Double boost for BP investors

OIL giant BP has reacted to the stock market sell-off by saying it would start buying back its own shares for the first time this year, and by lifting its quarterly dividend.

The twin moves to return cash to shareholders were welcomed by the market, which interpreted them as BP's way of signalling it was satisfied with its underlying performance and believed its share price was a victim of the wider stock market malaise.

BP also unveiled a 47% slump in interim profit to $3.76bn (£2.47bn) on the back of falling oil and gas prices. A partial recovery in prices helped underpin a 38% rise in second-quarter profit to $2.18bn although this was still down 36% from the boom time enjoyed a year ago.

Average realised oil prices fell almost $4 a barrel for the half, offsetting a 3% rise in production. BP said output was up 5% in the second quarter alone, leaving it on track to hit its targeted increase for the year.

The figures were in line with market expectations but some analysts were pleasantly surprised by the increase in the second-quarter dividend to 6 cents a share from 5.75 cents in the first quarter. The shares climbed 2 1/2p to 482p.

Efficiency improvements saved $400m, leaving BP confident it would achieve its goal of $1.4bn by the end of this year. Chief executive Lord Browne said BP's net debt ratio was below the mid-point of its 25%-35% range at the end of the second quarter, and was likely to remain around this level.

'The company intends to restart its share buyback programme and to operate it while the trading environment is above mid-cycle,' he said. BP spent $1.3bn buying back shares last year and has shareholder approval to buy a further 10% of its outstanding capital.

Browne said the crude oil market had shown signs of 'underlying strength' with inventories stabilising rather than growing in line with seasonal trends.

BNP Paribas analyst Jon Rigby said the results showed that BP's upstream operations were benefitting from a recovery in prices but the refining and marketing division was still struggling with tight margins. 'I suspect BP feels it has been beaten up a bit in the general market even though the sector retains a lot of value,' he said.