BP plc (NYSE: BP) Q1 2020 Earnings Call Transcript

BP plc (BP) Q1 2020 earnings call dated April 28, 2020

Corporate Participants:

Craig Marshall — Head of Investor Relations

Bernard Looney — Chief Executive Officer

Brian Gilvary — Chief Financial Officer

Murray Auchincloss — Upstream Chief Financial Officer

Analysts:

Irene Himona — Societe Generale — Analyst

Jason Kenney — Santander — Analyst

Os Clint — Bernstein — Analyst

Lydia Rainforth — Barclays — Analyst

Biraj Borkhataria — RBC Capital Markets — Analyst

Christyan Malek — Analyst

Jon Rigby — UBS — Analyst

Thomas Adolff — Credit Suisse — Analyst

Michele Della Vigna — Goldman Sachs — Analyst

Henry Tarr — Berenberg — Analyst

Alastair Syme — Citigroup — Analyst

Lucas Herrmann — Exane BNP — Analyst

Martin Rats — Morgan Stanley — Analyst

Jason Gammel — Jefferies — Analyst

Muhammed Ghulam — Raymond James — Analyst

Peter Low — Redburn — Analyst

Presentation:

Operator

Welcome to the BP Presentation to the financial community webcast and conference call. I now hand over to Craig Marshall, Head of Investor Relations.

Craig Marshall — Head of Investor Relations

Good morning, everyone, and welcome to BP’s First Quarter Results Presentation for 2020. Similar, I’m sure to many of you listening we are presenting our results today while working from home. While this is a departure from the usual process, it is something we are all getting used to and our IT team have been doing a fantastic job to provide a resilient system to support these types of events, both for internal and external purposes.

Turning then to the presentation. I’m joined remotely today by Bernard Looney, Group Chief Executive; Brian Gilvary, Chief Financial Officer; and Murray Auchincloss, Upstream, Chief Financial Officer and CFO Designate.

Let me then 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 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.

I’ll now hand over to Bernard.

Bernard Looney — Chief Executive Officer

Thanks, Craig. And good morning, everyone. I hope you and your families are keeping safe and well, and thank you for joining our call. We are in a very different world today than anyone of us would have imagined just a few weeks ago. The coronavirus pandemic has gripped our world. People are losing their loved ones before their time, many more are afraid for their families, for their finances, their livelihoods, for their futures, and the question I get asked often, will life ever go back to normal?

Alongside the physical and mental health impacts is the economic impact, the pandemic is having a severe impact on global economic activity and that has consequently had a major impact on energy markets. With this backdrop, companies like BP are doing what we can to help, not because it is expected of us and it is, but because we want to, our teams want to, we want to make a difference.

Since the pandemic began, our focus has been on three clear priorities. First, protecting the health of our people. Second, supporting our communities. And third, strengthening our finances. It is a simple frame that helps us balance complex and competing demands between keeping our people safe and running the business, helping society in a time of real need, and safeguarding the company for our shareholders. And it works well for us. We think of it as performing with purpose and I think you will see this coming through in our results today.

In a moment, Brian will look back on our performance over the first quarter, and then Murray will take you through the steps we are taking to build resilience to the new environment, including the actions we are taking to adapt our financial framework.

But, first, I’d like to give you an overview of the three priorities and our response to the pandemic. First and foremost, I want to say how much I’m in awe of what our people are doing. Our frontline staff are making real sacrifices every day out in the field on running our retail network. And they are getting brilliant support from everyone working from home dealing with extra demands and all the complications that go with that. Thanks to their courage and resilience, we have had minimal disruption to our day-to-day operations.

We are focused on maintaining reliable operations, keeping BP safe and keeping our people safe, safe physically and safe mentally, recognizing this pandemic is as much a mental challenge as a physical challenge. We may not all be infected, but we are all affected by it. Across BP, we are in action. In our operations, we have new protocols for people going offshore and are taking a range of measures to keep our work environment safe, like making more space for our people to carry out their activities. And we continue to adapt those measures as needed as the environment changes.

At our retail sites, we are installing screens and are providing protective equipment for staff. We are also helping customers to observe social distancing and boosting cleaning and sanitizing regimes. Worldwide, we are ramping up our use of digital resources and agile ways of working, so that our global workforce stays fully connected. And we have been enhancing psychological support for our employees, because they are dealing with stressful demands. This pandemic is causing anxiety and job security is going to be a major concern.

With that in mind, we have committed for three months to no BP employee being laid off, so that we can all remain focused on what’s most important during this immediate difficult period. Across BP, there has also been a huge desire to support the communities for our people live and work. The BP leadership team has been facilitating this, so we can support in every way possible: Diverting resources and expertise, freeing up time for our people to volunteer, and providing financial support to organizations at the forefront of the fight against the virus.

Examples include, providing free or discounted fuel from our retail sites for emergency services and frontline personnel in many countries, as well as offering discounted or free food and beverages, making our supercomputer in Houston available to support the pandemic research being conducted by a White House-led coalition, as well as the expertise at our Biosciences Center in San Diego, committing significant donations to the COVID-19 Solidarity Response Fund and MIND, the mental health charity, Helge Lund and I both believe that this is a mental health challenge as much as a physical health threat, and we are both donating 20% of our salaries for the rest of this year to mental health charities.

We are all in this together. I’m confident that by supporting each other collectively as a society we will make it through this crisis and rebuild better and stronger. These actions in no way compromise our long-term commitment to shareholders. If anything, I believe they strengthen it. And we are hugely grateful for the support we have been receiving. At the same time, we are doing everything we can to strengthen our finances. Our underlying business has been performing well, but it has been a tough first quarter due to the challenging macro environment, which included impacts to our results through quarter end as a result of lower prices, lower demand for our products, and foreign exchange effects.

And in the near term, things are not getting any easier given the demand destruction we are seeing, which recently even led to negative pricing for WTI oil, something never seen before. It is a so-called perfect storm, but we are calling on our vast experience of navigating through difficult circumstances. We have a clear plan, we are executing it, and we are working from a strong foundation. Our operations are performing well, we are delivering on the strategy we laid out in 2017 and on track to reduce our cash balance point in 2021.

To further strengthen this, we announced earlier this month a series of actions to strengthen our finances. These are underpinned by four near-term objectives. Reinforce our liquidity position; drive our cash balance point lower; strengthen our balance sheet; and enable the energy transition.

On the cash balance point objective through the actions we are taking, we now expect to drive the cash balance point in 2021 down further to less than $35 per barrel Brent, which is below our previous guidance and also assumes a lower refining margin and gas price. Together, these four objectives support our continued commitment to our investor proposition of sustainably growing free cash flow and distributions to shareholders over the long term. The Board reviews the dividend every quarter, taking account of current circumstances and the outlook at the time and have been meeting weekly given the current exceptional events.

Given the underlying performance of the business in the first quarter and the actions we are taking, we today announced a dividend of $0.105 per ordinary share for the first quarter. Murray will update you further on the action we are taking and how we are adapting our financial framework over the near term.

Considering everything going on, some have understandably questioned our commitment to our ambition and to reinventing BP. On the 12th of February, we talked about our new purpose to reimagine energy for people and our planet. We shared our new ambition to be net zero by 2050 or sooner and to help the world get to net zero, and we set out plans for reinventing BP to be more focused and more integrated. We talked about being leaner, faster moving, lower carbon, those are all qualities we need in the crisis today, as well as the qualities we need when we come out the other side of it.

I would like to think we will be helping society build back to be more resilient and sustainable. And to do that we have to be a strong company financially, one that delivers value over the long term for our investors. As a leadership team, we believe it is more important than ever that we keep to our plans. We are still working towards sharing more detail on all of this at our Capital Markets Day in mid-September. I hope we can do that in person; but if not, we will do it like this virtually, if we need to.

For now though, let me hand you over to Brian for what is his last time on the results call.

Brian Gilvary — Chief Financial Officer

Thanks, Bernard. And good morning, everyone. Turning firstly to the environment where we have seen significant volatility, all markets have initially impacted in January as we start to see the coronavirus pandemic impacting commodity demand in Asia, notably in China. This situation was further compounded on the supply side following the fallout from the OPEC+ and Russia production discussions in early March, and then since dramatically deteriorated with the COVID-19 driven collapse in global demand.

The impact on the global economy is severe with the IMF now anticipating a 3% contraction in economic activity this year. This compares to the contraction of 0.1% in 2009 following the financial crisis. This economic backdrop coupled with pre-existing supply and demand factors has resulted in the exceptionally challenging commodity environment we see today.

In March, Brent and BP’s Refining Marker Margin touched levels not seen for well over a decade, while Henry Hub gas hit multi-year lows. The pandemic has sharply reduced product demand, notably in the mobility sector. Flight cancellations have spiked and compared with the year ago, traffic congestion has fallen by 60% on average across urban areas. Together, these factors have contributed to sharp falls in refining margins and utilization.

The resulting reduction in demand for crude oil and products has begun to put severe pressure on storage and logistics. The effect on prices has been substantial and has promoted volatility such as the extraordinary negative prices seen in the May WTI contract expiry last week. In April, OPEC and its partners agreed to significant supply cuts, which will help reduce the imbalance, but it’s unlikely to prevent material supply shut-ins by producers in the near term, some of which may be difficult to reverse.

Gas markets were challenged before the pandemic following significant growth in supply over the last couple of years. The effects of the pandemic have compounded this, further lowering LNG demand and bringing liquefaction margins below operating costs in the United States.

Looking forward, there remains an exceptional level of uncertainty regarding the near-term outlook for prices and product demand. There is a risk of more sustained consequences depending on the efforts of governments and the public and private sector to manage the health, economic and financial stability effects of the pandemic. Given so many unknowns, our priority is to remain resilient to the near-term uncertainty and position BP for the longer term.

Moving to our results, despite the challenging environment, our underlying business has performed well during the first quarter. Towards quarter end, we saw the impact of demand and price declines with our financial results impacted by period end volatility in commodity prices and foreign exchange rates, as well as non-operating impairments in losses on the sale of around $1.1 billion.

