BP profits soar as CEO pledges to boost dividend

BP saw profits soar in the third quarter as it prepares to sell off a further $15bn worth of assets, and the CEO pledges to boost the oil major’s dividend and increase share buybacks.

The group's shares climbed on the opening bell after BP revealed it made a profit of $5.1bn (£3.2bn) in the third quarter of the year, up from $1.8bn a year ago.

Replacement cost profit for first nine months of the year was $15.9bn compared to a loss of $9.5bn for the same period the previous year.

The firm said the net cash generated by its activities for the third quarter was $6.9bn, or $17.1bn over the year to date, including the impact of the Gulf of Mexico disaster.

Net debt at the end of the quarter was $25.8bn, down slightly from $26.4bn a year ago.

The group signed agreements during 2010 and 2011 to sell off parts of the business worth $26bn under its $30bn disposal programme.

“We now intend to undertake an additional $15bn disposal programme by the end of 2013, which will include the previously announced disposals of the Texas City and Carson refineries and associated marketing interests,” the group said.

It expects to pay a quarterly dividend of 7 cents per share on 19 December 2011.

Chief executive Bob Dudley said October is a “turning point” for BP’s operations and production and will allow it to return more value to shareholders in future.

Assuming an oil price of $100 a barrel, Dudley is predicting cashflow to grow 50% by 2014, as the firm divests $45bn worth of assets and finalises compensation payouts from its Gulf of Mexico trust fund.

Dudley expects around half the projected additional cashflow to be used for increased investment in the company's project inventory and half to be available for other purposes, including increased distributions to shareholders.

"Stronger cashflow from a more focused BP, together with increased divestment proceeds, will allow us to maintain a strong balance sheet while investing in projects for future growth," he said.

"It will also enable us to target higher distributions to shareholders, considering both dividends and share buybacks.

"We expect to review our 2012 distribution plans in February, adjusting them in line with the improving circumstances of the firm.

"The past year has been unprecedented in its challenges; and BP has responded well. We have laid firm foundations for the future - in safety, in our organisation and in developing new growth opportunities," said Dudley.

BP is favoured by a number of top performing income fund managers including Clive Beagles, who has a 6.3% stake in the oil major in his £880m JOHCM UK Equity Income fund.

Bill Mott, running the £356m PSigma Income fund, is also holding BP within his fund, with a 4.8% position, while Newton’s £2.3bn Higher Income fund, run by Tineke Frikkee has a 5.5% position.

However, other leading lights in the income space have avoided the company for a number of years. Invesco Perpetual’s Neil Woodford, running the IP Income and High Income portfolios, has favoured pharmaceuticals and tobacco stocks instead, and continues to have no stake in the business.

BP's shares climbed 4% to 455.75p in early trading. The stock has recovered a lot of ground since the Gulf of Mexico oil spill last year, with shares rising more than a third from lows of 304p seen last June to trade around 437p this week.

However, shares remain well off highs seen before the leak, when they traded at over 640p.