BP resumes dividend payouts after full-year loss
LONDON – BP PLC outlined plans to rebound from the Gulf of Mexico disaster as a smaller, safer company — selling off almost half its U.S. refinery business — and restored its dividend payment to shareholders as it unveiled strong fourth-quarter profits on Tuesday.
But uncertainty over the final bill for the Gulf spill and criticism from some analysts that the company shunned a more drastic restructuring tempered the good news.
Casting a further shadow was a dispute at the London-based company's Russian subsidiary TNK-BP, which Chief Executive Bob Dudley acknowledged may cost BP financially to resolve.
Dudley painted 2011 as a year of "recovery and consolidation" for the company as he listed three priorities: improving safety, restoring trust and finding value growth for shareholders.
As anticipated, BP posted a full-year loss in 2010 — its first in almost 20 years. High crude oil prices at the end of the year lifted fourth quarter profit by 30 percent to $5.6 billion. But that was not enough to wipe out the effects of the Gulf spill, resulting in the full-year loss of $3.7 billion, compared to a profit of $16.6 billion in 2009.
"2010 will rightly be remembered for the tragic accident and oil spill in the Gulf of Mexico and it is clear that as a result BP is a company in transition," Dudley said in London. "I am determined that we will emerge from this episode as a company that is safer, stronger, more sustainable, more trusted and also more valuable."
Among its first steps of a return to business, the company announced that it would pay a 7 cent per share, or $1.25 billion, dividend to shareholders in the fourth quarter. The company scrapped the first three quarterly payments last year amid political and public pressure to set aside funds to pay for the April 20 Macondo well blowout that killed 11 workers.
"We believe now is the right time to resume payment of a dividend to our shareholders," said Chairman Carl-Henric Svanberg.
"We have chosen a prudent level that reflects the company's strong underlying financial and operating performance but also recognizes the need to fully meet our obligations in the Gulf of Mexico and to maintain financial flexibility."
While stressing its commitment to the Gulf, BP put its Texas City and Carson refinery near Los Angeles up for sale. The company didn't put a figure on the two facilities, but said it had already received inquiries and hopes to conclude sales by the end of 2012. It added it plans to honor all its obligations stemming from a 2005 explosion at Texas City that killed 15 workers.
The company plans to concentrate its U.S. refining and marketing activity at Whiting, Indiana and Cherry Point, Washington, as well as in its 50 percent stake in the Toledo, Ohio facility.
BP has already slimmed down by selling some $22 billion of assets and agreeing to an $8 billion controversial share swap with Russia's OAO Rosneft.
BP raised the its estimate for the overall cost of the spill slightly to $40.9 billion from $39.9 billion. The charge covers the cost of the explosion aboard the Deepwater Horizon rig, which killed 11 workers in April, as well as plugging the well and cleaning up the southern U.S. coast.
Dudley said the company had a strong case for recouping the brunt of the costs from its partners in the Gulf of Mexico, including Transocean and Halliburton. They have so far not responded to bills from BP and cost provisions do not factor in payments from those quarters.
The company also cautioned that the final total "is subject to significant uncertainty."
Shares in the company, which had already factored in the positive of a renewed dividend payment, fell immediately after the earnings report, but made up some ground later in the session. By the close, the stock was trading 1.3 percent higher at 491 pence. That's still around 25 percent lower than on April 20, the day of the Macondo well explosion, but it is well off a low of 302.9 pence reached in late June.
"The market may be slightly underwhelmed by the lack of a more radical restructuring plan but with Macondo still an ongoing issue it may be too early for BP to implement more radical plans," said Richard Griffith, analyst at Evolution Securities.
"Going forward, the Gulf of Mexico continues to be an issue as it impacts operations," said Tony Shephard, analyst at Charles Stanley & Co., noting that BP's strategy before the accident was centered on the Gulf where it is the largest lease owner. "The Gulf faces a slow recovery in deepwater activity for all participants and further drilling delays are likely."
Dudley said he didn't believe that BP would be singled out for "special treatment" in the Gulf following the spill, but would impose restrictions on itself until it was sure lessons had been learned.
"BP is committed to doing business in the U.S. We are committed to our resource base in the Gulf of Mexico," Dudley said. "It's a very, very high resource base."
BP said clean-up activity in the Gulf has been winding down since no significant volume of oily liquid has been recovered since July 21, and 98.8 percent of the waters formerly closed to fishing had been reopened. The number of people employed on the cleanup had dropped from 20,000 to about 6,200.
As of this weekend, about 91,000 people and businesses had filed for final settlements of claims from the $20 billion fund, administered by Washington lawyer Kenneth Feinberg. Thousands of people have received some money to tide them over until a final settlement amount is offered, but only one has been fully paid — a $10 million claim which BP called a unique situation.
Complicating BP's attempts to move on from the disaster is a dispute with BP's Russian partners in its TNK-BP venture following BP's share swap deal with Rosneft.
As the company announced its earnings, the AAR consortium, a group of Russian oligarchs that owns the other half of TNK-BP, secured an injuction to stop the deal, claiming it violated exclusivity provisions in the TNK-BP shareholder agreement and will erode the joint venture's competitive advantage.
London's High Court ordered both parties to go to arbitration with the aim of resolving the issues by February 25. The share swap deal has been suspended until then.
AAR has also upped the ante on Monday by voting against a $1.8 billion dividend payout for the fourth quarter, a move that would deprive BP of $900 million. TNK-BP now accounts for a quarter of BP's oil production.
A judge ruled Tuesday that BP and AAR should enter an expedited arbitration process, with a hearing before Feb. 14, and that there would be no share swap before Feb. 25.