far as Phase 2 goes, we really need to focus right now on getting Phase 1 up. That is the principal focus we have. As we do that, we'll see how the productivity is of the resource base. And that will inform Phase 2, where we have to continue through the design we're in to optimizing that space and commercial negotiations with the host governments and partners. So a ways to go yet on Phase 2, Biraj. Thanks for your question.

Katherine Thomson, CFO

And shall I take the financial frame question? So thanks, Biraj. Good question, yes, so let me step back from this a little bit. Yes, we've reduced net debt again this quarter, down to $22 billion. If I think back to when I was Treasurer in 2020, we've come down from a high of $51 billion, so tremendous progress on that. It's important to remember the order of prioritization, I think, in the financial frame. We've been incredibly clear on that. And the strengthening of the balance sheet and in particular targeting progress within the A range remains the second priority. Look. I think the financial frame is doing its job right now. It works really well in high prices and low prices. We like the order of prioritization. And for 2023, we're going to continue to allocate 40% of surplus to the balance sheet. And I think that's good for us for now. Thank you.

Operator, Operator

Great. Thanks, Biraj. We'll take the next question from Michele Della Vigna at Goldman's.

Michele Della Vigna, Analyst

Two quick questions. On the price lags that you mentioned in the quarter, I was wondering if you could quantify the impact it had, especially in your E&P division. And then secondly, going back for a moment to the U.S. offshore wind, I was wondering if you could disclose your committed spend for the coming years in terms of pre-agreed supplies or pre-booking of transport capacity.

Murray Auchincloss, CEO

Yes, great. I'll take the second one, and Kate can take the price lag question. I think on the offshore wind commitments there are cancellation options inside these things, but as you can imagine, it's quite commercially sensitive, so we don't disclose those things. My apologies, Michele. And then Kate, over to you on price lag.

Katherine Thomson, CFO

Yes. So as you're aware, we have price lag impacts coming through volumes both from Gulf of Mexico and UAE. I think, from memory, we were around about $400 million impact on the quarter, but if that's wrong, we can correct that after. I'm sure the team can help me.

Operator, Operator

Okay, great. We'll take the next question from Henry Tarr, please, at Berenberg. Thank you, Henry.

Henry Tarr, Analyst

Just to come back on the offshore wind in the U.S. There's the impairment this quarter. What's left on the books for those U.S. projects? And then I guess I know obviously there's going to be discussions around what happens from here, but I guess there's a new RFP out. Do you think it's likely that you'll be sort of bidding into that? And then perhaps if you could just comment on the sort of overall cost situation for renewables as you see it at the moment.

Murray Auchincloss, CEO

Great. I'll take those questions. We're not disclosing what's left on the books. We think that's commercially sensitive, so we won't be doing that. As far as path forward on this, I think, as Kate mentioned, there was a 10-point plan put out by New York state. We're working to understand that plan. It's just come out, so we're working with our partners, Equinor, to understand what that 10-point plan means. And we'll think about, with Equinor, how we do that. It includes the right to invalidate your previous PPA and solicit for a new PPA, so work to do and we'll update the market in due course on how that's going. As far as how other places are working, I think Europe and Asia are working fine on PPAs for solar as we see them through Lightsource bp. The U.S. is a bit sticky right now with rising interest rates. And power prices aren't quite converging with those, but by and large, across Europe and Asia, we see those as working out.

Operator, Operator

We'll take the next question from Lydia Rainforth at Barclays.

Lydia Rainforth, Analyst

I have two questions. First, regarding upstream volumes, the guidance remains flat for the fourth quarter compared to the third quarter. However, with the start of Bingo and operations in Indonesia, I'm surprised the volumes aren't slightly higher. Is there something I'm not understanding about this? Secondly, Murray, I’d like to ask a broader question. Are you satisfied with this quarter's results? You've seen solid operating performance, costs are down in the upstream, but there's inflation in the downstream and volatility in gas trading. Do you believe this is where BP's performance should be considering the current oil price environment?