BP’s first quarter underlying replacement cost profit was $800 million, compared to $2.4 billion a year ago and $2.6 billion in the fourth quarter of 2019. Compared to fourth quarter, the result reflects lower oil and gas realizations, a higher effective tax rate, and a lower estimated Rosneft contribution. It also includes growing demand destruction in the downstream. Peer B and C result

Was also impacted by $200 million of non-cash underlying foreign exchange effects, including foreign exchange translation impacts of finance debt in the BP Bunge Bioenergia joint venture.

Compared to a year ago, the result reflects lower oil and gas realizations, a lower estimated Rosneft contribution, a lower contribution from oil trading and the demand destruction in the Downstream. The underlying effective tax rate in the first quarter increased significantly to 55%, reflecting charges for the reassessment of deferred tax assets. The first quarter dividend, payable in the second quarter remains unchanged at $0.105 per ordinary share.

Turning to cash flow and our sources and uses of cash. Excluding Gulf of Mexico oil spill related outgoings, BP’s first quarter underlying operating cash flow was $1.2 billion, which reflected a working capital build of $3.7 billion. The working capital build reflects an increase in unsold product balances in the downstream, a net receivable imbalances in our supply and trading businesses, the majority of which we expect to reverse during the course of this year. Organic capital expenditure was $3.5 billion in the first quarter.

Turning to inorganic cash flows, in the first quarter, divestments and other proceeds totaled $700 million and we made post-tax Gulf of Mexico payments of $300 million. Inorganic capital expenditure was $300 million. We also completed our share buyback program to offset scrip dividends buying back 120 million ordinary shares in January at a cost of $800 million. At the end of the first quarter, BP’s gearing rose to 36%, largely due to the impact of working capital build on net debt and foreign exchange impacts on equity. Adjusting for these factors, gearing would have been around 33%.

Finally, on a personal note, this is my final set of quarterly results before I retire from BP after 34 years at the company and the best part of a decade as CFO. My last decade has seen our company navigate through some extraordinary challenging events, no more so than the one we are dealing with today, which is unprecedented in our lifetime. That said, the strength of BP through times of adversity and experience of the team under Bernard’s leadership gives me huge confidence the organization is well positioned to respond.

We have a strong foundation and we are taking decisive action to improve the resilience of our financial frame. Murray and I have worked together for many years and he has been leading this work to reposition the company. It’s been an absolute privilege for me to serve the company, our people and our shareholders.

And with that, I would like to hand over to Murray to outline the actions we are taking to position the company for the future.

Murray Auchincloss — Upstream Chief Financial Officer

Thank you, Brian. And good morning everyone. BP entered this challenging period with a strong portfolio, a disciplined financial framework, and a strong liquidity position. That we have this is testament to Brian’s stewardship as CFO over the last decade and I would like to offer my thanks to Brian for the great support that he is providing me through this transition.

This is the sixth downturn that I’ve seen in my career and as a leadership team we know how to respond. We are focused on maintaining liquidity and are taking thoughtful but decisive interventions to work our way, step-by-step, through this downturn. With this in mind, I want to talk about two things. First, the actions we are taking to adapt to our financial frame; and, second, updated guidance for 2020.

As Bernard has already outlined, we are focused on four near-term objectives to deliver an even more resilient financial framework. Underpinning those are set of decisive actions, which we laid out in our market update at the start of the month. We are strengthening our balance sheet. At the end of the first quarter, we had liquidity of around $32 billion. This included a new $10 billion revolving credit facility signed in March and in early April we raised around $7 billion of new bonds at competitive rates across the US and European debt capital markets. In addition, S&P and Moody’s recently reaffirmed our investment grade credit ratings.

We also continue to evaluate further options available to us to strengthen our balance sheet beyond creating additional liquidity. We are reducing our capital expenditure. For 2020, we have reduced our group capex guidance to around $12 billion, a decrease of about 25%. Looking to 2021, we will flex our spend according to the environment and have the ability to flex down an additional $1 billion to $2 billion, if necessary.

In upstream, most of the capital interventions are being made in areas where we do not expect a significant impact on 2020 cash generation at lower prices. This includes delaying exploration and appraisal activities, curtailing development activities in lower margin areas, as well as re-phasing or minimizing spend on projects in the early phases of development. Overall, we expect these capital interventions to reduce 2020 underlying production by around 70,000 barrels of oil equivalent per day on an annual basis.

Looking ahead, as we complete the current phase of major project delivery, our capital plans become increasingly flexible as we expect to transition towards shorter cycle investments, such as in our BPX business, as well as opportunities around infrastructure led investment in our existing production hubs.

In downstream, the capex reduction contribution is around $1 billion in 2020. Interventions are primarily related to growth projects and are also not expected to have a significant impact on our operating cash in the short term. Examples include project deferrals in manufacturing and a slowdown in the pace of retail site growth. Meanwhile, our investment at low carbon activities remain unchanged and, in 2020, we expect to invest around $500 million.

We are also implementing measures to structurally lower our cash costs. We expect to achieve cash cost savings of around $2.5 billion by the end of 2021 on a base of 2019. Part of this will come from cost saving measures across our business, as well as an important contribution from the actions we are taking to reinvent BP.

The reorganization Bernard launched on February 12th will remove duplication inherent in our current segment models. This includes the creation of a single global supply chain organization that will provide cost efficiencies through improved purchasing leverage. We have invested massively over the past five years in digital and we are moving to the next level efficiency on this agenda through automation and centralization.

And, last, we have been piloting agile for years now and we’ll push to the next level, which allows for improved cycle times and delayering. As you can hear, we’re passionate about this and we expect further significant savings from reinventing BP and we plan to update you further at the Capital Markets Day later in the year.

And, finally, we continue to remain confident in delivering our planned divestments. As announced, we have reconfirmed our commitment to completing the sale of our Alaska business to Hilcorp in 2020, subject to regulatory approvals. The total consideration of up to $5.6 billion is unchanged, but the structure of the consideration and phasing of payments have been revised to respond to the current environment. The overall program to deliver $15 billion of announced transactions by mid-2021 remains on track, although the current market environment remains challenging. We have delivered over $10.1 billion of announced transactions since the start of 2019. The remaining $5 billion of divestments yet to be announced are underpinned by a wide range of options more than two times of that size, including assets and less commodity sensitive businesses.

In summary, these actions represent a substantial response aimed at supporting our near-term objective of delivering a more resilient financial frame. We will continue to review this and any further steps that may be appropriate in response to changes in prevailing market conditions.

Turning then to guidance. Brian mentioned the challenging macro environment, and we expect to see the effect of this in our businesses for the foreseeable future. Starting in the second quarter, in the Upstream, we expect second quarter reported production to be lower compared to the first quarter. There are significant uncertainties with regard to the implementation of OPEC+ restrictions, price impacts on entitlement volumes, divestments and market restrictions, given the lower demand for oil and COVID-19 operational impacts. In Downstream, we expect material impacts from COVID-19 in the second quarter.

In our Fuels Marketing business, we expect product demand to be significantly lower in our key European and North American businesses, due to the actions taken by countries to limit the spread of COVID-19. In recent weeks, we have seen our retail fuel volumes in these markets fall by around 50% and demand for aviation fuel fall by around 80%. Despite these fuel volume declines, our store sales have remained more resilient, demonstrating the strength of our convenience retail offer.

In Lubricants, demand has begun to recover in China in recent weeks, but has continued to fall in Europe, the US and India, where volumes are currently down by 50% to 90% compared to the same period last year.

In Refining, we have an advantage portfolio of manufacturing assets, strengthened through our multi-year business improvement programs. However, we expect reduced utilization due to the overall product demand declines as a result of COVID-19, as well as significantly lower Refining margins. In addition, we expect a lower level of North American heavy crude discounts. The annual payment relating to the Gulf of Mexico spill settlement is due in the second quarter. Our full year guidance in this area is unchanged.

Finally, the working capital position in the second quarter continues to be uncertain due to demand destruction and price volatility. Overall, we expect the second quarter to represent a period of reset for our business as we continue to navigate the challenging environment.

Moving now to the full-year outlook. In Upstream, we previously indicated that we expect underlying production, excluding Rosneft to be lower than 2019. Given the impact of capital interventions, OPEC+ quotas and market-driven curtailments, together with other COVID-19 related disruptions, this remains a rapidly evolving situation and we will continue to provide updates as we move through this year. We expect organic capital expenditure to be around $12 billion. We expect further divestment proceeds throughout the year and we’ll update as we progress our program.

Our underlying effective tax rate is sensitive to the volatility in the current environment. Updates will be provided throughout the year. We currently expect gearing to remain above the 20% to 30% target range into 2021 as a result of a number of the factors we have laid out. We continue to expect it to trend down over time, reflecting receipt of divestment proceeds, reversal of first quarter working capital impacts and as the interventions that I have outlined lower our cash balance point. In the meantime, we are focused on a broader suite of credit metrics as we look to protect our balance sheet and our cash flows.

Now turning to our financial frame. In summary, while the external environment will have an impact on some elements of our prior guidance, specifically our 2021 segment free cash flow and ROACE, as well as gearing, we remain focused on creating a more resilient financial frame. Through the actions we are taking to deliver on our near-term objectives, we expect to drive our 2021 cash balance point lower than previously guided. We now expect to rebalance our sources and uses of cash at a Brent price of below $35 per barrel, our Henry Hub price of $2.50 per million British thermal units and a Refining Marker Margin of $11 per barrel in 2021. The price assumptions for Henry Hub and RMM are around 25% below our prior guidance.

And as Bernard described, this underpins our continued commitment to sustainably grow free cash flow and distributions to shareholders over the long term. We expect to update you on this framework as we move through the year, including at our Capital Markets Day in September.

Thank you, and let me now hand back to Bernard.

