BP (NYSE: BP) is preparing for continued commodity price volatility as it solidifies an upstream game plan that includes capex reductions and pushing forward projects as quarterly profits fell again.

The company reported Oct. 27 that its third-quarter (3Q) 2015 earnings fell to $5.1 billion, a 43% drop compared to last year at this time.

The company continues to sell off assets as it struggles with the legal fallout from its 2010 oil spill in the Gulf of Mexico (GoM).

Its downstream segment continued to show strength, boosting earnings from $1.5 billion in 3Q 2014 to $2.3 billion. However, the fall in upstream profits was more pronounced, tumbling to $800 million this quarter from $3.9 billion in 3Q 2014. Nevertheless, that was an improvement over the $500 million in upstream profits earned in 2Q 2015.

The landscape has changed for everyone, BP Group Chief Executive Bob Dudley said on a webcast Oct. 27.

“I think the numbers show that BP is competing well in the current environment,” Dudley said. “Late last year we moved quickly and decisively to reset BP for what we expected could be a sustained period of low oil prices. Not everyone shared our view at the time.”

The results come as oil and gas industry companies small, large and major continue to adjust to lower oil prices as supply outpaces demand.

Market conditions have forced BP, like its peers, to cut costs. BP reported its costs through September 2015 were $3 billion lower than the same period in 2014, partly the result increased efficiency and layoffs.

In an analyst note, Guy Baber of Simmons & Co. International called the results a “stronger than expected quarter characterized by solid execution.”

Upstream’s modest upswing outperformance was the result of strong production, which increased 4.4% year-on-year, as well as gas trading gains and lower costs, he added.

BP expects to cut costs further as it lowers capex.

Costs could drop about $6 billion from the 2014 level. Upstream targets have included cutting 10% of the workforce, a 42% reduction in contractors and influencing partner-operated spending, BP said.

Capex could drop 25%, to as low as $17 billion through 2017 from nearly $23 billion in 2014 as the company adjusts to a new operating environment.

BP is also raising cash as part of a divestment plan that could reach $10 billion by year-end 2015, as it continues to shed assets to cope with oil price volatility and meet payments related to the 2010 Deepwater Horizon oil spill. The company agreed to pay the U.S. and five states roughly $1 billion a year for 18 years.

In 2015, the company has divested $7.8 billion and expected to sell another $3-5 billion worth of assets in 2016.

Production

Improved safety performance, better reservoir management and drilling and operational efficiency has boosted production and lowered BP’s overall decline rate, Dudley said.

End-year production from new wells is expected to reach about 160,000 barrels of oil equivalent per day (boe/d).

Production for the quarter was up 4.4%, compared to 3Q 2014, to 2,242 mboe/d. The gains were attributed to improved system and reservoir optimization, including well monitoring and 4-D seismic. Fourth-quarter production is anticipated to be slightly higher.

“We expect all of these efforts to allow us to keep the average managed base decline through 2016 at around 2%,” Dudley said.

Through 2018, BP plans to allocate 10% of its expected capital spend to integrity management on producing assets, 45% to new projects, 35% to drilling on existing assets and the rest to exploration.

Pipeline

BP’s pipeline of projects includes deepwater, LNG and gas assets and giant fields with a growing bias toward gas over the next decade.

“Over half of our production from new projects to 2020 is already under construction and we have a deep portfolio of over 50 options to move through sanction should we chose so,” he noted.

Whether a project moves forward will depend on its ability to meet certain investment criteria, including a break even below a $60 per barrel (bbl) Brent oil price.

Projects under construction in 2016 include the Angola LNG, In Amenas compression, Point Thomason Alaska gas, North Sea Quad 204 deepwater oil and the GoM’s Thunder Horse water injection project. Eight more are in the pipeline for 2017-2020.

However, a dozen others remain stuck in the design-appraisal phase. These include the Mad Dog Phase 2 deepwater oil project in the GoM, two Trinidad offshore compression projects and Egypt’s West Nile Delta and Atoll gas projects among others. “They will continue to be technically and commercially optimized but are not included in our current production and financial outlook,” Dudley said.

New projects between 2015 and 2020 are expected to deliver more than 800,000 bbl/d of new production by 2020 net to BP.

With more than 350 oil and gas fields, thousands of reservoirs and more than 50 rigs, Dudley said BP’s balanced portfolio makes it resilient to industry price cycles and lessens exposure to fiscal and political risks.

Portfolio

Worldwide, BP’s expectations are that supply will continue to be strong but companies remain wary of demand growth in China, the world’s largest country and top energy consumer.

“This reinforces the need for a business model that can withstand a longer period of lower oil prices and we’ve been resolved to that for some time,” Dudley said.

It also reinforces the need for a balanced portfolio. In the upstream, this means investing in a range of resources and geographies, he said.

“We will continue to actively manage this portfolio for value over volume constantly looking for ways to optimize it whether it’s through inorganic activity or alternative ways to run our business such as you have seen in the U.S. Lower 48,” Dudley said.

In 2014, BP formed a separate business unit for its U.S. Lower 48 onshore oil and gas assets to improve its competitiveness and performance. Currently, it operates 12 rigs—the highest number since 2012—with YTD 2015 production at about 283 Mboe/d.

Lower well development costs and improved efficiency have helped dropped overall costs by about 18%, BP reported.

Offshore, the company is moving in a new direction in the GoM’s Paleogene play, farming out interest to diversify risks and encourage technical collaboration, Dudley said.

“The ability to adopt a more efficient business model will become a point of differentiation. [Today’s] an environment that encourages both producers and the service sector to work closer together and innovate in the way we work with each other and resource holders,” Dudley said. “And it calls on resource holders to do more to incentivize investment in their regions.”

Velda Addison can be reached at vaddison@hartenergy.com.