Q2 2014 BP PLC Earnings Call

Jul 29, 2014 AM EDT
BP.L - BP PLC
Q2 2014 BP PLC Earnings Call
Jul 29, 2014 / 01:00PM GMT 

==============================
Corporate Participants
==============================
   *  Jessica Mitchell
      BP plc - Head of IR
   *  Bob Dudley
      BP plc - Group Chief Executive
   *  Brian Gilvary
      BP plc - CFO

==============================
Conference Call Participants
==============================
   *  Oswald Clint
      Sanford C. Bernstein & Company - Analyst
   *  Doug Terreson
      ISI Group - Analyst
   *  Michele Della Vigna
      Goldman Sachs - Analyst
   *  Alastair Syme
      Nomura Securities International, Inc. - Analyst
   *  Blake Fernandez
      Howard Weil Incorporated - Analyst
   *  Jon Rigby
      UBS - Analyst
   *  Guy Baber
      Simmons & Company - Analyst
   *  Theepan Jothilingam
      Nomura International - Analyst
   *  Anish Kapadia
      Tudor, Pickering, Holt & Company - Analyst
   *  Lydia Rainforth
      Barclays Capital - Analyst
   *  Stephen Simko
      Morningstar - Analyst
   *  Thomas Adolff
      Credit Suisse - Analyst
   *  Bertrand Hodee
      Raymond James Euro Equities - Analyst
   *  Gordon Gray
      HSBC - Analyst
   *  Irene Himona
      Societe Generale - Analyst
   *  Martijn Rats
      Morgan Stanley - Analyst
   *  Chris Kuplent
      BofA Merrill Lynch - Analyst
   *  Fred Lucas
      JPMorgan - Analyst
   *  Lucas Herrmann
      Deutsche Bank - Analyst
   *  Richard Griffith
      Oriel Securities - Analyst
   *  Neill Morton
      Investec, Inc. - Analyst

==============================
Presentation
------------------------------
Operator   [1]
------------------------------
 Welcome to the BP presentation to the financial community webcast and conference call. I will now hand the call over to Jessica Mitchell, Head of Investor Relations.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [2]
------------------------------
 Hello and welcome. This is BP's second-quarter 2014 results webcast and conference call. I'm Jess Mitchell, BP's Head of Investor Relations, and I'm here with our Group Chief Executive, Bob Dudley, and our Chief Financial Officer, Brian Gilvary.

 Before we start, I need to 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 that 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.

 Thank you, and now over to Bob.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [3]
------------------------------
 Thank you, Jess. Hello, everyone. Wherever are you in the world, I would like to thank you for joining us today. It has been another active, and, I think, a successful quarter at BP. We continue to move with momentum towards our key goals, not least, our commitment to delivering the 10-point plan we first laid out to you in 2011. The demonstration of this is in the stronger underlying earnings and operating cash flow you are seeing in our results today compared to a year ago.

 We continue to ramp up the new major projects that drive delivery of the $30 billion to $31 billion of operating cash flow planned for this year, so we remain confident of achieving this goal. At the same time, we are firmly focused on safe, reliable, and increasingly efficient operations.

 Earlier this year, we also set out our longer-term proposition, covering the period out to 2018. As you will recall, we said that we intend to grow sustainable free cash flow through a combination of material growth and operating cash flow and capital discipline, with the intention of growing distributions to shareholders. Today, you will also see the consistent progress towards the milestones that support the delivery of this plan.

 Turning to today's agenda, I will start off with the headlines for the Group in the first half, and then Brian will take us through the results for the second quarter, along with a reminder of our financial framework and guidance. I will then give a brief update on the ongoing legal proceedings in the US before I note on Rosneft and a look in more detail at the first-half highlights from our upstream and downstream businesses. Finally, there will be time at the end for questions.

 Let me start with an overview of progress in the first half of 2014, beginning with the portfolio. Having completed the $38 billion divestment program in 2013, we announced a further $10 billion of divestments by the end of 2015. We have now agreed $3.4 billion of the $10 billion program and continue to look at other ways of actively managing our portfolio to generate value.

 You saw this in the announcement we made in March, regarding the separation of our US lower 48 business. We have already made a start on defining an operating model for the new business and are busy transitioning to a new streamlined organizational structure. We have also signed a lease on new office premises in Houston for the lower 48 business.

 In the upstream, we have participated in the completion of 10 exploration wells this year, with two significant discoveries, one at Orca in Angola and the other at Notus in Egypt. Five new upstream major projects have come online in the first half of the year, all in key regions for us. At the same time, we have a number of big projects ramping up, helping to drive operating cash flow growth in 2014 and beyond. We also continue to demonstrate quality in our operations as seen through our increased levels of plant reliability.

 In the downstream, the modernized Whiting refinery is up and running heavy crude, and we have continued to focus the portfolio on advantage assets and high-quality products in growth markets. BP has also signed some important deals in the second quarter, notably a [heads of] agreement with CNOOC, the Chinese national offshore oil corporation, for a 20-year LNG supply contract. Progress is visible and all of this supports our longer-term commitment to growing distributions.

 In April, we announced an 8.3% year-on-year increase in the quarterly dividend, demonstrating our confidence to keep this momentum through the remainder of the year and beyond. We have also, as promised, bought back $8 billion worth of our own shares since the start of 2013, completing the buybacks associated with the proceeds from the sale of our interest in TNK-BP. The buyback program will continue, as Brian will come to later, supported by the current program of divestments.

 Let me, now, hand over to Brian to take you through the numbers in detail.

------------------------------
 Brian Gilvary,  BP plc - CFO   [4]
------------------------------
 Thanks, Bob. BP's underlying replacement cost profit in the second quarter was $3.6 billion, up 34% on the same period a year ago and 13% higher the first quarter of 2014. Compared to a year ago, the result reflects increased upstream production in high margin areas, a stronger contribution from Rosneft, the return and ramp-up of the modernized Whiting refinery, and stronger oil and gas realizations. These effects were partly offset by higher DD&A, a significantly weaker downstream environment, a lower contribution from supply and trading, and the impact of divestments. Second-quarter operating cash flow was $7.9 billion.

 Turning to the highlights at a segment level, in the upstream, the underlying second-quarter replacement cost profit before interest and tax of $4.7 billion compares to $4.3 billion a year ago and $4.4 billion in the first quarter of 2014. Compared to the second-quarter of 2013, the result reflects increased production in high-margin areas, primarily the Gulf of Mexico, and higher liquids and gas realizations partly offset by higher DD&A on well work costs and the impact of divestments. Excluding Russia, second-quarter reported production versus a year ago was 6% lower, primarily to the Abu Dhabi onshore concession expiry in January and the impact of divestments.

 After adjusting for these factors and entitlement impacts, underlying production increased by 3.1%. Compared to the first quarter, the result reflects increased production in high-margin areas and lower expiration write-offs, partly offset by a lower gas marketing and trading result, following strong first quarter performance, and lower gas realizations.

 Looking ahead, we expect third-quarter 2014 reported production to be lower than the second quarter, primarily reflecting planned major turnaround and seasonal maintenance activities in Alaska and the Gulf of Mexico. We expect the seasonal reduction to be slightly larger than we experienced in the same quarter of 2013, due to the phasing of these activities.

 BP's share of Rosneft underlying net income was $1 billion in the second quarter, compared to $220 million a year ago, and $270 million in the first quarter. The second-quarter results benefited primarily from foreign exchange impacts. BP's share of Rosneft production for the second quarter was 988,000 barrels of oil equivalent per day, an increase of 5% compared with a year ago.

 On June 27, Rosneft's annual shareholder's meeting approved an annual dividend of RUB12.85 per share in respect of 2013 earnings. On July 22, we received our share of this dividend, which amounted to $690 million net of taxes.

 In the downstream, the second-quarter underlying replacement cost profit before interest and tax was $730 million, compared with $1.2 billion a year ago and $1 billion in the first quarter. The fuels business reported an underlying replacement cost profit before interest and tax of $520 million in the second quarter, compared with $850 million in the same quarter last year. The decrease reflects a significantly weaker refining environment and a weaker contribution from supply and trading, partly offset by significantly higher throughput and processing of heavy crude at Whiting, from both the new units, which are now on stream, and the absence of last year's planned outage for most of the second quarter.

 The lubricants business reported an underlying replacement cost profit before interest and tax of $310 million compared with $370 million in the same quarter last year. The decrease was mainly due to the impact of restructuring programs and foreign exchange effects.

 The petrochemicals business reported an underlying replacement cost loss of $100 million in the second quarter of 2014 compared to a loss of $20 million in the same period last year. The decrease was mainly due to oversupply in the aromatics market.

 Looking to the third quarter, in fuels business, we expect stronger margin capture relative to the second quarter, driven by a low level of turnarounds and Whiting operations. In the petrochemicals business, the challenging environment is expected to continue, but we should benefit from a lower level of turnarounds in that business.

 In other business and corporate, we reported a pre-tax underlying replacement cost charge of $440 million for the second quarter, in line with guidance. The underlying effective tax rate for the second quarter was 33%.

 The charge for the Gulf of Mexico oil spill was $260 million in the second quarter, primarily reflecting an increase in the provision to future litigation relating to the spill. The total cumulative pre-tax charge for the incident to date is now $43 billion. The charge does not include any provision for future business economic loss claims that are yet to be received, processed and paid.

 Bob will provide an update on the legal process shortly, but as we have previously advised, it is still not possible to reliably estimate the remaining liability to business economic loss claims. We will revisit this each quarter as we continue to contest what we consider to be unreasonable claims, a process which could take some time.

 The pre-tax cash outflow on costs related to the oil spill for the second quarter was $170 million. The cumulative amount estimated to be paid from the trust fund was $19.3 billion, leaving unallocated head room available for further expenditures of around $700 million. In the event that the head room is fully utilized, subsequent additional costs will be charged to the income statement as they arise.

 At the end of the quarter, the aggregate remaining cash balances in the trust and qualified settlement funds was $6.3 billion with $20 billion paid in and $13.7 billion paid out. As indicated in previous quarters, we continue to believe that BP was not grossly negligent and have taken a charge against income on that basis.

 Turning to divestments, as Bob noted, following the completion of our $38 billion divestment program and the sale of our share of TNK-BP to Rosneft in 2013, we continue to actively manage the portfolio. In October, we announced plans to divest a further $10 billion of assets by the end of 2015. We have signed deals worth around $400 million during the second quarter, bringing the total agreed against this $10 billion commitment to $3.4 billion. Most notably, this includes the sale of a package of assets on the Alaskan North Slope, the farm out of 40% of our interest in the Oman-Khazzan project, and the sale of our Texas Hugoton and Panhandle's west gas assets, to Pantera Energy.

