BP raises dividend as profits jump

Oil and gas company BP (BP.L) has raised its dividend for the first time since re-instating the payout a year ago in the wake of the worst offshore oil spill in US history in the Gulf of Mexico.

The London-listed energy major, which is soon to start a major trial over damages for the 2010 Gulf of Mexico oil spill, today reported that its fourth-quarter earnings, adjusting for non-operational items and fair value accounting effects, hit a better-than-expected $4.98 billion in the fourth quarter. This number slightly beat analyst forecasts and also competitor Royal Dutch Shell (RDSb.L)’s reported earnings of $4.85 billion.

Investors, who have waited patiently for a higher dividend since 2010’s disaster, will receive a payment of eight cents per ordinary share, which BP said it expected to pay in March. The corresponding amount in sterling will be announced on 19 March 2012, the company added. 'I think today represents the first step of momentum coming back, gives us confidence we can begin to raise the dividend in line with the improving circumstances of the company,' chief executive Bob Dudley said in a television interview after the announcement of the results.

Saket Vemprala, an oil and gas analyst for Business Monitor International, said the dividend increase was a good result for investors: 'It was probably as good as it gets, there are so many demands on BP's money.'

BP's fourth-quarter replacement cost profit, a key industry benchmark, was $7,606 million, compared with $4,614 million a year ago.

Dudley, who replaced Tony Hayward in 2010 in the wake of the Deepwater Horizon rig disaster, said today he expects organic capital spending will grow to some $22 billion in 2012, up from 2011's $19 billion.

The company is due to start a major civic trial on the the Deepwater Horizon accident in New Orleans on February 27. However BP could still reach a settlement with the US government. Dudley commented today: ‘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.’

Vemprala said: 'They have set aside about $45 billion in total and could get a settlement around that figure.'

Shares in the company, which has benefited from higher oil prices, were slightly up at 491p after the results announcement. Initial analyst reaction pointed to disappointing guidance for exploration and production. Andrew Whitlock of Liberum retained his ‘hold’ recommendation and preference for Shell, also a ‘hold’. ‘The results are close to expectations and, given the benefit from the tax charge, may even be seen as disappointing,’ he added, referring to the benefit to profits from a lower tax charge than expected.

Meanwhile Investec kept its buy rating on the stock and pointed to the potential for further dividend increases. 'We continue to believe that BP will settle sooner rather than later given the US presidential election and we see a 50% chance this will occur in the next few weeks. We continue to believe the $42 billion of provisioning is broadly right, i.e gross negligence is not a likely outcome in our view. On that basis, we could see a dividend hike and/or buyback for 2013,' the broker said. 

BP shares have risen steadily so far this year from 460.5p at the end of 2011, but have not yet regained their 2010 highs. BP is a Citywire Top Stock held by Derek Stuart, manager of the Artemis UK Special Situations fund, and M&G Recovery fund manager Thomas Dobell.