BP fuels hopes with increase in final-quarter dividend

MARY FAGAN

Industrial Correspondent

BP yesterday surprised the City and fuelled expectations of greater things to come by raising the dividend for the final quarter of 1995 in spite of profits at the lower end of forecasts.

Sir David Simon, chairman, said the payout was based on sustainable strong performance and gives BP a stable base from which to move forward. "The dividend is in our minds back on track," he added.

The fourth quarter hike to 4.25p brings the payout for the year to 15.25p - an increase of 45 per cent over 1994. Sir David said that on an annualised basis, the increase put BP's payout above the level of dividend paid before the controversial cut in dividend in 1992.

"You should see this not as a closing of the chapter since 1992 but rather as a beginning and a secure base on which we can build. I really think we are back at the upper end of the oil premier league," he said.

Sir David said that his confidence comes from "sustainable self-help" which has boosted BP's fortunes rather than reliance on any external market factors.

City analysts are now looking for clarification of future policy at a briefing to be given in March by chief executive, John Browne. Mr Browne said yesterday that he would say more then about shareholder value but refused to comment on the prospects for a share buy-back or special dividend.

There has been speculation that the company might announce a special dividend or share buyback following a sharp reduction in debt over the last few years.

He was speaking as BP announced fourth quarter replacement cost net income of pounds 501m before exceptional items, down from pounds 532m in the third quarter and against pounds 427m the previous year. Analysts had forecast a figure of between pounds 495m and pounds 566m.

BP pre-exceptional profit for 1995 was a record pounds 2bn, up by 36 per cent on the previous year. However, the group took a charge of pounds 900m after tax, mainly related to the rationalisation of the refinery business where margins remain extremely squeezed. BP's shares fell by 8.5p to close at 536.5p.

The company also warned of no early solution to British Gas problems over its expensive long term contracts with North Sea producers, which are forcing the gas giant to buy much more than it can sell. Mr Browne said that BP has had "preliminary discussions" with British Gas, which is attempting to renegotiate the contracts, but he added: "We are not in the business of trasferring our shareholders' value to those of other companies. We must look after our shareholders interests. The discussions need to go much further before there are options, if any, that we can talk about."

Mr Browne also confirmed that BP has decided not to participate in the first phase of competition in domestic gas supply, due to start in the south west this year. There is a view that BP will not enter the domestic markey until it is fully open in 1998.

BP warned that the UK petrol forecourt wars are set to continue but Sir David denied that there is any fundamental change in the marketplace. He said: ''Things have become hotter," adding that he believes the market will shake out over time.

Earlier this year Shell and Esso made further sharp cuts in petrol prices but BP said that other are "catching up" and that its offering remains competitive.

Investment Column, page 26