Oil price fuels BP profits

OIL giant BP announced annual profits of £8.7bn today, equivalent to £1m an hour. The figure is at the top end of expectations and reflects the soaring oil price and continued high global demand for oil which has lifted companies across the sector.

BP's exploration and production business achieved record fourth-quarter results with a 68% profit, only partially offset by the impact of the weaker US dollar.

Chief executive Lord Browne described the past year as 'very successful', both operationally and financially. There was more good news for BP shareholders today with details of a 26% hike in its fourth-quarter dollar dividend from 7.1 cents to 8.5 cents a share.

The increase was designed to help UK investors whose sterling-based investments have been hit by the dollar's weakness.

Lord Browne added: 'This change will be to their benefit, with a sterling increase of 23% in the fourth quarter dividend compared with last year. For the year as a whole, dollar-based investors will see an increase of 13% and sterling-based investors, a rise of 4%.'

BP has bought back more than $7.5bn of shares in 2004 and says it could distribute a further $23bn in 2005 and 2006. Lord Browne said that some of the excess free cash flow could be used for material acquisitions if any presented themselves, but he said that there were currently none on the horizon.

Lord Browne denied that BP's profits were simply a reflection of high oil prices. 'Our success so far is due to our combination of strategy and discipline. Over the past few years we have built a strong base for the group with material assets and markets into which we are investing.'

Commenting on the price of oil itself, he added that demand in 2005 is likely to moderate compared to last year.

'We've concluded that on the basis of the supply-demand balance and Opec's five-year track record of maintaining production discipline, oil prices are likely to have a support level of around $30 a barrel for at least the medium term.'

{3}BP's exploration plans are based on a price of $20 a barrel. The company's large profits are sure to increase demands for a windfall tax on the oil industry, particularly from motorists who have seen the price of fuel rise inexorably at the pumps.

Rival Exxon Mobile announced profits of £13.4bn recently and last week Shell produced a £9.3bn surplus, the biggest profit ever made by a UK company. The high crude oil price and continued strong global demand, thanks not least to a booming Chinese economy which is importing vast quantities of oil, mean that industry profits are likely to remain ahead for the foreseeable future.

Like Shell, however, BP has continued expanding its proven levels of reserves. Shell has been mired in controversy after admitting that it overbooked the levels of proven reserves and downgraded its book five times in little more than a year. BP said it had more than replaced annual output with new reserves for the 12th year running.

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