BP BP Plc

By Selina Williams 

LONDON-- BP PLC's third-quarter profit rose 35%, reversing three successive quarters of losses, as the company began to feel the benefits from cost reductions that are helping to offset continued weakness in oil prices and sliding refining margins.

The British energy giant said Tuesday its replacement cost profit--a number analogous to the net income that U.S. oil companies report--totaled $1.66 billion, compared with a profit of $1.23 billion a year earlier.

"We continue to make good progress in adapting to the challenging price and margin environment," said BP Chief Financial Officer Brian Gilvary.

BP's earnings come as oil executives have begun to sound rare notes of optimism that the worst of a two-year rout in oil prices is coming to an end. Oil giants are looking ahead to 2017 for a potential rebalancing of the oil market and recovery of prices.

But that recovery could still be on a knife edge as members of the Organization of the Petroleum Exporting Countries are struggling to hammer out a final plan for a modest output cut before a Nov. 30 meeting in Vienna. Their failure to agree is keeping a lid on oil prices that staged a modest recovery last month.

BP's third-quarter results benefited from stronger profits before tax in BP's upstream, or exploration and production division, due to favorable nonoperating items, including impairment reversals in Angola and the North Sea. Upstream profits helped to offset a decline in downstream, or refining, where profits before tax declined 62% due to a weakening of refining margins.

The refining arms of BP and other oil companies had helped cushion the blow of the more than two-year decline in oil prices. The price slump made the crude--the feedstock needed for the refineries--cheaper. But demand hasn't been sufficient to soak up the additional supplies the refineries have been cranking out.

BP joined Exxon Mobil Corp., Chevron Corp., ConocoPhillips and Statoil ASA in extending cuts to capital expenditure as the sector battles to get balance sheets under control following the more than halving in oil prices from levels over $100 a barrel in mid-2014.

BP said it now expected its capital expenditure to be around $16 billion for this year, versus its previous guidance of $17 to $19 billion. The company is aiming for all its costs, excluding capex, to be $7 billion lower next year versus 2014 as part of its goal to be able to generate enough cash next year to pay for investments in new barrels, while also meeting its dividend payments to shareholders at oil prices of $50 to $55 a barrel.

Stripping out one-off items such as proceeds from sales and impairment charges, the company's underlying earnings of $933 million outperformed analysts' consensus of $686 million in a Dow Jones Newswires poll. In the same period last year, BP reported underlying earnings of $1.8 billion.

Brent crude averaged $45.86 last quarter, 9% lower than a year earlier and mostly unchanged from the previous quarter.

Write to Selina Williams at selina.williams@wsj.com

(END) Dow Jones Newswires

November 01, 2016 04:58 ET (08:58 GMT)

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