$1bn drive to slash costs as oil price hits BP’s profits

The oil giant's profits for the second quarter came in at $3.14 billion (£1.9 billion) — less than half the $6.75 billion made in the same period in 2008, but 30% higher than in the first quarter this year.

The huge swings reflect dramatic fluctuations in the oil price which peaked at $147 a barrel last summer before sinking to below $35 a barrel over the winter. It was around $68 a barrel today.

Tony Hayward, BP's chief executive, said: "We are in turbulent times, volatile and uncertain. But we continue to steer a steady course through choppy waters."

Production at BP was up to the equivalent of 4.005 million barrels of oil a day in the second quarter, 4% higher than a year ago. First-half profits were down 57% to $5.53 billion.

Hayward said demand for oil is stabilising following a dramatic slump in the first six months of the year when the global economy ground to a halt.

But he added: "There is no increase in demand coming through and this is a very good indicator of what is going on in the economy.

"Our view is that this will be a long, slow recovery."

The BP boss identified an extra $1 billion of cost savings for the year having already hit the $2 billion target set for 2009.

"We will continue to push efficiencies into the group to make sure every dollar counts," he said.

More than 5000 jobs have been cut since Hayward took over at the helm of BP two years ago and the company's management structure has been streamlined.

When he succeeded Lord Browne as chief executive, he said the chain of command had become so complex that making a decision was like "running through treacle".

Hayward said that while BP will be as lean as necessary by the end of the year, costs will fall further as the industry adapts to "a $60 a barrel world".

He warned of "further short-term volatility" in the oil price before it settles into a range from $60-$90 a barrel. He said the global recession will depress demand for energy and the price of oil for some time.

"Much like the equity markets, the oil market has been getting a bit ahead of itself," he said.

"We think it will take a while for the world to get into a stable, upward growth trajectory."

The firm proposed a 14 cents a share dividend for the quarter, the same as in the previous quarter, putting it on target to payout a whopping $10.5 billion to investors this year.

Shares fell 8.3p to 510.9p.

Richard Hunter of Hargreaves Lansdown stockbrokers said: "BP has now thrown down the gauntlet to the rest of the oil super-majors, who will report their numbers over the next few days."

Analysts expect Royal Dutch Shell, up 2p to 1600p, to report an even larger fall in profits on Thursday.

"They can't do much about the oil price, that's to some extent out of their control," said Colin Morton at BWD Rensburg. "But what they can control is making sure that they run all of their businesses as well as possible."