Lasmo raises payout by 60% as profits double

Lasmo, the oil exploration and production group, yesterday played down speculation of a shift in its dividend policy despite raising the payout to shareholders by 60 per cent, the first increase since its ill-judged 1991 takeover of Ultramar.

Joe Darby, chief executive, also pledged to beef up Lasmo's borrowing levels to fund extra investment on locating and developing new wells this year. He made the comments as the company unveiled pre-tax profits of pounds 67m for last year, almost double the pounds 34m figure in 1995 and underlining the scale of the financial turnaround since the Ultramar acquisition. The news boosted Lasmo's share price, which gained 7p to 246p.

The full-year dividend was hiked from 1.25p to 2p, which will be paid out of foreign earnings to avoid advance corporation tax. Mr Darby said dividend payouts were important to Lasmo's strategy, apparently signalling a shift in the company's previous approach. However, he insisted this did not represent a transformation for the company.

"We're not talking about being a dividend stock here. We've improved the dividend from what was a very low level in response to the 1996 results but by what remains a very small amount. Shareholders should still look primarily to capital growth."

Mr Darby also outlined an increasingly aggressive stance towards finding new sources of oil. Investment in appraising exploration and production activities this year is likely to be pounds 100m, up from pounds 75m in 1995 and pounds 54m the year before. However cash spent on developing wells towards the final production stage fell in 1996 by pounds 94m to pounds 153m, reflecting heavy outlays the previous year on large UK fields.

Lasmo said it was evaluating expanding its activities in the vast oil fields to the west of Shetland and hinted that its interest in heavy oil fields in the Italian Apennine mountains was progressing beyond expectations. Mr Darby said Lasmo had become the first foreign group to secure an oil partnership in Kuwait. The new concern, called Khaleej Petroleum, was with a local family which he declined to name. He also brushed off suggestions that political risks in Algeria made developing further lucrative fields there too dangerous.

The group's net debts dropped from pounds 489m to pounds 346m, a level which Dick Smernoff, finance director, said was almost too low. In 1992 Lasmo was left struggling with borrowings of more than pounds 1bn following the purchase of Ultramar. Mr Smernoff added: "We'd probably like to leverage the company up a bit. It just tells you how strong the balance sheet is at the moment."

About a third of the increase in profits came from the rise in oil prices last year. Lasmo's oil earned an average price in 1996 of $18.72 a barrel, up from $17.09 the year before. Production levels in 1996 rose by almost 7 per cent, to 175,000 barrels of oil per day.