Buoyant BP cautious over refining margins

TOM STEVENSON

Deputy City Editor

BP surprised the market with a larger-than-expected dividend rise for the second quarter to June, but warned that growing capacity would keep refining margins under pressure and said higher production would keep the lid on the oil price.

The quarterly payout increased by a third from 3p to 4p, taking the half- year total to 7p compared with 5p in the first half of 1994. The quarterly rate is approaching the 4.2p achieved in 1992 before poor cashflow forced a dramatic halving of the dividend and the departure of Bob Horton, BP's then chairman.

Second-quarter results showed continuation of the recovery in BP's fortunes since then. Sir David Simon, BP's chairman who recently handed over the chief executive's role to John Browne, former head of the exploration arm, said the company was on track to meet all the performance targets he had set three years ago.

The most important of those, an annualised rate of replacement cost profits of $3bn, has almost been achieved. Debts, forecast to fall to $8bn by the end of 1996, fell to $8.4bn, just over half their level three years ago.

For the first six months of the year to June, profits jumped from pounds 695m to pounds 1.0bn, a rise of 44 per cent. The big rise means annualised profits have been on a steadily rising trend since the second quarter of 1992, despite oil price fluctuations.

Across the company's divisions, BP has increased its performance from the bottom of its peer group to the top.

On measures such as return on capital employed and net income per barrel of oil produced BP is as good as any of its rivals.

The star performer, as with Shell, which reported recently, was the chemicals division which saw profits soar from pounds 70m to pounds 502m as volumes and prices moved ahead sharply.

That more than made up for a halving of operating profits from refining and marketing where margins recovered from the exceptionally low levels of the first quarter but remained historically weak. Profits fell from pounds 331m to pounds 176m.

Exploration and production - profits up 26 per cent to pounds 1.08bn - benefited from a higher average oil price during the half-year even though the price slipped from its high point achieved at the end of the first quarter. The completion of large maintenance programmes is expected to boost production from next year.

Investment Column, page 16