UPDATE: BP Unlikely To Return To Bumper Dividend Despite Settlement

BP PLC (BP.LN, BP) expects to keep raising its dividend as the company's fortunes improve, but the U.K. oil major is unlikely to return to paying shareholders the large returns that it did before the Gulf of Mexico oil spill, a person close to the company said Sunday.

BP, which Saturday agreed to a $7.8 billion potential settlement with thousands of individuals and businesses affected by the Deepwater Horizon disaster, will "increase the dividend with the growth in underlying earnings," the person said.

The comments echo similar pronouncements made by Chief Executive Bob Dudley in an interview with the Sunday Telegraph newspaper two weeks ago.

While Saturday's settlement--albeit with only one of BP's litigants--removes "a layer of uncertainty" for the company, it also falls within an anticipated amount set aside on its balance sheet for almost the past two years.

BP last month raised its dividend for the first time since the spill, a move that CEO Dudley said at the time reflected the company's return to "operational momentum." The 14% increase mirrored a similar rise in its earnings on a comparative basis a year ago.

However, the person cautioned that while the payout would likely rise in line with earnings, it was "highly unlikely" that it would return to the levels seen before the incident.

BP's previous dividend policy was one of the most generous in the U.K.--it paid $10.5 billion in 2009 before the oil spill--but the dividend was halted for nine months in the immediate aftermath of the disaster. When it resumed, it was only at half the level it was before the suspension.

BP is a smaller company now, having sold more than $22 billion of assets and provisioned costs of nearly $40 billion for the total bill of cleaning up the Gulf of Mexico and settling with claimants, the person said, adding it was unrealistic to expect things to return to how they were.

"We don't comment on future dividend levels, but generally we would expect to have a progressive dividend policy, in line with the improving circumstances of the firm," said BP spokesman Toby Odone.

The company, whose dividend payments have historically been a major source of revenue for U.K. pension funds, still faces claims against it by the U.S. Department of Justice or other federal agencies for violations of the Clean Water Act, and possibly by the states and local governments. According to The Wall Street Journal, BP has been in off-and-on discussions with the government about those issues in the past.

It is also in litigation with its Deepwater Horizon contractors, Halliburton Co. (HAL) and Transocean Ltd. (RIG, RIGN.VX), and blowout preventer maker Cameron International Corp. (CAM)

Following the settlement, the start of a civil trial to determine blame for the incident--due to start last Monday--was adjourned by the judge hearing the case. A new date has not yet been set.

BP's dividend made up 14% of total shareholder payout on London's FTSE 100 index in 2009.

   -By Alexis Flynn, Dow Jones Newswires; 
   [phone]; [e-mail] 

--Tom Fowler of The Wall Street Journal contributed to this article.