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BP Raises Dividend as Third-Quarter Profit Beats Estimate

BP CEO Bob Dudley
Robert " Bob" Dudley, chief executive officer of BP Plc. Photographer: Simon Dawson/Bloomberg

BP Plc, Europe’s second-biggest oil company, raised its dividend as third-quarter profit beat analysts’ estimates.

Net income climbed to $5.4 billion from $5 billion a year earlier as underlying earnings from refining and marketing jumped to a record, London-based BP said today in a statement. It raised the dividend by 12.5 percent to 9 cents a share.

Chief Executive Officer Bob Dudley is rebuilding the company after the 2010 Gulf of Mexico oil spill erased a third of its market value. He agreed to sell BP’s half of Russian venture TNK-BP to OAO Rosneft for about $27 billion in cash and shares this month, adding to $35 billion of disposals in the past three years.

“The confidence in the dividend is something the market is very pleased with,” said Peter Hutton, an analyst at RBC Capital Markets in London. “You can still see potential for progress in the dividend.”

Profit adjusted for one-time items and changes in inventory totaled $5.2 billion, compared with $5.5 billion a year earlier. That beat the $4 billion average estimate of 11 analysts surveyed by Bloomberg.

BP rose 4.2 percent in London, the biggest gain since Nov. 30, to 442.85 pence.

The dividend increase reflects “our confidence moving forward,” Dudley said in a Bloomberg Television interview with Ryan Chilcote today. “The board’s policy is a progressive policy for shareholders.”

Production Outlook

BP said third-quarter production, excluding the Russian TNK-BP venture, fell 3 percent to 2.26 million barrels of oil equivalent a day. BP’s share of TNK-BP output gave it about 1 million barrels a day. The U.K. company expects output to rise in the fourth quarter after completing field maintenance.

BP this month agreed to sell its half of TNK-BP to Rosneft, which plans to buy the entire venture for about $55 billion in the biggest oil-industry deal in more than a decade. BP will reinvest some of the cash from the transaction in Rosneft shares, boosting its stake in Russia’s biggest producer to almost 20 percent.

Today’s announcement on the dividend is unrelated to the $12.3 billion in cash BP will have on its books after the TNK-BP transaction, Chief Financial Officer Brian Gilvary told analysts on a conference call. He said BP may buy back at least $4 billion of BP stock to offset the dilution in earnings per share from the sale, though a final decision hasn’t yet been made.

Asset Sales

Dudley is focusing on BP’s most profitable oil production as he targets $38 billion in asset sales by the end of next year. In the third quarter, BP agreed to sell its Carson, California, and Texas City refineries in the U.S. for about $5 billion including inventories. In September, BP agreed to sell a group of fields in the Gulf of Mexico for about $5.6 billion.

BP came closer to putting the April 2010 Macondo oil spill behind it in March with a $7.8 billion settlement with victims. The company still faces a trial over fines and liabilities with the U.S. Department of Justice that’s due to start in February. BP has provisioned about $38.1 billion for spill costs after adding $59 million to its pretax charge in the third quarter.

BP said for the first time that it’s in talks with the DOJ and reiterated that it’s willing to settle with the U.S. “on reasonable terms, though a number of unresolved issues remain and there is significant uncertainty as to whether an agreement will ultimately be reached.”

Gulf of Mexico

More than two years after the spill, BP now has seven rigs operating in the Gulf of Mexico, more than ever before, Dudley told journalists on a conference call. The company has plans for as many as 10 rigs in the region, he said.

Refining and marketing “delivered record quarterly underlying earnings,” BP said. “Refining margins are expected to decline in the fourth quarter in line with seasonal trends.”

Profit in the downstream unit was $3.4 billion, compared with $1.1 billion a year earlier and a loss in the second quarter. It expects to process less crude in the fourth quarter because of the planned upgrades at the Whiting refinery.

Refining margins improved in the third quarter. BP’s refining marker margin, a generic measure of global profitability, rose to $19.50 a barrel in the period from $15.84 in the three months through June. BP estimates its pretax operating profit increases about $650 million a year for every dollar gain in the refining margin, according to its website.

Royal Dutch Shell Plc is Europe’s biggest oil company.

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