BP turns up dividend gusher after profits surge to a record

BP FUELLED the outcry over bumper oil industry profits yesterday after lifting its dividend payout by 26 per cent and saying it had the potential to distribute a further $28bn to shareholders over the next two years if crude prices stayed around current levels.

The dividend increase came as BP reported record profits of $16.2bn for last year and said the total payout to shareholders for 2004, including stock buybacks, would reach $13.7bn.

The profit is less than the $17.6bn Shell announced last week but a BP spokesman said that if the $1.1bn charge it took in its petrochemicals division was discounted, then the two companies were neck and neck in terms of profitability.

BP expects to pay out an extra $1bn in dividends alone this year based on the one-time step change in the size of the payment in the fourth quarter, when the dividend rose to 8.5 cents compared with 6.75 cents in the same period of 2003. "The best is yet to come," promised BP's chief executive, Lord Browne of Madingley.

The dividend increase will help ease the pain for BP's UK shareholders who have seen the value of the payout erased by the weak dollar. In 2004, the dividend rose by 13 per cent in dollar terms but only by 4 per cent for sterling-based investors who account for 45 per cent of the company's shareholders.

BP's record results prompted renewed calls for a windfall tax on oil companies, even though the Government has firmly ruled out such a move. Tony Woodley, general secretary of the Transport and General Workers' Union, described the company's profits as "excessive". Urging ministers to "grasp the nettle", he added: "While we read daily of the crisis in pensions and while the T&G hears daily about the plight of our people whose pensions have been stolen, the case grows for a one-off windfall tax."

However, Lord Browne dismissed the idea of a windfall tax saying: "It would be a way of driving the competitivity of global multinationals down in the UK and the UK needs to retain and attract multi-nationals."

He added that BP had paid around $2bn in tax last year on UK profits of $2.6bn, making it one of the biggest contributors to the Exchequer, and employed 17,500 staff in the UK.

"We do a lot of good things for the world, we employ large numbers of people and we pay vast taxes," he said.

BP said that around 60 per cent of the increase in replacement cost profit in 2004 was due to the surge in oil prices which averaged $45-a-barrel for the year. Based on a price of $30, BP projected that it could distribute about $23bn to shareholders over the next two years. If the oil price slipped back to $20, the figure would be nearer to $15bn but if it stayed at $40, the return could be about $28bn. Brent blend closed 13 cents higher at $43.17 yesterday.

Despite BP's forecast that oil prices are likely to stay above $30 in the medium term, the company is continuing to use a yardstick of $20-a- barrel to determine whether to sanction investment in new projects. Capital expenditure this year is expected to be $14bn and oil production is forecast to rise from 3.99 million barrels a day to between 4.1 and 4.2 million barrels based on a price of $20.

BP's reserves replacement ratio - the extent to which production is being replaced by new discoveries - was 106 per cent under UK rules and 89 per cent using the stricter benchmark applied by the US Securities and Exchange Commission. The comparative ratios for Shell last year were 45-55 per cent and 30-40 per cent.

Lord Browne said that what was important was to be consistent, whichever benchmark was used but BP preferred the UK basis. "It's like being asked if you prefer to read Shakespeare in English or French. I prefer English."

Outlook, page 37

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