Murray Auchincloss, CEO

Great. I'll let Kate take the upstream volumes. On results, Lydia, as I've stated earlier, the operating results are awfully good. And it mirrors what we talked to you about in Denver, so the fact that the plants keep running at 96% is amazing. The fact that volume growth is up 3% year-on-year is fantastic. Costs down, again I think fantastic results at the same time that Tier 1 safety events are off almost 50% year-on-year. So I think the overall operating capacity of the business is running very, very strong. Two places that are challenging right now: retail margins, so these are fuel margins, whether it be on diesel or gasoline. We see the market is oversupplied as we entered September and October, yes, but as we all know, that can change quickly. There is not much excess capacity inside refining around the world. And any weather event or any outage will create a change in the margins and a change in volatility, so I think let's watch the space. It does feel like a more volatile world than necessarily we've seen through September and October, but that's obviously something that we don't control. As far as trading, obviously we've had a very, very good year; 1Q gas trading exceptional, 2Q trading exceptional, 3Q lack of structure. There's not an awful lot you can do when there's zero structure inside gas trading, so we will see. Weather will determine it. Outages will determine it. And you know that our business is poised to do well when volatility occurs, so overall I think the business is performing quite well. And on the quarter, most of the miss can be ascribed to gas, but of course, we pivoted our risk to the oil side, so I think maybe we got a bit ahead of ourselves and expectations around 3Q. Let's see. So I hope that helps, Lydia. And we'll pass over to Kate on volume.

Katherine Thomson, CFO

Yes, thank you, Lydia, for your question. Murray has clearly communicated that our kit is performing very well. We are pleased with the reliability across our portfolio and our overall production performance. Currently, we have three out of four major projects online, with the fourth set to start up very soon, and they are all ramping up nicely. Regarding the fourth quarter, we are experiencing typical seasonal maintenance, along with some impacts from PSA entitlements, which are affecting the strong performance across the portfolio, leading us to maintain a broadly flat outlook for the fourth quarter.

Operator, Operator

Thanks, Kate. Okay, we'll take the next question from Christyan Malek at JPMorgan.

Christyan Malek, Analyst

So a couple of questions from me. First is just on the buyback maths. I mean, if I run the buyback flat at $1.5 billion into Q4, that's a total of $6.25 billion and, based on the 60% payout, implies you're going to need to deliver full year surplus over $10 billion, so Q4 is going to have to be amazing. And I'm just trying to reconcile that given what you've provided for into Q4, so can you just help me in case I've missed something? Are you assuming trading is going to do a whole lot better, which I think I kind of wonder about given it's quite volatile in itself as we've seen? That's my first question. The second question, please, is I distinctly remember how you said offshore wind was one of your best positions from a returns perspective. And now it's got a $540 million pretax offshore wind impairment. My worry is that we're seeing more write-downs elsewhere in the portfolio, so what sort of guarantees can you provide that this isn't a moving target, essentially lower? And sorry for the final question, but just I had to ask this to do on this. There's quite a lot of M&A speculation around BP. Of course, I'm not going to ask you to comment, but I actually want to know what your thoughts are on the U.S. mega deals recently and whether there is an industrial logic for mega deals here in the U.K.

Murray Auchincloss, CEO

Okay, great. I'll have Kate address the surplus question. Regarding offshore wind, Christyan, you were with us in Denver. I don't believe I said what you mentioned. If you recall, I discussed the hierarchy of returns, highlighting that biofuels and electrification are excellent. Upstream capital was next, followed by hydrogen and offshore wind. In offshore wind, our primary focus is on integration. This means we are working on harnessing the electricity from the U.K. and Germany and channeling it into our other operations, including refineries, fast-charging fleets, hydrogen plants, and our trading relationships. On their own, these ventures would yield unlevered returns of 6% to 8%. However, by adding integration value, those returns can increase significantly. Over time, we've paid more attention to the integrated opportunities in Europe. This explains our limited participation in recent offshore wind rounds in the U.S. That's our perspective on offshore wind. Regarding M&A and potential activity, I can't really speak on that. From our side, we are happy with our company’s performance. Our share price multiples are on par with our European counterparts and we've narrowed the gap with some U.S. peers by a third over the last year. As we continue to grow EBITDA per share, aiming for a 12% ratio within our distribution framework, which is among the best in the sector, I believe we'll keep closing that share price gap. Our focus is on driving shareholder value organically, so M&A isn't at the forefront of our thoughts. Now, I’ll turn it over to Kate for the surplus discussion.