Bernard Looney — Chief Executive Officer

Thanks, Murray. I’ll summarize in a moment, however, before I do that, I’d like to cover two important issues. Our AGM is approaching next month and our strong recommendation is you vote now and appointed Chairman of the meeting as your proxy to ensure your votes count. In terms of the event itself, we’re keeping options open, but it is no surprise that this year is going to be very different to the usual gathering of shareholders. We will find a way to conduct the business set out in the notice of AGM, while complying with lockdown measures that may well still be in place. We will update you and all our shareholders as soon as we can about how we do that. But for now, we are being as flexible as possible, so that we can accommodate further changes should the government enact emergency measures dictating how the meeting takes place.

The second of those important issues is to mark an historic moment. This is Brian’s 33rd and final set of quarterly results after nine years as CFO and 34 years at BP. The strength and resilience of BP today owes a huge debt to his energy, his credibility, and his complete command of the finances. He has been instrumental in our relationships with the investor community and I know we are all going to miss his passion, his commitment, his judgment and his candor. We will give him a proper send off when he leaves in July, but for now, Brian, thank you for everything you have done for BP and for everything I have learned from you over many years.

So let me then quickly sum up what you have heard today. First, BP is operating well, thanks to good work done in recent years, as well as the outstanding courage and commitment of our team today. Continuing to operate well and staying safe is our absolute focus every minute of every day.

Second, we are responding fast to adapt to BP to the most brutal market conditions we have seen in a long time. We can do that and we will do that, we know what is required. We are adopting our financial framework through a focus on four near-term objectives to drive our cash balance point lower and support our ongoing commitment to sustainably growing free cash flow and distributions to our shareholders over the long term.

And, third, we are stepping up to help where our help is needed. We believe that is the right thing to do and helps fulfill our purpose to reimagine energy for people and our planet, and I’m remain in awe of how so many of our colleagues are responding to the — for people part of our purpose. We are performing with purpose and I’m confident we will come through this period stronger and able to deliver on our purpose and the net zero ambition we set out in February.

Thank you for listening, and let’s now turn to your questions.

Questions and Answers:

Operator

[Operator Instructions]

Craig Marshall — Head of Investor Relations

Okay. Thank you, again, everybody for listening. We’re going to turn to question-and-answers now. As I said at the start, we’re working remotely today, so do please bear with us if there is a bit more of a delay on some of the lines, but I expect everything will be fine. And can I, as usual remind everybody please limit your questions to no more than two per person, just so everybody gets a chance to ask one.

So on that note, we’ll take the first question from Irene Himona at Societe Generale. Good morning, Irene.

Irene Himona — Societe Generale — Analyst

Good morning. Thank you. And Brian, all the best for your forthcoming retirement. And so here are my two questions. Firstly, in the Upstream, you had a $1.1 billion impairment charge. You said this is partly from the oil price impact on your North Sea assets. As we look to the second quarter with oil at $18, how should we think about the risk of impairing assets in other areas of your operations, please? And if you can remind us of what oil price is reflected in your book values?

My second question on net debt, which is up $6 billion since year-end. Your actions will lower the cash breakeven to less than $35, again Brent is $18. Can you talk, perhaps, about the ceiling for net debt either in absolute terms or as a gearing ratio, the maximum that you think BP’s balance sheet can tolerate before having to look at dividend as a source of saving cash? Thank you.

Bernard Looney — Chief Executive Officer

Irene, thank you. It’s Bernard and I’m actually going to ask Murray to take on both of those questions, first one on the Upstream, as he is currently still CFO of the Upstream and then the net debt question as well. So Murray, over to you, please.

Murray Auchincloss — Upstream Chief Financial Officer

Great. Thanks, Bernard. Can you hear me okay?

Bernard Looney — Chief Executive Officer

Yes. Very clearly.

Murray Auchincloss — Upstream Chief Financial Officer

Thanks. Hi, Irene. Nice to hear your voice. In the Upstream, as you said, we have that degree of impairments. It came from a variety of assets around the world, including 400 [Phonetic] impairment on the Alaska transaction as well. The testing price inside the quarter, we used $30 this year in 2020 and then a gradual return to our long-term pricing in the out years. It’s not particularly sensitive. The rule of thumb aren’t particularly sensitive to impairments on price near term, so I wouldn’t anticipate dramatic impairments moving forward as price moves around. It’s more about anchoring that long-term price, so it’s obviously too early to say anything about that right now.

On net debt, as you can imagine, we’re in action on net debt. We feel that we’re in good shape with our interventions on cost, the $2.5 billion that we see coming out by the end of 2021. On the intervention on capex, we’re driving it down to $12 billion with further flexibility to have another $1 or $2 billion, as I previously mentioned. We think that then takes our breakeven point down to a very competitive level. At the $35 that you heard at $11 RMM and the Henry Hub level.

Additionally, we have significant divestments underway, which we think will help reduce net debt over time. The phasing of those of course is subject to market conditions, but we do expect net debt to increase a bit in 2Q. We’ll see how that goes based on the environment and the Board will then consider in due course what we do with that in 2Q as they take decisions and take care. I think that’s all I’d say for now, Irene. Thank you.

Irene Himona — Societe Generale — Analyst

Thank you…

Bernard Looney — Chief Executive Officer

Murray, do you just want to add what the breakeven plan for next year is in absence of the dividend, just to give a sense sort of people will talk about it in that language, I think.

Murray Auchincloss — Upstream Chief Financial Officer

Yes. Yeah, sure, Bernard. That’s a good idea. We’ve introduced the term balance point as opposed to breakeven, just to make it a bit more clear about how sensitive we are to things other than Brent. Brent makes up about 50% of our sensitivity, RMM and natural gas make up an equal amount as well. So we think balance point is a much more important point to anchor yourselves on.

That balance point that we talked about, the $35, $11 and $250, that includes payment of dividend, the full $8.4 billion that’s on an annualized basis. In the event you were to remove that and quote this on a pre-dividend level, which some of the competition are doing, our breakeven on Brent with those other assumptions constant would be around $7. So we feel pretty resilient. We feel pretty resilient from an operating perspective, we feel we’ll get our divestments away. And so we think we’re in pretty good shape right now. Thanks, Bernard.

Bernard Looney — Chief Executive Officer

Thanks, Murray, and thanks Irene for your question. Hope you’re well.

Irene Himona — Societe Generale — Analyst

Thank you.

Craig Marshall — Head of Investor Relations

Okay. We’ll take the next question from Jason Kenney at Santander. Good morning, Jason.

Jason Kenney — Santander — Analyst

Well, thanks very much. And Bernard, a true baptism of fire as Chief Executive, and that’s probably the most interesting first 10 weeks of any Chief Executive in any industry ever. So more generic questions I suppose. What you think has been your most surprising day? And what has been your most rewarding day in these first 10 weeks so far?

And then, Brian, thanks so much for your time as CFO over the years, I’ve really enjoyed our conversations on the road. What do you think has been your most challenging time whilst at BP and also your most proudest achievement?

Bernard Looney — Chief Executive Officer

Jason, thank you, and good to hear your voice and I’ll do what Brian would do for us and let him have a little bit of time to think about his answer, and I’ll take yours. Yes. It’s been an interesting time in the British sense of the word, I’m glad I didn’t spend a huge amount of time on a 100-day plan.

Surprising and rewarding, I think the most rewarding thing, really genuinely, has been just watching our people in action on so many levels. We like other companies, we do extraordinary things around the world. We’ve got — we had 12,000 people in the jungle in Papua building an LNG facility, we have people who go offshore to keep gas and oil running. We have 6,000 retail staff here in the UK, who are providing essential services, fuel and delivery services for people and old people and just watching them do their jobs, they have to go — undergo massive sacrifices. We’ve had to take that 13,000 people down to 6,000 people. We have people sometimes spending two weeks in a hotel before going offshore or going to site, so that we can confirm that they are virus-free. They are undergoing enormous sacrifice and at the same time that they’re doing that really stepping up to help the community and people want to help inside BP right now.

We know what’s expected of us, but that’s not why we’re doing it. We’re doing it because we want to — and the provision of free fuel to the emergency services in the UK and the Nightingale Hospitals and people printing 3D masks at home and so on. So the most rewarding thing of this is to watch our people in action.

And the most surprising thing, Jason, has probably been the connectivity that I feel with the organization. We have relied on travel so much in the past to see people and I have spent more time with people in the last few weeks than I probably would ever have had in a year inside the company. I’m virtually connecting in what they call Coffee Chats with China, with the team in Air BP in Paris, I was connected to a bunch of people in Toledo and I even join the Happy Hour in Australia, thought I think I joined that one a little bit later than I was supposed to.

We’re doing a webcast every week with over 10,000 people. I do it from home here. It’s real. There is no pizzazz and I just think the connectivity with the organization would have been something I would never have imagined, but much more interesting to hear from Brian.

Brian Gilvary — Chief Financial Officer

Thanks, Bernard. And, yeah, most challenging time was — I mean there has been so many in the nature of the business that we operate. It means that we tend to operate in some of the more difficult part of the world. I’ve probably did a 60 days between May 1st and June 30th of 2015 when we were trying to resolve all of the Deepwater Horizon issues and trying to get a handle on the liability going forward. So that was probably the most difficult 60 days I spent with two of my colleagues Tray Coban [Phonetic] and Eric Nitcher, supported by Keith West [Phonetic] that was almost certainly the most challenging times for us.

Proud, I think actually what’s happening right now and the way this company is responding. And I’ve been inundated with messages from friends, family responding to all the things that BP has been doing like I have a sister and a sister-in-law both nurses, I’ve got cousins in the police force, the things that we did around emergency services right out of the traps in terms of what Bernard laid out in terms of making petrol free for twos and blues has made me feel immensely proud by the amount of feedback that we’ve got by that. But I think it just reflects on the company, the one that I thought I joined 34 years ago. It’s responding exactly the way I would have expected it to respond.

And I think coupled with that is also the succession of the team. I think Murray coming through as the next CFO, I think nobody could have been better prepared for the situation that we’re dealing with and the team that I’ll leave behind that works alongside Murray in responding to this crisis. And I think the difference between this and Deepwater Horizon is, this impact 7.6 billion people on the planet. It’s impacting all companies, and I think just the way we’re responding today is probably actually a good way to step down and move on to other things. Thanks for the great question, Jason.

