The news, coupled with confirmation that BP had yet again beaten its internal efficiency targets, pushed the company's shares up 39.5p to a 12-month peak of 862.5p. Its market value soared by more than pounds 2bn to pounds 49bn.
The buy-backs are expected to take place in stages after the company seeks approval for the move at its next annual meeting in May. BP declined to speculate on the value of the buy-backs, though analysts suggested they could top pounds 1bn in the first year.
BP said it would also buy back a further pounds 300m worth of shares ahead of the agm, for use in its employee share ownership schemes. Previously such schemes have involved issuing new shares.
Though directors had been considering buy-backs since 1995, BP's hand was forced by the removal of tax credits in last month's Budget. The group said the take-up of dividends paid in the form of shares had doubled since the announcement, because these were paid in gross form to all shareholders. The demand for share dividends threatened to double the number of new shares issued each year to 2 per cent.
At the same time yesterday's results showed a further $1.3bn (pounds 799m) reduction in BP's debts to $6.1bn, well below the company's target of between $pounds 7bn and $8bn. Debts, which are mainly dollar denominated, have fallen progressively from more than $15bn in 1992, when the company faced serious financial problems.
John Browne, chief executive, coupled the buy-back announcement with BP's first public attack on other Budget tax changes, which hit companies that earn substantial profits abroad. He said the uncertainty left by the removal of foreign income dividends was "regrettable because it threatens to make Britain less attractive as a place in which to do business".
Mr Browne said that he welcomed the Treasury's commitment to look again at the legislation in next spring's Budget, to ensure companies like BP would not be disadvantaged.
Profits before exceptional items on a replacement cost basis rose by 21 per cent in the first six months of the year, to $2.437bn. The rise in sterling terms was a more modest 17 per cent, reflecting the strength of the UK currency, to pounds 1.495bn. BP increased its dividend by 0.25p to 5.5p for the second quarter of the year, taking the half-yearly payout to 10.75p a share.
Exploration and production profits rose from pounds 1.49bn to pounds 1.6bn, despite a drop in average oil prices during the first half of the year by $1 a barrel, to $19 a barrel. Refining and marketing businesses also turned in a strong performance with profits of pounds 486m, up from pounds 365m the previous year.
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