 Moving now to cash flow, this slide compares our sources and uses of cash in the first half of 2014 to the same period a year ago. Operating cash flow in the first half was $16.1 billion of which $7.9 billion was generated in the second quarter. Excluding oil spill related outgoings, the first-half underlying cash flow of $17 billion was $6.8 billion higher than a year ago. Organic capital expenditure was $11 billion in the first half and $5.6 billion in the second quarter.

 We received divestment proceeds of $1.8 billion in the first half of 2014, including $800 million in the second quarter. In the first half of the year, we have bought back $2.4 billion of shares, including $500 million in the second quarter. Net debt at the end of the second quarter was $24.4 billion, with gearing of 15.5%, compared to 12.3% a year ago. This largely reflects the impact of our share buyback program over the course of the year. Our intention remains to keep gearing in a target bend of 10% to 20% while uncertainties remain.

 Our guidance for the full year remains unchanged, as outlined to you in February. We expect full-year underlying production to grow compared to 2013, after adjusting for the impacts of the Abu Dhabi onshore concession expiry and divestments. This increase is mainly driven by the startup of major projects. As mentioned, organic capital expenditure in the first half of 2014 was $11 billion, and we expect the full year to be around $24 billion to $25 billion.

 DD&A for the first half of 2014 was $7.3 billion, and we expect the full-year figure to be around $1 billion higher than 2013. Other business and corporate charges are expected to average $400 million to $500 million per quarter, and we continue to expect the full-year effective tax rate to be around 35%.

 Looking at shareholder distributions, in April, we increased the quarterly dividend by 8.3%, year on year, reflecting our confidence in the delivery of the 10-point plan, and growth in operating cash flow over the medium term. The Board will review the dividend again with the third-quarter results. Since January 1 this year, we have bought back $2.6 billion of shares bringing the cumulative total since early 2013 to $8 billion. This concludes our $8 billion buyback program and the proceeds of the sale of our interest in TNK-BP. We intend to use the post-tax proceeds from our current $10 billion divestment program predominately for shareholder distributions with a bias to share buybacks.

 Looking further out to 2018, and to remind you of the outlook we shared with you in March, we remain confident of our delivering operating cash flow of $30 billion to $31 billion in 2014. Our first-half operating cash delivery of $16.1 billion puts us well on track for the year. Relative to 2013, this reflects the higher expected contribution from major projects in the upstream, the ramp-up of the Whiting refinery, and some reversal of the working capital bills seen in 2012 and 2013. We expect to sustain a significant increase in operating cash flow in 2015, at broadly similar levels to 2014, and then to see steady growth out to 2018.

 Growth is driven by the higher cash-generating characteristics of our portfolio going forward, both upstream and downstream, as well as by the opportunity to improve efficiency across the Group. In the near term, we expect underlying cash costs for the Group to remain broadly flat, assuming stable oil and gas prices.

 Coupled with our intention to keep capital expenditure in a range of $24 billion to $26 billion per annum over the same period, we have a strong platform to grow shareholder distribution. We expect to grow dividend per share progressively, in accordance with the growth in underlying operating cash flow from our business over time. We aim to bias surplus cash to further distributions through buybacks or other mechanisms.

 Now, let me hand you back to Bob.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [5]
------------------------------
 Thank you, Brian. Let me give you a brief update on the main Gulf of Mexico-related legal proceedings in the United States. The first and second phases of the MDL 2179 trial have been completed and the court yet to rule on either. The third phase has been scheduled to begin on January 20 next year. This is the penalty phase in which the court will hear evidence regarding the penalty factors set out in the Clean Water Act.

 Regarding business economic loss claims, the District Court has now approved a new policy that provides for the matching of revenues and expenses in calculating lost profits for business claims. Additionally, we filed a motion to allow us to seek restitution from claimants who were overpaid as a result of the previous policy.

 Separately, the Fifth Circuit denied further review of the issue of causation and approval of the settlement and certification of the class. We will now seek Supreme Court review of these issues. In the meantime, business economic loss claim payments have resumed.

 In the MDL 2185 securities litigation, the trial for the class action is set for May 18 next year, subject to the ongoing appeals around certification of the class. BP believes that all of the plaintiff's securities claims are meritless and we will continue to vigorously defend against them.

 As we've said many times we are determined to pursue fair outcomes in all legal proceedings. BP is committed to protecting the best interests of its shareholders at all times and therefore we fully intend to stay the course in all matters relating to this litigation. We continue to compartmentalize the management of these activities to avoid distraction to the thousands of BP people and contractors working in our US operations, who remain firmly focused on delivering our business objectives.

 In Russia, as you are aware, recent geopolitical events have continued to create levels of uncertainty in the region, which we monitor closely. At the business level, as you've seen, Rosneft had a good quarter. In June, it held its annual shareholder's meeting in which I was re-elected to the Board, and the Rosneft dividend for 2013 was approved by shareholders. As expected, the dividend was announced as 25% of Rosneft's IFRS reported earnings and represented an increase upon net pay for 2012. We received our share of the net dividend in the bank last week at just under $700 million after tax.

 Turning to the upstream, our primary focus here, of course, continues to be carrying out operations safely and reliably while delivering the milestones we expect to underpin the growth and operating cash for the long term. Summarizing progress this year, starting with active portfolio management, we have announced a total of $3 billion of divestments in the upstream, as part of the Group's objective to divest $10 billion of assets before the end of 2015. This includes the sale of a package of Alaskan assets to Hilcorp, which will allow us to focus more specifically on maximizing production from Prudhoe Bay and progressing the Alaska LNG opportunity.

 We have also sold our farm-down assets to others that are better placed to extract additional value. In the lower 48, we signed an agreement to sell our interest in the Panhandle West and Texas Hugoton gas fields to Pantera Energy. In the Gulf of Mexico, we farmed down 17 deep-water exploration leases to Noble Energy. In the North Sea we have agreed to sell our partner-operated equity in the Erskine Field to Serica Energy.

 In exploration, we expect to participate in between 15 and 17 wells this year, 10 of those have already been completed, resulting in the two significant new discovery so far in 2014. We are encouraged by the results we are seeing in testing these plays at Orca and Angola and Notus in Egypt, and we are evaluating the others. We continue to access new acreage and, in the second quarter, we received regulatory approval of our award of 24 blocks in the March Gulf of Mexico lease sale.

 We continue with the steady delivery of new projects. As I mentioned earlier, we have seen five major project startups in the first half of the year and our remaining 2014 project startups are on track.

 After a major program of turnarounds in our assets over recent years, we have been able to reduce the number this year. To put this in perspective, we undertook 47 turnarounds in 2011, 30 in 2012, and 20 in 2013 and have just 8 planned this year. We've completed two so far in 2014, with a further six due by the end of the year.

 Finally, we have now brought 80% of our priority wells for 2014 online, the majority of them on or ahead of schedule. We expect the 2014 priority wells to deliver two-thirds of total new well production.

 Looking at major projects in more detail, most recently, the Total operated CLOV project in Angola achieved first oil on June 12, joining this year's other startups: the Na Kika Phase 3, the Atlantis North Expansion in the Gulf of Mexico, and the Shell operated Mars B, in addition to the Chirag oil project in Azerbaijan.

 We are on track with the two further startups planned for 2014. In the North Sea, that is the offshore construction on the Kinnoull project, which is complete, and commissioning is now over 80% complete. In Canada, the Sunrise Phase 1 project is on track with construction of the central processing facility over 70% complete.

 As highlighted in our March strategy presentation, our current-year startups are particularly high margin and more than double the 2013 upstream segment average and are expected to deliver significant operating cash flow for us out to 2018.

 Looking forward, we continue to work on our quality pipeline of over 50 major projects using a disciplined, centralized, and careful process of selecting the right development concepts, optimizing the projects, and then ensuring we are ready to execute. This is clearly the capital discipline that our shareholders expect.

 In addition to this momentum on new projects, we are steadily improving the reliability of our operations. We are seeing the result of our investment in turnarounds and systemic defect elimination. Across our operated assets, we have seen average plant reliability of 92% in the first half of 2014. This compares to 91% in the first half of 2013.

 This is also reflected with strong plant reliability in our high margin areas with Gulf of Mexico at 93% for the first half of the year. Significant improvements are being seen in Thunder Horse, with higher average plant reliability in 2014 than in the previous three years. In Azerbaijan, another of our key areas, plant reliability has been 99% for the first half of the year and ended the year above 98% in both 2013 and 2012.

 The North Sea continues to remain an area of focus to further improve higher-margin production. That said, there are still good examples of progress there. Valhall in Norway has seen significant improvement in plant reliability from an average of just 57% in 2012 to 93% in the first half of 2014.

 Turnarounds are also going well, as I have mentioned a moment ago, we have already completed two this year, the Greater Plutonio facilities in Angola and a Tangguh turnaround in Indonesia, both on schedule. Five turnarounds are well underway in the summer weather window, with one further turnaround scheduled to be completed by the end of the year.

 Turning to wells, our global wells organization is expected to deliver our highest operated production from new wells and interventions since 2010. We have placed eight Gulf of Mexico wells online in the first half of the year, derisking our 2014 production delivery. We have successfully completed well work intervention programs in the Gulf of Mexico and Trinidad.

 Drilling performance has continued to improve with nonproductive time decreasing to the first half of 2014, after reductions in 2013 over 2012 levels, and all of this is starting to show up in underlying production growth, particularly in the high-margin regions. Of course, there can be an inherent lag in the process as well as quarterly seasonality to contend with, but we are encouraged by the trend of greater operating efficiency in many of our assets.

 In the downstream, we continue to increase heavy crude processing at the Whiting refinery, reaching a peak of 270,000 barrels per day during the quarter. Also in fuels, our marketing businesses continues enhanced customer offers and building strategic relationships. For example, in June we hit our highest ever week of UK shop sales as we continue to expand our convenience network with Marks & Spencers. In Air BP, we have expanded our China international customer airport network from 4 to 20 locations.

 We continue to reduce costs and implement efficiency programs across all of our businesses, which are delivering year-on-year improvements despite inflationary pressures. In addition, we continue to focus on actively managing our portfolio, completing the sale of our specialist lubricants global aviation turbine oils business to Eastman Chemicals in June. The lubricants business was an official sponsor at the FIFA World Cup in Brazil, which proved to be a great platform for promoting the growing premium Castrol brand to a truly global audience.

