BP buy-back programme adds to Shell's woes

BP piled yet more pressure on to its struggling rival Shell yesterday by unveiling a huge share buy-back programme which could return up to $15bn (£8.26bn) to investors over the next three years.

The oil major said it intended to return all the free cash it generated during that period to shareholders, provided the oil price remained above $20 a barrel. Lord Browne of Madingley, BP's chief executive, said in a strategy presentation to the City that this would deliver "significant extra cash" to shareholders. "There appears, at present, to be overwhelmingly more chance of the oil price being above $20 a barrel for the next few years, than not," he said.

BP said that at $20, it anticipated a total distribution, including dividends, of $19.5bn between 2004 and 2006. At $25, the payout would rise to $26.4bn and at an oil price of $30 it would hit $33.4bn. Assuming annual dividend payments of around $6bn a year, that would give BP the scope to return an extra $500m to $5bn a year to shareholders in the form of buybacks. Over the last three years, it has returned a total of $6bn through buy-backs.

Analysts described BP's strategy as "payback time" for investors after the very heavy capital investment it has made in production facilities, culminating in last year's $6.75bn investment in Russia, which has restricted the scope for rewarding shareholders. BP shares ended the day 9.5p higher at 445p. It also puts added pressure on Shell to undertake a big share buyback programme, hemmed in as the company is over the debacle over the misbooking of reserves.

Lord Browne told analysts and investors that BP had moved from a transition period of acquisition and consolidation to one of strong organic growth, which would enable it to generate more free cash and reduce capital spending from the relatively high levels of the last two years. Investment is due to fall from $13.5bn this year to between $12bn and $12.5bn next year and $12bn-$13bn the year after that. Unlike Shell, which has been forced to cut its proven reserves by 4.4 billion barrels, Lord Browne said BP was quite confident in its bookings. These currently stand at 18.3 billion barrels, including its share of reserves in the Russian joint venture TNK-BP. That compares with a figure of 8.6 billion barrels in 1997 before BP began its takeover spree which has seen it swallow up first Amoco and then Atlantic Richfield.