BP takes £382m hit from new North Sea oil tax as first-half profits fall 47%

BP will have to take a tax hit of nearly $600m (£382m) this year from the new tax on North Sea oil, it said yesterday, as the oil giant reported a halving of profits for the first half of 2002.

However, the company surprised the market with a hefty 9 per cent rise in the interim dividend and said conditions had now improved sufficiently for a resumption of its share buyback programme.

It is estimated that BP could spend up to $1bn on buybacks over the remain- der of the year, though the company would put no figure on it.

Reporting results for the second quarter and the half year yesterday, BP's chief executive, Lord Browne, said: "Although the upstream and downstream business environment showed some improvement over the first quarter, the half year's trading conditions were significantly less favourable than a year ago."

Net profit for the second quarter was $2.2bn, compared with $1.6bn in the first three months of the year. However, that combined performance was 47 per cent down on that of the first half of 2001.

BP blamed lower oil and gas prices for the deterioration and weaker refining and marketing conditions. Oil prices achieved fell by $4 per barrel, while gas realisations were down nearly $2 per thousand cubic feet.

In addition, the net profit figure came after a $355m one-off exceptional tax item, to account for the deferred tax liability from a surprise 10 per cent tax imposed on North Sea oil and gas profits in April's Budget.

Furthermore, BP put the ongoing impact of the tax change for this year at $225m, putting the overall blow to net income for 2002 at $580m. The company said that from next year, the continuing impact of the tax change would be $200m or more a year.

The company is the most affected by the tax change and has been vocal in its opposition to the measure. Yesterday Lord Browne said simply: "Everything we said about the tax stands."

Over the first half, production rose 3 per cent meaning, BP said, that it is on course to meet its 5.5 per cent growth target for this year. Production is loaded towards the second half. The interim period saw $400m in cost savings come through, leaving the company with a further $1bn of efficiencies to extract in the second half to meet its target here.

Jon Wright, analyst at HSBC, said yesterday's second quarter results, while down on last year, were showing an improving trend in the year- on-year comparisons, after several quarters of declines.

"It has been a volatile period for commodity prices and BP are behoven to external factors. But the earnings are very robust. A lot of sectors would be pretty envious of this," Mr Wright said.