THE LONDON TIMES: Oil-digging saviours' balancing act: “ONCE again, BP and Shell have saved this nation from penury. Over the coming year the two ancient companies will pump tens of billions of dollars in cash into pension funds and the Treasury.” (ShellNews.net) 9 Feb 05

Analysis

By Carl Mortished

February 09, 2005  

ONCE again, BP and Shell have saved this nation from penury. Over the coming year the two ancient companies will pump tens of billions of dollars in cash into pension funds and the Treasury.

BP raised the ante, bumping up its dividend by more than a quarter after Shell’s promise of $10 billion (£5.4 billion) in the current year. The dollar harvest is almost overwhelming; the cash expected to be paid out by just two oil companies in 2005 is roughly equal to a quarter of all the dividends paid by UK-listed companies.

BP’s move to boost its ordinary dividend payment by 23 per cent in the UK will delight private investors, who do not like the share buybacks that soaked up $7.5 billion of BP’s spare cash. Nevertheless, there will be more buybacks — Lord Browne of Madingley promises to give back every penny earned over and above what he needs to run the business.

Shell, too, is tempting investors with extra cash — and if both companies achieve only the low end of targets, they will still be paying investors £13.5 billion, about a quarter of the expected dividend yield on the all-share index 2005.

These are frightening numbers for a nation with huge pension deficits. We have become dependent on a few big natural resource companies (don’t forget Anglo American and Rio Tinto) for the income we need to support our hopes of an extravagant old age. Forget the high-tech sector, forget even the past half century. What pays Britain’s way in the 21st century are the companies that made us rich in the 19th century, the dirty business of digging stuff out of the ground in troublesome lands far away.

These are frightening numbers for Gordon Brown. He should pray at the altar of BP and Shell. Without their profits — BP paid $2 billion to the UK Treasury, almost as much as it earned in Britain — corporation tax receipts would look a bit thin. The Chancellor will not even dare think of what private pension deficits would look like if the huge yields from Shell and BP were suddenly to shrink.

The real question is not whether Shell and BP pay sufficient in tax and dividends, it is whether they are too generous. BP aims to spend less this year on projects despite the rising cost of getting oil from the ground. Such financial discipline will endear BP to the City and the Treasury, but the world still needs a lot more oil. Let us hope Lord Browne pays as much notice to consumers as to fund managers in deciding where to put his billions.