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2nd UPDATE: BP Expands Asset Sales, Promises Better Returns

Tuesday, Oct 25, 2011

-- BP to increase scope of asset sale plan by $15 billion to $45 billion

-- CEO Bob Dudley says BP 's year of consolidation is "effectively over"

-- Company sees improved cash flow to 2014 as spill fund payments end

(Rewrites lead, adds details throughout.)

   By Alexis Flynn 
   Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)-- BP PLC ( BP ) Tuesday reported solid earnings and said it plans to expand its asset sale program and boost shareholder returns in an attempt to reinvigorate the U.K. oil and gas giant's share price.

The London-listed company's announcement that it would now sell assets worth another $15 billion, in addition to an initial $30 billion target, came as BP reported third-quarter earnings ahead of analyst expectations. Investors enthusiastically greeted the news, sending BP 's stock trading 3.5% higher by mid-afternoon.

BP , which is still dealing with the fallout of last year's major oil spill in the Gulf of Mexico, has been under pressure from shareholders to deliver a clear strategic direction and help it catch up with its sector peers. Since the incident last year, BP 's stock has lost more than a third of its value.

Chief Executive Bob Dudley said that with BP 's year of consolidation "effectively over," attention would now turn to rebuilding confidence in the company and seeing "its true value reflected in our share price."

A company press release suggested the company is turning the corner, saying 2011 progress had succeeded in "creating a stronger and safer BP ." Still, some analysts said they wanted more evidence of progress given recent disappointments.

BP earlier posted a slightly better than expected 3.6% fall in third quarter adjusted net profit despite a big year-on-year production drop. Output, which has been stymied by a wide-ranging maintenance program, is expected to rise again in the next quarter.

The company said its clean replacement cost profit, a keenly watched figure that strips out gains or losses from inventories and other non-operating items, fell 3.6% for the period to $5.33 billion, compared with $5.53 billion for the third quarter of 2010.

This was above expectations of $5.06 billion in a Dow Jones Newswires poll of 13 analysts.

Total production for the period was 3.319 million barrels of oil equivalent a day, a 12% decline from last year. Analysts had anticipated 3.315 million.

Operating cash flow improved markedly to $6.89 billion from a loss of $652 million last year. BP now expects cash flow to grow by around 50% by 2014, assuming a $100 per barrel oil price environment in 2014.

The earnings follow some positive news in the U.S., where BP recently reached a key settlement with a drilling partner on the ill-fated Deepwater Horizon project and where it has made regulatory progress in resuming drilling in the Gulf of Mexico.

The company also said Chief Financial Officer Byron Grote would step down from his position in January, to be replaced by his deputy Brian Gilvary. Grote, who will assume another executive vice president role and retain a seat on the board, has been BP CFO for nine years.

With analysts and investors prepared for the production fall, attention turned to how the company plans to accelerate its recovery and improve shareholder returns.

Dudley pointed to improved cash flow as new exploration and production projects commence during the next three years. In addition, payments to a trust fund set up to meet damages claims from last year's spill will conclude by the fourth quarter of next year.

BP said the additional money raised from the asset sale, initiated to help cover the cost of the oil spill, would be invested "in quality, higher-growth opportunities, mainly in exploration and production, while divesting low-returning assets."

Some of the increase to the new $45 billion figure comes from the inclusion of previously announced U.S. refinery sales.

While half of the additional operating cash would be invested in growth projects, Dudley said the rest would be used for "other purposes, which would include increased distributions to shareholders through dividends and buybacks."

The company said it would evaluate its plans for 2012 shareholder distributions in February, "adjusting them in line with the improving circumstances of the firm," as Dudley put it.

Analysts said the company still had a way to go before it could claim to have completely turned a corner.

Peter Hutton from Royal Bank of Canada said while the numbers were encouraging, talk of a turnaround was "perhaps premature" until new drilling permits in the Gulf of Mexico are received. "Over the past year, BP has tended to announce a little early [such as January's mooted tie-up with OAO Rosneft (ROSN.RS)] so the market may want to see proof," he added.

Citi's Alastair Syme, meanwhile, said BP 's new cash flow growth targets were broadly in line with what Citi had already been estimating.

-By Alexis Flynn, Dow Jones Newswires; +44 (0)20 7842 9317; alexis.flynn@dowjones.com

(END) Dow Jones Newswires

25-10-11 1610GMT