 Let me end today by summing up our central message to you. BP is an increasingly focused oil and gas business. A business with momentum and a business doing exactly what we said we would do. As we have gone about shaping BP's investor proposition, we have listened to shareholders and thought about what we have heard.

 We know the oil and gas sector still has much to prove. We need to demonstrate that we can control capital and costs, pick the right projects, and then deliver them flawlessly. We have got that message. I hope that's what you see when you look at today's results and the direction we're taking in our business.

 In short, our priorities are your priorities. We are actively managing our portfolio to maximize value. We are demonstrating capital discipline and we are focusing on efficiency. Looking out to 2018, we aim to deliver growth and sustainable free cash flow to support growing distributions. We plan to do this through material growth and operating cash flow, coupled with strong capital discipline.

 The first half of 2014 has seen the delivery of some significant milestones towards fulfilling the 10-point plan we laid out for 2011 to 2014. In exploration, we participated in two new significant discoveries and 10 completed exploration wells to date, some still being evaluated. We have seen five major upstream project startups, all of them in key regions that are strong drivers of operating cash flow for the Group.

 In the downstream, the upgraded Whiting refinery continues its high throughput of heavy crude, and we continue to focus on operating our assets safely, reliably, and more efficiently.

 We have two solid quarters behind us this year and a sense of real momentum in our Company. I'm confident this will support our enduring commitment to grow distributions to shareholders.

 Finally, I would just like to say a few words about our departing Downstream Chief Executive, Iain Conn. After 29 years with BP, Iain is leaving the Company and will be stepping down from the Board by the end of this year. Iain can be enormously proud of the contribution he has made to BP in that time. In particular, over the past few years, when he transformed BP's downstream business, focusing its portfolio and strengthening its performance, both operationally and financially. He has been an invaluable member of the executive team, and for me and the team, a great support. He leaves with my very best wishes, and he leaves with strong succession.

 On that note, I would like to thank you all for listening. Now, Brian, Jess and I will be happy to take your questions.

==============================
Questions and Answers
------------------------------
Operator   [1]
------------------------------
 (Operator Instructions)

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [2]
------------------------------
 Hello again, everybody, we are going to start the Q&A session. I think Bob might like to just kick off with a few words first, and then we'll take it in the usual way.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [3]
------------------------------
 Thanks, Jess. Good morning and good afternoon to everyone. I thought it would be worthwhile for me just to make a couple of comments about Russia. We, this morning, talked to some of the press here, and clearly, it is on their mind, so I thought maybe I will cover a number of things just by a few observations.

 First thing I would like to say that everybody at BP is very, very saddened by the loss of life on the Malaysian airliner. We do mourn those people that were lost and our strong sympathies to all of the families affected. Some of our industry colleagues themselves lost members of their teams, including Shell and Exxon and people know them. It has hit quite close to home.

 I think reflecting today on the questions, I think it is important to recognize that sometimes these events occur. They are unexpected. They are unintended, and they can actually change the course of history. I do believe we are in a period of heat of an emotional debate that is going on and there's lots of wider political implications. Like many of our peers, in many industries, we have commercial interest in Russia, as we do in the US and Europe, so we hope that these issues will be resolved among the governments as soon as practical and through dialogue and diplomacy.

 Meanwhile, we continue to just monitor, very closely, and that said, the nature of our business and that of our peers, particularly in the upstream part of our business, is we invest in many places around the world. We do so for the very long term, and we have to take a very long-term view, whether we're looking at Russia or the Middle East or Africa, North Sea or the Gulf of Mexico. Because of the commitments of capital involved, we make our invest decisions on a very long view of a country's future and not on the state of the politics and relationships between a country and other nations at a particular moment.

 We are certainly not unique in this. Russia has significant oil and gas resources, actually the largest producer today in the world, which are accessible to commercial arrangements in both exploration and development. We know that the world will need 40% more energy by 2035 and Russia will remain a key producer.

 That's why we and many of our international peers, from the US, UK here and the Netherlands and Norway and France and Italy and others, China, have made these very long-term investments there. Having said that, we will of course abide by any and all sanctions that are constructed by governments.

 The second question that came up quite a bit this morning was around this award to former Yukos shareholders or primarily the Menatep previous managers of the company. It is a matter of arbitration, a matter between the Russian government and a number of those claimants. The arbitration and the judgment, which we are still sorting through, because it is -- I doubt anybody on the call has read it, it is about 600 pages long.

 It's not really an executive summary, and it is small type, but the parties in it, the party in the judgment is the Russian Federation and the government of the Russian Federation. It's certainly not BP and neither is it Rosneft, but there is a lot of questions around that, a lot of speculation right now, but quite frankly it looks like it is something separate from us. Although there's lots of questions around it.

 I just thought I would pass on a view and a point of view of events as they are unfolding, as they are almost by the day, in many areas of the world right now, and maybe that will put aside a few questions later. Jess?

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [4]
------------------------------
 Okay. Thank you, Bob. We will then go to the questions, and we will start with Oswald Clint of Sanford Bernstein. Are you there, Oswald?

------------------------------
 Oswald Clint,  Sanford C. Bernstein & Company - Analyst   [5]
------------------------------
 Yes. Thank you very much, Bob, Brian. Just a question on Russia, actually, but more to do with the growth opportunities that you have, especially the unconventionals? If a scenario did play out that there were some technology restrictions, could you talk about what is needed for your unconventional opportunities in Russia with Rosneft? Also, just linked to that, why you have a strategy to go into the Volga-Urals for those unconventionals, rather than the Bazhenov in West Siberia like some of your peers?

 Secondly, maybe just a question on the quarters and the phasing of the maintenance. I was expecting a bit more or see more of the turnarounds in the second quarter. Could you say, is that planned? Or at least I think have you spoken about it, this afternoon, about more of them being in the second half, but is that the original schedule or were some of these actually pushed back into third quarter? Thank you.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [6]
------------------------------
 Oswald, yes, thank you. Your first question on the unconventionals in Russia, I think both BP and Stat Oil have shown interest in the demonic shales in the Volga-Urals region, and it is an area we know well because of the TNK-BP venture and our experience there before. That was what really focused us, was on something that we know has promise there, could be gas, could even be oil. Then we will see what happens with these. There is no details out around sanctions and whether or not it would affect that.

 The quarters and the quarterly phasing of the maintenance, I mean for the most part, we often think of the third quarter and particularly the weather windows in the North Sea, and August is a very common time for turnarounds in the North Sea. The two we have completed in the first half, are in the more benign weather areas of Angola and in the Asia-Pacific, out in Tangguh. Those are less weather prone.

 In the third quarter, two turnarounds have been completed in the first half, so it is usually the second and the third quarters. The Mad Dog, which started up mid to -- and we will go a little further out in time, and then the ones in the North Sea, the Bruce platform. Then, the weather windows in Alaska, as well, and greater Prudhoe Bay would be in the third quarter. I think that is probably more than you wanted to know about the turnaround schedule.

------------------------------
 Oswald Clint,  Sanford C. Bernstein & Company - Analyst   [7]
------------------------------
 Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [8]
------------------------------
 Thanks, Oswald. We will then turn to the US and Doug Terreson of ISI. Hello, Doug.

------------------------------
 Doug Terreson,  ISI Group - Analyst   [9]
------------------------------
 Hello, good morning, or good afternoon, everybody. Bob, in E&P, profitability and margins were very strong versus years past, and I think Brian mentioned the contribution from the Gulf of Mexico, which was clear from the US E&P result. I wanted to see if any of the international positions distinguished themselves in this way as well, or should we expect that more likely to be in the second half of the year?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [10]
------------------------------
 Doug, hi. Thank you. You are right, the Gulf of Mexico has performed extremely well. The wells have come in, not only pretty much on time or a little bit ahead and the margins have been higher and the rates of those wells have been higher.

 The one area that comes to mind first would be the new Chirag oil platform, which started up in Azerbaijan in January, and those wells are of course very high margin. Again, Angola, Azerbaijan, the North Sea and the Gulf of Mexico, those are four big high-margin areas. In Angola, some of them are more or less just starting up, so we don't have the benefit of the full year yet, but we will in the second half of the CLOV wells. The Total operated project that came in actually ahead of schedule with good well performance there.

 The North Sea is kind of a mixed bag. It is probably the area we have had, like all of the industry, a little bit lower reliability than we want. I think for this year and to the end of the year, Gulf of Mexico, Angola and Azerbaijan.

------------------------------
 Doug Terreson,  ISI Group - Analyst   [11]
------------------------------
 Okay. Sounds good. Second, in India, I just wanted to see if we can get an update on the action plan in the country? There has been a lot of cross-currents on government gas pricing policy and some other factors, too, so if you could just provide an update? I would appreciate it.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [12]
------------------------------
 Yes, Doug, a bit of frustration for us and everybody in India. We have found additional resources below the one field that we got, in fact a couple of Ts, TCF gusts deep down underneath the field of the facilities and a couple of other discoveries out there and we got satellites to develop. We thought we had agreements with the government to increase the gas price by a formula right before the elections, it was put to the side, and now there has been another delay.

 My view and the comments we have made to the government, it appears to be more economic to develop expensive Australian gas and import it into India. If they don't fix this, they are going to lose and they are going to evaporate their offshore gas industry. I think they know that. I think they've got political issues, but we are not going to invest any further in the offshore gas until this price gets put in place.

------------------------------
 Doug Terreson,  ISI Group - Analyst   [13]
------------------------------
 Okay. Thanks a lot.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [14]
------------------------------
 And they did say, I think they're talking about by October. That's the last I heard yesterday, Doug.

------------------------------
 Doug Terreson,  ISI Group - Analyst   [15]
------------------------------
 Great, thanks.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [16]
------------------------------
 Back in the UK Next question from Alastair Syme of Citi Bank. Are you there, Alastair? All right, we will move on then to Michele Della Vigna of Goldman Sachs. Are you there, Michele? Hello?

------------------------------
 Michele Della Vigna,  Goldman Sachs - Analyst   [17]
------------------------------
 Jess, can you hear me?

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [18]
------------------------------
 Yes, I can, sorry, we seem to have a delay on the line. Go ahead.

------------------------------
 Michele Della Vigna,  Goldman Sachs - Analyst   [19]
------------------------------
 Cool, no worries. Thank you for taking the question. I was wondering, on the tax rate, so you had a very low tax rate in the first half of the year, you're maintaining the guidance for 35%. Should we take this as meaning that from here we should assume around 37%, or are you just being conservative?

