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Daily Telegraph: BP's success caught up in pump and circumstances

Business comment
By Tom Stevenson
(Filed: 08/02/2006)
Upheaval leaves supplies vulnerable, warns BP
Lord Browne may have been voted the UK's most impressive businessman for the sixth time but he looked friendless as he announced BP's record profits.
The UK's largest company is between a rock and a hard place every time it reports bumper figures – too much and the big business baiters come out in force, not enough and the City throws up its hands.
Yesterday's 25pc rise in full- year profits to £11 billion managed the clever feat of upsetting both camps at once. The T&G came out for the pensioners, forgetting that BP is almost certainly the biggest holding in the retirement fund of every worker in the country.
Friends of the Earth called for a windfall tax, ignoring the Chancellor's last smash and grab raid only three months ago.
The question the critics could have asked is what the biggest handout in British corporate history says about BP's ambitions. There's nothing sensible to buy and the company plainly has doubts about its chances of developing alternatives for the post-oil era.
Despite the largesse, there was also no respite for BP in the Square Mile, where analysts picked holes and marked the shares lower. Disappointing is a relative term, of course, and increasing profits by a quarter when you are bigger than a medium-sized country is a serious performance, even if the result lagged rival ExxonMobil in growth and Shell in dollars.
Some of the damage was beyond the company's control, even if its response to Hurricanes Katrina and Rita and the fire at its Texas City refinery was slower than might have been expected. Record profits, but it's been a bruising year for BP.
In the circumstances, finding a new barrel of oil for every one it sucked out of the ground for the 13th year in a row was a sterling performance and compares favourably with Shell, which only manages a replacement rate of about two thirds. No wonder that the Anglo-Dutch company's bigger headline profits translate into a lower market value.
Browne's big win was to step on the acquisition gas when the oil price was half its current level. He is right to back off now when assets look nothing like as compelling.
If it wasn't for BP's Russian production via its TNK joint venture, production would have been 3pc lower last year.
BP has doubled in value since the beginning of 2003 but it still only trades on 10 times next year's earnings and offers a dividend yield of 3pc.
With the company promising to hand shareholders up to a third of the company's value over three years via dividends and buybacks, and with most sensible observers expecting the oil price to remain high for the foreseeable future, that rating looks undemanding.

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