Bernard Looney — Chief Executive Officer

Yeah. All the best, Brian. And, Jason, thanks to your very thoughtful question.

Craig Marshall — Head of Investor Relations

Okay, Thank you, Jason. We’ll take the next question from Os Clint, Bernstein. Os, good morning.

Os Clint — Bernstein — Analyst

Hi. Good morning, everyone. Thank you for your time. And just let me echo my thanks to Brian, who will be sorely missed. So for — sorry, Bernard, I mean you’ve touched on this a little bit, but I wanted to just get you to talk personally around being on the frontline during Deepwater Horizon in that single shock to BP, where obviously dividends and capex had to be reduced and assets. So I wanted to get you to characterize how today’s twin shocks, double shock kind of feels to you compared to back then? And really how well positioned BP are to go through this? It sounds like you think you are at least, but you’ve also or maybe Brian was using the word exceptional quite a few times in terms of those opening comments. So if you could just talk around that would be interesting, please?

And then secondly just on the major projects, 700,000 barrels a day up online running is supposed to have higher cash margins, lower breakevens, no better way to test the profitability of that pipeline, but could you talk about how much of that is above water in this current commodity price environment? Then you made some comments around inevitable material supply shut-ins. Do you expect BP to have to make any of those in 2020, please? Thank you.

Bernard Looney — Chief Executive Officer

Well, it’s good to hear your voice. And Murray, can I ask you please to take the major projects question first.

Murray Auchincloss — Upstream Chief Financial Officer

Yeah, sure. Hey, Os. It was nice to hear your voice. Yup, 700 MBD of projects online now, 900 is the eventual target. As you’ll have seen just from an operational update perspective, Tangguh, we have had to down man in jungles from down from 13,000 to around 6,000 people. So the pace of that might be a little bit slower than we were anticipating at the beginning. And I expect maybe one or two other projects may struggle with COVID as we move forward. But so far, we’re sticking with guidance.

On the margins associated with these, you’ll remember that an awful lot of them were gas and an awful lot of them were fixed price gas, so we’re really pleased with those right now, as you can imagine, and what gives us the resilience on the balance sheet as all these fixed price gas contracts.

If you look at Mad Dog Phase 2 as an example, on the other side of things. Obviously, that depends on what the oil prices as it produces out starting in 2021 and beyond. So I think by and large the gas ones are doing pretty well. The oil ones will be highly sensitive to what the prices when we start producing from them. And so, I think in hindsight, probably that choice around the gas and that choice around fixed price was pretty important for us. Bernard, back to you.

Bernard Looney — Chief Executive Officer

Thanks, Murray. Os, to your question on how we think about it today, I mean the — as Brian said, the Deepwater Horizon accident was a real tragedy and we just passed the 10-year anniversary and we’ve been communicating inside the organization that we must never forget what happened and 11 people lost their lives and the environment was impacted and people’s livelihoods were impacted. It was one company, it was one sector and, of course, what we face today is — the word is unprecedented and, of course, it is true, because what we face today is affecting every company in our sector, it’s affecting every company in the world, every sector. I think there’s 187 countries in the world or 4 billion people in lockdown.

And I think what’s interesting about it is that, it’s — I think economists are finding it very hard to predict and model, because we haven’t really seen something like it before, so it’s very hard to model the future response. So we have been guided by a very simple frame and I laid it out, protect the health of our people, number one. Number two, support our communities. And number three, strengthen our finances.

And within the finances element, we’re focused on liquid [Technical Issues] $32 billion at the end of the first quarter. We’re focused on the balance sheet, committed to delivering those $15 billion with Alaska confirmed on Monday. And as Murray said, driving that balance point down. And I would remind people that our balanced point was about $56 in 2019, getting down to $35 next year.

So the way I think about it, Os, is that, it is brutal and that’s the term that I have used, equally I’m confident that we will get through this. But I have to say, as I would share with you what I would share, what I have shared with our own organization when I speak with them weekly is that, it’s not a free pass, there is not an automatic ride here and, therefore, we are 100% focused on the actions that Murray took us through. And, for now, that is about driving that capital base down to below $12 billion with extra flexibility next year if we needed, taking $2.5 billion out of cost by the end of next year through digitization, through agility, the things that we have spoken with you many times in the past about.

And while I read a lot about a lot of fat has been taken out of the system since 2014 and I understand that sentiment, Murray and I remain deep believers in the potential of that agenda applied across the group, and we will be applying it and I hope we can go further. So it is brutal. The future is unknowable, because we’ve never seen anything like it before. I’m confident in the strength of the company and our ability to get through it. The plan is clear and if anything the Deepwater Horizon taught us, it’s two things, I think. One is, it gives us some confidence to have some real resolve here. And secondly, it has taught us to have a degree of humility and therefore we’re very focused on acting and controlling the things that we can control.

We don’t control the oil price. We don’t control the gas price. We do control our cost base, we do control our investment and that’s where we’re very much focus. So I’m confident for sure that we have the levers available to us, it’s not a free pass, it’s not an automatic ride, and, therefore, we must deliver on what we set out and I hope from knowing Murray and myself, you have confidence that we will. So hopefully that helps.

Os Clint — Bernstein — Analyst

It does. Thank you very much.

Bernard Looney — Chief Executive Officer

Thanks, Os.

Craig Marshall — Head of Investor Relations

Okay. Thank, Oswald. We’ll take the next question from Lydia Rainforth at Barclays. Lydia?

Lydia Rainforth — Barclays — Analyst

Thanks, Craig. And good morning, everyone. And certainly just to say thank you very much for all the work that BP has been doing in terms of supporting the community as well. And two questions, if I could. The first one and probably to Bernard, how do you think about whether the risk/reward profile has changed between fossil fuel investment going forward and renewables effectively does what we see in September now change as a result of what we’re seeing in terms of the life as now?

And then, secondly, for you and for Brian. Where do you think BP is in terms of efficiency relative to where you were when you started as CFO? And what’s still the biggest area of improvement that you think there is there and Murray to see? Thanks.

Bernard Looney — Chief Executive Officer

Thanks, Lydia. Good to hear your voice too, and thanks for the feedback. I’ll let Brian handle the opportunity set that he is leaving for Murray in a moment.

In terms of risk/reward on fossil fuels versus renewables and the whole subject of the energy transition, I think I’ve been on record as saying that what is happening now has only reinforced my and it’s not just me, it’s the leadership teams belief in the energy transition and what we laid out on the 12th of February.

I think there is the background of — the pandemic has reminded us of the sort of frailty of the ecosystem and how lives can change overnight almost and people are looking at but clear skies and so on. And so I think there is that backdrop, which I think means that climate will remain in the agenda going forward.

But specifically to your point on risk/reward, I think I would add two things. Number one, I think the pandemic I think only adds to the challenge for oil in the future. I think we’re all living and working very differently, it’s working. Who would imagine this call this morning being done this way. No travel, I’m connecting with people, the company is running, and I think there is a real possibility that some of that will stick. Not all of it, but I think there is a real possibility that some will stick and therefore the question has to be, will consumers consume less? And I think there is a real possibility that that may happen. So I think number one, the pandemic, I believe only adds to the challenge for oil.

And, secondly, we talk a lot about the negative prices for WTI just a few weeks ago. At the same time as that was happening, Lightsource BP is doing 400 megawatts of solar contracts in the United States right at that time. That sector continues to attract investment. It attracts investments, because of its risk profile and its resilience and I think that those two things with the backdrop around climate, I think, reinforced to me why we must do what we said on the 12th of February, which is to re-imagine energy and to reinvent the company. And when we come to update you and others in September, I think we are working through what that means and what that looks like and the shape of that will be similar, the conviction will be every bit as strong if not stronger.

So, with that, I’ll leave it to Brian to tackle the efficiency question.

Brian Gilvary — Chief Financial Officer

Thanks, Lydia. And the thing on efficiencies, I think — I look back over the last decade. It was in the period 2011-2012 when we started to introduce digitization, automation and more recently robotics in terms of what we do in the background of accounting and finance. And I think what Bernard has laid out with a new team around digitization and agile working, I think will be the next big kick on, I think, for Murray with the team and the next big level of efficiencies we will be able to drive.

In terms of balance sheet actually I look back and think back on the date 17th of June 2010 when we had $2.5 billion of liquidity and we were dealing with a problem at that point that was unique to ourselves of Deepwater Horizon. And I look today where Murray is coming this quarter with $32 billion of liquidity. I think all the things we learned back during Deepwater Horizon, we kept liquid and in-use within our system that enabled us to — in some respects as we came into January we thought we responding to the demand side problem, that very quickly became a supply side problem and is now reverted back to demand side problem. I think all the things that we learned back in 2010 have been deployed as we deal with this situation, which is more of a macro situation, but I think there is still a huge amount more inside finance that can be done and you’ll see those efficiencies coming through, I’m sure, as Murray lays out the plans for the next 12 months to 18 months. Thanks, Lydia.

Bernard Looney — Chief Executive Officer

Thanks, Brian. And Murray, maybe, you’d like to comment — you have a particular passion for modernization in general and within the finance function and maybe you just want to add a little bit of color around what Brian was saying on what you feel is possible down the road here?

Murray Auchincloss — Upstream Chief Financial Officer

Yeah. I think it’s some it’s pretty material and that’s much better than I have hoped for over time. Over the past while we’ve done everything we can to digitize our wells in the ground, we’ve done everything we can to digitize the design of the wells and the projects. We’re now starting to embark upon it inside operations, inside the Upstream as a single procurement system in place that we can now monitor over top of it and what our people are procuring and see where inefficient leaps exist.

And the next big digitization effort will be in the end-to-end purchasing process from an engineer raising an invoice to acceptance of works to delivery of the goods to implementation of the work to billing. And we’re amazingly inefficient as a sector inside that space. We’re no exception here at BP. And if we can get our data in the right shape, which David Eyton will lead us on very capably with a series of different partners like Palantir here. I think we’ve got magnificent strides we can make in reducing the waste inside those systems. We can move to just-in-time delivery like most sectors live on.