 Then a second question on the buybacks. They clearly slowed down in Q2 to about $0.5 billion. Should we assume a reacceleration as you receive the proceeds from the $3.4 billion of divestments that you have already agreed?

------------------------------
 Brian Gilvary,  BP plc - CFO   [20]
------------------------------
 On the tax rate, we've come up with a range around the tax rates. We've said around 35%, but I think something for the second half of the year, it is impossible to predict what will actually happen with foreign exchange rates, all of the various things that will come through, mostly through the fourth quarter around balancing at the tax rate for the year. But something around 35% for the year would imply something around 36% to 37% for the second half.

 It is not that precise, clearly, so I'd just -- it is what it is through the first half of this year, but something around 35% for the year would seem a reasonable number still in terms of where we are. It will fluctuate depending on what actually happens and actualizes through the third and fourth quarter.

 In terms of the buybacks, yes, as you say, we have now completed the $8 billion buyback program. We will look to continue to stay in the marketplace. We have said predominantly we would like to use the post-tax proceeds of the $10 billion program towards distributions with a bias towards buybacks, and we will simply look to opportunistically do that in the marketplace out now between now when we complete the divestment program, which is planned for the end of 2015. I think you will see us ticking along at the current rate, but we have the various opportunities to either increase that rate or decrease that rate depending on other circumstances within the Company.

------------------------------
 Alastair Syme,  Nomura Securities International, Inc. - Analyst   [21]
------------------------------
 Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [22]
------------------------------
 Over now to Blake Fernandez of Howard Weil. Go ahead, Blake.

------------------------------
 Blake Fernandez,  Howard Weil Incorporated - Analyst   [23]
------------------------------
 Hi, folks, thanks for taking the question, good afternoon. I had two questions for you. One, I hate to declare victory on the cash-flow targets this year, but as we progress toward second half of 2014, all eyes start to roll forward to 2015. I know Brian indicated potentially flat cash flow on next year, but I'm just trying to see if we can get an idea what kind of communication or explicit targets we may be looking at as we move toward 2015?

------------------------------
 Brian Gilvary,  BP plc - CFO   [24]
------------------------------
 If I can pick that up, we haven't given you any targets for 2015, other than to say that it could be flat, it could be higher. Don't expect it to be lower, but we offered you a range of outcomes. I think it really reflects that 2014 was a major repositioning of the Company that we laid out back in October 2011. Therefore, just to maintain this level through 2015, I think is a very strong signal about the underlying quality of the earnings that have come through this year that are driving that operating cash flow.

 We still have more disposals to come. Those disposals will take away some operating cash. After that, we still expect operating cash to be at least flat next year.

 I think it is really taking a bit of a breather. We've got the big new projects coming on, all the things we laid out in October 2011. The stars appear to be aligned. I certainly, and I don't think Bob or the team will declare victory until we're here at the end of December and we have all of the cash in, but things are looking promising in terms of what we can see from the first half of the year.

 We are still confident of the $30 billion to $31 billion, and we're confident that we can maintain that through 2015. Then, you will start to see growth thereafter as we laid out in March.

------------------------------
 Blake Fernandez,  Howard Weil Incorporated - Analyst   [25]
------------------------------
 Great, thanks, Brian. The second question I had was on the downstream. For one, I'm just trying to confirm Whiting, I see you have hit a nice run rate here in 2Q. Should we be aware of any maintenance or turnarounds that would impact throughputs there in the second half?

 Secondly on the downstream, with the Iain's departure, just curious if we should be thinking about any potential strategic shifts?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [26]
------------------------------
 Blake, on Whiting, as you look out through the end of the year, I think we should continue to see levels of 270,000 or up. We think we can get 300,000 barrels a day, the heavy oil, crude oil going through that. I think if there is are any logistical issues at all it might be restricted throughputs through the Enbridge pipeline, but I don't see that as a big problem. It is something we just have to be mindful of.

 In terms of strategic shifts, also the current WTI, WCS differentials, when which we had original assumptions in there of $20 something, low $20 a barrel differentials in our numbers and projections. Today, that is running at $26.60 a barrel, so that is a bit of a boost there.

 Then in terms of strategic shifts, I think Tufan has been working with Iain for a number of years. He's been working in the downstream and in his role really since 2009. I think very capable, qualified, very smooth transition will occur, but we will always be looking at strategy. I don't see any sharp shocks to the planned direction.

------------------------------
 Blake Fernandez,  Howard Weil Incorporated - Analyst   [27]
------------------------------
 Thank you very much.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [28]
------------------------------
 Thanks, Blake. Next question from Jon Rigby of UBS.

------------------------------
 Jon Rigby,  UBS - Analyst   [29]
------------------------------
 Hi, can you hear me?

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [30]
------------------------------
 Yes.

------------------------------
 Jon Rigby,  UBS - Analyst   [31]
------------------------------
 Hi, guys. Two questions, first, actually, is again focusing on the downstream. There seems to be a lot of moving parts both sequentially year over year with moving refining margins, market margins, your trading results and the contribution of Whiting.

 It doesn't look to me, at the moment, that the Whiting net income contribution is coming through as one might expect. I think you have talked to a cash flow number of $1 billion post tax, which can translate something pretty close in EBIT levels on an annual basis. I just wondered whether you could talk a little bit more about the moving parts and maybe even characterize against potential what Whiting's contribution was in the second quarter?

 The second question is, just on the MaCondo provisioning, what things have to happen, do you think, before you can revisit your provisioning from actuarial point of view? Because I'm aware that number you now have is really quite stale, thanks.

------------------------------
 Brian Gilvary,  BP plc - CFO   [32]
------------------------------
 Thanks, Jon. Let me take that last part first and then I will come back to the question around dashing results in 2Q. In terms of provisioning, we continue to review it every quarter. The only thing that has changed this quarter is our current view of where we are in litigation.

 We now expect that to take a long, long time, in terms of resolution. Therefore, you have seen us increase the provision predominantly around litigation costs out into futures. We have take an view of what we now think the timeline may look at, and then, therefore, stretched out the assumptions on that, so certainly beyond the time period we were looking at originally.

 Other aspects of the provision, we just simply review quarter by quarter. The only thing that will be probably a change going forward will be the new policy is now in place around business economic loss claims. The matching issue that we had that we talked to you about 15 months ago is resolved, on the Fifth Circuit appeal, where we won that appeal with the Fifth Circuit and a new matching policy was put in place by the administrator.

 That's now being administered within the fund, and we continue to monitor that. That resolved a lot of the issues that we had, and therefore you will start to see business economic loss claims were reactivated through June. At this point, de minimus in terms of payments going out in the millions of dollars, but we will monitor that going forward.

 As payments go out in each quarter, we will charge those to the P&L and that will effectively be enough through the head room. Some of those costs will actually be charged against the head room within the recently provisions.

 Until that $700 million of head room is used up, you can't really expect to see any other movements in terms of the major components of the provision. Notwithstanding, we're still waiting for what happens post phase one, phase two, and perhaps as late as phase three of the trial. We will just continue to review this quarter by quarter.

------------------------------
 Jon Rigby,  UBS - Analyst   [33]
------------------------------
 Will some resolution on causation, whichever way it falls, just help you get bit greater clarity on you what think the ultimate cost will be?

------------------------------
 Brian Gilvary,  BP plc - CFO   [34]
------------------------------
 I don't think that ruling in itself -- we will just have to see what happens with the Supreme Court, but that ruling in itself won't trigger anything in terms of where the provisions are. It will simply be another part of the appeals process around linking the causation components of the fund and the settlement agreement. That in itself won't be a trigger either way in terms of provision.

 Then in terms of your first part of the question, Jon, downstream results, we did start to see Whiting come through in the second quarter. We saw it in two components. One is, you will recall, that we had occlusion unit out in the second quarter of last year to get ready for the Whiting upgrade that went in, so we're seeing the benefits of that. We are also seeing the benefits of the fact that we hit the 270,000 barrel run rate during the second quarter with the spreads up over $20. We saw the benefits of that.

 To some respects, that's being mashed or you can't see that come through in 2Q, and if you just take it through versus the first quarter result, which because in 1Q, our fuels business had a very strong result off the back of supply and trading. The result in 2Q supply and trading was below an average quarter.

 We had a significantly higher than average quarter in the first quarter and below average in the second. So that movement to some degree masks what you saw coming through in terms of Whiting. Also, 1Q versus 2Q, you had the issue around the lower Peckham result, which was something like $100 million swing quarter to quarter. If you see through all of that, actually there are underlying improvements coming through, through Whiting.

------------------------------
 Jon Rigby,  UBS - Analyst   [35]
------------------------------
 Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [36]
------------------------------
 Alright, we're going to take a question next from the web, from Ian Armstrong of Brewin Dolphin. It is on Russia, and the question is, could part of your holding in Rosneft be subject to the recent ruling on Yukos, given that it was purchased from the Russian state?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [37]
------------------------------
 Yes, thanks, Jess, and thanks, Ian. It goes back a little bit, very related to the last comment I made at the introduction, which is really this arbitration between the Russian government and these private claimants, which are really former UKOS managers in many ways. This is a arbitration ruling against the Russian Federation, the state government itself, it is not a ruling on Rosneft and it is certainly not a ruling on BP. I don't see in any way that we are party to this. We will just watch and see what happens with this, but that is a risk that we don't believe is realistic.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [38]
------------------------------
 Okay. Thanks, Bob. On the telephone lines then in the US, Guy Baber of Simmons & Co.

------------------------------
 Guy Baber,  Simmons & Company - Analyst   [39]
------------------------------
 Thank you, guys, very much. Can you hear me okay?

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [40]
------------------------------
 Yes.

------------------------------
 Guy Baber,  Simmons & Company - Analyst   [41]
------------------------------
 Okay. Great. I wanted to dig a little bit deeper today on the strength in Gulf of Mexico production. Your US liquids output up nearly 100,000 barrels a day year on year, clearly material in driving very positive mix shift. Since there are so many moving point parts there, was just hoping you could perhaps help us better understand the momentum you're seeing in that business. Could you frame for us how much of that growth we're seeing right now is major project driven verse a function of lower turnarounds versus a quantifiable improvement to asset reliability relative to prior years, and any other factors that you think might be material for our understanding? Then, I had a follow up as well.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [42]
------------------------------
 Okay, Guy, there is a lot of pieces in that. Of course, I'm going to talk about our four major hubs here. First, the production outlook and how we see it increasing now. I will talk about the major project ramp ups on Na Kika Phase 3 and the Shell operated Mars B. That is part of it. The major project startup on Atlantis Phase 2B and then Thunder Horse and Atlantis new well deliveries and the well work delivery at Thunder Horse, those are the big parts of it here.

