BP profits ahead of expectations

BP's profits halved, but they were still ahead of expectations

Oil giant BP has reported third-quarter profits well ahead of expectations, sending its share price up nearly 4%.

Its replacement cost profit between July and September was $4.98bn (£3bn). Experts said the figure had "obliterated" market forecasts.

BP's results were boosted after it made bigger-than-expected cost cuts.

But profit was down 50% from the $10bn it made a year ago, as oil - currently trading at about $80 a barrel - is well below the $147 high set in July 2008.

The company said that unit production costs were 18% lower than in the third quarter of 2008, while oil and gas production was up 7% on last year.

BP says it expects to cut costs by a total of $4bn this year.

When the markets closed, BP's shares finished up 4.81%, or 27.30p, at 594.40 pence.

Share spike

"The fall in earnings was well trailed," said Richard Hunter, head of UK equities at Hargreaves Lansdown.

REPLACEMENT COST PROFIT Replacement cost profit is the reporting measure typically used by oil companies and reflects the current cost of supplies The measure strips out gains or losses related to any changes in the value of the firm's stock of fuel products See BP's share price

"But the numbers nonetheless have obliterated market forecasts, as evidenced by the spike in the share price in early trade."

Excluding one-off items, BP's profits were $4.67bn compared with analysts' forecasts of about $3.2bn.

Nick McGregor, oil analyst at Redmayne Bentley, said that BP's refining business was also key.

"For every dollar that oil prices go up, BP make about $400m. For every dollar that refining margins go up, they make about $950m," he said.

"The exploration and production is the most profitable in absolute terms because it's the biggest bit, but refining is a big influence on the overall bottom line."

'Giant' discovery

Net income at its Russian joint venture TNK-BP rose 34% to $1.7bn.

The project had been marred by a dispute between BP and the Russian shareholders in the venture, and was only resolved in September last year when Robert Dudley stepped down as TNK-BP's chief executive.

BP said the venture was well-positioned to deliver a solid performance in 2009.

BP was also buoyed last month by a "giant" new oil discovery in the Gulf of Mexico.

The company said the discovery amounted to more than three billion barrels. Its well in the region, dubbed Tiber, has been drilled to a total depth of about 35,055ft (10,685m), making it one of the deepest wells drilled to date.