BP sets $4bn annual savings target

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BP AMOCO, the world's third-biggest oil major, yesterday threw down the gauntlet to its rivals by unveiling plans to double annual cost savings to $4bn and dispose of $10bn worth of assets over the next three years.

The ambitious new financial targets are likely to involve further job cuts on top of the 10,000 posts being axed following the $60bn BP-Amoco merger, but the chief executive, Sir John Browne, declined to give any figures.

Delivering his annual presentation to financial analysts in London and New York, Sir John also announced plans for $26bn of capital investment by 2001, of which $7bn will be spent this year.

News of the revised cost-cutting plans sent BP Amoco shares 2 per cent higher to a record of 1,285p. "BP Amoco is constantly re-inventing the rule book on how to make money in this business," said one analyst.

The disposal programme involves a reduction in BP Amoco's refining capacity of a third, or more than 900,000 barrels a day, in a dramatic move away from the low margin end of the oil business.

Of the $4bn in targetted cost reductions, $2.2bn will come from upstream businesses, $1.4bn from refining and marketing and $400m from petrochemicals. The planned cost savings do not include the $1bn of efficiency gains BP Amoco expects to achieve from the acquisition of Atlantic Richfield.

The disposal programme will see $4bn worth of exploration and production assets sold off together with $3bn of downstream assets and $2.5bn of chemicals plants.

It will begin with the sale of the group's Canadian oil interests, its 64 per cent stake in Altura Energy, an oil and gas producer with interests in Texas and New Mexico and the 250,000-barrels-a-day Alliance refinery in Louisiana.

Sir John told analysts that BP Amoco was aiming to raise return on capital by 5-6 percentage points by the end of 2001, equivalent to a $5bn improvement in pre-tax profits.

BP Amoco is aiming to reduce its supply costs - the cost of finding, developing and producing a barrel of oil - by $2 to $5. With annual production running at 1 billion barrels a year, this would be worth $2bn alone, most of which would go straight to the bottom line.

The new financial targets were accompanied by news of a two-for-one share split and the largest-ever oil find in the Gulf of Mexico. BP Amoco said its Crazy Horse well indicated a discovery of at least 1 billion barrels.