 We've got, in the second quarter, this time, we've got a 38,000 barrels a day above what the first quarter was due to what we call strong wedge performance. We've got 10 rigs now operating in the Gulf. We had five at the end of 2009, and give you a sense of that.

 The activities in the second quarter, were five new wells delivered, and really in the first half, we had two on Na Kika, two on Atlantis, one on Thunder Horse. The second-quarter wedge delivery was about 46,000 barrels a day higher than our plans. We've had first-half work overs, we brought three Thunder Horse wells back to production.

 I can continue to give you color on this. We normally don't give the exact figures of the Gulf, but we are producing, today, over 250,000 barrels a day, and I think that is all I'll say. We got Mad Dog down on a turnaround right now. It is a mixture of some of the new projects, but I think when you look at the quarter overall, I looked at it at those five new high-impact wells, is where it really exceeds some expectations.

------------------------------
 Guy Baber,  Simmons & Company - Analyst   [43]
------------------------------
 Okay, great. That is very helpful. Then my follow up is on your thoughts around the evolution of operating costs, but you've obviously mentioned before the need to change the business model in the lower 48 as justification for separating that business. We can imagine there's significant running room to reduce your operating costs and improve efficiencies in that business that could be material to your overall results.

 The question is, are meaningful cost reductions from that business included within your flattish 2015 operating cash flow expectations or should we be thinking of that as potential upside? Are there any other specific units or geographic areas you would highlight where you see a meaningful potential for significant operating cost savings that could have an influence on 2015 cash flow?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [44]
------------------------------
 Okay, very good question. The lower 48 restructuring, which we are doing, which we are beginning to see the results come through even already. We have taken some steps -- it is still located there in our West Lake complex in Houston. We have identified the team and the people that will go with the lower 48. We have identified and signed the lease actually on a new building to move that to a different, I would say, cost-effective location.

 We are already seeing efficiency of decision making quicker. This is what we intended to do with it. We are going to do this to make sure that it remains safe and reliable in how we operate this, but there is a lot of improved operating efficiency there. We are going to spend our money more efficiently, most certainly.

 We are going to improve and more focus-like management of the supply chain. These numbers are not really in the forecast that we have laid out to 2015. We have an assumption in there in 2015, and I think probably the bigger factor in terms of a flatness of the 2015 is Brian 's point about the divestment programs where we will divest some operating cash. That's where it will be flat.

 There is upside, Guy, most certainly, in the lower 48. We will be back and talk to you about this every quarter. For those of you who may not be that familiar with it, we are going to separately disclose the financial results of the lower 48 beginning in 2015 so you will have more visibility on that.

 Other areas do this, well, of course, we have kicked off a study, probably beginning to be driven out of the lower 48 on our entire upstream business. We are going to look at efficiencies, primarily across North America and then some in Latin America, as well, to work to a model to simplify the Company.

 We have said all along that after the accident, that we put in place, processes and systems to make sure that we managed our risks very carefully. We put in place multiple checks and balances in our organizational structure. We now have safety and risk management systems in place, and so that is allowing us now to simplify our corporate structure.

 We have returned the confidence to our operating people of making decisions on drilling and in projects in a way that we didn't have. You can all sympathize with an organization that really had a legal team looking over their shoulders at every e-mail they wrote because they saw their colleagues in court. I think we now have put in place tight systems and process to bring back that confidence in being able to make decisions faster.

 We have done a whole set of simplification things across the business, combining three separate internal audit functions into one, merged our brand and communications team, created a global business service organization to help with the supply chain and our accounting processes.

 I would say a lot of that is not yet in the numbers, but there is upside and we will just keep telling you about them. I don't see -- it is not a magic wand that we will see that we will see a giant stair-step up unexpectedly, but it will definitely make a difference in the future.

------------------------------
 Guy Baber,  Simmons & Company - Analyst   [45]
------------------------------
 Thank you for the comments.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [46]
------------------------------
 Yes, probably more than what you wanted to hear, Guy.

------------------------------
 Guy Baber,  Simmons & Company - Analyst   [47]
------------------------------
 No, that was great.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [48]
------------------------------
 Thank you. Next up, Theepan Jothilingam of Nomura.

------------------------------
 Theepan Jothilingam,  Nomura International - Analyst   [49]
------------------------------
 Thanks, Jess. Good afternoon, gentlemen. Two questions, just in the upstream, actually. I think you talked about performance in the base for the UK and the opportunities there. I mean looking forward, particularly beyond 2015, and drivers of cash, could you give an update on the growth projects for Quad 204 and Clair Phase 2?

 Secondly, Bob, I wanted to pick up on your remarks on Prudhoe Bay and also some of the work overs this year. Will these work overs potentially improve performance with the asset on a more structural basis or is this just a normal seasonal turnaround? Thank you.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [50]
------------------------------
 You have asked about Quad 204 and Greater Clair, let me just start with Greater Clair. We have just, yesterday, approved a sixth appraisal well on Greater Clair. Greater Clair is coming along well and the reservoir definition is coming into focus well.

 It is like a number of projects around the world, somewhat held up by the yard spaces in Korea. Where we've got things that we want to get done, but they're held up a little bit by some of the big Australian projects. That's, of course, is basically is some of the criticisms of our industry in terms of over spending and longer time.

 It actually has backed up the yards. Although, I think we're heading into a phase now where the yards are going to get cleared out and a project that probably would be on time, and maybe seeing a little bit of a delay.

 Quad 204, I think all I would just like to say is it continues, the development of it continues. I think you can get in touch with Jess here, but 2016 is our startup year. It is in the execute stage. Gross capacity of that facility will be 320,000 barrels a day. We've got a 36% working interest in it. Other than the fact that it is on track, I don't have any real specific comments for you today on that.

 In Prudhoe Bay, of course, the change in the oil legislation in Alaska has most certainly helped the state, as it is. We've investing more and speeding up some of the work that we have been doing in Prudhoe Bay. I thought you were going to ask about the LNG projects up there, but I think other than the bread-and-butter activity that we do in Prudhoe Bay and the oil, there is no real significant news out of that.

 We did sign an agreement with the state of Alaska and Exxon and Conoco to plan the development of the gas project, which is effectively the gas cap out of Prudhoe Bay and the Point Thomson field and an application has been made for the export of that gas. No, I think the work-over programs in Prudhoe Bay other than that they're more economic, so we're doing more of them. Not much else to say about that.

------------------------------
 Theepan Jothilingam,  Nomura International - Analyst   [51]
------------------------------
 Okay, thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [52]
------------------------------
 Next question, Anish Kapadia of Tudor, Pickering and Holt. Go ahead, Anish.

------------------------------
 Anish Kapadia,  Tudor, Pickering, Holt & Company - Analyst   [53]
------------------------------
 Thank you. Good afternoon. Couple of questions, please. Firstly, on the Rosneft, I saw mentioned in their results BP prepaid $1.9 billion for a five-year oil supply contract from Rosneft in July. I was wondering if this impacts your working capital and maybe targets for this year and if there are any further such types of deals on the table?

 And then my second question is on your disposal program. It appears to be turning into much more of a buyer's market when we look at the M&A space. It seems like the majority of your peers are adopting kind of similar fairly large disposal programs. Just wondering how you see that impacting your disposal program and are you willing to give away some value just to meet the $10 billion target? Thank you.

------------------------------
 Brian Gilvary,  BP plc - CFO   [54]
------------------------------
 Anish, on the first question, it was a pre-financing deal where we take the off take, but it was covered by series of banks, so it doesn't directly affect BP's working capital. That's actually financed through a syndicate where we guarantee the off take piece. So -- and we do a lot of those deals outside of this space. It's part of our supply and trading. We manage that within our existing working capital requirements, so no additional working capital, but we look in terms of the quality of the portfolio.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [55]
------------------------------
 On the divestments, I think hindsight shows that we have very good value for the over $40 billion, which is now $41 billion, of divestments that have been done. We have pieces of our business that we continue to look at that have more value to others. Most recently, we divested down to reduce our exposure in the big Oman-Khazzan field of the government that was $0.5 billion. Very fair value there. Aviation lubricants, a very specialty business sold in chemicals, that got a good price. I don't believe they want that price public, but it's a good price to us.

 The Texas Hugoton gas assets that we just sold for roughly $400 million, good value again, so I don't see that we would be willing to give away value on the divestment programs just to hit the target. They have to make sense. But, having said that, when we look through our asset base, we believe we can identify $10 billion and we are one-third of the way through that now. But you are right, the market does have a lot of things on the market, but we've still got some hidden gems in our portfolio.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [56]
------------------------------
 I see that Mr. Alastair Syme is back on the line. I'm sorry we lost touch with you earlier. Are you there now?

------------------------------
 Alastair Syme,  Nomura Securities International, Inc. - Analyst   [57]
------------------------------
 I am. Can you hear me?

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [58]
------------------------------
 Yes, we can.

------------------------------
 Alastair Syme,  Nomura Securities International, Inc. - Analyst   [59]
------------------------------
 Thanks, everyone. Can I just ask a question on the sort of suite of pre-FID projects, and I'm sort of referencing your comments about yard capacity maybe freeing up a bit. I'm thinking sort of Mad Dog 2 and Browse [fundables] expansion in Angola about where you think those projects are robust or getting more robust or there is more work to be done.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [60]
------------------------------
 Yes, good question. Mad Dog is one that we recycled and I think it's getting much more robust and I think the partners feel that way as well. So, we've been sort of pre-FID for -- and I think there is a good chance that that one will come through. We will review it probably before the end of the year, although we are -- that's not something we absolutely decided.

 The Persephone project, which is operated by Woodside in Australia, we think that's a good project. In fact, we're very close to saying getting the go-ahead on that one. Thunder Horse south is another one that the work is going well on and I expect these, all three of these projects to come through.

 Not going to give a date for it, but I wouldn't be surprised if all three of them come through before the end of the year. And they do look good, and recycling these projects has proved to be a very good thing, particularly on the Mad Dog project. A little bit like Browse in Australia which is another one that has been recycled.

------------------------------
 Alastair Syme,  Nomura Securities International, Inc. - Analyst   [61]
------------------------------
 And maybe just about Brose, as you look across the LNG market, are you sort of confident that the state of the market is going to allow you to push forward on those?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [62]
------------------------------
 Well, the new development concept on Browse most certainly has made that project economic and competitive out there. The world is just going to continue to need lots of energy. If you look at these growth forecasts over the next 20 years or so, natural gas being the cleanest burning fuel out there, that is without any assumptions around pricing of carbon. So, yes, as long as the capital costs can be held within the right tighter boundaries and the schedules in place, these projects are going to look pretty good.

