UPDATE 3-BP squares up for oil spill lawsuits

Tue Feb 7, 2012 11:20am EST

* Oil spill bill hits $43 bln, Macondo field valued at $400 mln

* Q4 underlying profits up 14 pct year on year

* Dividend increased to 8 cents a share from 7 cents

* Output down, outlook weak

* Shares down 1.3 pct, underperforming sector

By Tom Bergin

LONDON, Feb 7 (Reuters) - BP ratcheted up the rhetoric around multi-billion dollar claims from the Gulf oil spill by warning it would "vigorously" contest lawsuits over one of the world's worst environmental disasters.

While reiterating BP's "bias for settling" at hearings scheduled later this month, CEO Bob Dudley said he would only do so "on fair and reasonable terms."

As he unveiled higher fourth quarter profit on Tuesday and a rise in the dividend, which he said showed BP was putting the spill behind it, Dudley acknowledged the lawsuits were the biggest uncertainty facing the British oil major.

"We have many people who do say, we are interested in investing in BP but not until all this is behind you," he told a press conference.

BP faces 600 civil lawsuits from people in states as far away as South Carolina and Kentucky, as well as litigation from the U.S. government.

"We always have had this bias toward settling and moving on, and reducing uncertainty," Dudley said.

But he added; "We are preparing vigorously for trial. We have confidence in our case."

Analysts at Morgan Stanley have predicted BP will agree to pay the U.S. government $20-$25 billion in the coming weeks to settle fines and natural resources damages but Alastair Syme, oil analyst at Citigroup, said he expected the case to go to trial as planned on Feb. 27.

BP, Europe's second-largest oil company by market value, also lifted its estimate of the total cost of the United States' worst-ever offshore oil spill by $1.8 billion to $43 billion due to higher costs for shoreline clean up, which BP said was now largely complete, and a new $500 million charge for legal fees.

By contrast, BP's statement showed the company has valued the doomed Macondo prospect at just $400 million.

The disaster forced a major restructuring at London-based BP but Dudley said the group was returning to growth and that 2012 would be a "year of milestones", after a "year of consolidation" in 2011.

Underscoring its confidence, BP increased its quarterly dividend to 8 cents a share from 7 cents, backed by strong cashflows due to higher oil price.

"It is a good sign of confidence in the improving operational performance," said Tony Shepard, oil analyst at Charles Stanley.

BP's 14 cents a share quarterly payout was cut at the height of the spill, and reintroduced at half that level in 2011.

OUTPUT FLAT, MORE CAPEX

BP said its replacement cost (RC) net profit rose 65 percent compared with the same period last year, to $7.61 billion in the quarter, boosted by a $4 billion contribution from Anadarko Petroleum, which had a stake in Macondo, towards clean up costs.

Stripping out one-offs, the result rose 14 percent to $4.99 billion, in line with an I/B/E/S consensus forecast of $4.89 billion.

Rival Royal Dutch Shell Plc reported an 18 percent rise in underlying profit in the quarter while industry leader Exxon Mobil only managed a 2 percent rise.

Replacement cost profit excludes gains or losses related to changes in the value of fuel inventories and so is comparable with net income under U.S. accounting rules.

BP's muted increase was despite an unusually low tax rate, higher gas prices and a 26 percent rise in the Brent crude price in the quarter compared to the same period of 2010.

Lower production weighed on the fourth quarter result, with assets sales, in part to help pay for the oil spill, pushing output down 5.1 percent to 3.49 million barrels of oil equivalent per day in the quarter.

Dudley said he expected output to fall further in 2012, despite investor hopes that BP's smaller asset base would facilitate higher growth.

Echoing a trend across the sector, BP said it was lifting its capital expenditure budget for 2012, as it invests more in exploration and production.

Some analysts have questioned whether the additional spending will generate the same returns oil giants like BP, Shell and Exxon have enjoyed in the past.

Dudley said that, over time, upstream oil and gas assets offered returns of around 15 percent, and that the expected this to continue going forward.

In the latest sign the British oil group is getting back to business in the Gulf of Mexico, BP said it had sanctioned a major new project in the area .

BP shares traded down 1.3 percent at 483 pence at 1040 GMT, lagging a 0.6 percent drop in the STOXX Europe 600 Oil and Gas index.

BP said over $5 billion of contributions from its partners in the blown-out well, Anadarko and Japan's Mitsui, meant it would be able to end its own payments into a $20 billion compensation fund in 2012, a year earlier than expected.

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