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The Guardian: BP twists knife into Shell with share buyback


Terry Macalister

Tuesday March 30, 2004


BP yesterday twisted the knife into troubled rival Shell by promising to return billions of pounds to shareholders over the next three years and predicting an average production growth of 5% each year until 2008.


The British company, led by chief executive Lord Browne, said an anticipated $20 (11) per barrel oil price would allow it to meet its capital requirements and pay a progressive dividend.


In addition "all the free cash generated when the oil price is above that level would be returned to shareholders through buybacks".


The oil group insisted its reserve figures were rock solid and its shares rose 2% to 444p as the City welcomed the upbeat tone.


Analysts shrugged off BP's relatively poor first-quarter production results, which were hit by strikes and divestments as the company highlighted future gains from Russia and elsewhere.


The oil and gas sector has been in turmoil after the reserve downgrades at Shell, which led to the exit of its chairman Sir Philip Watts and another senior executive.


The Anglo-Dutch group has set its face against buying back shares. It plans to put its surplus cash into maintaining the dividend and on capital investment as its production growth has stalled.


With North Sea Brent blend averaging more than $30 per barrel this year, BP has already bought $1.25bn worth of shares this year and could have spent $5bn by December 2004.


The company handed out $6bn shareholders in the four years from 2000 to the end of 2003 owing to a stronger than expected crude price.


Not everyone was enthusiastic about the share buyback scheme, with Fadel Gheit, oil analyst at Oppenheimer & Co in New York, pointing out that the billions spent had done little to increase BP's equity value, which has fallen since the beginning of this year.


Bruce Evers from Investec Securities said the whole BP message was successful in that it "emphasised the sorry state that Shell is in".


The Anglo-Dutch oil firm has said its production will be flat this year and would go down in 2005, after which it has promised that output will start to rise again.


The decision of Lord Browne to highlight production is also surprising as last year he suggested BP would concentrate on a whole range of different indices after it repeatedly failed to meet its own previous output targets.


BP's production growth is expected to be 7% per annum up to 2008 if the contribution of its Russian joint venture -TNK-BP - is added to the mix.


Lord Browne said there were strong development moves in the company's five new profit centres such as Trinidad, Angola and the US Gulf.


After a frenetic period of acquisitions and consolidation, the BP boss said the company was now in a transitional stage of organic growth.


Output in the first quarter of 2004, excluding Russia, came in at 3.17m barrels of oil equivalents, which is down on the previous three-monthly period.


Figures were hit by divestments, industrial action in Trinidad and "unplanned losses" at its Northstar field in Alaska, the company revealed.,3604,1180775,00.html

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