Last updated: February 5, 2008 8:02 pm

BP to cut 5,000 jobs as profits fall

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BP, Europe’s second biggest oil company, has raised its final quarter dividend by almost a third, in a one-time move to reflect an “increasingly robust view of the future” in spite of fourth-quarter profits falling well short of analysts’ expectations.

It also said it planned to cut 5,000 jobs by the middle of next year as part of a restructuring plan under Tony Hayward, who took over as chief executive last May following the sudden departure of Lord Browne.

Mr Hayward said: “We are very clear performance isn’t good enough. We are very clear about what we need to do. And we are clear that it won’t happen overnight. But, step by step, we are making progress.”

Replacement cost net profit was $2.97bn (€2.02bn) in the fourth quarter, down 24 per cent from the equivalent period of 2006; for the year, it was $17.3bn, down 22 per cent.

Excluding “non-operating” charges of $1.03bn related to the sale of 700 US convenience stores, and other restructuring costs, the fourth-quarter profit was $4bn, when analysts had been expecting about $4.5bn.

Those forecasts had been cut sharply in recent weeks, as analysts began to focus on issues such as a higher tax charge and weak refining margins.

Production of oil and gas was down 3 per cent for the year at 3.82m barrels of oil equivalent a day. However, it was 2 per cent higher in the fourth quarter of 2007 than in the equivalent period of 2006, a better result than for the other oil super-majors that have reported so far: ExxonMobil, Royal Dutch Shell and Chevron.

BP’s reserve replacement also seems likely to have been better than its competitors. It said it had replaced more than 100 per cent of the oil and gas it produced last year, while its leading rivals have either reported poor performance or said nothing.

BP’s dividend for the fourth quarter of 2007 will be 13.525c, up 31 per cent from the year before. For the year the total dividend is up 16 per cent in dollar terms. In sterling terms, it was 6.813p a share, compared with 5.258p a year ago, lifting the full-year figure by 7 per cent. BP shares closed at 543p on Tuesday.

Byron Grote, the chief financial officer, described the dividend increase as a “one-time adjustment”.

Mr Hayward said: ”In response to feedback from many institutional shareholders, we have changed the approach to rebalance more towards dividends, and less towards buy-backs.”

Last year BP bought back $7.5bn of its shares, roughly 4 per cent of its market capitalisation, down from $15.5bn in 2006.

The job cuts represent about 5 per cent of BP’s workforce of about 97,000. Roughly 1,500 of the jobs will go in the UK, about the same in the US, 1,000 in continental Europe and the rest elsewhere.

A further 9,500 jobs will move off BP’s payroll as a result of the sale of the convenience stores.

The restructuring is expected to cost about $1bn this year, and deliver savings of about $1bn-$1.5bn a year, but Mr Hayward cautioned that this would only offset the high rate of cost inflation in the industry.

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