It also set out plans to spend more than $20 billion over the next five years on five new global profit centers which would more than offset decline in mature provinces such as the UK North Sea.
Speaking to the financial community in London shortly after announcing full-year profits of $8.7 billion, a nine per cent rise in the dividend and the intention to buy back $2 billion of company stock, chief executive Lord Browne said:
"This is a very exciting moment in the history of BP. Our success in exploration is allowing us to diversify and expand the company's production portfolio, while also improving its quality."
Browne said the new profit centers - the deepwater Gulf of Mexico, Trinidad, Angola, Azerbaijan and Asia Pacific LNG - were as significant in scale, capital and reserves for BP's future as had been its development of the North Sea and Alaska some 30 years ago.
The five centers would absorb some 50 per cent of likely annual spend by BP's exploration and production business between now and 2007, with post-tax earnings and cashflow per barrel expected to rise as output from the new areas increases.
BP estimated that, of a group total of $14.2 billion, upstream capital spend would be around $10 billion this year, falling away to some $9 billion annually after 2004. Investment in a sixth profit center, BP's 50 percent stake in a new Russian business announced today, should be self-financing.
Before taking into account the impact of sales or acquisitions made after January 1, 2003 including its new Russian business, BP said oil and gas production capacity would have stayed flat or grown modestly by up to three per cent this year. On the same basis, production capacity would have risen on average by three to four per cent a year from 2000 to 2005, and around five per cent a year from 2003-2007.
"I would stress these are estimates of capacity, not targets for production from that capacity. Growth rates will vary from year to year. Production volumes can be a useful indicator of growth, but they are only really useful when combined with a balanced view of all the other factors which go to create value," Browne told analysts.
Predicated on standardized assumptions - including a $16 oil price and a gas price of $2.70 per thousand cubic feet - BP expects return on capital employed for the group overall to be broadly flat over the next three years.
It said the impact of temporarily higher spend on the new profit centers should be offset by cost and productivity improvements and ongoing high-grading of the portfolio. This would be further helped by better performance in the petrochemicals business where focus on seven core products offering clear competitive advantage is expected to boost capital returns by three per cent by 2006.
Commenting on BP group results for 2002, Browne said that financial performance "was strongly competitive with that of our peers", delivering $8.7 billion of income, $19.3 billion of pre-tax cash from operations and $6.8 billion pre-tax from disposals. Return on capital was 13 per cent and the debt to debt-plus-equity ratio fell by two percentage points to less than 28 per cent.
"In underlying terms - that is, against our standardized assumptions - our performance improved by $1.2 billion before tax. Results per share on those standardized assumptions rose by around 15 per cent per annum on average over the years 2000 to 2002 - exceeding our target of a ten per cent average annual compound rise through the period 2000 to 2003."
Looking forward, Browne said he expected divestments to continue at the rate of $3 billion to $6 billion in 2003 - within BP's recent historic range - and for gearing to be maintained within the band of around 25 to 35 percent.
"Our aim is to deliver value. Clearly the value growth - measured in terms of results per share - which has come from mergers and acquisitions was exceptional. In the new phase we've now entered, we have to find ways of delivering growth in value at a distinctive rate.
"That means continually managing the portfolio to ensure we have a distinctive set of assets and markets in which to invest. And it means managing costs, starting with what we've identified for 2003 but going beyond that in ways we haven't yet quantified," Browne said.
"Maximizing value, of course, involves judgment. Business is not a cut and dried mechanical process driven solely by financial frameworks. If we knew far more about the world and the future than we can ever know, we could manage the maximization of value with mathematical levels of precision. But we can't.
"Reality is different - as current circumstances are reminding us - and that's why we've moved from single-point targets, whether for production, return on capital or anything else, because such targets can distort the implementation of strategy.
"We've moved instead to using indicative ranges. We believe that it is a more transparent way of demonstrating how we actually manage the business. Taken together in a balanced way, those ranges are indicators of progress and they capture the next phase of performance improvement. I hope we have conveyed some sense of how excited we are about this phase, and of how confident we are that it will continue to deliver a leading level of performance."
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