Katherine Thomson, CFO

Thanks, Murray. So yes, you're right. Our rule of thumb works really well. So the $4 billion at 60% adjusts that for price and capital. So we've got about $82 year-to-date average price. And CapEx, we're saying is going to be around $16 billion for the year, so I think if you do the maths on that, we're pretty much bang on that $1.5 billion. In terms of so what does that imply for 4Q, I think we feel pretty good about 4Q. Our operational momentum is there. We've talked about that a number of times already this morning. We've still got LNG cargoes that are going to unwind over the next 3 quarters. Oil price feels supported at the moment. There's potential for volatility in gas refining margins. Let's see on that, but it's always going to be a consideration, at the end of the quarter, in terms of where the Board takes its position. It will use its judgment. It will look forwards. It will look back over surplus year-to-date, share buybacks year-to-date, and form a view based on a range of factors at that point in time, but in terms of 4Q cash flow, yes, we feel pretty confident on that right now.

Murray Auchincloss, CEO

Great, thank you, Kate.

Operator, Operator

Great. Thanks, Kate. We'll take the next question from Paul Cheng, please, at Scotiabank.

Paul Cheng, Analyst

I want to apologize. I would like to revisit the offshore wind write-off. More specifically, what have we learned from this and how, if at all, has it impacted the process of making final investment decisions for both the offshore wind project and alternative energy in general? Additionally, I have a quick question regarding gas and the low carbon sector, where earnings fell by about $1 billion. How much of this decline is related to the low carbon side of the business, if at all?

Murray Auchincloss, CEO

We have gained valuable insights in offshore wind and alternative energy. Back in February, we expressed our intention to shift our focus towards integrated markets in offshore wind, which differs from our approach in the United States in 2020. We believe these integrated markets present significant potential for strong returns as we progress. Our demand for green energy is substantial, particularly in regions like onshore Europe or the U.K., where land limitations hinder the expansion of onshore solar and wind. Additionally, the existing taxation and incentive structures are aligned with the transition to a greener economy, making offshore wind a strategic focus for us. In Germany, we expect to have 4 gigawatts operational by 2030, while our demand is surging and projected to continue growing significantly through 2035. We believe we can develop these projects at a lower cost compared to purchasing a green Power Purchase Agreement. This will allow us to capitalize on supplying energy to our refinery, fast charging stations, and trading operations, thus creating an efficient energy flow similar to our gas operations over the past six decades. Moreover, we plan to maintain a capital-light approach, aiming for 25% to 35% ownership in these projects. We will judiciously utilize debt to enhance our capacity, ensuring that our capital investment remains minimal while maintaining a strong focus on the energy itself. Regarding solar energy, Lightsource bp is performing exceptionally well, with high returns globally from its develop-and-flip strategy. Historically, we have seen average returns around 16% from approximately 80 transactions, which demonstrates the effectiveness of this model in Europe and Asia. The U.S. market faced some challenges in 2023, but we anticipate a return to normalcy in 2024 and 2025. Now, I will hand it over to Kate to discuss gas and low carbon.

Katherine Thomson, CFO

Sure. Thanks, Murray. So Paul, it's a pretty straightforward story in terms of gas and low carbon quarter-on-quarter. It's all about gas trading. You've heard us say that we had exceptional quarters in gas trading in Q1 and in Q2 and then a weak gas trading result in Q3. There's nothing really material to say about the low carbon results inside the quarter. It's all about the gas trading result.

Operator, Operator

Very good. We'll take the next question from Lucas Herrmann at BNP.

Lucas Herrmann, Analyst

Murray, could you provide more details about the progress in the customers and products business line? I understand that marketing margins are facing pressure due to rising input costs, but I’m curious about how much margins are being affected by the ongoing expansion in the EV sector and other markets. The figures appear modest, especially considering that you have also had the Travelers acquisition for the full quarter. Additionally, I want to revisit your earlier comment in response to Lydia's question in Denver regarding the expected debt level by the end of 2025. You mentioned it would be in the low teens, which I assume is based on your predictions for commodity prices and your outlined expectations regarding pricing over different periods. Apologies for bringing up something from a month ago.

