BP opened its coffers to investors yesterday, promising a step change in the level of the dividend payout. But even as it revealed record profits of $16.2 billion (£8.7 billion), the oil company admitted that it had failed to replace fully the four million barrels of oil and gas that it pumped out of the ground each day last year.
Using UK accounting rules, Britain’s largest company more than filled its tank, adding 10 per cent more oil to its reserves than it extracted and sold in 2004. However, the company will deliver a very different figure to the US Securities and Exchange Commission when it files its annual statement on reserves later this year.
Under the stricter SEC rules, BP replaced only 89 per cent of the barrels it produced. Excluding joint ventures, notably its Russian acquisition TNK-BP, BP’s replacement ratio falls to 78 per cent.
Lord Browne of Madingley, the chief executive, yesterday made light of the difference between UK and US reserve reporting practices, suggesting it was like choosing between different languages. “Would you rather read Shakespeare in English or in French,” he said jokingly. “This is a UK company, therefore we choose English.”
BP’s presentation of its reserves contrasts with Shell, which last week ignored UK reserve accounting when it revealed that it had replaced less than half its reserves last year.
The main difference between UK and SEC measurements of reserves relates to the required use under SEC rules of year-end oil prices when measuring reserves in oilfields subject to production-sharing agreements (PSAs) with a government.
Under a PSA, the number of barrels a company produces falls as the oil price rises. Last year’s oil price surge to $45 per barrel has forced companies to cut their reserves under the SEC rule. Under UK rules, BP is entitled to use its own long-run oil price of $20 per barrel to calculate its reserves.
Lord Browne said that he was confident that Opec would meet the challenge of building up its margin of additional supply over the coming years. He said that BP would continue to use a $20 oil price to test its projects but expected that Opec would be able to maintain support at $30 per barrel.
BP is raising the quarterly payout to its army of UK private shareholders by 23 per cent to 4.5p from 3.7p. It indicated that a total of $23 billion would be distributed this year and next, assuming a $30 oil price. Byron Grote, chief financial officer, said the oil price rise accounted for about 60 per cent of last year’s earnings gain.
BP said that capital spending would fall slightly from $14.4 billion in 2004 to $14 billion this year, despite inflation. The rising cost of steel, energy and rigs has added about 11 per cent to BP’s cost of finding and producing a barrel of oil.
The oil company is taking an exceptional charge of $1.1 billion for asset writedowns to its petrochemical business.