We can use things like the airlines use on planning. Instead of doing planning on spreadsheets, we can do planning with AI. So I see the prices enormous. That’s not just in the back office places like supply chain and finance, but it’s also across the broader business. So Lydia, as you can tell, my passion for this remains and I think the big prize is still ahead of us.

Lydia Rainforth — Barclays — Analyst

Brilliant. Thank you, all.

Bernard Looney — Chief Executive Officer

Thanks, Lydia.

Craig Marshall — Head of Investor Relations

Thank you, Lydia. Yeah. And we’ll take the next question from Biraj Borkhataria at RBC. Biraj?

Biraj Borkhataria — RBC Capital Markets — Analyst

Hi, everyone. Thanks for taking my questions. I have two please. First one is on your breakeven guidance of $35 a barrel. And could you just help me square the circle versus for example Q1 2020. If I start with roughly $5 billion of underlying cash flow this quarter, can you just bridge the gap and how we get to the 2021 numbers?

And then second one notably relatively straightforward. But on Macondo, the latest guidance is less than $1 billion, obviously you paid $300 million [Phonetic] in Q1 and you’re going to pay another $1.2 billion in Q2. So can you just reconcile what happens in the back half of the year? Thank you.

Bernard Looney — Chief Executive Officer

Biraj, thank you. And, maybe, Brian if you’re able to take them Macondo one first and Murray, if you’re able to take the balance point. Brian?

Brian Gilvary — Chief Financial Officer

Yeah, sure. And the difference is simply tax. It’s the run rate. Now, we’re into a $1 billion or less after tax, and so therefore when you add back the tax credits that will get you back below $1 billion for the year.

Bernard Looney — Chief Executive Officer

Sounds like it was a relatively easy question. So thanks, Brian. And the balance point, Murray, or the breakeven, but you want to use the language of balance point bridge from the first quarter to $35 is, Biraj…

Murray Auchincloss — Upstream Chief Financial Officer

Yeah, Biraj. Thanks for the question. Always tricky to do the stuff on an individual quarter, it’s much easier to do it for a full year. So I’d encourage you to look at it that way. Probably the way I’d encourage you to think about it is previous guidance that we’ve given, so previously we said $40 Brent, $14 RMM, $3.25 Henry Hub was the breakeven point paying the dividend. We’ve now lowered that down to 30 — less than $35 Brent, $11 RMM and $2.50 Henry Hub, you can go on the website and found our rules of thumb and you’ll find that that’s about $6 billion of lost revenue so to speak, or $6 billion that we achieve.

And then of course you’ve got our cost and capex moves that we’ve talked about reduction in cost of $12 billion this year and another $1 billion to $2 billion next year potential, if we decide we need to do that and the $2.5 billion of cost. So that’s probably the easiest way to reconcile it and you get within about $1 billion post-tax, which is obviously lost revenue from the decreases of investment we see across a couple of years. Trying to do it from a single quarter is pretty difficult, would have a lot of moving parts along the way. And happy, Biraj, if that didn’t help to, I’ll have IR team follow up with you afterwards.

Bernard Looney — Chief Executive Officer

Thanks, Murray. Thanks, Biraj.

Craig Marshall — Head of Investor Relations

Okay. We’ll take the next question from Christyan Malek at JP Morgan. Christyan, good morning.

Christyan Malek — Analyst

Hi, good morning. And thanks, gentlemen. Before I get in, a message to Brian to say thank you for being such a great steward to the financial community and I appreciate your help and advice. I’m sure you’ve got plenty of exciting things in store, including several more management plans, but also some greatly deserved rest ahead.

My question is referred to the future oil production outlook and capital frame? And then sort of interlinked, I mean to get to $35 breakeven and I appreciate the math around that in the previous questions. But the capex would have to stay in the $12 billion to $13 billion range next year. And given the energy transition focus in the period of no change in the LNG spend, am I right to assume that’s rather structurally lower production outlook over the medium term. If that’s the case, is it fair to assume you’re willing to expedite your guide at the lower lines or related revenues frame and the vision outlined a few months ago?

Second question is on dividend sustainability. What were the main factors behind the Board’s decision to keep the Q1 dividend unchange? And looking forward if management is considering a move back to scrip financing, I just want to understand the logic behind that given this creates a larger share count and dividend there, which is somewhat contradictory in the face of the portfolio is becoming less oily? Thank you.

Bernard Looney — Chief Executive Officer

Christyan, thank you all. I’ll have a go at both of those and Murray or Brian can help if I’ve missed anything. Maybe taking your second question first, around the basis of the first quarter decision that was taken by the Board and very, very simple as you might imagine. The Board that’s been meeting weekly since the pandemic has begun and reviewed the first quarter dividend as it usually does, as it always does and it reviewed it in full and made the decision or took the decision to pay the dividend based on the underlying performance of the business in the first quarter and the actions being taken by the team that we have described. And then the second quarter decision and the subsequent decisions will be taken based on the context at that time.

On the — your conversation around the breakeven and what that means for capital and what that means for the energy transition, I would just remind us all that we have — it isn’t just one dimension capex only way of getting to $35 breakeven, I think Murray’s laid out an ambition to get to $2.5 billion of cost savings by the end of next year. I think we will try to do more that may create more room for investment, we shall see. But the number one thing is to get the business healthy in an environment that we think looks more like what we should be planning for than anything else. So we are very, very focused on getting that breakeven to that point.

And what that means for the energy transition and so on, I think we best leave until September when we will update the marketplace on the strategy and our plan remains to do that in September. So rather than front run that and I’ll leave it go until we chat later in the year.

Christyan Malek — Analyst

Thank you.

Craig Marshall — Head of Investor Relations

Okay. Thank you, Christyan.

Bernard Looney — Chief Executive Officer

Thanks, Christyan.

Craig Marshall — Head of Investor Relations

Thanks, Christyan. We will take the next question from Jon Rigby at UBS. Jon?

Jon Rigby — UBS — Analyst

Thanks, Craig. Hi, guys. Thanks for taking my question. And two, as always. The first is and give it’s Brian’s last quarter, I thought I would ask a question on trading. Is — I was intrigued by the absence of a contribution in oil trading, I think as you know at least weaker year-on-year, but if I look at the conditions in the quarter, highly volatile, contango emerging towards the end of the quarter, it would seem to me pretty decent conditions for IST. Just a question, is that a misread? Is it — so from my perspective, is that reflection of risk management from your side or was it just missed opportunities in the quarter?

And the second question goes to the Alaskan deal or redeal that you announced yesterday. I can see that you’ve taken another impairment. So I think we’re up to about $1.7 billion of impairments against the Alaskan assets in preparation for its sale. So my question really is at what point do you think you start losing value by selling — by just pursuing the sale rather than preserving value by keeping the assets and just accepting that the balance sheet has to be somewhat higher-geared for a period of time? Thanks.

Bernard Looney — Chief Executive Officer

Jon, thank you. Good to hear your voice as well. And two fair questions. I think we’ll take them in turn, if that’s okay, Brian, for trading, first, and then Murray for the Alaska deal.

Brian Gilvary — Chief Financial Officer

Yes. Thanks, Jon. And I would have not expected less from you on the question on trading. It was a good quarter for trading in terms of the first quarter overall. So across oil and gas, it was a good quarter. It was a strong quarter for gas and it was a below average quarter for oil. In oil, we took some conscious decision actually off the back of COVID-19 in January. We were concerned about a demand-side reaction off the back of coronavirus, and that was ahead of the OPEC meeting. And therefore, we took some downside protection across the oil trading business where we expected that — actually, it was pretty unclear what the outlook looked like for oil price. It got very clear once OPEC and Russia kicked in with their supply push, which exacerbated and obviously then led to a much stronger demand side.

As you said at the end of the quarter, though, I think conditions have become more constructive with contango, as you said. So all I would say is it was a strong quarter for trading overall in oil and gas. Gas was a strong, strong quarter. Oil was below average. And I agree with your points in terms of constructive nature at the end of the quarter with contango now kicking in. But the markets still remain volatile, and I think downside protection is an important thing to have in these markets going forward.

Bernard Looney — Chief Executive Officer

Thanks, Brian. I think it’s Jon who’s done the analysis of your various adjectives to describe trading results in the quarter. So it sounds like he’s got it right. Murray, Alaska?

Murray Auchincloss — Upstream Chief Financial Officer

Yes. Yes, and hey, Jon, maybe you can send me the adjectives you learned from Brian. On Alaska, look, we continue to feel pretty good with the transaction. The original transaction, you’ll have seen what everybody thought about that. I thought it was a fairly reasonable price. The impairment you’ve seen come through, the $400 million, a lot of it has to do with the adjustment upfront. Oil prices have dropped this year so the adjustment in the interim period has to come through. So that’s what a lot of it has to do with. And the remainder of the impairment is a fairly mild haircut on NPV. So I continue to feel very good about the transaction. I think it’s good for both Hilcorp and ourselves. They’ll do a tremendous job operating that facility on behalf of the State of Alaska. So we’re just happy to continue with it. And I think both sides will be happy in the end.

Bernard Looney — Chief Executive Officer

Very good. Completely agree, Murray. I think, Jon, this remains a great deal for our company. It definitely is a good deal for Hilcorp, and I think it’s a great thing for Alaska and the US. So right operator at the right point, strategically coherent, and we feel good about where we’ve gotten to. So it is now about completing the execution of that deal and moving forward and letting Hilcorp do what they do. So we wish them well.

Craig Marshall — Head of Investor Relations

Thank you, Jon. Okay. We’ll take the next question from Thomas Adolff at Credit Suisse. Thomas?

Thomas Adolff — Credit Suisse — Analyst

Hi. Good afternoon. Two questions for me as well. In terms of disposals, you’ve mentioned that you’ve identified more than twice the remaining $5 billion to hit the $15 billion target by the middle of 2021. That’s a good ratio. But are you worried that whatever deal you’re currently negotiating and maybe renegotiating, you will see less cash upfront, whether it’s upstream, midstream or downstream, and everything is a little bit more phased than staggard?