 But we are going to choose very, very carefully. There are obviously other projects out there that we have had opportunities to be a part of or buy into that we have said we are less confident of, and we haven't done that.

------------------------------
 Alastair Syme,  Nomura Securities International, Inc. - Analyst   [63]
------------------------------
 Thank you very much for your time.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [64]
------------------------------
 Yes.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [65]
------------------------------
 Next question, from Lydia Rainforth of Barclays.

------------------------------
 Lydia Rainforth,  Barclays Capital - Analyst   [66]
------------------------------
 Thanks, Jess. Good afternoon, everyone. Cut to the question if I could. One, just a (inaudible) on the realizations in the upstream for the US on the liquid side. Given the greater contribution of the Gulf of Mexico within there, I was a little surprised to see them so broadly flat both year-over-year and quarter on quarter. Is there anything unusual within that or is there anything that -- any help that you can give us as to how that will develop going forward?

 And then secondly, Bob, thank you for your comments around the cost side, and if I could go back to that a little bit just to clarify. Is this around changing the way that BP works again from where it is now or is it purely the fact you got BP working how you want it to and its now all about simplifying from the processes that you already have in place?

------------------------------
 Brian Gilvary,  BP plc - CFO   [67]
------------------------------
 Lydia, on the first question, if I can just pick up the first question and realizations. We did get a benefit in the first quarter in terms of average realizations that the Gulf of Mexico grades are trading at better grades the WTI than maybe through the second quarter. So, it's really a grade spread issue. That's the only thing that was going on 1Q versus 2Q around the actual differentials.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [68]
------------------------------
 Yes, and of course did you talk about the [Brent] differentials in the Gulf? Sorry.

------------------------------
 Brian Gilvary,  BP plc - CFO   [69]
------------------------------
 No, I said Gulf versus WTI in terms of what was happening.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [70]
------------------------------
 On the cost side, Lydia, thank you, I think I couldn't agree with you that we have the Company working the way we want it. I think there's lots still to do. We definitely are happy with the functional model where the changing of the decentralized upstream organization to a functional model around projects and drilling and operations through the geographies of the upstream and we've got supply chain management globally in the upstream. I think we're still a complicated company. I think our partners sometimes feel that way.

 We're still working our way through separating out the separation -- the safety and operational risk organization, which has been a separate organization from the line operating organizations. We're combining those which further our past and history it was the right thing to separate things to just have double checks and balances on decisions that could affect accidents and safety and now we've got the confidence to put those organizations together. That brings with it a certain amount of complexity when you make that kind of change.

 I think we've got things to do in terms of costs around training and simplifying and being much more targeted in how we train and develop people. And I think the lessons we're learning in the lower 48, which is a business that we fundamentally re-based to operate at $4 an MCF but really wasn't going to competitive for capital, now we're going to make another step change there in making that more efficient. Then we'll have learnings from that that we can use in other places around the world.

 After the accident, we in many ways began to put offshore safety standards on working onshore and that is absolutely -- that actually wasn't making us competitive, and that is not necessarily what we needed to do. The right thing to do for our period in history, but we're still simplifying some of that.

 So, I think it's a journey, it's a good start with a functional reorganization, but we've got lots to do and we've targets in place which are not yet in the ones that we said publicly to bring more efficiency rather than targets. We're not going to have cost-cutting targets, we're going to have activity-reducing targets because this has to be kind of surgical rather than just as a blunt cost-cutting target.

------------------------------
 Lydia Rainforth,  Barclays Capital - Analyst   [71]
------------------------------
 Thank you very much.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [72]
------------------------------
 Thanks, Lydia. Next question from Stephen Simko of Morningstar.

------------------------------
 Stephen Simko,  Morningstar - Analyst   [73]
------------------------------
 Hi, good afternoon, everybody. My question is just related to the business economic loss payments restarting and visiting the economic settlement website. If you look at the July 1 claims administrator public data, you would see that loss claims hadn't started. Obviously they started this month, and it's just a short period of time and a small data sample, but it looks like about $41 million of payments have been made. And if were you to look at that with the number of payments -- excuse me, the number of claims that were paid, the average amount paid per claim looks like it's down a lot compared to before the fifth circuit court ruling last October.

 And what I'm wondering is are you reading -- is there anything to read here in terms of the new accounting framework in place affecting the average pay or the average amount paid per claim? And, if not, any other comments on that data would be great. Thanks.

------------------------------
 Brian Gilvary,  BP plc - CFO   [74]
------------------------------
 Stephen, I think it is too soon to draw any conclusions at this point. Payments actually started in June, late June, and I think the administrator and the team are working two different types of claims and working up the various accounting books of how to process those claims. We have now in place a new chief executive that is running the facility and they are, I think, going through each one of the claims carefully to ensure that they are meeting the requirements of the new matching policy that has been put in place.

 So I think it is just too soon to try to draw any conclusions. But, you're right, that the nature of the payments being paid so far relatively small compared to what we've seen historically, but I think you will need a number of months of claims data before we start to draw any conclusions from that.

------------------------------
 Stephen Simko,  Morningstar - Analyst   [75]
------------------------------
 Makes sense. Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [76]
------------------------------
 Moving now to Thomas Adolff of Credit Suisse. Are you there, Thomas?

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [77]
------------------------------
 Hi, can you hear me?

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [78]
------------------------------
 Yes.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [79]
------------------------------
 Hi, thanks for taking my questions. I got a question on Iraq and a few project-specific questions, please. Just a quick one on Iraq. Earlier on you said you'd like to take the long-term view, but I guess in light of your experience since you moved into Iraq in 2009 and where we stand today, what is your current thinking on Iraq? Clearly, the fiscal terms are pretty bad to begin with and the future opportunities never materialized. Isn't it really bad use of your precious capital and some of your peers begin to think that.

 The second question on the projects. I'm just trying to get an understanding for whether the congruent price review was linked to BP? In other words, have you managed to negotiate for a higher slope?

 And the other project-specific question I had was related to your Brazil upstream asset where your partner was Maersk and Maersk recently took a major impairment charge, whether you're still comfortable with you're carrying value down? Thank you.

------------------------------
 Brian Gilvary,  BP plc - CFO   [80]
------------------------------
 Maybe on that last point I'll just pick that up to say actually what Maersk did with those three assets, we effectively write down to a level pretty close to where BP holds those assets today, so there is no implication for BP or really (inaudible) what Maersk [to grant] that investment.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [81]
------------------------------
 Thank you.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [82]
------------------------------
 Thomas, on Iraq, we've always felt that the Rumaila field is different. It is a production sharing contract. It's really a contract with a fee. It is low margin, but it produces 1.4 million barrels a day. It's by far and away the largest project there. For us, the economics have actually been very good, the internal rate of return. The return of capital comes back very quickly in the form of the return of your capital plus a fee, but because of the scale of it, this has been a good investment for us and continues to be.

 We are in discussions with the government on the enhanced field development plan, that could improve the terms as well for that. I mean Iraq is a very troubled country, but just to give people a little bit of reference, Kurdistan up in the north where we're not operating this new ISIS area of turmoil in the Sunni areas, the major oil fields in the south are sort of bottomed down at the end of the funnel of the country. It's a long, long way from the -- from where the trouble is. It is out in the desert in an unpopulated area near the Kuwait border and has been operating straight through this period without interruptions.

 Cargoes are being loaded and sold, and our ability to work with Baghdad and the ministry to ensure all this continues sort of unbroken. So, I understand the nervousness in the industry around Iraq, but I do think the Rumaila project is something different compared to the other agreements that have been signed in the country because of the scale.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [83]
------------------------------
 And on the Tangguh price review?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [84]
------------------------------
 Yes, we can't go into the real details of the price specifics, but we have improved the price significantly on Tangguh using the price review clause in the contract. The price of the Tangguh gas will go up at the beginning of this year. It's gradually to the near market pricing levels that both sides feel are fair and I think that is probably all we should say about that. We have agreed that the new trains, when they come through, around 40% of the gas will go into Indonesia which is short gas and needs gas, but the pricing on that is also I think fair and attractive for both sides.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [85]
------------------------------
 Just the last one. Are you still confident you can take FID on four projects this year? Thank you very much.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [86]
------------------------------
 On four projects, did you say four?

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [87]
------------------------------
 Yes because you said on the first quarter results it will be four projects you want to take FID on this year.

------------------------------
 Brian Gilvary,  BP plc - CFO   [88]
------------------------------
 I think it's a bit premature. We originally laid those out. We're certainly working through those. Certainly three we can see.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [89]
------------------------------
 From here to the end of the year.

------------------------------
 Brian Gilvary,  BP plc - CFO   [90]
------------------------------
 So, it's probably premature to make any comments on that at this point.

------------------------------
 Thomas Adolff,  Credit Suisse - Analyst   [91]
------------------------------
 Okay, thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [92]
------------------------------
 Thank you, Thomas. Moving now to Bertrand Hodee of Raymond James

------------------------------
 Bertrand Hodee,  Raymond James Euro Equities - Analyst   [93]
------------------------------
 Hello, I have two questions. First, you have the impairment in up stream in the non-US linked to an asset sale. It was around $444 million. Can you tell us to what assets it is linked?

 And then the second question on India, given your level of initial investment was around the $6 billion or $7 billion, do you think if gas price were to stay at current level, can you expect or do you see it would be appropriate sometime to take an impairment?

------------------------------
 Brian Gilvary,  BP plc - CFO   [94]
------------------------------
 On the questions around the second quarter, they were related to both North Sea and Alaska as were (inaudible) can give you the break down for those.

 And in terms of India, again I think it's premature, but we review our India investment quarterly and at the moment our whole value source sits based on the information that we had at the value which we acquired the assets and we will have to wait and see. It would be premature to try and predict what will happen with gas prices with the new government in place because, as we understand, that will be reviewed by the first of October.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [95]
------------------------------
 In October, yes. But one thing is clear, if that price doesn't change, you're not going to see us pouring more capital into it. We will just wait and see.

