BP raises target by $1bn as cuts bear fruit

OIL giant BP saw a big dip in profits in the last quarter, but the better-than-expected figures showed that chief executive Tony Hayward's cost-cutting drive was delivering results.

BP revealed its drive on costs had been lifted by another $1 billion (£610 million) to $4bn. The news sent its shares to the top of the FTSE 100 risers' list.

BP unveiled halved third-quarter profits yesterday that bore the scars of the declining oil price. City analysts said they expect a similar picture from Shell when it reports tomorrow.

Hayward, who took over from Lord Browne at the helm of BP in 2007, said: "We continue to transform our costbase."

The target was $2bn at the start of 2009, hoisted to $3bn at the end of the second trading quarter.

Jason Kenney, oil analyst at ING, said: "There is a phenomenal momentum behind BP's cost-cutting."

As part of the efficiency drive, 5,000 managerial jobs have been shed since the beginning of last year. And a spokesman said the group's refineries had been operating at 94 per cent efficiency in the three months to end-September against 87 per cent in the comparative period last year.

BP said it had cut costs in the oil and gas production and refining units by more than 15 per cent. A spokesman added that a weaker dollar had also contributed to the savings.

BP revealed that underlying replacement cost profits halved to $4.98bn in the third quarter from $10.03bn in the same period of 2008. The average oil price during the latest quarter was about $68, compared with $115 last year and a high water mark of $147 in July 2008.

Kenney forecasts that Shell's underlying Q3 profits will have fallen just under 70 per cent, from $8.04bn to $2.42bn .

BP's nine-month profits were down 54 per cent at $10.5bn from $23bn last time.

The group's Q3 "upstream" profits – from exploration and production – fell 45 per cent to $6.9bn, while oil production was 7 per cent higher than in Q3 of 2008 at 3.917 million barrels of oil equivalent per day.

This increase partly reflected the absence of hurricanes this year. During the quarter, the group also posted a giant discovery at the Tiber prospect in the deepwater US Gulf of 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, Mad Dog and the flagship Thunder Horse platform.

Engineering problems at Thunder Horse delayed the launch of production by three years. However, it is now running at full operation, and production is approaching 300,000 barrels of oil equivalent a day.

Profits at the "downstream" division – refining and marketing – fell to $916m from $1.9bn, partly due to an industry-wide squeeze on profit margins against the backdrop of less benign oil prices.

The underlying group result was 50 per cent ahead of most City analysts' expectations. BP's shares closed up 27.3p, or 4.8 per cent, higher at 594.4p.