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Daily Telegraph: Upheaval leaves supplies vulnerable, warns BP

By Christopher Hope, Industry Editor (Filed: 08/02/2006)
Lord Browne of Madingley, chief executive of BP, yesterday warned of “significant supply disruption” to world oil supplies as the company announced the biggest proposed cash return to shareholders in British corporate history.
Speaking as the oil giant announced a 25pc jump in annual replacement cost profits to $19.3 billion (£11 billion), Lord Browne warned of a tight market for the next few years.
The Opec cartel of oil producing countries was likely to maintain a tight grip on the market. He added: “The vulnerability to a significant disruption is also expected to remain high.”
Lord Browne said concern centred on the political outlook in oil-producing nations such as Iran where there was a question of whether it wanted “to cut off its nose to spite its face”. People were worried about an “imbalance of power” between producers and consumers, he added.
BP, which spent $19 billion on dividends and buying back its shares last year, also said that its policy of handing back surplus cash to shareholders would continue.
The company now plans to hand back up to $65 billion over the next three years if the oil price stays at over $60 a barrel. Lord Browne said that one of its goals was “to return all free cash flows in excess of investment and dividend needs, all other things being appropriate”.
Colin Morton, of Rensburg fund managers, said: “If you look at the market cap of $200 billion, they're saying you could technically get back almost a third of the company by 2008.”
Unlike Shell, which replaced 60pc to 70pc of the barrels it pulled out of the ground last year, BP's “reserve replacement rate” was 95pc. BP also expected to produce up to 4.2m barrels a day this year, ahead of Shell's 3.65m bpd.
Lord Browne said BP saw no need for acquisitions to boost its asset base, with 18 billion barrels of proved reserves and another 41 billion of additional resources. “We have such an extraordinarily resourced business,” he said.
Profits before interest and tax were up 23pc to $30 billion, less than the UK record of $44.5 billion pre-tax profits posted by Shell last week. Lord Browne denied that the company was profiteering at the petrol pumps, pointing out that only 4pc of this figure was derived from the UK.
Capital expenditure – the money invested in equipment and looking for more hydrocarbons – was set to be around $16 billion this year, increasing by $500m a year in 2007 and 2008.
Despite the strong figures, BP's shares closed down 18 at 647½p after a poor final quarter from its refining and marketing arm which lost $160m, compared with a $1.3 billion profit last time. Analysts had forecast profits of $450m.
The company blamed $1 billion of lost revenues from its Texas City refinery, which was shut down because of Hurricane Rita, a $500m restructuring charge in Europe and a $500m accounting charge.
BP announced a 17pc jump in the final-quarter dividend of 5.3p a share, payable on March 13, taking the total for the year to 19.9p.

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