------------------------------
 Bertrand Hodee,  Raymond James Euro Equities - Analyst   [96]
------------------------------
 And the last one if I may, during Q1 results you hinted to an encouraging trend in your upstream cash cost expecting to see your overhaul of cash costs to be down in 2014 compared to 2013. And I would say your professional performance in 2Q, especially to (inaudible), do you still confirm that trend in your overall up stream cash costs for this year?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [97]
------------------------------
 Well, we did see a reduction from the first quarter into the second quarter on the upstream cash cost. We even -- we had a higher well work and we had a lot of seismic activity a year ago. We've had higher well work this time, but the cash costs have still kind of gone out. And the full year 2013 to 2014 I'd say are about flat to somewhat down and I think that is probably all we can say. And I think we can do that even with the sector inflation which we now see is around 4% for both capital and operating costs. And I think a lot of that -- you're going to see a lot of that starting with the North American restructuring.

------------------------------
 Bertrand Hodee,  Raymond James Euro Equities - Analyst   [98]
------------------------------
 Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [99]
------------------------------
 We will take a question now from Gordon gray of HSBC.

------------------------------
 Gordon Gray,  HSBC - Analyst   [100]
------------------------------
 Thanks, I just had one thing left to ask, please, and that's on Algeria you've obviously been through some very difficult times there. I wonder if you could just give us an update ahead of starting or plan to starting production next year and how you view the potential now relative to your original expectations, and also how you are dealing with all of the ongoing security challenges? Thanks very much.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [101]
------------------------------
 Gordon, thank you. We have those of you who will recall in January of last year we had that terrible tragedy where the terrorists came into the field, in the In Amenas field down in southeast Algeria. We have spent a lot of time, as has our partner, Statoil, and actually working directly with the government and Sonotrack on the security, and so I had a review just this last week of people who had been to In Amenas and seeing the increased security down there. So, we didn't take that decision lightly, but we are back at work in Algeria and In Amenas and Salah.

 We had plans. Originally the plans were to start up In Amenas and Salah in 2014. Obviously that was pushed back by these events. We still believe that the startups of at least one if not both of those projects can happen in 2015.

 There is some risk to it, but that's where we see today. These are good return projects for us, we've been working there for a long time. The return on capital of these projects has been very good and both we and Statoil have committed to getting back to work there.

------------------------------
 Gordon Gray,  HSBC - Analyst   [102]
------------------------------
 Great. Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [103]
------------------------------
 Question now from Irene Himona of Society General.

------------------------------
 Irene Himona,  Societe Generale - Analyst   [104]
------------------------------
 Good afternoon, everyone. Two questions, please. Firstly just to clarify, do you receive the Rosneft dividend in Rubles?

 Second question on working capital, you had a big $6.8 billion bill in 2013, and you said earlier this year that about two-thirds of that would reverse over the next 18 months. In the first half 2014 we've heard only $339 million, I just wonder if you see that cash release accelerating in the next few quarters?

 And finally, deep water horizon, your press release states that the PSC has now filed a motion seeking to amend the revised Munchen policy? I wonder if that is a new development. So, are they appealing the appeal which you won and does it mean that it's all kind of prolonged? And, importantly, do you have to settle claims once all that has taken place? Thank you.

------------------------------
 Brian Gilvary,  BP plc - CFO   [105]
------------------------------
 Irene, I will pick up those first few points and I think Bob will pick up the last one on the deep water horizon. The first one, yes, we received the dividend in Rubles last week and that was translated in dollars, so we ended up with $690 million in our bank account and that was as predicted. And in terms of working capital build, just not quite sure what numbers were you working with but we were talking around the end of 3Q last year that the actual bill was around $5 billion for last year and that we expect [around two-thirds] of that to reverse out. Nothing has changed.

 As you said, for the first and second quarter relatively low amount of working capital has come back, but there are many, many moving parts in our working capital position that get driven by price and the volumes we are carrying at any one point in time.

 But in terms of looking through what we could see building last year, we expect two-thirds to reverse back out. We haven't gone back and looked at that with this quarter results, but the majority of the operating cash that you see coming through in the first and second quarters through EBITDA in terms of the improved revenues that we're seeing in earnings are back in production.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [106]
------------------------------
 And, Irene, hi. This is Bob.

------------------------------
 Irene Himona,  Societe Generale - Analyst   [107]
------------------------------
 Hi, Bob.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [108]
------------------------------
 On the matching thing. To me this is a fairly straightforward common sense thing that business economic losses should have to match their expenses with the revenue they receive. An example, if a farm plants its crop and submits a claim as a loss but doesn't have to count the sale of the crop as revenue, this just wasn't right.

 So, we did go to court with that, appealed, won the appeal and those are the detailed processes for processing the claims that are now being used by the claims facility. But that does take I suppose money out of the pockets of plaintiffs' attorneys who might get 30% on a claim on these kinds of things and they have filed an appeal.

 I don't regard it as -- it is not really significant. It doesn't even match common sense in my mind. So, I wouldn't get distracted by that. There are lots of other things that we're debating and arguing about which are more substantive than that one.

------------------------------
 Irene Himona,  Societe Generale - Analyst   [109]
------------------------------
 Okay. Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [110]
------------------------------
 Thanks, Irene. Martijn Rats at Morgan Stanley.

------------------------------
 Martijn Rats,  Morgan Stanley - Analyst   [111]
------------------------------
 Hi. I wanted to ask you two questions. First of all, with regards to Egypt there has been some conflicting reporting from where you are with regards to the next phase of investments, particularly with regards to West Nile Delta.

 And, secondly, I wanted to ask about Shah Deniz. With all this sort of turmoil in Eastern Europe I can see how this would have become a much more attractive project, but I can also see perhaps some down side risk. And I was just wondering, in your assessment Shah Deniz has that become a better project or worse project?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [112]
------------------------------
 Okay. Well, let's maybe start with Egypt. West Nile Delta is a large, almost shovel-ready project on the West Nile Delta. It develops offshore gas and brings it onshore for the domestic market at it's a very economic project.

 It's a big project, and I think what we have been doing is working with the government. This is a project they really want to see happen, BP operates and has about 65% of the project. I think we're looking for ways to accelerate because Egypt needs gas, they would like us to accelerate. There may be some facilities available through the BG system that may be playing a part in this as an option to accelerate, but that project is going forward.

 I know there is turmoil in the country as well, we have operated in the country for more than 50 years and, for example, all of our oil production in the country in the Gulf of Suez has produced without missing a day through all of this period. So, I think that is -- I'm not sure what you've read, Martin, but that's sort of where things stand there.

 Shah Deniz, we thought it is a good project all along and it's got behind it additional resources down the road that can go through the system, so we are off and running. Final investment decision was made in December. There is more than $8 billion in contracts that are out, it is actually ahead of schedule. This is regarded as a strategic project for all of the countries along -- all along the way. So, we feel very pleased with that. There has been some swaps and changes of ownership.

 We bought another 3.3% of it in December, Statoil I think moved their interest from 15% down to 10%, Total's 10% interest I believe they sold that. Turkish companies have gotten involved, so there is a lot of interest in the region in it. So, no, I don't see this as anything other than continuing to be a good project rather than -- and it's strategic for some countries. So certainly important, remains important for us.

------------------------------
 Martijn Rats,  Morgan Stanley - Analyst   [113]
------------------------------
 Alright. Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [114]
------------------------------
 Thanks, Martijn. Next question from Chris Kuplent at Bank of America Merrill Lynch.

------------------------------
 Chris Kuplent,  BofA Merrill Lynch - Analyst   [115]
------------------------------
 Hi there, thanks. Just two left. Firstly, just wanted to see what your views are on the MLP market in the light of your lower 48 separation. Is that an avenue that you'd consider potentially for other assets?

 And, secondly, Brian, just wanted to get back on regarding buybacks. You said earlier you want to keep them up at the current rate, and now the current rate has been quite varied, $0.5 billion in the second quarter, $2 billion in the first quarter. Is it going to fluctuate, continue to fluctuate, or are you simply looking at a steady rate to end by the end of 2015?

------------------------------
 Brian Gilvary,  BP plc - CFO   [116]
------------------------------
 Thanks, Chris. Just to clarify my point on the current rate, I was thinking more over the last few days, not the last few quarters. So in terms of where we are today, we will probably maintain the current rate of de minimus in the $6 million to $7 million today, because we look to re-phase things. Now, we got the $8 billion piece. We'll now look at the post tax proceeds and make choices how we choose to distribute those back to shareholders.

 So, I don't think you should read too much into the answer other than the fact that we will maintain complete flexibility around the buyback program but the intent is the same, that we will look to redistribute the divestment proceeds and as those proceeds come in and we get the cash, we will look to execute that through the next six quarters, by the end of 2015.

------------------------------
 Chris Kuplent,  BofA Merrill Lynch - Analyst   [117]
------------------------------
 Okay. Thank you.

------------------------------
 Brian Gilvary,  BP plc - CFO   [118]
------------------------------
 On the MLPs, we've looked at MLPs many times over the last 10 years, actually, and we still don't see anything attractive. We've actually sold off an awful lot of our midstream in the US and you've heard Bob talk in previous quarters about the amount of de-risking that has gone in. So we still have one or two pipelines left which are very strategic to us in terms of our other asset positions within the US.

 But we don't see the MLP option as being particularly attractive nor the ability to be able to continue to keep those MLPs topped up as you go forward with putting more assets into them. So, we've actually sold off a lot of our midstream and what's left is quite strategic. So it's not really something which we would look to try to exploit going forward.

------------------------------
 Chris Kuplent,  BofA Merrill Lynch - Analyst   [119]
------------------------------
 Understood.

------------------------------
 Brian Gilvary,  BP plc - CFO   [120]
------------------------------
 We've kept an eye on it and I'll just say we've reviewed it reviewed it number of times over the last 10 years.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [121]
------------------------------
 We've done so much restructuring in North America, but you have to feed them with assets and we've actually divested so much of that already.

------------------------------
 Chris Kuplent,  BofA Merrill Lynch - Analyst   [122]
------------------------------
 Thank you.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [123]
------------------------------
 Moving on to Fred Lucas with JPMorgan.

------------------------------
 Fred Lucas,  JPMorgan - Analyst   [124]
------------------------------
 Thanks. Two questions, please. First of all, could you put a number to your upstream cash costs, dollars billion please? And, secondly, could you put some color to the connectivity dependency of the BP PLC dividend to dividends received from Rosneft?

 Here I'm thinking about what if more extreme sanctions were imposed or the situation with UCOS gets messy and dividends are blocked to BP, would that have an immediate dislocating effect on BP's dividend or is there a buffer-type of PLC dividend.

