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Profit Down at BP, Which Predicts Era of Low Oil Prices

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By STANLEY REED: OCT. 27, 2015

LONDON — The British oil giant BP said on Tuesday that its profit was down sharply in the third quarter as depressed oil prices took a heavy toll.

The company, saying it expects prices to stay low for years, indicated that it would continue to cut costs and limit its investments in searching for and developing new oil and gas fields.

“We are now in action to rebalance our financial framework in this new price environment,” BP’s chief executive, Robert W. Dudley, said in a statement.

The company said its profit in the quarter was $46 million, compared with $1.3 billion a year earlier. Profit on the basis of underlying replacement cost, a more widely used figure, fell to $1.8 billion for the quarter from $3 billion a year earlier.

BP said it was holding its quarterly dividend at 10 cents a share, payable in December.

The sharply lower earnings reflect the steep fall in oil and natural gas prices from a year earlier. Trading around $50 a barrel for much of the quarter, Brent crude prices were only about half their level a year earlier. Natural gas prices were off by nearly a third.

In its announcement on Tuesday, the company said it was basing its outlook through 2017 on oil prices of $60 a barrel.

In a call with analysts, Mr. Dudley backed up this view with a slide showing that the futures market was now forecasting oil prices of $60 to $70 per barrel into the 2020s. That is a large drop from earlier this year, when the projections were for about $70 per barrel in 2017 and about $80 by 2021.

“Obviously the landscape has changed,” he said.

Extracting oil and gas from the ground and the seafloor was once the big money earner for BP, but because of the decline in crude oil prices, refining and marketing petroleum products — long a drag on earnings because of their lower profit margins — have more recently helped keep the company in the black.

For the third quarter, marketing, refining and petrochemicals earned $2.3 billion, a 55 percent increase over a year earlier, while earnings from exploring for and producing oil and gas fell nearly 80 percent to $823 million.

The company said that job cuts made over the last year would total about 4,000 by the end of December, when it expects its global work force to be about 80,000. That figure includes about 20,000 agricultural workers on biofuel projects and gas station workers.

Over the years, BP has sold many of its poorly performing refineries and invested in upgrades of some of the remaining units. BP said its refining margins were $20 a barrel in the third quarter, up from $15.60 a year ago.

Mr. Dudley has been among those saying that the industry needs to prepare for a long period of low prices. Analysts, including some inside BP, say oil and gas prices are likely to remain depressed indefinitely.

In a recent study, Spencer Dale, BP’s chief economist, wrote that “the principles and beliefs that served us well in the past are no longer as useful for analyzing the oil market.”

Mr. Dale wrote that with known global oil reserves more than doubling since 1980, and the appetite for fossil fuels potentially diminished in the face of growing concerns about the role of carbon emissions in climate change, the world would probably not run out of oil. Without the threat of an eventual scarcity, “there is no longer a strong reason to expect the relative price of oil to increase over time,” he wrote.

To prepare for this challenging business environment, the company continues to cut operating costs through staff cuts and other measures that trimmed $3 billion in cash outflows in the first nine months of 2015. It has also sharply cut back spending on items like drilling and developing new oil fields from the $24 billion to $26 billion originally forecast for this year.

BP said its capital spending this year would be around $19 billion, compared with about $23 billion in 2014. BP said it would keep capital outlays in the range of $17 billion to $19 billion through 2017. Exploration costs were cut by more than half in the third quarter, to $356 million.

Mr. Dudley said that BP was working to reduce the costs of future projects in various ways, including waiting for the price of items like drilling rigs to fall. He estimated that the average price tag of BP’s planned future investments had already declined about 15 percent in the last 12 months.

But many analysts say the major oil companies could do plenty more in terms of cost-cutting.

Lessons may be learned from the shale oil industry, whose millions of additional barrels in global supplies may have been the single most important factor in driving down prices.

The shale oil operators have also taken a lean, almost factory-style approach to oil and gas operations — for instance, by using technology that smooths and speeds drilling and makes it more precise. The question is whether some of the techniques can be applied to activities like offshore oil and gas extraction, which are now quite costly.

BP shareholders and management at least have a much clearer idea of the final bill for the Gulf of Mexico disaster of 2010. This month, the company reached a $20.8 billion final settlement with the United States government and the gulf states.

The company says the payments, stretched out over nearly two decades, will be manageable.

BP said its total provision for outlays from the Gulf of Mexico disaster had reached $55 billion.

A version of this article appears in print on October 28, 2015, on page B9 of the New York edition with the headline: Low Oil Prices Stifle Profit at Retrenching BP.

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