Deputy City Editor
David Simon handed over the reins at a confident BP yesterday, holding out the prospect of a second dividend rise in six months after bumper first quarter figures. Yesterday's results were the last he will present before being succeeded as chief executive in July by former exploration division head John Browne.
Although the dividend was maintained at 3p a share, the same level as last year's fourth quarter payout, Mr Simon said the rate could be increased after interim results if progress continued at the current rate.
Analysts now expect a return by 1998 to the level of dividend paid by the company before the payout was abruptly halved in 1992 after the departure of Robert Horton. He was forced to resign after refusing to lower the dividend in the face of a rapid deterioration in the oil giant's financial position in the early 1990s.Since 1992, BP has staged a remarkable recovery in fortunes matched by a steady rise in the company's share price from a low of 185p to yesterday's close of 462p, up 6.5p.
First quarter figures, with underlying profits up from £305m to £461m, revealed mixed fortunes in the group's three core divisions, with booming chemicals more than making up for an abrupt decline in refining and marketing margins. Exploration, which accounts for most of the group's assets and profits, showed strong growth in operating profits from £378m to £543m on the back of a rising oil price.
A rise of $3 per barrel in the price of crude oil over the past year had surprised the company, Mr Simon said. After the misguided expectation in the early 1990s of a sustainable oil price of between $20 and $25 a barrel, BP has been assuming no more than $16 a barrel as the basis for exploration evaluations.
Currently, Brent crude is trading at more than $18 a barrel, with a strong rise within the last month yet to show through into profits. Demand is strong and fears over Iraqi production have so far proved unfounded.
John Browne said the result reflected some improvement in the oil price, sustained operating efficiencies partly due to technological advances, and lower exploration write-offs thanks to the decision three years ago to focus oil searches in more fruitful areas.
These improvements more than offset a one-off £28m payment to the state of Alaska to cover settlement of a long-standing royalty dispute. Production from new fields made up for declines from some of BP's more mature fields.
Profits from chemicals jumped from £25m to £244m in the first quarter thanks to high-capacity utilisation, recovering demand in Europe and a lower cost base. Mr Simon said the division was now producing a more acceptable return on capital employed for the current stage in the economic cycle, even though prices and margins are still below those achieved at the peak of the market in 1989.
He said the division did well in the quarter thanks to its bias towards Europe, where industry is recovering fast. BP is more heavily weighted towards the mature economies of Europe and US than its international rivals and, the success of chemicals aside, Mr Simon said BP was still planning to increase its exposure to the fast-growing regions of South-east Asia and South America.
Chemicals' strong performance made up for a 30 per cent drop in refining and marketing margins reflecting too much capacity and a mild winter. Profits fell from £214m to £43m, with refining hit especially hard as gasoline prices fell in the US.
Investment Column, page 34