Bottom Line: Surprise timing from BP

BP's shares, with another 16.5p leap to 399.5p yesterday, have more than doubled since the company halved its quarterly dividend in August 1992 and embarked, under David Simon, newly anointed chief executive, on an accelerated pounds 1bn restructuring programme.

In a suitably upbeat coda to the recent bull run in oil shares, BP has bowed to the market's enthusiasm and opted for a generous 20 per cent increase in its first quarterly dividend, which has brought the possibility of a 10p dividend in 1994, a good two years before many had thought likely.

The timing was a surprise in a year in which analysts had been expecting broadly flat earnings in the absence of a sustained improvement in oil prices and given the fact that the majority of the company's first phase of cost savings has flowed through to the bottom line.

Under the cloak of the hefty 1992 provision Mr Simon has been able to crank up BP's profits despite the effects of a sharp slump in oil prices on its predominant exploration and production activities.

But the company really has not yet proved, despite the paydown of pounds 400m of debt in the seasonally favourable first quarter, that it is capable of sustained cash generation from its operating activities, previously the chief criterion for pushing ahead the dividend.

However it is entering a virtuous circle whereby disposals - pounds 3.3bn since 1992 and another pounds 1bn to go this year - are lowering interest charges and improving cash flows. Capital expenditure is going further than before, thanks to technological advances.

With costs hacked back, the next phase of earnings recovery, targeted to be another dollars 1bn by 1996, will come from a mixture of disposals but also improved yields from recent investments downstream and the benefits of lower finding costs upstream. BP looks set to prosper as oil production volume moves steadily ahead into the next century, but a 3 per cent yield reflects much of the good news.