At the mid-point in the year, our latest quarterly results show that the business is performing well. Our underlying profit for 2017 so far is around 75% higher than at this point last year.
These results demonstrate BP’s resilience in what continues to be a challenging external environment; the oil price dipped in the last quarter, although it has risen slightly again in the past few weeks. Despite those lower prices, we are generating cash across the business and we’re now balancing our sources and uses of cash at under $50 a barrel, when you set aside our Macondo obligations.
We can’t assume that oil prices will go back up, but our earnings are above expectations and we’re on the right track and firing on all cylinders. These results point to a business that is running well – and it certainly feels like it.
There is a great deal happening across both our segments: in the Upstream, there is more activity than at any time I can recall and Downstream is executing well today, with lots of exciting plans for the future.
We’ve seen three of our seven major Upstream projects come on-stream already this year in Egypt, the UK North Sea and Trinidad – and the others are right on track.
In Exploration, we’ve had four discoveries in the first half of the year: two in Trinidad, one in Egypt and one in Senegal, where we are setting up a new business to pursue opportunities there and in Mauritania.
We also continue exploring in places where we have a long-standing presence, for example we have five exploration wells in the UK alone, while we sanctioned another great gas project in Trinidad back in May, called Angelin.
It’s a busy time for our Downstream business too – just one example is that we’re the first international oil company to establish a retail presence in Mexico and so far that’s proving really popular.
Alongside advantaged low-cost oil, gas will be central to our portfolio as it evolves. Six of our seven major projects this year are gas, while the four discoveries we’ve made are also gas resources.
That's significant because natural gas is a lower carbon, cleaner burning fuel, producing about half the carbon dioxide emissions of coal when burned for power. That makes gas an important part of the energy transition over the coming decades.
Oil prices continue to remain lower for longer; they were down slightly in this past quarter. What that means for us as a business is we have to plan on the oil price not rising back up very high; our break-even levels need to sit below $50 a barrel and, in about five years’ time, under $40 a barrel. We’re very focused on making this happen so the business is resilient to all conditions – and a range of prices.
There are obviously many moving parts which makes it difficult to predict what will happen to prices, but what we do expect is that oil demand will remain robust for the rest of 2017 and into next year. Our forecasts point to an above-average increase of 1.5 million barrels a day in demand this year, driven by recovery in GDP growth and sustained lower prices.
Today, the world consumes more oil than it produces in a single day; high stocks and inventory levels remain the issue at the moment and they’ll slowly drawdown.Overall though, I’m not expecting big shifts in prices anytime soon and a price of $50 a barrel looks like the right number to plan on for the rest of the decade.
Every day, we’re seeing new announcements about the pace of change and investments in renewables and electric vehicles. The clockspeed of the world is moving faster than ever – but there are some reports out there that are very optimistic, saying that everything will change within five years. I don’t think that will be the reality; with estimates of another billion people on the planet by 2030, the scale of energy demand will be huge and transition takes time.
At BP, we are planning on a future that is going to be bright, but different. There's no one solution to the lower carbon challenge. That's why we're working on multiple fronts. For example, we’re creating more efficient fuels and lubricants that make engines run better, give more miles to the gallon and, as a result, reduce emissions. We're continuing to invest in renewables with two large operated renewables businesses. We also have world-leading petrochemical technology that is much lower on emissions than anything we’ve seen up until now. We also have an active Venturing arm working with a variety of low carbon technologies.
Togther with the shift in our portfolio towards gas, BP is part of the transition towards a lower carbon world.
The outlook for BP for the rest of 2017 is really positive, with production ramping up from our new Upstream projects and marketing growth set to continue in our Downstream business. And, of course, we need to continue to operate safely and very efficiently.
Further out, next year and through to 2020, the environment is going to reward businesses that can be really competitive, and we believe we are well positioned for that, working to a very disciplined capital framework, while looking to grow.
What’s exciting is that we have lots of interesting options across the business – this is a period of extraordinary change in terms of possibilities in areas such as digital technology, artificial intelligence and robotics. There’s a wave of innovation that will transform what’s possible and I think people are excited by that.
Overall, BP is back to growth today and we also have our eyes on the horizon.