After posting a 30% rise in fourth-quarter net profit, BP PLC (NYSE ADR: BP) yesterday (Tuesday) announced the long-awaited resumption of its quarterly dividend.
The U.K.-based oil giant said it would pay a dividend of seven cents a share for the fourth quarter of 2010. BP suspended its payout – which had been twice as large – last year to help cover the cost of the Deepwater Horizon oil spill.
The company said it will overcome short-term setbacks by selling half its U.S. refining capacity – the Texas City, TX and Carson, CA plants – and focusing on faster-growing petroleum markets in emerging economies.
The sales, "will make BP the smallest refiner among its international competitors," and reduce its total capacity by around a fifth, a BP spokesman said.
The Texas City refinery is BP's largest in the United States. In 2005, it was the site of an industrial explosion that killed 15 people while saddling the company with millions of dollars in fines from the U.S. government.
BP has already received inquiries from "competent operators" regarding Texas City, Chief Executive Officer Robert Dudley told reporters. The two refineries up for sale can produce a combined 741,000 barrels a day. BP expects to get at least $4.4 billion from the sales, Iain Conn, head of refining, told Bloomberg News.
"The shrewd strategic move would have been to divest the refining completely as this would have provided a substantial cash injection, as well as remove a problematic and not very profitable business unit," Dougie Youngson, an analyst at Arbuthnot Securities Ltd. in London told Bloomberg.
"The re-introduction of the dividend is good news for investors, but it is likely to prove inflammatory to Gulf Coast Senators whose communities are still being impacted by the spill," said Youngson, who has a "sell" recommendation on BP.
BP's Dudley is repositioning the company into a "smaller" and "more agile" entity after his predecessor Tony Hayward lost his job following the worst spill in U.S. history.
BP expects production to be about 3.4 million barrels of oil equivalent a day in 2011, compared with 3.8 million barrels in 2010. Output fell 9% in the fourth quarter from a year earlier.
The lower production forecast comes as BP struggles to drill any wells in the Gulf of Mexico this year due to the stringent demands of regulators, a London-based analyst who did not wish to be named told The Wall Street Journal. BP could lose 80,000 barrels a day of oil production in the Gulf this year simply by not being able to drill wells on existing fields, the analyst said.
"2011 will be a year of recovery and consolidation as we implement the changes we have identified," Dudley said in a statement. "It will also be a year in which we have the opportunity to reset the company, adjusting the shape of our business," he said.
So far, the company said it has sold $22 billion of assets. BP will work harder to grow production from a lower base by increasing investment in exploration in strategic oil and gas properties by 10%. Last month. BP agreed to an $8 billion share swap with OAO Rosneft to join a Russian Arctic exploration venture in the Kara Sea.
"The U.S. Gulf of Mexico has presented an opportunity to downsize and refocus on higher upstream returns and improved growth," Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh told Bloomberg.
BP announced the restoration of the dividend even after its billionaire partners who own 50% of BP's other Russian venture, TNK-BP Ltd., filed an injunction to block the Rosneft venture.
BP said it would actively oppose the court action, which may delay the deal. TNK-BP accounts for 25% of BP's output and one-fifth of its reserves.
BP, Europe's second-biggest oil company, last year pledged to sell as much as $30 billion of assets to help cover costs from the spill. Dudley said yesterday that he would no longer be bound by that target.
Under pressure from President Barack Obama, the company also established a $20 billion fund to compensate victims. Kenneth Feinberg, the government appointee who is administering the fund, said in a Dec. 31 Bloomberg Television interview that it appeared that $10 billion may be "more than enough to pay all the claims."
BP was mostly responsible for decisions that led to the disaster, according to a report last month by The National Commission on the BP Deepwater Horizon Oil Spill. But the report also cast blame on contractors Halliburton Co. (NYSE: HAL) and Transocean Ltd. (NYSE: RIG). Attorney General Eric Holder is heading up a civil suit and an investigation that may lead to criminal charges against BP and company officials.
BP reported net profit for the fourth quarter of $5.57 billion, compared with $4.30 billion a year earlier. Total revenue for the quarter was $83.99 billion, up 14% from $73.64 billion in the same period in 2009, the London-based company said in a statement.
BP's earnings were bolstered by higher oil prices and improved refining margins. Brent futures have gained more than 25% since the start of last year. BP's Global Indicator Margin, a broad measure of refining profitability, averaged $4.64 a barrel in the fourth quarter, up from $1.49 in the year- earlier period.
For the full year, BP recorded a net loss of $3.59 billion, the first losing year the since 1992. The losses were entirely attributable to the huge write off of costs for the Gulf of Mexico spill. Total costs for the oil spill rose by $1 billion in the fourth quarter to total $40.9 billion, The Journal reported.
Despite the fall in adjusted profit, "BP remains significantly oversold," ING analyst Jason Kenney told The Journal. The new dividend payment is generous, but will give BP the financial flexibility to invest and grow, he said.
News & Related Story Links:
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