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Feb 07 2012

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UPDATE: BP Ups Dividend For 1st Time Since Spill, But Questions Linger

   By Alexis Flynn 
   Of DOW JONES NEWSWIRES 
 

The dividend hike came as BP reported earnings that beat expectations and posted oil gas production results were also somewhat higher than analyst expectations. Still, the company faces significant questions about additional liabilities related to the 2010 oil spill.

BP shares were choppy Tuesday morning, down 1 pence at 0939 GMT after opening higher, suggesting continued investor skepticism.

BP said it would raise its dividend 14% to 8 cents a share for the fourth quarter, a rise that mirrors its year-on-year improvement in adjusted profit. The dividend increase is BP 's first since the Macondo oil spill in 2010.

This was above expectations of $4.88 billion in a Dow Jones Newswires poll of 11 analysts. It also bested those of rival Royal Dutch Shell PLC (RDSA.LN) for the first time in a year.

Yet the market's muted reaction to the news suggests that nearly two years after the Deepwater Horizon accident, the event still continues to cast a shadow over BP .

The company has set aside $20 billion to pay for damages from the accident, from which it has paid out $7.8 billion so far. A civil trial to apportion blame -- and fines -- for the spill is due to begin at the end of this month. If BP is found to have been grossly negligent, it could face fines of up to $20 billion under the Clean Water Act.

Speculation has mounted in recent weeks that the company could be prepared to settle out of court with the Department of Justice, but CEO Dudley Thursday said it wouldn't do so at any price.

"As I have said before, we are prepared to settle if we can do so on fair and reasonable terms, but equally, if this is not possible, we are preparing vigorously for trial," Dudley said.

BP 's profits were again underpinned by high oil and gas prices and solid, if unspectacular, production figures. While overall output declined 5% from a year ago, volumes improved on a quarterly basis as fewer rigs were left idle for maintenance and repair work.

Total production was 3.487 million barrels of oil equivalent per day, compared to 3.673 million per day a year ago, largely due to the continued impact of a wide-ranging asset sale enacted to help cover the costs of the Gulf of Mexico oil spill. Analysts had expected production to fall to 3.452 million boe/day.

Like Shell and U.S. rivals Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), quarterly earnings at BP 's refining business fell sharply as waning refining margins and weak fuel demand dented profits. A narrowing of the sharp difference in price between the world's two main crude benchmarks, the West Texas Intermediate and Brent grades, and maintenance at its profitable Whiting, Ind., refinery in the U.S. Midwest meant it earned 42% less than in the same period last year.

The London-based energy giant said net profit for the three months ended Dec. 31 was $7.69 billion, compared with $5.57 billion for the fourth quarter of 2010.

Total revenue for the quarter was up at $96.34 billion from $83.99 billion in the same period in 2010.

Diluted earnings per share were 39.99 cents compared with 29.28 cents the previous year.

Analysts said the earnings rise was broadly in line with their estimates, albeit flattered by a lower tax rate, but said the results also pointed to some evidence of the operational improvements touted by the company.

"Going through the numbers, the slowdown in BP 's [production] decline is clearly marked in the fourth-quarter," said Royal Bank of Canada analyst Peter Hutton, explaining that a 5% year on year fall compared favourably to the more than 10% falls seen in previous quarters.

And Macquarie analyst Jason Gammel highlighted BP 's improving profit margins on the oil it produces -- up some 30% at $101.84 a barrel -- as "a strong sign" of its improving fortunes.

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

(END) Dow Jones Newswires

07-02-12 0956GMT