BP riding out slump in oil prices

BP showed signs of weathering the slump in oil prices today after the energy giant posted a smaller-than-expected fall in third quarter profits.

Shares in BP surged by as much as 5 per cent, even though profits halved to $4.98bn (£3bn) for the period between July and September.

While crude oil prices were at an all-time high of $147 a barrel a year earlier, prices averaged around half that this time.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the company was in better shape than it has been in the recent past.

He added: "The fall in earnings was well trailed, but the numbers nonetheless have obliterated market forecasts, as evidenced by the spike in the share price."

Bigger-than-expected cost savings, following an efficiency drive by chief executive Tony Hayward, drove the surprise performance.

With costs already three billion dollars (£1.84 billion) lower than last year, BP revised its annual target for the second time in three months, to $4bn (£2.45bn).

BP reduced headcount by 3,000 last year and is set to lose another 5,000 posts by the end of 2009.

Some of the improved cost savings have been due to currency exchange benefits, while BP has also been negotiating better terms with suppliers.

Production for the quarter was 7 per cent higher than the same period a year ago, mainly due to a stronger operational performance and the absence of hurricanes, which impacted on output in 2008.

It has also been buoyed in the period by major discoveries in Angola and Mexico. The Tiber well find joins a number of big oil developments in the wider Gulf of Mexico over the past 15 years, including Horn Mountain in 2002, Mad Dog in 2005 and Thunder Horse last year.

Thunder Horse is seen as BP's flagship project in the region, but was hit by a number of engineering problems that delayed the launch of production by three years.

However, Thunder Horse is now running at full operation, and production is now approaching 300,000 barrels of oil equivalent a day.

In refining and marketing, recent efforts to improve performance following major operational problems partially offset the weaker operating environment. Profit for the division fell by more than half to 916 million US dollars (£561.6m), but showed an improvement on the previous quarter.

When excluding non-operating items and accounting costs, BP's overall underlying profits of $4.67bn (£2.86bn) were materially higher than the City's consensus for a figure of around $3.2bn (£1.96bn). The quarterly dividend was also held at 14 cents a share.

BP's figures gave a boost to shares in Royal Dutch Shell, which is due to post its figures on Thursday. The company is expected to report profits of $2.5bn (£1.5bn) - less than a quarter of last year's record.