And then secondly, this $1 billion to $2 billion in capex flexibility you have in 2021, is that enough to sustain your upstream business? Are you happy to let it decline for a little while? Thank you.

Bernard Looney — Chief Executive Officer

Murray, I’ll leave you with both of those questions, please, first, on disposals and then on the additional flexibility.

Murray Auchincloss — Upstream Chief Financial Officer

Yeah. Hey,Thomas, thanks for the questions. Nice to hear your voice. On divestments, as you said, another $5 billion to go. For those of you who weren’t keeping track, we announced $15 billion a few years ago. And we’ve delivered on $10 billion of those so far, so another $5 billion to go. The $5 billion that we’re going after now are more in the non-upstream, downstream-type spaces. So it’s more about infrastructure plays. It’s about real estate. It’s about buildings. It’s about things where yield is hunted. And it’s probably a very different set of purchasers than we normally see inside our business. Haven’t seen any hints about phasing of payments, etc, on that stuff, Thomas. It’s more just about what yield is acceptable for both counterparties. So I feel pretty confident that we’ll be able to get those transactions announced, and then timing will just depend on COVID. It’s pretty hard to do due diligence right now remotely on the telephone. So it will take us some time to be able to get back to normal due diligence and then move forward with those transactions. So I feel okay. If we were selling upstream, I’d be giving you a different answer, but that’s not what we’re doing right now. So I hope that helps answer your divestment question.

On the capex flexibility, yes, we’ve announced $12 billion of capex, a reduction of $12 billion of capex in 2020. And we have further flexibility that we’ve identified $1 billion to $2 billion next year. We haven’t made decisions on that yet. That’s to come as we watch the situation unfold. Of course, an awful lot of that has to do with things like infill drilling, etc, and retail expansion that you might expect around the world. So those are decisions we don’t need to make today. We can make them later.

As far as what shape that does to the upstream, I think Bernard laid out in his ambition that we’re happy for the upstream to decline. And I’m very happy for upstream volumes to decline. I’m not really focused on volume. I’m focused on cash flow and returns. So the volume decline will just be an outcome of decisions we make. And you should know that we’ll be very, very focused on our scarce capital dollars, focusing that towards the highest return opportunities that we have both in the upstream and the downstream. And just very, very focused on that margin and returns. And that’s what we want to do to drive our breakeven lower. It will help with that. And volume outcome will be volume outcome. So thanks, Thomas. Appreciate the questions.

Bernard Looney — Chief Executive Officer

Thank you. Very clear, Murray. And Murray is right to reinforce what we said in February, that over time, we would expect capital to increase into the non-hydrocarbon businesses, and as a result, capital to decrease in the hydrocarbon businesses, which would, over time, result in volume, which we’re not so anxious about. We’re concentrating on value and cash flows declining over time.

So we are also, as we go through this, doing what we can, to Christyan’s point, to enable the energy transition. We’ve left our $500 million of low-carbon investment unchanged, untouched this year. Where we cut elsewhere, we did not cut that back. So we will, over time, be working hard to create space to do more in that space. So Thomas, good to hear your voice and thanks for your question.

Thomas Adolff — Credit Suisse — Analyst

Thank you.

Craig Marshall — Head of Investor Relations

Okay. Thank you, Thomas. We’ll take the next question from Michele Della Vigna at Goldman Sachs. Michele, good morning.

Michele Della Vigna — Goldman Sachs — Analyst

Good morning. And thank you so much for your time in these difficult days. And Brian, thank you for all of your help and insights over the years. I have two questions, if I may. First of all, value versus volume is clearly the right strategy. I was wondering if you could shed a bit more light on the breakdown of the 70,000 barrels per day impact this year and what that impact could be in 2021 if capex stayed at the current level.

And then my second question is on operating working capital. A big build in Q1. Clear reasons for it. I was wondering, as we look forward to the rest of the year, should we expect perhaps a stabilization in Q2 and then a reversal as demand recovers in H2 or perhaps in 2021?

Bernard Looney — Chief Executive Officer

Michele, great to hear from you. Thanks for joining. I’ll let Murray take the outlook for working capital, and he can correct me on the volume. The 70,000 barrels a day that we’ve guided to is predominantly in the Lower 48 where we’ve basically gone from about 13 rigs to one or two rigs. So the majority of it is there. We’ll also see some in Iraq, but that’s the majority of where the volume is. And Murray, you can correct me and take the working capital question.

Murray Auchincloss — Upstream Chief Financial Officer

Yes. I think production volumes, probably too early to call what the 2020 impact can be. The reason I say that is generally, when our business [Indecipherable] perhaps ready play with, then you get after by getting operation instead [Indecipherable]. So I think there might be a linear expansion of [Indecipherable]. So we’ll update you on that situation [Technical Issues]. And on working capital build…

Craig Marshall — Head of Investor Relations

Murray, I’m sorry to interrupt you on the call. I think we’re struggling to hear you a little bit.

Murray Auchincloss — Upstream Chief Financial Officer

Is that better, Craig?

Craig Marshall — Head of Investor Relations

That’s better. Sorry. You may want to cover the production point again. Apologies.

Murray Auchincloss — Upstream Chief Financial Officer

Yes. I’m sorry. Okay. On the production point — yes, okay. On the production point, Bernard’s right, 70,000 this year. It will extend into next year. The principal thing — the reason that we can’t give a number yet for 2021 is generally, our operators, when we don’t have rigs in a basin, do a great job at operating the business better and some of that gets mitigated. So we’ll update you on what the impact in 2021 is in September when we’ve worked our way through that decision-making process.

On the working capital build, the $3.7 billion in one — in the first quarter, Brian gave a clear explanation of what it is. The inventory sitting in tanks, we’d expect to sell through the year. So that should just gradually be worked through the system. And then the IST receivables will just depend on what price structure is. On a flat price structure, you’re probably getting the majority of it over the coming three quarters. On an increasing price, you’ll get it very quickly. On a decreasing price, it will drag a little bit. But I should say working capital is quite volatile right now. There are a lot of moving parts out there. And so yes, it’s going to be tricky to forecast what that is right now.

Brian, I don’t know if you’d add anything more to that one.

Brian Gilvary — Chief Financial Officer

Yes. I mean just to say in terms of $3.7 billion, about just over $500 million was inventory that we didn’t move at the end of the quarter, which was all off the back of the demand-side drop. Just over $2 billion was the IST movements. And it’s just simply a difference between the over-the-counter positions that we have, which don’t set along cash and futures positions. They will naturally unwind. And exactly as Murray said, if the price moves up, they’ll unwind a lot quicker and we’ll see that cash flow back in. But the majority of that cash will flow through this year.

Bernard Looney — Chief Executive Officer

Thanks, Brian. Thanks, Murray. Thanks, Michele.

Craig Marshall — Head of Investor Relations

Okay. Thank you. We’ll take the next question from Henry Tarr at Berenberg. Henry?

Henry Tarr — Berenberg — Analyst

Hi. And thanks for taking my question. Two, if I may. One, you talk in the release about the material supply shut-ins by oil producers in the near term. Do you think BP may be involved in some production shut-ins somewhere in the portfolio? And then maybe on a broader point, where do you see the risk of production shut-ins globally that may not come back as things normalize?

And then secondly, it would be helpful perhaps if you could comment on whether you’re having discussions with ratings agencies currently. So is there a timetable for the next review? And maybe just again on the importance of retaining that investment-grade rating. Thanks.

Bernard Looney — Chief Executive Officer

Henry, thank you. Great questions. I’ll let Murray take the ratings agency question and on supply shut-ins. In terms of the OPEC+ agreement, which comes into effect in a few days in countries in the Middle East, in Angola, in Azerbaijan, in Russia, we are in conversations and in dialogue and obviously working on the instructions of the governments in those countries. So very much in action on that.

In terms of having to shut in our own production because we can’t get product to market, I think we’re very grateful and very fortunate to have the great trading business that we do have. So thus far, in our operated businesses, we have not had to shut in any production because we couldn’t find a market or we couldn’t find storage. And right now we feel pretty good about that. And then probably the third tranche of shut-ins is around things like the capital — reductions in capital that we spoke about and production in the Lower 48 and so on and so forth. So I think it will — time will tell on how long the broader picture will recover. We’re seeing at least 1 million barrels a day come out of the tight oil in the U.S. this year. It might be higher than that. Obviously, people are looking at oil sands in other parts of the world. So I think too early to say what the ultimate response will be, but I think many will struggle to find a home and we will see shut-ins increase through the second quarter.

Murray, ratings agencies?

Murray Auchincloss — Upstream Chief Financial Officer

Yes. Great. Thanks, Bernard. And Henry, thanks for the question. We had a series of conversations with Moody’s and S&P at the back end of March. I think they’ve moved their way through our sector and you saw their reports come out. From our perspective, we were pleased with the ratings, A- stable and — with S&P and A1 negative with Moody’s. We feel those are good ratings. And investment-grade is obviously important to us. The nature of our conversations with them is just very much like yours, all the actions we’re taking on cost, capex, divestments to make sure that we have a very strong balance point. And we don’t have anything specifically scheduled with the ratings agencies, but I’m sure that we’ll catch up with them as we move through two quarter — the second quarter at some moment in time. Thanks for your question.

Bernard Looney — Chief Executive Officer

Thanks, Murray.

Craig Marshall — Head of Investor Relations

Okay. Thank you. We’ll take the next question from Alastair Syme at Citi. Good morning, Alastair.

Alastair Syme — Citigroup — Analyst

Good morning. I’d like to extend my thanks to Brian as well. Best wishes as to what he’ll do next. I just want to pick up on the volume question that you just talked about there, Bernard, on BPX. And clearly, you’ve reset your expectations very heavily this year. I’d like — I just wanted to get some perspective around how that makes you think around this business going forward. Does it make you more or less inclined to want to put capital towards this business given, on the one hand, it’s highly flexible; but on the other hand, the economics are totally highly sensitive?

And then the second question, I just wanted to come back on the Hilcorp transaction. What exactly are we waiting for in terms of the Alaskan regulators to approve this transaction? And related to that, when the sort of the final dollar payment is made by the buyer, does BP retain any financial liability after that?