Murray Auchincloss, CEO

No problem, Lucas. I'll address both points since it was my quote in Denver. I think Lydia's question was about where we expect that to be at the end of 2025, assuming everything stays the same. That would depend on the forward pricing in Denver and a 60-40 allocation. That's how we arrive at the low teens figure. Those are the assumptions behind your question, Lucas. As for the convenience and retail segment, it's continuing to grow very strongly, with year-on-year growth at 8%, which is excellent. We're making significant progress there. Our EV charging goals align with our public commitments, and we expect to break even by 2025. China and Germany are already achieving breakeven ahead of schedule, and EV charging uptake is very robust, with over 10% utilization. Power sales have doubled over the years, making EV a strong performer for us. However, one challenging area in the convenience and retail segment concerns retail margins, particularly for gasoline and diesel. We've seen an oversupply as we moved into late August, September, and October, leading to significant declines in gasoline and diesel prices. Given our exposure, this affects us more than average. Predicting how this will evolve is quite challenging. There isn't much excess capacity for gasoline and diesel globally, especially with many refineries having shut down. If there are outages, prices could rise quickly. It’s difficult to predict exactly, and it feels just as unpredictable as forecasting oil prices. We constantly shift between surplus and shortage due to global outages. The key takeaway is that retail margins have been squeezed due to oversupply, and this situation could change rapidly as we move forward. I hope this clarifies things a bit more for you, Lucas. Craig, back to you.

Operator, Operator

We'll take the next question from Peter Low at Redburn, please.

Peter Low, Analyst

Just a couple of follow-ups. You mentioned that your CapEx is towards the lower end of the range because you've passed on some potential inorganic opportunities. I know you can't give any specifics, but can you say perhaps what business areas these were in, i.e., oil and gas or renewables and low carbon? And then just on the quarter itself, production did come in stronger than the flat quarter-on-quarter guide you gave at the last set of results. Can you give any color on what regions surprised positively and why?

Murray Auchincloss, CEO

Yes, I'll let Kate address the question about production in the third quarter. Regarding the inorganic opportunities we are not pursuing, our focus is primarily on transition growth engines rather than oil and gas. At a $90 oil price, it doesn't seem practical for us to chase many oil and gas transactions considering the scale of our existing resources, unless a remarkable opportunity arises. Our concentration is on biofuels, convenience, and electrification, which are the highest-return businesses we see, but we will keep exploring options over time. Our capital framework is set between $14 billion and $18 billion for the decade, encompassing both organic and inorganic investments. Currently, our organic capital expenditure is around $15 billion annually, roughly between $14 billion and $15 billion. This provides insight into our approach to inorganic capacity. Historically, we have successfully completed significant investments through TAA, Archaea, EDF, and others in the past. I hope that clarifies things, Peter. Kate, over to you for the production update in the third quarter.

Katherine Thomson, CFO

Yes. Thanks, Peter. So production, I think, is doing really well. I'm really pleased with how our assets are performing across the portfolio. In particular, we've had really good performance in Gulf of Mexico. We've got Mad Dog 2, as I said, ramping up nicely. That will continue to ramp through the end of 2023. BPX, as you heard in Denver, is doing incredibly well right now. We've got great performance coming through on BPX, in particular on new well delivery. And of course, in the Gulf of Mexico, we've had perhaps a quieter hurricane season than you might otherwise expect, but yes, it's doing really well. We're very pleased with our production performance to date. While I've got the microphone, perhaps I could just correct myself: Earlier, I talked about lag impacts. And I don't want you to overmodel the phasing of that into 4Q. It's closer to a $400 million impact, not $800 million, so Michele, if you could just make a note of that, please. Thanks.

Murray Auchincloss, CEO

Thanks, Kate. Craig?

Operator, Operator

Thanks very much, Kate. We'll take the next question from Chris Kuplent at Bank of America.

Christopher Kuplent, Analyst

Yes. I have a quick follow-up, and I apologize for the difficult question, Murray. First, you mentioned countercyclical M&A and that you are always looking for opportunities. We've discussed that you haven't made as many inorganic investments. What do you see as potential opportunities in this market regarding countercyclical activities? Are you considering buying or selling within your portfolio? Without going into specifics, of course. Secondly, I noticed in your presentation that there are no longer interim titles in front of your names, so I wanted to ask if we should congratulate you today, or when do you expect that we will be able to do so? Hopefully, it won't be too long.

