BP's Q3 2025 Earnings Call: Key Contradictions in Production Guidance, Castrol Disposal, Exploration Strategy, CAPEX Flexibility, and Refining Profitability

Guidance:

• Upgraded full-year underlying production guidance after strong 3Q performance.
• Adjusted free cash flow growth target: 20% CAGR over 2025–2027.
• Organic CapEx on track to be below $14bn for 2025; 2026–27 framework 13%–15% with flexibility.
• Could hit low end of CapEx range by trimming onshore drilling and marginal exploration.
• Net-debt reduction target of $14bn–$18bn by end‑2027.
• Portfolio divestment proceeds announced/completed this year expected to be around $5bn.

Business Commentary:

* Operational Performance and Strategic Progress: - BP reported underlying pretax earnings of $5.3 billion and underlying net income of $2.2 billion for Q3 2025. - The company's upstream production increased by around 3% quarter-on-quarter, supported by upstream plant reliability at around 97%. - This strong performance was driven by operational excellence in running assets and strategic initiatives, such as starting six new major oil and gas projects and achieving twelve exploration discoveries, including the significant Bumerangue discovery in Brazil.

• Production and Exploration Success:
• BP's production guidance was improved for 2025, reflecting an upgrade in annual production guidance.
• The company has a robust exploration record with twelve discoveries in the year, including Bumerangue, and exploration in places like Egypt and Trinidad using advanced seismic technology.

• Success in exploration is attributed to experienced teams, advancements in seismic technology, and the use of AI to test new theories, leading to a high exploration success rate.

• Divestiture and Financial Goals:

• BP announced proceeds from divestments expected to reach $5 billion by the end of 2025, with $1.7 billion completed and $3.5 billion expected.
• The company is focusing on strategic reviews of non-core assets like Castrol and Gelsenkirchen to strengthen its balance sheet.

• The divestiture program is aimed at achieving a $20 billion target, with proceeds contributing to the reduction of net debt by the end of 2027.

• Cost Reduction and Efficiency Initiatives:

• In BP's bioenergy segment, there was a significant improvement in structural costs, with a reduction of $400 million in the running costs year-on-year.
• The company is leveraging AI to enhance operational efficiency, such as predicting kit failures in wells, leading to a record upstream availability of 97%.
• The focus on cost reduction and enhanced efficiency is part of a broader effort to grow shareholder returns by improving operational performance and balancing capital investments.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management reported underlying pretax earnings $5.3bn, underlying net income $2.2bn and operating cash flow $7.8bn; upstream production +~3% QoQ and ~97% plant availability; refining availability ~97% (best in 20 years); 12 exploration discoveries YTD and upgraded full-year production guidance—all cited as evidence of strong operational and strategic momentum.

Q&A:

• Question from Alastair Syme (Citigroup Inc.): You published the Bumerangue map; how confident are you in the geological map versus predrill assessment and what differences exist?
  Response: BP is confident: seismic imaging matches predrill, indicating a ~1,000m column (100m oil, 900m rich condensate); ~2/3 lab samples evaluated and a rig is secured to drill an appraisal and perform a flow test late 2026/early 2027.

• Question from Alejandro Vigil (Banco Santander, S.A.): Can you give color on the Castrol strategic review process?
  Response: Commercial process with strong interest, progressing at pace; any proceeds would be dedicated to the balance sheet and market updates will follow when appropriate.

• Question from Irene Himona (Sanford C. Bernstein & Co., LLC.): Timing for concrete announcements on portfolio simplification and restructuring?
  Response: Portfolio review is underway with new Chair involvement; company will update the market over time as decisions are made (examples: Tiber sanction, Culzean divestment, Rotterdam biofuels stop).

• Question from Lydia Rainforth (Barclays Bank PLC): On Bumerangue commerciality/CO2 and on BP's AI deployment and cost-base simplification progress?
  Response: Bumerangue: large oil/condensate column makes CO2 manageable and increases commercial potential; appraisal/flow-test planned. AI: unified cloud data platform with Palantir/Databricks by mid‑next year, with demonstrated gains (98% kit detection, higher uptime, 45% waste reduction in trials).

• Question from Douglas George Blyth Leggate (Wolfe Research, LLC): How do you view risk to your production guidance and will Bumerangue EPS be included in current CapEx guidance?
  Response: Too early to change long‑term guidance; company sees potential to grow long‑term oil volumes but will stay within its capital frame and update 2026 guidance in February; capital allocation choices (near‑term BPX vs longer‑term projects) remain under review.

• Question from Lucas Herrmann (BNP Paribas): BPX CapEx profile explanation and pension buy-in rationale—will there be further sell‑downs to L&G?
  Response: BPX guidance ~ $2.5bn/yr with flexibility; productivity gains (30% completions, 15% drilling) sustain activity while infrastructure completes. Pension buy‑in executed is trustee‑led; further derisking decisions rest with the trustees and may be considered over time.