Bernard Looney — Chief Executive Officer

Thanks, Alastair. And I’ll ask Murray to take the second question around the Hilcorp transaction, and I’ll have a go at the question on the BPX business and our outlook for it. And I think if we think about the business on three dimensions, the rocks — the quality of the rocks, the synergies that we’re delivering and the volumes or the investment into the volumes. The rocks, as we said before, continue to be as, if not, better than what we planned for. So I think we’re very pleased with the physical asset, so to speak. I think on the synergies, I think the team has done a fantastic job. And to the best of my knowledge, we had promised to deliver $70 million of savings in year one. I think we delivered $240 million. We had planned to drill — to deliver $350 million of synergies by ’21, and I think that number is now up to $400 million or maybe a little bit more. So that’s all good.

And then the volume, of course, is down. The investment levels are down. In many ways, Alastair, that is one of the attractive things about the business is that it does provide us that flexibility to shift from 13 rigs to 1 rig in a matter of weeks, really. And my thanks to the team for doing that. But the economics of the business and the investment proposition remains strong in the right environment, and we have the ability to flex it up and down depending on what we see. And Dave and the team and Jack continue to work on making sure that the business is as healthy and as well run as possible. So I feel good about it. It does provide that flexibility, and that’s what we needed at that time.

So Murray, over to you on Hilcorp.

Murray Auchincloss — Upstream Chief Financial Officer

Great. Alastair, on approvals, we have received the federal approval, and we’re now working with Hilcorp on the DNR, the Department of Natural Resources, and the RCA, the Regulatory Commission. Those are the two set of approvals that we need to work our way through. We’re confident in conversations with them that we’ll get there this year. And we’ll just have to see what pace that unfolds at. And then as far as trailing obligations, BP doesn’t retain any obligations on the upstream. But on the downstream, on the TAPS pipeline itself, we’ll retain some of that liability moving forward. But this, of course, is all subject to regulatory approval. Hope that helps.

Bernard Looney — Chief Executive Officer

Thanks, Murray. Thanks, Alastair. Okay. Thanks, Alastair. We’ll take the next question from Lucas Herrmann at Exane BNP. Lucas?

Lucas Herrmann — Exane BNP — Analyst

Yeah. Thanks very much, Craig. Good morning gentlemen. I’m glad you’re all healthy. And Brian, again, as with the others, many thanks for all your help over the time. And I hope you don’t have the opportunity to walk back into that trading room and find that you’re trading crude at under $10 in the weeks before you depart.

Two questions, if I may. I really wanted to sort of go back to dividend and go back to the framework that you’re using. Clearly, we’re early into this crisis. And clearly, dividend adds discipline in the context of the way that you manage the business. I think it would be probably fair to say that the market questions or is questioning the sustainability of dividends, and structure, more importantly, before the COVID crisis actually happened. That, I’d argue, was evident from yield. And given the way that debt is moving, and you talk around demand uncertainty, you talk about the need to strengthen your finances, you talk about the ceding of revenues by virtue of capex reductions, it’s quite hard not to believe that there must be a better financial frame or structure for returning capital to shareholders. The question I’ve really got for you is can you please explain to me what the logic of borrowing at 4% to pay out as 11% actually is? That’s the first.

The second question then is just on projects and time lines and whether you can give any update on Mad Dog. Should we be anticipating delays given the impacts of COVID? And similarly, Oman, are we also likely to see some delay in the start-up of Phase 2? Thank you.

Bernard Looney — Chief Executive Officer

Thanks, Lucas, and great to hear from you. And let me take the first one on the dividend. And let me just do it in two turns: number one, the decision around the first quarter dividend; and number two, the decision around subsequent dividends. The first quarter dividend decision was taken by the Board, reviewed as usual and in full and was a decision, Lucas, taken on the basis of the underlying performance of the business in that quarter and the actions being taken that we’ve outlined today. The subsequent dividend decisions will be made at that time. The second quarter will be made in the second quarter, obviously. Three factors affecting any of those decisions: the underlying business performance, the outlook for the financial framework and the environment at that time.

And I’m really not going to say any more on that at this point in time other than to turn it to Murray to answer the question around the projects.

Murray Auchincloss — Upstream Chief Financial Officer

Great. Hi, Lucas, Oman is feeling pretty good. We went through a big turnaround in the first quarter. The plant is back up online now and we’re starting commissioning on the plant. So Oman is feeling good and on track to start up in 2021. Mad Dog Phase 2, we had to down-man in Korea as COVID swept through. We had, I think, 50 expats in the yard in Korea. They have now returned to the yard and they’re assessing the state of it. I don’t think we’d announce any delays at this moment in time. But as you can imagine, COVID is a dynamic situation and we’ll have to see how that unfolds over time. I hope that helps, Lucas.

Lucas Herrmann — Exane BNP — Analyst

Thank you.

Bernard Looney — Chief Executive Officer

Thanks, Murray. Thanks, Lucas.

Craig Marshall — Head of Investor Relations

Okay. Thank you, Lucas. We’ll take the next question from Martin Rats at Morgan Stanley. Martin?

Martin Rats — Morgan Stanley — Analyst

Yes. And also my best wishes for Brian for whatever lies ahead, and thanks for all the help and support over the years. A lot has been covered and I don’t want to sort of repeat previous questions, but I want to build on Lucas’ question that he just asked and take the angle of capital expenditure. And what I find as sort of intriguing perspective is this, with the capex budget of $12 billion and a dividend which is $8.4 billion, effectively, the capex budget is $1.40 per $1 of dividend. Now if you track that over the decade, as far as I’ve been able to reconstruct this, this is at least the lowest level since 1984. So capex, at least relative to the dividend, is exceedingly low. And in the previous downturns, there was quite often scope to reduce capex from, say, $3 per $1 of dividend to $2. But it rarely dropped below that ratio of 2:1. And I was wondering if in your assessment, with $12 billion of capex or $1.40 per $1 of dividend, whether that level of capex and the returns that are available to you, whether that level of capex is sufficient to sustain that $8.4 billion dividend over the long run.

Bernard Looney — Chief Executive Officer

Martijn, thank you. I’m not going to go back over the dividend decision. I think we’ve made our basis for that clear. I haven’t looked at the analysis back to ’84, but that’s good to see. The one thing I would make on that analysis, Martijn, is that even in the last four, five years, I think the productivity that we get out of $1 of spend is materially different to what it was four, fiveyears ago. So I do think that sometimes dollar-for-dollar comparisons can be helpful, but other times, I do believe that the productivity has improved dramatically over that time period. But I understand the question. And in terms of what the right level of investment is for the company in the longer term, I’m afraid I’m going to have to ask you to wait until September when we’ll come back and talk about the strategy for the company and the medium-term outlook where we will discuss all of these things in much greater detail.

Martin Rats — Morgan Stanley — Analyst

Thank you.

Craig Marshall — Head of Investor Relations

Okay. Thank you, Martijn. We’ll take the next question from Jason Gammel at Jefferies. Jason?

Jason Gammel — Jefferies — Analyst

Thank very much, gentlemen. I hope all your families are safe. First question I had was just some clarification on reductions in cash costs, the $2.5 billion achieved by the end of 2021. Does that mean that the run rate on the $35 balance point is achieved at the end of next year? And would you expect that these costs would be sustainable in — these cost savings would be sustainable in a higher oil price environment?

Then my second question, I was just hoping you could elaborate a little bit further on guidance for lower-level North American heavy crude discounts. We’re obviously seeing some pretty weak WCS prices. So is this really more of a reflection of what you see as a weakened WTI price over the course of the second quarter?

Bernard Looney — Chief Executive Officer

Jason, thank you. I hope you and your family are well as well. Murray — I’ll let Brian take the second question, which is around the heavy crude and the WTI, and Murray on the first one, the $2.5 billion — the $35 year-end versus — run rate versus full year and the sustainability. And I know the answer to the sustainability, which is very much so. But can you take the first one for Jason, please, around the cash costs?

Murray Auchincloss — Upstream Chief Financial Officer

Sure, Jason. As you can guess, we have been dealing with us for a while. We’re on the conservative end of things when we put statements publicly. So we’ve talked about the $2.5 billion as a run rate, which you’re right, is at the end of the year. But as you know, our track record of delivery in this space, we’re obviously making good strides right now on cost as we speak. And I expect, as Bernard said, there will be more to come when we talk about this in September. So do presume end of year for now, and we’ll update you in September. And we’re on it, as you could guess. As far as…

Bernard Looney — Chief Executive Officer

The $35, Murray, the $35 is a full year number. And that takes account of the $2.5 billion being an end year number. Yes.

Murray Auchincloss — Upstream Chief Financial Officer

Yes. Correct. Yes. Absolutely correct. And then sustainability of the cost savings, look, we’re not presuming we’re going to get any deflation. The supply chain’s in a pretty difficult place inside the Upstream business. Inside some of the other businesses, the supply chain is very resilient. But we’re not presuming very much a deflation inside. This is more about fundamental changes to the efficiency of the business. So yes, they are sustainable. Hope that helps.

Bernard Looney — Chief Executive Officer

Thanks, Murray. Thanks, Jason.

Brian Gilvary — Chief Financial Officer

And then, Jason, on WTI-WCS, what we saw in the first quarter, remember last year, averaged around about $13 with a discount to Canadian TI. That blew out to about $20 through the first quarter, and I think quarter-to-date, it’s already $14.50. I think you’ll have to wait and see how WTI clears over the next three to four months, and then you’ll get a better handle on ultimately what will happen with heavy crude. But I would expect to see heavy continue to back out as storage fills up pretty much everywhere. And we’re going to be a top — tank topped, and then it will be a question of what the recovery looks like from a different perspective. So it’s going to be pretty hard to call WTI-CS, but it is tracking around about $14 already quarter-to-date and $20 in the first quarter, which is significantly above what we saw last year.

Bernard Looney — Chief Executive Officer

Thanks, Brian. And Murray, I was just wondering, before we leave the cost one, whether you wanted to — I know you looked recently at some of the wells that we’re doing — drilling from around the world in London and some of the benefits that you saw there. Anything, just to give a little bit of color on what’s possible?

