Investment: Amoco merger should help BP stock deliver

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The Independent Online
THERE ARE not many companies these days that can get away with declaring profits one-third down on the same period last year, and yet see shares jump more than 3 per cent on the day.

But then the buy case for British Petroleum does not rest on chief executive Sir John Browne's mystical ability to defy the harsh realities of the market place for oil.

It rests on the fact that, almost uniquely in the industry, he seems to be doing more than waiting for the oil price to turn up.

Essentially the buy case for BP rests on three arguments.

First, that the weak oil price will strengthen. Second, that whether or not the merger savings materialise, investors will have to load up on BP stock to ensure they have the correct index weighting in the combined stock post-merger.

Third, that the savings to be achieved by putting BP and Amoco together will turn out much greater than the promised prize of $2bn (pounds 1.2bn) a year pre-tax by 2002.

To rely on the first argument requires a leap of faith. The second point is largely a matter of fact.

But on the third, there is much in yesterday's figures to provide compelling evidence that Sir John's tight grip on costs is not lessening because the Amoco merger is now in his grasp.

BP's traditional headline figure - the replacement cost profit for the third quarter - came in at pounds 416m against pounds 691m a year ago.

Rather than wait until the merger is consummated, BP is getting on with its preparations.

Yesterday's figures include $250m towards the promised $2bn of cost improvements.

Mergers have a habit of disappointing on implementation. But the company has already demonstrated with the BP-Mobil European joint venture that it can deliver where others dither.

The case for buying BP remains undimmed.