BP gusher set to deliver $65bn to investors

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BP held out the prospect yesterday of handing back $65bn to shareholders over the next three years if oil prices stay high.

Announcing record profits for last year of $19.3bn (£11bn), the oil giant defended its huge payouts to investors by arguing that without the flow of dividends back to pension funds the retirement incomes of millions of workers would suffer.

Lord Browne of Madingley, the chief executive, said about half its shareholders were UK-based and, of those, the majority were pension funds. "We contribute £1 in every £6 that UK pension funds receive in dividends. If we didn't do that then pension funds would be in a worse state," he said.

Buoyed by high oil prices, BP's profits last year were up 25 per cent on 2004, enabling it to return $19bn to shareholders. But its underlying earnings for the fourth quarter of $4.98bn were well below analysts' forecasts and the company's shares fell 3 per cent.

Lord Browne blamed the "volatility" in its profits partly on new international accounting rules, which reduced profits by some $600m in the final quarter. BP's refining and marketing division also suffered from the prolonged shutdown of its Texas City refinery as Hurricane Rita advanced, reporting a $160m loss for the fourth quarter against a $1.3bn profit a year earlier.

Criticising the new International Financial Reporting Standards, Lord Browne said: "Some would argue that IFRS neither produces a record of the accountability of management nor a measure of the changes in the economic value of assets and liabilities. I would agree. What IFRS actually does is make our results more difficult to understand."

The BP chief executive ruled out a bid for Spain's Repsol and fired a warning shot over the heads of UK ministers by saying that if the state-controlled Russian gas producer made a bid for Centrica, the owner of British Gas, then it should be judged solely on competition grounds. BP fears that if ministers intervened to a block a Gazprom takeover on political grounds, then it could jeopardise its efforts to expand into the Russian oil market.

Lord Browne said BP could afford to return $65bn in dividends and share buy-backs between 2006 and 2008 if oil prices averaged $60 and $50bn if they averaged $41. London Brent fell $1 yesterday to $62.29. Lord Browne said there was "good medium-term support" for prices to remain above $40 a barrel provided there was no sustained downturn in demand.

Tony Hayward, BP's director of exploration and one of the internal candidates to succeed Lord Browne when he retires in two years, said it was investing $1bn a year in the North Sea but tax increases imposed by the Chancellor had resulted in "fiscal instability".

John Manzoni, the head of refining and another potential successor, said BP was considering rolling out M&S "Simply Food" outlets at 200 of its UK petrol stations.

Oil giant's £29bn greenhouse gas bill

BP would have made an £18bn loss if the full environmental damage caused by its activities were included, a study shows.

Using a model designed by the Government, the true social cost from the 1.46 billion tonnes of greenhouse gases entering the atmosphere would come to £29bn, according to analysis by the New Economics Foundation.

If Shell were included it would add £17.5bn-worth of pollution cost, wiping out its annual profits of £13bn and converting it into a £4.5bn loss. The total cost of £46.5bn means these two companies make up almost 10 per cent of global greenhouse gas emissions from fossil fuel use, NEF said.

BP said it had met a target it set in 1998 to cut its emissions by 10 per cent by 2010 since when they had stabilised at about 82 million tonnes. It said without its commitment to keep emissions at that level they would have hit 150 million tonnes by 2012.

David Nicholas, its spokesman, said: "We are trying to move forward to make it easier to supply energy with a lower impact on the environment."

Philip Thornton