Murray Auchincloss — Upstream Chief Financial Officer

Yes. I wanted to come back to that capex question that Martin had about — is the capex ratios of the past the same moving forward? And Martin, it’s very much the same question when people say, You need an 85% reinvestment ratio to grow. I think that’s a thing in the past as well. And the reason that I think that is that productivity has increased so much with digitization. That’s why you see us so passionate about this. A small example of that is in West Africa. The last time we drilled in West Africa, say, two or three years ago, it was costing us $150 million to drill a well. Fast forward three years, we’ve digitized and centralized the operations. It’s from — it’s being run out of Sunbury as opposed to in Africa. It’s with a lot fewer expats on the ground. It’s with a co-located supply chain. It’s with standard well, standard conductor, standard riser, etc, etc. And instead of $150 million, it’s down to $50 million for the exact same activity when equalized on rates. So I just think the sector had a shale revolution a decade ago. It’s in the midst of a digital revolution right now, and it’s structurally changing the cost of supply of our business.

So I don’t think these historic ratios, to compare spend to dividend, etc, make an awful lot of sense just because of the productivity improvements that we have seen and we continue to think we can deliver moving forward. Hope that helps.

Bernard Looney — Chief Executive Officer

I think, Murray, we would have had 27 engineers on the ground, expatriates three or four years ago. And today we’ve got two?

Murray Auchincloss — Upstream Chief Financial Officer

40 expatriates three years ago, and we’re — 40 expats. And now we’re down to two on rotation, one every two weeks. So it’s an amazing change.

Bernard Looney — Chief Executive Officer

Yes. And more to come. So great. Murray, thank you.

Craig Marshall — Head of Investor Relations

Okay. Thank you. Bernard, we’ll take a question from the web. This is a question from Colin Smith at Panmure Gordon. Will current conditions delay the implementation of the new organizational structure due by the middle of this year?

Bernard Looney — Chief Executive Officer

Colin, thanks for the question. And the simple answer is no. We remain on track. We are as well as doing the things that we’ve laid out today, and we’re also in the midst of selecting the next level in the organization, what we call Tier 2. Those decisions have been broadly made, and we expect to announce the next level of the organization, the direct reports to Murray and my leadership team here in the next couple of weeks. So we remain on track for July 1, standing up as a new organization. And I think everything that we’ve seen so far says that the model is going to work.

It’s different, of course, but we do see real opportunity in there, both from an efficiency standpoint but also from a ways of working standpoint, and already seeing even greater cooperation between the businesses and trading and so on. So pretty excited, I have to say, about what’s possible here and looking forward to getting to the next stage. And that will be the next level of announcements in the next couple of weeks and then getting to July the 1st where we’ll plan on standing it up. So we remain on track.

Craig Marshall — Head of Investor Relations

Okay. Thank you, Bernard. We’re moving to the last couple of questions. We’ll take the next question from Pavel Molchanov at Raymond James.

Muhammed Ghulam — Raymond James — Analyst

Hey, guys. This is Muhammed Ghulam on behalf of Pavel Molchanov. So you guys are present in a number of countries that were part of the OPEC+ agreement from a couple of weeks ago. Do you guys having — anticipate having to reduce volumes in any of those countries?

Bernard Looney — Chief Executive Officer

Muhammed, thank you for your question. And the answer to that is yes. We’re in conversations today in Angola, in Azerbaijan, in Russia and in the Middle East. And Murray talked earlier about some of what those numbers could look like. But yes is the answer to your question. We do expect to see volumes reduce in the second quarter because of the OPEC+ agreement. And as Murray also said, volume is probably not the best indicator of the strength of the business at this time. So we’re working very much on the other things that we laid out around liquidity, balance point and balance sheet. But the answer to your question is yes. Thank you, Muhammed.

Muhammed Ghulam — Raymond James — Analyst

Okay. Thank you. And my other one would be, you guys started drilling a prospect at the Shafag-Asiman Block in Azerbaijan in January. Any update you guys can provide on that well?

Bernard Looney — Chief Executive Officer

Thanks, Muhammed. Murray, any update on Shafag-Asiman in the Caspian?

Murray Auchincloss — Upstream Chief Financial Officer

Yes. So this is Shafag-Asiman well. We’ve been talking about it for a lot of years, maybe eight or something like that. It commenced drilling back in January, as you stated. Recently, we’ve taken the decision to pause drilling, COVID-related. And once the situation clears, we’ll get back on it. Originally, the well was forecast to be taking nine months to get to TD, to total depth. So there’s the update right now. Thanks.

Bernard Looney — Chief Executive Officer

Thanks, Murray.

Muhammed Ghulam — Raymond James — Analyst

That’s all from me. Thank you, guys.

Bernard Looney — Chief Executive Officer

Thanks, Muhammed.

Craig Marshall — Head of Investor Relations

Thank you, Muhammed. Okay. We’re going to take the final question from Peter Low at Redburn. Peter?

Peter Low — Redburn — Analyst

Hi. Thanks for taking my questions. Just a quick clarification on the 2021 cash neutrality target, and sorry if I’ve missed this, but can you just confirm what level of capex that assumes? Is it the $12 billion or $1 billion to $2 billion below that level, reflecting the extra flexibility you talked about today?

And then just secondly, on the disposal program outside of Alaska, which I appreciate isn’t finalized yet, can you give us any guidance on the actual cash proceeds expected to be received this year?

Bernard Looney — Chief Executive Officer

Very good. Peter, thank you very much. Murray, both questions, please.

Murray Auchincloss — Upstream Chief Financial Officer

You’re making me do a heavy load, boss. So capex for 2021, we’ve assumed that we’re in a low price environment when we make that forecast. So we’ve flexed the capex down to $11 billion. Now that’s still a decision to be made. We have not made that decision yet. That will happen in the coming months, but it helps to get a sense of what’s capable inside the business. And remind me the second question, guys?

Bernard Looney — Chief Executive Officer

The disposals. Any idea of the cash proceeds from the remaining $5 billion that is yet to be announced? Any idea of cash proceeds’ phasing?

Murray Auchincloss — Upstream Chief Financial Officer

Yes. So we’ve — now just to go back to that route of questions. We’ve announced $10 billion of the $15 billion already. We’d expect the next $5 billion come by the middle of 2021. On proceeds, we have received through the first quarter $3.5 billion. Proceeds is tricky to predict right now, if I’m honest, given the state of the markets, given the inability to do things like due diligence and get into data rooms, etc. That’s a little bit tricky, I think. So the key judgment will be what — how will we come out of COVID and when can people start traveling again to look through these things. My sense is we’ll probably have somewhere around $3 billion-ish of proceeds this year with the remainder to follow. But it’s very subject to how we move our way through COVID, which I think is almost impossible to predict right now. I hope that helps.

Peter Low — Redburn — Analyst

Thanks. Very helpful.

Bernard Looney — Chief Executive Officer

Thank you very much, Peter.

Craig Marshall — Head of Investor Relations

Okay. Thank you, Peter. That’s the end of the questions. Thanks very much for those. Let me then just hand over to Bernard for a couple of closing comments before we close the call. Thank you.

Bernard Looney — Chief Executive Officer

Thanks, Craig. Thanks to the team for pulling this together. Brian, you’ve got lots of compliments on there. Anything you’d like to say before you depart?

Brian Gilvary — Chief Financial Officer

Thanks, Bernard. Yes. No, look, it’s been a real privilege to be the CFO of this company. This is, I think, my 34th quarter because I actually sneaked an extra one in by doing Byron’s last one over 34 years. So this is a sort of symmetry in terms of timing. It’s been an absolute privilege. It’s been great to work with all of you on the sell-side. I think we are incredibly fortunate to have such strong quality of analysts on the sell-side in this sector, and it’s been an absolute pleasure to be able to work with all of you over the best part of a decade through the ups and the downs. But I think the great thing for me is your questions have always been thoughtful, detailed and actually trying to help us with how we describe the results.

It’s been a privilege, as I said. It’s — that first question from Jason about a proud moment, I reiterate back. I think what Bernard laid out on February 12 for the company and the path for this company going forward is all the reason why I joined the company 34 years ago. And I wish the team well. I’ll be one of the big cheerleaders on the side. And I’m sure I’ll come across all of you in the future. And thank you, Bernard, for allowing me to say a few words at the end.

Bernard Looney — Chief Executive Officer

Brian, thank you. The thanks go to you. You’ve been a brilliant CFO through a very difficult period for our company, and we wouldn’t be here only for you. And I think we can all say that very, very easily. So you’ve done an amazing job under exceptionally difficult circumstances. So we’re very grateful and we wish you well. And Brian is going to be very active, so he’s not going anywhere.

But with that, thanks, everybody, for your patience. You have some really thoughtful questions. And I understand we may not have answered them all in the way that you would have liked, but we are where we are. We’re — like many companies, we’re doing our best to navigate these unprecedented circumstances as best we can. We probably won’t get everything right, but we’re doing what we can. No one really knows how things are going to unfold here, but we’re very much in control of the things that we control.

I think you know we’ve been tested many times over our history, and we always respond and we know how to respond. There is a plan. It’s a clear plan. We’re in action. We’re 100% focused on the three things: protecting our staff, the mental and physical health of our staff, supporting our communities and strengthening the finances of the company. And to that end, we’re reinforcing the liquidity, we’re lowering the balance point, and we’re strengthening the balance sheet. And we’re doing that while we do our best to safely deliver the energy and the products that the world needs while we’re striving to get to net zero and help the world build back better, which is what we need to do.

And I’m immensely proud of all of my colleagues here at BP who are coming to work every day, really, looking out for each other and stepping up where they can to help people and all the time running the business safely and efficiently. And that’s coming with a lot of personal sacrifice, but they’re really, really rising to the challenge and we’re all very proud of them.

So thank you all. And let me just say, please look after yourselves and your families, and I wish you all well. And thanks, Craig and your team, for hosting the call. Thank you, everyone.