Reduced debt and no rights issue gives BP quality look.

of emulating the quality rating of Shell than for many a year.

And now chairman Lord Ashburton has categorically ruled out a rights

issue -- a cloud that had been hovering on the horizon unsettlingly

long. So a round of applause for once.

The bald figures are inevitably complicated but the striking point is

that there has been a significant advance in the second half operating

level which contributed 80% of the total. And crucially rather than

bleeding to death, there was a cash inflow in the December quarter of

#135m which enabled BP to reduce debt. Put another way, there was a cash

outflow for the year of #607m or just over half the #1135m of 1991m.

The stated full year results show that after tax and #888m of

exceptional items there was a loss of #352m on the replacement cost

basis compared with the previous year's profit of #1035m. On the

historic cost computation which strips out the effect of oil price

fluctuations, there was a deterioration from the preceding year's

surplus of #415m into a #458m deficit.

That does look bad except that the first half had a loss of #717m

after BP took a charge of #919m to cover redundancy and reorganisation

costs. The picture has also been distorted thanks to the figures having

been accounted under the Financial Reporting Standard 3 which deals with

acquisitions and disposals.

Concentrating on the operating outcome, there was a near quadrupling

in profitability in the fourth quarter to #200m despite losses in

chemicals where BP is suffering like the rest of the industry from the

impact of severe overcapacity. But Mr Simon made it clear that he was

not going to be the leader in putting the problem to rights. The full

year divisional loss of #24m does however contain some #20m of

restructing costs

Oil exploration and production saw the full year total only marginally

softer at #1681m which is good going considering the reduced sales of

both oil and gas. BP felt the effect of both lower Alaskan output and

the impact of sales of producing assets such as Canada offset by

increased sales from Miller in the North Sea in the final few months.

That field also helped stabilise gas sales which had suffered earlier in

the year from reduced take-up by British Gas which was losing market

share to the independents.

Average Brent prices were 5% lower at $19.40 a barrel. However the

impact of sterling devaluation in the fourth quarter had a beneficial

#1.54 a barrel uplift to #12.09 which helped sterling margins.

Mr Simon is chary about the outlook for the oil price which is natural

given the perennial uncertainties at Opec as well as a global economy

expected to rise by 2% at best this year. But it is reassuring that he

is basing BP's strategy on a $18 real oil price rather than the euphoric

$25 of predecessor Bob Horton.

Refining and marketing margins came under increasing pressure because

of economic sloth, particularly in the UK and Europe which left overall

annual profits slimming from #779m to #394m. Paradoxically now that

Nutrition is up for sale its profits have almost doubled to #73m

reflecting reduced capital expenditure.

The denial of any rights intention may look slightly odd when one

looks at gearing of 99%. But that reflects sterling devaluation. Year

end debt in dollars was a little changed year on year at $15.3 billion,

in sterling there was a #2000m jump to #10.2 billion. The gearing

problem is that BP has not revalued its assets to current prices which

would presumably half the stated figure.

Debt will fall $1000m a year until 1995 fuelled by asset sales with up

to $2000m planned this year including some of the chemical activities.

There has been extreme concern that because of its financial pressures

the reduction in the capital expenditure programme to just $5000m this

year ($6100m) will sap the life blood of the future. But with a major

squeeze on costs and better technology there is the confidence that

daily output will be maintained at 500,000 barrels of oil equivalent

until the end of the century.

Some 14,000 employees have left of which just 3500 were through asset

sales. There are more job losses to come this year but at a much reduced

level and there was nothing specific in the air yesterday.

Although the quarterly dividend has been held at 2.1p to bring the

total for the year to 10.5p, there is little hope of anything above 8.4p

this year as any recovery in the payment will have to await BP achieving

greater financial stability and that appears to be annual income of

#2000m.

The shares responded by rising 11[1/2]p to 277[1/2]p where they yield

a running 4%. Support should harden as the debt burden falls away and

there are no more exceptional write-offs of substance.