BP rethinks Horton's oil price predictions
The oil giant told City analysts yesterday that the oil price would rise to between dollars 18 and dollars 21 a barrel by the mid-1990s. The prediction is in stark contrast to Mr Horton's belief that it would reach dollars 25 a barrel in the same period.
His highly public predictions are thought to have been a key factor in provoking last Thursday's boardroom coup.
The forecast had become the subject of ridicule within the group. Few shared his views on the oil price and it came to be seen as his own personal prediction. However, Mr Horton's continued defence of that forecast in public and at meetings with BP's institutional investors caused considerable embarrassment among its senior management.
Some of BP's biggest rivals, such as Shell, have been much more cautious about the price outlook. Shell has long forecast that prices will stay at around dollars 18 a barrel for the rest of the decade.
Yesterday BP took the first opportunity since Mr Horton's departure to scale down its own estimate. Steve Ahearne, finance director, told a lunchtime meeting that the oil price would average around dollars 20 by the mid-1990s.
Analysts were also told that the company would return to a cash inflow position next year, thanks to cost-cutting, asset disposals and reduced capital investment.
However, Mr Ahearne refused to say whether BP would cut its dividend to stem an expected cash outflow this year. The company's total dividend cost pounds 900m last year and some analysts believe that without a dividend cut, it could incur a pounds 1.5bn outflow this year.
In the first quarter of this year, BP's cash outflow amounted to pounds 544m, against a pounds 1.1bn drain for the whole of 1991.
As a result, it has been making a drastic cut in its capital expenditure. Mr Ahearne told analysts that spending would drop to about dollars 5bn in 1993 from dollars 6.5bn this year and dollars 8bn in 1991.
The bulk of next year's spending will go on maintenance rather than expansion, analysts believe. 'In effect the company is being run for cash,' one said.
BP shares have dropped by more than 15 per cent since Mr Horton's resignation on fears that the dividend will be cut.
The shares closed 3.5p up at 203.5p yesterday. They have slumped from 240p last Thursday.
Mr Horton has been replaced by Lord Ashburton as chairman while David Simon, deputy chairman, has become chief executive.
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