BP cuts capital expenditure and reports rise in profits

British oil giant BP reported better-than-forecast fourth- quarter profit even as oil prices slumped, forcing Europe's third-largest oil company to cut spending.

Profit adjusted for one-time items and inventory changes dropped to $2.2 billion from $2.8 billion a year earlier, the company said in a statement. That beat the $1.6 billion average forecast of analysts.

The results were bolstered by income from BP's 20 per cent holding in Russia's state-run oil producer OAO Rosneft.

A slump in oil prices to less than $50 a barrel from more than $100 seven months ago has forced producers to review projects, slash spending and sell assets as they try to safeguard returns to investors.

BP chief executive Bob Dudley told staff last week their pay will be frozen this year, while the company cut jobs in the North Sea, Azerbaijan and Trinidad and Tobago.

“The prudent way to way to manage the company is planning on one, two, three years” of low oil prices, Mr Dudley said in an interview on Bloomberg TV. “Every time the price of oil drops, the cost structure also drops, so we may still be able to sustain a dividend for long time even at low prices.”

BP shares rose as much as 5.8 per cent after the announcement, the most in more than a year, to 463.1 pence in London and traded at 448.40 pence at 10:25am local time.

Even so, the producer reported a $4.4 billion net loss in the quarter after writing down the value of oil and gas fields because of lower oil prices.

BP expects to cut spending to $20 billion this year, compared with previous guidance of $24 billion to $26 billion. It spent about $23 billion in 2014.

“BP’s results were more resilient than expected,” Kim Fustier, an analyst at Edison Investment Research, said in a note. Its 20 per cent capital expenditure cut in 2015 from previous guidance highlights the company’s greater flexibility compared with peers, the analyst said.

BP had a contribution of $470 million from its shareholding from Rosneft, Russia’s largest oil producer. That compares with $1 billion a year ago and was higher than analysts had expected.

Mr Dudley was cautious on prospects for a rebound in the oil price. It could be three years before oil comes out of a $40 to $60 price range and a “long time” before oil returns to $100 a barrel, he said.

The company is trying to shore up its balance sheet with asset sales after the Gulf of Mexico oil spill in 2010 that led to a $43 billion provision to cover costs. Last month, a judge ruled that less oil was spilled than the US government estimated. The third phase of the trial, which determines how much BP must pay, began almost two weeks ago.

The company has sold more than $4 billion of assets in a $10 billion sale program planned for 2014 and 2015.

Overall production which includes Russia was 3.214 million barrels of oil equivalent a day compared with 3.231 million barrels for the last quarter in 2013. – Bloomberg