BP lifts cost-cutting target by $1bn

By Adam Jones, The Financial Times

BP has cut thousands of jobs in response to the more difficult economic conditions.

STORY HIGHLIGHTS

The steep drop in crude oil and natural gas prices has hit profits across the industry
BP has cut thousands of jobs in response to the more difficult conditions
BP expects to save about $4bn in 2009 -- double its prediction earlier this year

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BP, Europe's second-biggest oil company, said on Tuesday that its cost-cutting programme would yield $1bn (£610m) more in savings this year than it had been expecting.

It also said that third-quarter profit had fallen by half to just under $5bn, a much better performance than analysts had expected. Shares in the group rose 5 per cent to 597.4p in early London trading.

The steep drop in crude oil and natural gas prices from their peaks in 2008 has hit profits across the industry, forcing companies to engage in major cost-cutting exercises.

BP's replacement cost profit -- a measure that strips out the effect of changes in the value of inventories -- was $4.98bn in the third quarter, 50 per cent less than the figure it reported for the same period of 2008.

Excluding non-operating items and swings in the valuations of derivative instruments, the underlying profit was $4.67bn, beating the consensus forecast of $3.16bn yielded by a Reuters poll of 11 analysts.

Profit was aided by cost cuts, a lower than expected tax rate and more production from its higher-margin Gulf of Mexico operations. Overall, production for the quarter rose 7 per cent year on year, helped by the absence of hurricanes.

BP said that cash costs -- a measure that covers the bulk of its cost base -- for the first nine months of the year had been more than $3bn lower than in the same period of 2008.

This meant that it was now expecting to save about $4bn for the year as a whole -- $1bn more than it had been forecasting at its second-quarter results and double the $2bn it had predicted earlier this year.

BP has cut thousands of jobs in response to the more difficult conditions in the sector. On Tuesday it said the revised cost savings target was also partly a reflection of tighter contracts negotiated with suppliers, while favourable exchange rate movements also played a part.

"As you go through cutting costs, you find more you can do. There's real momentum in that exercise," said the company.

The quarterly dividend has been held at $0.14 a share, although in sterling terms the pay-out fell from 8.705p to 8.512p.