LONDON (Reuters) –
Oil major BP Plc (BP.L) reported a 62 percent fall in first-quarter net profit on Tuesday due to a collapse in oil and gas prices, but heavy cost cutting helped it beat all analysts' forecasts.
Europe's second-largest oil company by market value said its replacement cost (RC) net profit fell to $2.39 billion from $6.59 billion last year.
BP said it was reacting to the weaker oil price environment by slashing costs. These fell by $1 billion in the first quarter compared to the same period last year.
"We need rapidly to bring our costs to a level that is compatible with a $50 world," Chief Executive Tony Hayward said in an email to staff seen by Reuters, referring to the current price of oil.
The Brent crude price averaged $44/bbl in the quarter compared to $97 per barrel (bbl) a year earlier and has since recovered to around $50/bbl.
Lower industry costs will enable BP to cut its capital expenditure budget to under $20 billion from the $20 billion to 22 billion BP said in February it expected to spend this year, a spokesman said.
The spokesman added that the company's lower capital expenditures were in small part due to delays in some projects.
BP's results were helped by a 2 percent rise in oil and gas production to 4.02 million barrels of oil equivalent per day (boepd), the first time the company topped the 4 million boepd level since the second quarter of 2006.
However, BP's debt levels rose as it borrowed to fund its generous dividend. Gearing rose to 23 percent compared with 19 percent last year.
BP needs oil prices of $60/bbl to generate enough cash to fund investment and pay its dividend, analysts said.
Excluding one-offs items, which amounted to a net charge of $194 million, the result was $2.58 billion, ahead of an average forecast of $2.28 billion from a Reuters poll of seven analysts.
(Editing by Karen Foster)