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The Guardian: The cash keeps on gushing

Wednesday February 8, 2006
BP is paying out staggering sums
BP may have lagged behind Shell and Exxon in terms of 2005 profits, but Lord Browne's oil machine is still producing some extraordinary numbers.
The $65bn (£37bn) that could be returned to shareholders over the next three years, assuming a $60 oil price, is a figure so large it requires illustration. At current stock market valuations, it would buy all these companies in their entirety: ScottishPower, ICI, Cadbury Schweppes, Reuters and Sainsbury's.
No wonder Browne bristles at suggestions of a windfall tax: UK pension funds have benefited hugely from BP's cashflow over the past few years.
It will surprise many that BP, as Britain's largest company and second only to Exxon in market value in the global oil league, should report profits of “only” £11bn, compared with Shell's £13bn. The explanation is that BP's medium and long-term prospects are so much better.
Browne was able to boast that 2005 was the 13th straight year in which BP replaced 100% of its reserves, no mean feat now that most of the world's “easy” oil finds, such as the Gulf of Mexico and the North Sea, are in decline. Naturally, given that the partnership with Russian group TNK has contributed more replacement barrels than any other BP initiative, the profile of risk at the company has changed. But contrast its position with that of Shell, which is replacing only 60% – 70% of its reserves.
In retrospect, the deals that gave BP its flexibility in exploration and enviable cash flows were the acquisitions of Amoco and Arco, both struck when the idea of an oil price over $50 would have been laughable. Whether the timing was genius or luck doesn't really matter.
Where BP does underperform its global peers is in refining and marketing. Two factors, the Texas City explosion and the Gulf of Mexico hurricanes, one hopes will not be repeated, but the other half of the story is simply BP's history. One can't have everything. A management committed to handing back to shareholders all surplus cash is more than decent compensation for investors.

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