• Question from Christopher Kuplent (BofA Securities): Update on Gelsenkirchen, Lightsource and remaining midstream NCI sale opportunities?
  Response: Strong interest in Castrol and Gelsenkirchen; Lightsource at an earlier stage. CFO sees no other significant infrastructure NCI deals in the pipeline and expects NCI to decline (hybrid redemptions and potential tapering).

• Question from Ryan Todd (Piper Sandler & Co.): Other notable discoveries this year and an update on Namibia—how do they compare to expectations and next steps?
  Response: Exceptional exploration year (~12 discoveries); Namibia (Azule JV) produced multiple promising discoveries (e.g., Capricornus, Volans) with high-quality reservoirs—operator Rhino to continue lab work and appraisals, with updates to follow.

• Question from Paul Cheng (Scotiabank Global Banking and Markets): Are personnel/process changes or tech responsible for the exploration success and should exploration capital be increased?
  Response: Success stems from an experienced, high‑graded team combined with advanced compute/AI and better seismic; current exploration spend ~ $600m/year and management will not increase it—prioritizing quality through choice and capital discipline.

• Question from Michele Della Vigna (Goldman Sachs Group, Inc.): If forced to the low end of the 13%–15% CapEx range, where would cuts come from?
  Response: Range provides flexibility; to hit the low end BP would reduce onshore drilling activity and marginal exploration commitments while preserving discipline—organic CapEx excluding BP Bioenergy is sub‑14% today.

• Question from Henry Tarr (Joh. Berenberg, Gossler & Co. KG): Details on Kirkuk economics and Iraq's 3–5 year production potential?
  Response: Cannot disclose SPA terms until published; initial production test shows 328 kbd black oil and teams are on site performing well work; contract terms are improved relative to earlier rounds with gas price upside and exploration rights—nation will need production to meet future demand.

• Question from Kim Fustier (HSBC Global Investment Research): Why did BP win the Venture Global arbitration and when might damages be received?
  Response: BP is pleased with the arbitration result; the damages phase is being scheduled with the panel (date not set); BP has not disclosed a damages number and will update when appropriate.

• Question from Joshua Eliot Stone (UBS Investment Bank): How are you thinking about gearing ratios as asset sales reduce the asset base?
  Response: Primary focus is on net‑debt reduction ($14–18bn by end‑2027) and total liability management (e.g., Deepwater Horizon payouts, hybrid prefinancing); BP does not have a gearing target at present.

• Question from Jeoffrey Lambujon (Tudor, Pickering, Holt & Co.): Basin‑specific BPX plans and how Haynesville and Eagle Ford activity will be paced?
  Response: BPX to target ~$2.5bn/yr; keep Permian full (2–3 rigs), grow Eagle Ford via downspacing and refracs for liquids, and grow Haynesville paced to infrastructure and offtake build‑out with potential rig adjustments into 2026.

• Question from Unknown Analyst (Morgan Stanley): Downstream sequential strength—split between cost reductions, refining macro, and trading?
  Response: Downstream improvement driven by customer cost reductions (~$0.5bn YTD), BP Bioenergy consolidation (~$300m), and higher refining availability (96.4% YTD); trading was weaker this quarter but year‑to‑date in line with last year.

• Question from Peter Low (Rothschild & Co Redburn): Does Tiber sanction enable farm‑downs of Paleogene positions and optimal timing?
  Response: Conversations are ongoing; BP would pursue farm‑downs only if they are value‑accretive—timing depends on derisking and commercial value, and BP will update when transactions are agreed.

• Question from Mark Wilson (Jefferies LLC): For Bumerangue, is a prolonged flow test needed and will appraisal push exploration costs above current budgets?
  Response: Second‑well appraisal and flow test planned around late‑2026/early‑2027 to assess productivity and required well count; partnership likely after derisking; exploration budget remains around $500–600m and overall CapEx stays within the $13–15bn frame.

• Question from Bertrand Hodee (Kepler Cheuvreux): Was BP seeking more than the $1bn in damages cited in the press by Venture Global?
  Response: BP has not publicly disclosed a damages figure; the $1bn was Venture Global's press number—BP cannot comment further due to arbitration confidentiality.

• Question from Jason Gabelman (TD Cowen): How do equity affiliates (JERA Nex, Azule) impact cash flow and distributions going forward?
  Response: JERA Nex is capital‑light optionality for BP; Azule has been cash‑generative (~$7bn distributions since inception), is now self‑funded and can finance growth externally—any reinvestment (e.g., Namibia) may modestly reduce near‑term distributions but not create a material drain.

