Oil and Gas

BP cuts costs, bracing for $60 barrel oil until 2017

BP prepares for $60 a barrel oil price

BP, the U.K. oil giant, is slashing costs as it prepares for a long-term low oil price environment.

The company is now planning for around $60 per barrel price for Brent crude until at least 2017, after a sustained fall in the price of the commodity over the past year. It also plans a further $3-5 billion worth of asset sales next year. Its share price rose by more than 2 percent in early London trading Tuesday following the announcement.

There was good news for investors in the company's continued commitment to dividend payouts, with a quarterly dividend of 10 cents per ordinary share, expected to be paid in December.

Bob Dudley, chief executive of BP, said in a statement: "Last year, we acted decisively to reset BP for a sustained period of lower oil prices and the results are coming through well. We are now in action to rebalance our financial framework in this new price environment."

Investment bank Goldman Sachs this week warned of downside risk for oil prices through spring 2016.

Jason Gammel, equities analyst at Jefferies said lower oil prices would weigh on energy stocks until the end of the year.

"My personal opinion is that $60 will not even be sufficient to balance the market by 2017," he said, but to balance the company dividend it seemed "reasonable".

An employee directs a vehicle toward gas pumps at a China Petroleum & Chemical Corp. (Sinopec) gas station in the Zhujiang New Town district of Guangzhou, Guangdong Province, China.
China will call crude oil’s next move: Traders

BP has now reduced its full-year capital expenditure (capex) for the third time this year, and announced on Tuesday it had cut investments for this year to close to $19 billion, down from previous plans under $20 billion. This spending will fall to $17-19 billion a year through to 2017, according to the oil major.

There was also some good news in better than forecast third-quarter underlying replacement cost profit, a common accounting measure to report profits in the oil industry which takes into account the fluctuations in the price of oil, of $1.8 billion, higher than the average analysts' forecast of $1.2 billion.

A Shell Oil facility in Carson, California
$80 oil in 2016? This director thinks so

In recent years, BP has also struggled with the fallout from the Gulf of Mexico oil spill, which had already weakened the company before the oil price fall. It fell from number 2 to number 29 in the Platts ranking of global energy companies for 2015, with the downgrade "due in large part to its weaker profits and poor 2 percent ROIC (return on invested capital) upending its revenue and assets", Platts said in a statement.

Dudley and Brian Gilvary, BP's chief financial officer, will give an important presentation to investors later Tuesday about how the company will respond to lower oil prices.

Biraj Borkhataria, analyst at RBC, described the results as "encouraging" and predicted they would be "positively" received in the market.

- By CNBC's Catherine Boyle