BP strikes record profit and forecasts oil to stay firm

BP, the world's second biggest oil company, forecast yesterday that oil prices would remain above US$40 a barrel for the remainder of this year but said there would be no relaxation of its rules governing investment in new projects.

The forecast came as BP unveiled record first quarter profits of US$5.5bn - a 29 per cent increase on the same period last year - thanks to the surging oil price.

Shareholders received more than US$4bn in dividend payments and share buy-backs.

Lord Browne of Madingley, BP's chief executive, said continued growth in demand for oil and the limited spare production capacity would keep the price at more than US$40 even though oil stocks were above trend levels. He also said that in the medium term the oil price was likely to be supported at about US$30 a barrel.

BP's investment rule is that any new development must be profitable at an oil price of US$20. Although it expects the actual price to remain at least US$10 above that, Lord Browne said it would be a "step into the unknown" to raise its benchmark for investment because most new projects did not start producing oil for five or six years.

Lord Browne said he had been "very encouraged" by remarks made by Vladimir Putin, the Russian President, when he met him last week to discuss the company's Russian joint venture TNK-BP, which received a demand for US$1bn in back tax this month. He said BP had been reassured by Mr Putin that it would not be "positively discriminated against".

Lord Browne also predicted the eventual tax settlement would be significantly lower than US$1bn.

Buoyed by an average oil price of US$48 for the quarter, BP's exploration and production arm increased profits by 56 per cent to US$6.5bn even though production remained flat at 4.1 million barrels a day.

BP's refining and marketing arm, which includes its UK petrol forecourts business, increased profits from US$920m to US$1.42bn. But this was largely due to higher refining margins. Retailing margins were lower because of the increase in crude prices.

Lord Browne said he appreciated motorists' concern at rising fuel costs but maintained the price of a gallon was "quite a bargain" before taxes, which accounted for 75 per cent of the amount paid at the pumps.

- INDEPENDENT