Profits at BP fell by 79 per cent in the first quarter of the year, as the oil major's cost-cutting drive helped it beat analysts' expectations and maintain its dividend payout.
BP's share price rose 4.5 per cent today to 376p this morning as investors were relieved that it stayed in the black.
The oil giant said it would carry on shrinking its investments as it adjusts to the new low oil price environment. Capital expenditure will come in at $17bn (£11.7bn) this year and be cut to $15bn in 2017.
Underlying replacement cost profits - the headline measure of profitability in the oil industry - came in at $532m (£367m) in the three months to March 2016, 79 per cent down on the same period in 2015, but a considerable improvement on the $196m posted in the final quarter of last year.
The firm said it was maintaining its dividend payout of $0.10 per share.
Costs incurred from the Gulf of Mexico oil spill were $937m during the period and net debt also rose from $25.1bn a year ago to $30bn at the end of March.
Why it's interesting
The slide in profits at BP was not as drastic as many had expected. Analysts polled by Bloomberg had predicted BP to fall into the red during the first quarter and post a loss of around $240m.
This could explain why BP was able to maintain its dividend - something it said was its top priority that provides a welcome reprieve for weary investors in the FTSE 100 firm.
BP is the first of the oil majors to report earnings this year, and its better than expected results could be a bellwether for the likes of Shell, Chevron and Exxon, who are braced for their worst reporting season yet.
With the oil price stable - for now - at just below $45 a barrel, BP's performance in the second quarter could pick up. Brent Crude averaged $34 during the first three months of the year, according to BP, and it believes that a higher price could deliver better earnings.
BP said its cost-cutting drive, which has led it to announce thousands of job losses, should mean its total expenditure shrinks by $7bn in 2017 compared to 2014. Concerns have been raised that the recruitment freeze in the industry, however, could see lead to a skills crisis in a number of years.
What BP said
Bob Dudley, BP group chief executive, said:
Despite the challenging environment, we are driving towards our near-term goal of rebalancing BP's cash flows. Operational performance is strong and our work to reset costs has considerable momentum and is delivering results. Furthermore, development of our next wave of material upstream projects is well on track.
Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year.
What the analysts said
Jasper Lawler, market analyst at CMC markets, said:
It’s not been a pretty quarter for BP but the oil major has managed to conjure up some better-than expected results. Shares are up over 3% in early trading. Decade-low oil prices and a warm winter that hobbled refining margins has meant an sharp decline in profits over the same period last year.
“The company is showing it is restructuring and reducing costs to adjust to oil prices and that’s pleasing,” Brendan Warn, a managing director at BMO Capital Markets told Bloomberg.