Murray Auchincloss, CEO

We're enjoying a bit of humor regarding your second question, Chris. We are still serving as Interim CEO and Interim CFO, and the Board is currently working through its process, with updates to come in due time. Regarding mergers and acquisitions, we are focused on growth opportunities that can arise even in challenging times. For example, we encountered a chance to access a 14 TCF field in Australia at no cost a couple of quarters ago. Such opportunities in the oil and gas sector are what we will consider when they appear. Over the past 15 years, we have sold a significant number of oil and gas assets, totaling over $120 billion since 2010, which has allowed us to substantially enhance our portfolio. Additionally, we have streamlined our operations by reducing the number of refineries from 20 in 2008 to about 6 or 7 now. Looking ahead, we will focus on divesting lower-margin businesses in the upstream sector or convenience retail fuel space. If others identify more opportunity in later-stage assets than we do and have a lower threshold for investment, we may consider those divestitures, but currently, the level of divestments is relatively low, estimated at around $2 billion to $3 billion a year. That's our perspective moving forward, Chris. Thank you for the playful question; I appreciate it.

Operator, Operator

We'll take the final question from Kim Fustier at HSBC. Thanks for your patience, Kim.

Kim Fustier, Analyst

Yes. Firstly, I wanted to see if you could clarify what you mean by structure in the gas market. Does that mean you're making most of your money from trading time spreads? And so we should look at the shape of the TTF or JKM forward curves rather than extracting value from geographical spreads or prompt volatility. And secondly, just coming back to upstream production. You're guiding to flat volumes in Q4 versus Q3. And that's despite product ramp-ups such as Tangguh train 3. Is that because 3Q was such a high baseline? Or are there divestments or maintenance somewhere in the portfolio offsetting the project ramp-ups?

Murray Auchincloss, CEO

Great. Thanks, Kim. I'll tackle gas trading, and Kate can tackle production question for you. Look. We make money in an awful lot of different ways inside our trading division, especially the gas trading division. We unpacked that a little bit in Denver a few weeks ago. I think the comment on 3Q is that we're seeing structural storage long, where I think we're at 98% full, as the latest data I've seen, inside Europe. So what that means is you might get a little bit of prompt volatility, but we're not a big paper trader in natural gas. So you might see a little bit of prompt volatility, but the structure, as you look out across multiple months, was not moving because of that sheer length in storage. So that's what we mean by structural. The teams in the gas side make money from a lot of different things. They do it on geographic arbitrage. They'll do it on local arbitrage, outages. They will do it on price spikes between prompt versus length, etc., so I think mainly it's an observation of what happened in 3Q and what we've obviously seen in October so far. It's just a situation where inventories are very full in Europe. Inventories are quite full in the United States, and that just means there is much less money to make on volatility. So I hope that makes some sense. And we'll pass over to Kate for the last question, on production.

Katherine Thomson, CFO

Thank you, Kim. Looking at the fourth quarter volumes, the third quarter was strong. In the fourth quarter, we usually experience some seasonal maintenance that will affect our portfolio, and you'll see that reflected in the volumes. This is a key reason we're expecting production to remain relatively flat compared to the previous quarter. I mentioned earlier that there are also PSA entitlement impacts, but both the seasonal maintenance and the PSA effects are factors in our volume forecast for the fourth quarter, which is why it appears to be stable. Additionally, we'll see how the weather in the Gulf of Mexico behaves; currently, it's looking relatively calm, so we're hopeful on that front as well. Thank you, Kim.

Operator, Operator

Very good. Kate, Murray, thanks very much. That's the end of the questions. Maybe, on that note, let me hand back to Murray for closing remarks.

Murray Auchincloss, CEO

Great. Thanks, Craig. And thanks, Kate. And to the audience on the web, thanks very much for listening. I'd just like to recap 3Q in our minds. It was a strong operational delivery and strong cash delivery. We're very proud of the safety track record that we see of continuing reduction in Tier 1 events. 96% plant reliability in the refineries and in the upstream facilities is an amazing result, as is declining unit costs in an inflationary environment. And production volume growth of 3% year-on-year, year-to-date, I don't think there's anybody else in large-scale companies doing that type of growth, so we're very happy with performance and cash delivery as well. And what we're focused on moving forward is safely continuing to deliver quarter-on-quarter performance and delivering the strategy we laid out to the market for hitting our 2025 targets and our 2030 aims. And with that, we'll look forward to talking to you again in the new year, in February, where I think we'll be hosting maybe from a different place in the United States. So we look forward to that in due course. Thanks, everyone. Bye-bye.