BP BP Plc

By Sarah Kent and Selina Williams 

LONDON-- Royal Dutch Shell PLC and BP PLC posted better-than-expected third-quarter profits, joining other big oil companies in showing progress in efforts to adapt to a world of cheaper crude as prices rebounded from lows hit at the start of the year.

The European companies' results underlined a sense of cautious optimism creeping into the oil industry after over two years of falling profits or losses in a sector once known as a reliable cash machine. BP and Shell both said they see oil supply and demand coming back into balance after being glutted long enough to sink prices by over 50%.

Both companies also said they had made progress with efforts to stabilize profits even during a third quarter when prices averaged less than $46 a barrel.

"2015 and 2016 was about restoring balance," said BP Chief Financial Officer Brian Gilvary on a call with analysts.

Shell returned to profit, posting the equivalent of $1.4 billion net income in the third quarter of 2016, after reporting a net loss of $6.1 billion a year earlier. BP's net earnings of $1.7 billion were up from $1.2 billion a year earlier.

BP and Shell's results were a positive signal in a mixed season of earnings. French oil giant Total SA last week said its third-quarter profit almost doubled from a year earlier to nearly $2 billion, a gain the company's chief executive, Patrick Pouyanne, attributed to deep cost cuts.

In the U.S., Chevron Corp. returned to the black after recording losses for three straight quarters, aided by self-help measures to cut spending and costs, though its earnings were still down 35% compared with the third quarter of 2015.

Exxon Mobil Corp., the world's largest publicly traded oil producer, registered its eighth straight quarter of year-over-year profit decline, illustrating how the efforts to manage the price downturn are still a work in progress.

Oil prices were generally lower in the third quarter of 2016 compared with the same time in 2015, averaging $45.86 a barrel for Brent crude, the international benchmark. The prices are down over 50% from the heights of $100 a barrel or more they traded at for much of 2011 to 2014. A global oversupply of oil has kept the market depressed.

Most big oil companies are continuing to work to bring down their costs in an uncertain price environment. Shell said next year it expects to spend $25 billion on finding and developing new oil and gas projects, at the lower end of a spending range it disclosed this year to investors. BP said it planned capital spending in 2016 of $16 billion, down from the $17 billion to $19 billion previously forecast. Exxon slashed its capital and exploration spending 45% in the third quarter from a year earlier.

Shell and BP's results were important landmarks for both companies after a tumultuous few years. For Shell, the sharp increase in profits marked a victory for management, demonstrating for the first time the value the company's massive acquisition of BG Group earlier this year could bring.

BP's results were the first unmarked by significant charges related to the company's fatal blowout in the Gulf of Mexico in 2010. The company is trying to move on from the accident after putting a final cost on the disaster of $61.6 billion over the summer.

Any 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 and optimism within the industry remains cautious.

There are signs executives are more willing to consider new investments.

BP is looking at advancing two new big oil and gas developments this year, taking the total number approved in 2016 to five, Mr. Gilvary said.

Shell is more circumspect. Chief Financial Officer Simon Henry said Tuesday that large new project approvals are "not top of my list of priorities at the moment."

"We're planning next year on $50 a barrel. We're planning the balance sheet for potentially even lower than that, and we're building the portfolio to be robust at anything above $50 a barrel," he said.

Write to Sarah Kent at sarah.kent@wsj.com and Selina Williams at selina.williams@wsj.com

(END) Dow Jones Newswires

November 01, 2016 10:27 ET (14:27 GMT)

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