------------------------------
 Brian Gilvary,  BP plc - CFO   [125]
------------------------------
 That's a great question. There has been a lot of speculation this morning about some additional disclosures that we had with our stock exchange announcement with risks and uncertainties, none of which may happen but we nevertheless for good due diligence and legal purposes we have to put those uncertainties in. But I think just in the context of that question, the dividend for this year represents on an annualized basis around 2% of the operating cash flow we will generate and, therefore, in terms of the liquidity of the Company, it is deminimus in terms of anything further that may happen.

 So, from a financial perspective, I think it's more about the $15 billion that we hold on the balance sheet around that investment and, therefore, the risks and uncertainties associated with that going forward is what those references towards if sanctions to escalate to that position, but none of that we can see happening right now. Nothing has happened so far that would impact that. But in terms of liquidity and finances, it would be de minimus in terms of any impact if that were to happen, so it's a very important question to raise.

 And sorry, Fred, the first part of the question was around cash costs. We don't even share with you the absolute cash cost for the group. So I'm afraid I'm sorry but we can't actually share with you the specific cash costs for the upstream.

------------------------------
 Fred Lucas,  JPMorgan - Analyst   [126]
------------------------------
 Okay, well, thanks for the clarity on the first one anyway.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [127]
------------------------------
 Thanks, Fred. Lucas Herrmann of Deutsche Bank.

------------------------------
 Lucas Herrmann,  Deutsche Bank - Analyst   [128]
------------------------------
 Thank you very much and afternoon, gentlemen. Two or Lee three if I may. Bob, firstly, and partly prompted by Ian's departure, I seem to remember 60 was the age for retirement for CEO at BP. Can you remind me whether that's correct and the extent to which the Company is starting to think around success in planning for your good self?

 Secondly, I wondered, Brian, whether you could or whether either of you could give us some idea of the split of profitability within the fuel's value chain between the Americas and elsewhere? I have to say that in the context of what you've indicated you feel you should be capable of moving towards. Your numbers through the second quarter seem very light.

 And, thirdly, Bob, in your capacity as director of Rosneft, can you make any comments on how you feel the sanctions that have been introduced to date around bank lending and extending loans over 90 days may impact the Rosneft business over the short, medium, and longer term?

------------------------------
 Brian Gilvary,  BP plc - CFO   [129]
------------------------------
 So, Lucas, if I can pick up the easiest of those three questions, which would be around the downstream profitability, I hope my boss to my left doesn't go anywhere any time soon. But on the profitability we have seen improvements around Whiting the (inaudible), Whiting to the first half of the year, so if you looked at that relative to the rest of the fuels business, that would be a positive. I think refining margins, if you look at them year-over-year, they were significantly down in the second quarter versus the same period last year across the piece.

 And I think the only [salient] point to mention between either this quarter versus last quarter or this quarter versus same quarter last year downstream was that we have both in the first quarter this year a very strong supply and trading result and in the second quarter of last year a stronger result than we had in the second quarter of this year. So, that would probably be the biggest variance that you would see around the downstream numbers. The other piece that sits as a backdrop that you mentioned earlier is a chemicals result.

------------------------------
 Lucas Herrmann,  Deutsche Bank - Analyst   [130]
------------------------------
 Sure. But I mean, Brian, the question also, can you give me any idea of what the split of profit between the US and the rest of world is in the fuels value chain? How does it break?

------------------------------
 Brian Gilvary,  BP plc - CFO   [131]
------------------------------
 We don't disclose that, Lucas, but what I would say is simply as you see Whiting, if you look at where the light heavy spreads are today over $26 and you see that we hit the [70,000] barrel a day key point through the second quarter, you should assume that, therefore, we are starting to see more performance coming through the fuel's value chain in the US, but we don't give that level of disclosure. I'm sorry.

------------------------------
 Lucas Herrmann,  Deutsche Bank - Analyst   [132]
------------------------------
 Okay. Thank you.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [133]
------------------------------
 Lucas, hi. This is Bob.

------------------------------
 Lucas Herrmann,  Deutsche Bank - Analyst   [134]
------------------------------
 Hi, Bob.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [135]
------------------------------
 Maybe first on Rosneft. I've got to be careful as a director, so I will just make some broad comments about this. The sanctions were against new debt with 90 days or a longer maturities on it which is where it stands today. Who knows, there is lots of rumors about additional sanctions coming out. But at the moment Rosneft has brought in significant cash from its forward crude sale deals with the Chinese and I think they have actually held a lot of that cash in anticipation of what uses it might be. So, I think they've got lots of flexibility there because of these partnerships in Asia.

 And in terms of other things around my dealings with him, [Igor] sanction -- [Sension], he has been sanctioned to date as an individual and of course I don't deal with him and BP doesn't deal with him as an individual, and US government has made statements that said it is okay for me to represent BP on the board of Rosneft for the business of BP and Rosneft business. So, we will see where all this leads to, but so far, that hasn't been an issue.

 And in terms of my own succession, which I kind of don't think about, it's really a question for the Board, a decision for the Board and shareholders, but I think the retirement age now is 65 in the UK,, so I guess you could say that 65 is the new 60 in terms of -- .

------------------------------
 Lucas Herrmann,  Deutsche Bank - Analyst   [136]
------------------------------
 That's a change since Brown's day. With regard to the ages.

------------------------------
 Brian Gilvary,  BP plc - CFO   [137]
------------------------------
 And I think the UK law has changed and it has gone to 65.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [138]
------------------------------
 Yes, you're sanctioned with that comment.

------------------------------
 Lucas Herrmann,  Deutsche Bank - Analyst   [139]
------------------------------
 Okay, I will accept the sanction. Gentlemen, thank you.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [140]
------------------------------
 Thanks, Lucas.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [141]
------------------------------
 Thanks, Lucas. Richard Griffith of Canaccord, are you there?

------------------------------
 Richard Griffith,  Oriel Securities - Analyst   [142]
------------------------------
 Hi, good afternoon, gentlemen. Just one quick question. It was the comment earlier you made about Whiting in the second half, and I think you made an aside about a pipeline from Enbridge, and I was wondering if you were referring to the Flanagan sack and, if so, does that affect your view on the competitiveness of the Gulf refineries versus Whiting for the heavy oils? And would that change any scenarios for Whiting?

------------------------------
 Brian Gilvary,  BP plc - CFO   [143]
------------------------------
 I think you've read too much into the comment.

------------------------------
 Richard Griffith,  Oriel Securities - Analyst   [144]
------------------------------
 Okay.

------------------------------
 Brian Gilvary,  BP plc - CFO   [145]
------------------------------
 I think that would fall to logistical issues towards the end of the quarter with one of the Enbridge pipelines. But if you look at it long term, even medium, short term, it's still a very attractive location for what all discounted crude oil that will come down through those lines in Canada and you've seen that happen more recently with the blowout in the spread to $26. So, no, it still is the most -- you would assume it would still be the most obvious place for Whiting to take its crude oil. However, that said we would have options to move crude oil from the Gulf Coast if we needed to.

------------------------------
 Richard Griffith,  Oriel Securities - Analyst   [146]
------------------------------
 Okay, thanks.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [147]
------------------------------
 Thank you, Richard. And now, Neill Morton, you've been waiting very patiently. Thank you. Are you still there?

------------------------------
 Neill Morton,  Investec, Inc. - Analyst   [148]
------------------------------
 I am indeed, Jess. Thank you very much and good afternoon, everybody. Two quick questions. First, you mentioned a couple of times that post-tax proceeds from the disposal program would find their way mainly toward share buybacks. I just wondered is it fair for us to assume that we can apply your typical corporate tax rate when calculating a post-tax number?

 And then just secondly on some of the MaCondo litigation on what basis are you trying to avoid being fined under the Clean Water Act. What's the legal argument? Thank you.

------------------------------
 Brian Gilvary,  BP plc - CFO   [149]
------------------------------
 On the first question, Neill, I think you should see something around our cash tax rate, it depends what the assets are, but something around 20%-- 20% to 25% is a reasonable assumption. So, it's about 7% or 8% below our corporate tax rate of 33%, 35%. So, something around 20%, 25% is probably a reasonable assumption going forward. So, something around $7.5 billion to $8 billion to be used around distributions.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [150]
------------------------------
 And, Neill, on your question on MaCondo and trying to avoid being fined, we are not trying to avoid being fined. What we believe is legitimate, fair, and reasonable fines is fine. Part of the calculation of the fines also includes response effort, the effort taken by a company with a Clean Water Act related to clean up itself, cooperation with the government. I think we demonstrated having helped and funded 48,000 people working on the Gulf, our cooperation of the government throughout the Coast Guard and the efforts that we've made to clean up are certainly part of the consideration of fines. So, we think that is -- we think that effort is really very legitimate.

 We do not believe that we were grossly negligent, which implies some sort of willful negligence in the accident, and we vigorously defend that and don't think that we or any of the parties really involved were grossly negligent and that also could have an impact on the fines. So, I think it would be overstating it to say we are trying to avoid being fined. We just would like them to be representative and reasonable.

------------------------------
 Neill Morton,  Investec, Inc. - Analyst   [151]
------------------------------
 I was just putting that in a recent appeals court ruling that seemed to imply that are you trying to avoid automatically being liable under the Clean Water Act. Am I sort of misunderstanding my limited knowledge of the US legal system?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [152]
------------------------------
 Well, it is a pretty baffling system sometimes. I think, Jess, you seem to know something about it. There's lots and lots of motions being filed by various conditions.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [153]
------------------------------
 Neill, I think this is a complicated issue about where the oil flowed from, and it goes back to some previous legal proceedings, but if it's okay with you, it has been a long call, maybe I will pick that up with you afterwards?

------------------------------
 Neill Morton,  Investec, Inc. - Analyst   [154]
------------------------------
 Absolutely. Thank you very much.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [155]
------------------------------
 Okay.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [156]
------------------------------
 I think what you just made a note there, something around whether the well flowed from the vessel or the well head, and it is a clarification.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [157]
------------------------------
 Yes, we can pick that up. So, thank you, everybody, I think that's the end of our questions. It's been a long call. Thank you for your patience and thank you to all of those that have stayed with us. Are there any final remarks you want to make, Bob?

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [158]
------------------------------
 Well, very quickly, again, thanks for your -- it has been a long call. Thank you very much for your patience around the world. We do appreciate it. We like your questions. It gives us insight into what you're thinking about. And I do think putting aside all of this activity and the news flow around Russia actually what you see in the results is a quarter that is kind of doing what we said we would do, and we hope to do that next quarter as well. Thank you all.

------------------------------
 Jessica Mitchell,  BP plc - Head of IR   [159]
------------------------------
 Thank you.




------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------