BP plunges on hint of freeze in the dividend

That would be the first time BP has not increased its divi since 1999.

The BP dividend, worth £6 billion a year to pension funds and small investors, has become a major issue in the City, with analysts wondering whether it is sustainable in the face of an expected slump in profits this year of as much as two thirds.

In an enigmatic statement in a strategy update today, chief executive Tony Hayward said: "Our aim remains to strike the right balance for our shareholders between investing for the future, providing current returns via the dividend, and ensuring an appropriate and prudent level of gearing.

"Our view is that the right current balance is both to continue paying the dividend and to maintain investment to grow the firm and to use the capacity of our balance sheet while the industry cost structure adjusts."

A BP spokesman confirmed that the company's message is that the dividend will not be cut, though there is also no commitment to growing the payout either.

Investors, who are keenly aware that BP's current depressed share price means its stock is yielding around 8%, appeared unimpressed as the shares slid close to testing the £4 level last seen five months ago, down 181/2p before the close at 4041/4p.

The ongoing debate about the divi — several analysts are forecasting that it will continue to rise this year — took away the gloss that Hayward attempted to put on the state of BP.

"The future has not been cancelled," he told a meeting of investors this afternoon.

BP said it had added 1.7 billion barrels of new oil and gas to its reserves base now totalling 18.2 billion barrels, replacing more hydrocarbons than it lifted in 2008 at a ration of 121%.
Hayward said BP would now be cranking up output.

"Last year, we said we expected to grow production to 2012, and that we could maintain it out to 2020 from existing projects," he said. "From existing projects we now expect to grow production to 2013 and we have the potential for continued growth right out to 2020 at an average annual rate of between 1% and 2%." BP has been cutting thousands of jobs since Hayward ruled last year that the legacy of his predecessor Lord Browne was an overmanned middle management.

BP has put thousands more on a pay freeze and Hayward said he wants to cut a further $2 billion of costs and "drive deflation into the business".