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The Times: Fund managers look for signs of BP revival

February 05, 2007
Carl Mortished, International Business Editor

Lord Browne of Madingley will deliver his last presentation of BP’s strategy to the City tomorrow and fund managers will be looking for hints about how the company intends to mend its battered reputation and reverse the steady erosion of its share price over the past 12 months.

Britain’s largest company is likely to come under pressure to deliver further sweeteners to disillusioned short-term investors.

The oil company invested about $16 billion (£8 million) of its cashflow in buying back shares last year, but instead of sharing in value appreciation, loyal BP investors suffered as the price plummeted.

BP has lost about £30 billion in value over the past year, despite its heavy investment in buying back shares from short-term institutional investors.

Last week Royal Dutch Shell signalled that it may reduce the amount of free cashflow invested in share repurchases, hinting that it saw little evidence that buybacks produced a better share performance. Instead, the company promised a 14 per cent increase in the ordinary dividend.

BP’s fourth-quarter earnings are expected to be poor, down a fifth from the previous year’s profit of almost $5 billion. The stage was set for a dismal outcome in December, when the company gave warning of weak oil output and poor performance in its refining businesses.

BP’s downstream business is likely to come under further pressure in the near term as it implements a costly reequipment and retraining programme at its US refineries at the same time as refining margins come under pressure.

The downstream investment programme follows a bruising critique delivered last month by a panel led by James Baker, the former US Secretary of State. The panel’s report on safety at BP’s US refineries said that the company had a culture of complacency. It found that BP had failed to ensure that adequate resources were committed to ensuring safety at its five US plants.

The report was commissioned by BP following a fire at the Texas City refinery that killed 15 people.

Investors will look for hints about BP’s output forecast, which was scaled back in December. Fourth-quarter production was then predicted to be some 3.8 million barrels per day, well below the company’s forecast at the beginning of 2006 that the year would deliver some 4.2 million barrels per day.

Output has been held back by troubles in Alaska, where the company was forced to close large parts of its Prudhoe Bay production complex because of pipeline corrosion.

Disappointing output from BP was mirrored last week at Royal Dutch Shell, which cut its expectation of output growth until 2010 because of worsening conflict in the Niger Delta, which cost the company some 190,000 barrels per day of onshore oil production.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1329304.ece

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