Bottom Line: BP assets must work harder

BRITISH Petroleum has made a solid turnaround in its performance since it was forced to halve the dividend 18 months ago. In that time it has had little help from the world economy, while oil prices, at about dollars 13.50 yesterday, have sagged markedly, hampering its ability to generate surplus cash.

Thanks to cost-cutting and efficiency improvements, it has turned a replacement cost net loss of pounds 352m in 1992 to profits of almost pounds 900m. The exploration side again set the pace by boosting operating profits from pounds 1.7bn to pounds 1.9bn despite a dollars 2-a-barrel fall in the oil price.

Refining and marketing profits more than doubled to pounds 810m, helped by better margins and cost- cutting. Although BP's chemicals improved productivity sharply, the benefits continued to be eroded by industry overcapacity and weak demand.

But after sacking 15,000 staff including Bob Horton, the former chairman, BP has still much further to go before its performance is on a par with its peers. Net debts fell from about pounds 10.4bn to pounds 8.4bn after disposals, but the company has yet to generate free cashflow.

That could be tough to achieve when oil prices show little sign of improvement. Ultimately the group's ability to deliver real dividend increases will depend on it sweating its assets harder.

The shares, down 3.5p to 386p after profit-taking yesterday, are trading on an earnings multiple of about 18 times and yield 3 per cent. Although attractive on a long-term view, their short-term appeal is limited while the oil price languishes.