BP saw its profits slide by 62 per cent in the first quarter as recession hit demand and the oil price languished at less than half last year's level.
Profits came in at $2.39bn (£1.64bn) for the first three months of 2009, compared with $6.23bn in the same period of 2008, as the oil price hovered at the $45 per barrel rather than the $100 mark.
Despite the fall, BP still outperformed City analysts' expectations of about $2.23bn in profits, and the company is boosting its dollar dividend by 4 per cent and its sterling payout by 40 per cent.
Production in the quarter rose by 2.6 per cent to more than 4 billion barrels of oil and gas equivalent (boe), helped by rising production from the Thunder Horse well in the Gulf of Mexico.
With the oil price down starkly from last July's record $147 per barrel high, the company is reducing its spending target for the year, dropping back to $20bn from the $22bn estimated in October.
Cost-cutting measures are also under way, with 5,000 jobs set to go by the middle of the year.
"Oil prices are expected to remain low and our customers are facing tough business conditions," Tony Hayward, the BP chief executive, said in an email to staff yesterday. "We need rapidly to bring our costs to a level that is compatible with a $50 world," he said.
Although the Exploration and Production division reported profits of $3.85bn, down from $10.7bn a year ago, the Refining and Marketing business tripled its profits from $500m to $1.5bn, despite the difficult trading conditions.
"Environmental effects were more than offset by a substantially improved operational performance in refining, a very strong supply and trading contribution and significant cost improvements from our simplification and efficiency efforts and the absence of major restoration and repair costs," BP's results report said.
Net debt is up at $26.7bn, compared with $23.8bn for the same period in 2008.
Tony Shepard, an analyst at Charles Stanley, said: "Operationally, these were good results with a better than expected outcome in the two main divisions and BP looks to be ahead of the curve in terms of delivering cost savings.
"A challenge for all oil and gas companies is to reduce operating costs because although the oil price has fallen back to 2004 levels, industry costs have doubled since 2004. BP began to take action on its cost base in 2008 and, based on actions already taken and the deflation entering the supply chain, the cost base should fall by about $2bn this year."
Last year was an all-time record for the oil industry, including BP. The UK major saw profits rise by a whopping 39 per cent to $25.6bn, with post-tax operating cashflow up 54 per cent and $31bn-worth of investments. Dividends totalled more than $13bn. But by the fourth quarter the cracks were beginning to show. As the oil price started to slide from July's all-time high, so did BP's profits. By the last three months of the year, they were down to $2.6bn on a replacement costs basis, down 24 per cent from the year before and 74 per cent from the previous quarter.
Mr Hayward's main strategy, since taking the reins in May 2007, has been to improve efficiency by simplifying the sprawling fiefdoms set up under his predecessor, Lord Browne of Madingley. There has been considerable progress – some 3,000 jobs were cut last year, and nearly a fifth of senior roles have gone.
BP's share price closed flat at 483.5p.Reuse content