BP p.l.c. — 2019 Form 20-F summary
Reporting period: Fiscal year ended 31 December 2019. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide a complete Q4-only financial results breakdown. BP reports under IFRS as issued by the IASB.
Business context and strategy
BP is an integrated energy company with Upstream, Downstream and Rosneft reportable segments, plus other businesses and corporate activities. Its 19.75% interest in Rosneft is accounted for as an associate. In February 2020, BP announced a new purpose and ambition to become a net-zero company by 2050 or sooner and help the world reach net zero, alongside plans to reorganize the business. Further strategy and near-term targets were expected at a September 2020 capital markets day.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Sales and other operating revenues | $278.4bn | $298.8bn |
| Profit attributable to BP shareholders | $4.0bn | $9.4bn |
| Underlying replacement-cost profit | $10.0bn | $12.7bn |
| Operating cash flow | $25.8bn | $22.9bn |
| Cash capital expenditure | $19.4bn | $25.1bn |
| Cash and cash equivalents at year-end | $22.5bn | $22.5bn |
| Finance debt at year-end | $67.7bn | $65.1bn |
| Net debt | $45.4bn | $43.5bn |
| Gearing | 31.1% | 30.0% |
Revenue fell about 7%, and underlying replacement-cost profit declined about 21%, reflecting lower oil and gas realizations and weaker Downstream conditions. Reported profit fell more sharply, mainly because of impairment and disposal charges and a foreign-exchange loss reclassified on formation of BP Bunge Bioenergia. Cash from operations rose, helped by lower Gulf of Mexico oil spill payments and IFRS 16 lease-payment presentation; working capital reduced cash flow by $2.9bn.
BP recorded $8.1bn of impairment and disposal losses, including $6.8bn of impairment losses. Upstream impairments were concentrated in the US and were largely associated with planned disposals. The group effective tax rate was 49%; the underlying rate was 36%. No consolidated profit margin is clearly reported in the filing text.
BP paid 41.0 cents per ordinary share in 2019, distributing $8.3bn including scrip shares. The fourth-quarter dividend was 10.5 cents per ordinary share, announced in February 2020. Total proved hydrocarbon reserves, including equity-accounted entities, declined 3% to 19,341 million barrels of oil equivalent; production increased 3% to 3.8 million barrels of oil equivalent per day.
Material changes, liquidity and balance sheet
- Net debt increased about $2.0bn year over year. Including lease liabilities recognized under IFRS 16, net debt was $55.0bn. The company’s stated gearing target range was 20–30%.
- BP reported $22.5bn of cash and cash equivalents and $7.6bn of undrawn committed bank facilities at year-end. On 13 March 2020, it entered into an additional committed $10bn credit facility.
- Organic capital expenditure was $15.2bn; inorganic expenditure was $4.2bn, largely reflecting payments for the 2018 BHP US onshore acquisition.
- Assets held for sale included BP’s Alaska operations, agreed for sale for up to $5.6bn, with $1.6bn contingent on future cash flows, and San Juan basin assets. The Alaska sale included retained decommissioning liability relating to the Trans-Alaska Pipeline System.
- IFRS 16 adoption added $9.2bn to lease liabilities at transition and changed the presentation of lease costs and cash flows.
Outlook, risks and unusual items
- For 2020, BP expected organic capital expenditure toward the lower end of its $15–17bn range, Upstream production excluding Rosneft below 2019, depreciation and amortization slightly below 2019’s $17.8bn, and Gulf of Mexico spill payments below $1bn. The underlying effective tax rate was expected to be below 40%.
- Management anticipated lower industry refining margins and continuing uncertainty in 2020. The filing highlights the rapidly spreading COVID-19 pandemic and oil-market volatility, including changing OPEC+ dynamics, as material uncertainties.
- BP expected to achieve its $10bn divestment-proceeds target by the end of 2020 and to announce a further $5bn of agreed disposals by mid-2021. Proceeds were primarily intended to reduce gearing.
- Gulf of Mexico oil spill cash outflows were $2.7bn before tax in 2019. Undiscounted contractual obligations related to the spill were $16.1bn at year-end. BP also disclosed ongoing litigation, environmental and decommissioning contingencies; management said it did not expect current proceedings to have a material impact, while acknowledging outcomes can be uncertain.
- Two people died while working at BP in 2019. Tier 1 and tier 2 process safety events rose to 98 from 72, partly reflecting recently acquired assets; recordable injury frequency improved to 0.166.
- The financial statements received an unqualified audit opinion, and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether 2020’s price, demand and COVID-19 developments materially changed BP’s cash generation, impairment assumptions, capital plans and dividend capacity after the report date.
- Progress and final proceeds from the Alaska and other planned divestments, including retained decommissioning exposure and contingent consideration.
- Reconciliation of reported profit to underlying profit, especially the $8.1bn impairment and disposal losses and the foreign-exchange reclassification associated with BP Bunge Bioenergia.
- Debt and liquidity on a consistent basis including IFRS 16 lease liabilities, and progress toward the stated gearing range.
- Performance against the new net-zero ambition and aims, including measurement methods, investment allocation, and the effect of strategy changes on future oil and gas production and reserves.