BP investors set for $1bn share buyback bonanza this year

British Petroleum is planning a rolling programme of share buybacks, likely to generate windfalls to investors worth hundreds of millions of pounds a year, despite disappointing shareholders yesterday with weaker than expected profits.

BP first revealed its long- awaited share-buyback plans last summer but investors were asked to wait until the annual shareholders' meeting in April for details of the policy. The oil giant is now expected to seek investors' permission to make a series of buybacks, with the aim of distributing excess profits in a year-on-year bonanza. The company will seek to renew the buyback powers at each subsequent agm.

John Browne, chief executive, will tell shareholders that the company can no longer find sufficiently attractive investment opportunities for all of its cash. The company is expected to invest some $5.7bn (pounds 3.6bn), similar to the figure achieved in 1997, but still has substantial sums of extra cash which the management believe should be handed back to investors.

Though BP needs to ask shareholders for the power to make buybacks, it has since last year spent $270m on purchasing stock for its employees share schemes. Mr Browne said the timing of the buybacks would depend on further clarification of the UK tax regime, following the Government's decision to phase out advanced corporation tax on dividends. .

Announcing a 13 per cent rise in annual profits to a record pounds 2.8bn, BP said its debt stood at $6.9bn (pounds 4.3bn), lower than the group's target range of $7bn-$8bn. This would suggest the first buybacks this year could reach $1bn (pounds 600m).

At the same time BP will pledge a steady increase in dividends to investors, based on underlying profits generated from an average oil price of around $16 a barrel. BP yesterday raised its quarterly dividend by 0.25p to 5.75p, bringing the annual payout to 22p, a 13 per cent rise on 1996.

Mr Browne will also reveal much tougher efficiency targets at the agm as part of BP's self-help programme. The company had almost achieved its targets for the millennium by the end of last year. BP has made efficiency gains worth around $1.2bn, just $300m short of the 2000 target.

Though Mr Browne kept investors guessing about the new policy yesterday, he promised BP would deliver "new and different ways of doing business". He added: "We are still motoring and we are still speeding up.... The journey continues; we haven't just arrived."

BP shares fell 21p to 793p after the group revealed a 4 per cent drop in profits between October and December to pounds 636m. The fall in fourth quarter profits was blamed on currency weaknesses in Europe and the Far East.

BP played down suggestions that the falling oil price was to blame, despite the fact that the $18.40 a barrel averaged by BP during the quarter was some 20 per cent lower than the year before. Brent crude was trading yesterday at just over $15 a barrel, compared with a peak during 1996 of around $25.

Mr Browne claimed BP's financial performance no longer depended on oil prices. "The supposedly iron link between our profit and the oil price has been broken." BP expected prices to trade at the bottom end of a $15- $18 a barrel range, though Mr Browne quickly added that this was "not a forecast".

Delays to the deep water Foinaven field to the west of Shetland cost BP about $70m last year. Production finally started in December after a series of technical problems and delays due to bad weather. Other big projects in Alaska, the Gulf of Mexico, Angola and the Caspian were all expected to contribute to a surge in production during 1998.