• Question from Maurizio Carulli (Quilter Cheviot): Drivers of Castrol's 20% earnings increase and details on the electronic liquid‑cooling investment?
  Response: Castrol's improvement driven by deliberate volume growth, structural cost reductions and easing base‑oil/additive costs; liquid‑cooling for data centers is in early commercial trials with unnamed partners—promising long‑term opportunity but still early stage.

Contradiction Point 1

Production Ramp-up and Earnings Guidance

It involves expectations regarding production ramp-up and financial performance, which are critical for investor confidence and strategic planning.

What is the CO2 content in the Brazilian discovery? What is the timeline for further drilling? What is the projected production by year-end post-h - Michele Della Vigna(Goldman Sachs)

2025Q3: Production ramp-up is on plan with 125,000 barrels per day from major project start-ups. - Murray Auchincloss(CEO)

What is the gas-to-oil ratio and drilling schedule for the Brazilian discovery, and how are you addressing underperforming data points in TA? - Irene Himona(Sanford C. Bernstein & Co., LLC)

2025Q2: The year-to-date production is 566,000 barrels of oil equivalents per day, which is about 3% above our expected gross performance basis. And we expect that will hold for the full year. - Katherine Anne Thomson(CFO)

Contradiction Point 2

Castrol Strategic Review and Disposal Process

It pertains to the strategic review and potential disposal of the Castrol business, which has significant implications for BP's future portfolio and financial strategy.

What is the status of the Castrol strategic review? - Alejandro Vigil(Banco Santander, S.A., Research Division)

2025Q3: We continue to actively explore a range of options for Castrol. The process is progressing well with nine quarters of increased earnings. The business is doing very well. The strategic process is commercial, with strong interest and expected proceeds to be dedicated to the balance sheet. - Murray Auchincloss(CEO)

Does the 2 billion BOE from the Brazilian bid round meet expectations? Can you provide an update on the Castrol disposal process? - Gui Levy(Morgan Stanley)

2025Q2: It has a 20% earnings increase, which is, as you know, going to be the standalone business. They'll be the standalone business in a few months, and we've had very strong interest from private equity and corporate investors in the company. - Katherine Anne Thomson(CFO)

Contradiction Point 3

Exploration and Production Growth Strategy

It directly impacts the company's growth strategy and investor expectations for production and capital expenditure levels.

How do you see the risk to production guidance given the success of drill bit discoveries and Bumerangue's potential? - Douglas George Blyth Leggate (Wolfe Research, LLC)

2025Q3: We have the potential for long-term growth in oil volumes. The team is focused on staying within capital frames and maximizing shareholder value. Long-term, we have more potential for growth, especially in oil. - Murray Auchincloss(CEO)

What changes in the past few months led to a fundamental reset rather than the mid-strategy update? - Al Syme (Citi)

2024Q4: We have said we think the sustainable, long-term growth rate of BP is probably around 2% to 3% per annum. I think that's what we will be working towards. - Murray Auchincloss(CEO)

Contradiction Point 4

CAPEX Flexibility and Reduction

It involves contradictory statements regarding the company's ability to flexibly adjust CAPEX in response to price conditions, which affects investor confidence in the company's financial management.

What levers can you use to effectively reduce CapEx if prices dip? - Michele Della Vigna (Goldman Sachs Group, Inc., Research Division)

2025Q3: We have flexibility to reduce CapEx to the bottom of the range if needed. Opportunities include slowing onshore drilling and adjusting exploration. - Katherine Thomson(CFO)

Can you provide guidance on minority and adjusting items? - Martijn Rats (Morgan Stanley)

2025Q1: We have flexibility to reduce CapEx spend by $2.5 billion if needed in 2025 but that would be at the margin relative to our ability to deal with demand normalisation, which we remain confident in. - Murray Auchincloss(CEO)

Contradiction Point 5

Refining and Trading Profitability

It involves the company's ability to manage operational challenges and maintain profitability in its refining division, which is crucial for financial resilience and investor confidence.

What is your confidence in the geological map for Bumerangue based on current data, and how does it differ from pre-drill assessments? - Alastair Syme (Citigroup Inc., Research Division)

2025Q3: Challenging year for refining due to bottom-of-cycle margins and a Whiting outage. Plant reliability is crucial for optimization and cost reduction. Strong cost agenda and less complex TARs planned for 2025. Trading average year with 4% uplift despite lack of volatility, showing resilience in the face of market conditions. - Murray Auchincloss(CEO)

Are the 2024 refining issues resolved? What steps can improve refining division profitability? What are early Q1 trading insights? - Josh Stone (UBS)

2024Q4: Challenging year for refining due to bottom-of-cycle margins and a Whiting outage. Plant reliability is crucial for optimization and cost reduction. Strong cost agenda and less complex TARs planned for 2025. - Murray Auchincloss(CEO)