THE chief executive of BP, Bob Dudley, has signalled it expects oil prices to remain low for some time after the company unveiled a slump in profits and a further cut in spending on new assets.

The oil and gas giant made a replacement cost profit of $1.3 billion (£830m) in the second quarter compared with $3.6bn in the same period last year as the slump in the crude price took a heavy toll on earnings at the key exploration and production division.

BP has cut around 300 jobs in the North Sea since January in response to the downturn.

The company, which also recorded an additional $10.8bn cost in respect of the 2010 Gulf of Mexico oil spill in the second quarter, is reining in activity amid what Mr Dudley described as challenging conditions. Directors now expects full year capital expenditure to be less than the $20bn target it set after cutting the budget by around $3bn earlier this year.

Mr Dudley made it plain BP is braced for a long downturn in the industry. “In the past few weeks oil prices have fallen back in response to continued oversupply and market weakness and the recent agreements regarding Iran. I am confident that positioning BP for a period of weaker prices is the right course to take, and will serve the company well for the future,” he said.

The prospect of Iran increasing production has been noted by sector watchers following talks between the country and the US.

Mr Dudley noted that BP had increased the efficiency of its North Sea operations in recent years.

However, with the company highlighting its continued focus on cost reduction, his other comments may stoke concern about the outlook for the North Sea industry.

Experts have calculated around 5,500 jobs have been lost in the UK North Sea following deep cuts in spending by oil and gas producers and warned more cuts are on the way.

BP did not give details of how the cuts in capital spending will impact on different areas.

The company continues to invest heavily in developing giant new fields West of Shetland including Clair Ridge. The projects were sanctioned before crude prices peaked in June last year

However, BP’s second quarter results underline the challenges facing exploration and production firms since the crude price went into reverse, partly resulting from the boom in production from US shale areas.

The company saw Brent Crude tumble from $110 per barrel in the second quarter last year to $62 in the three months to June. The price has fallen below $60 in recent weeks.

BP’s exploration and production division made an underlying profit of just $500m in the second quarter, before one-off charges, compared with $4.7bn in the same period last year.

The downturn has compounded the challenges BP has faced as a result of the disastrous spill on its Gulf of Mexico acreage in 2010.

In the second quarter BP recorded a $9.8bn charge in respect of an agreement it reached to settle all outstanding claims made by the US federal government and five states regarding the Deepwater Horizon spill.

Mr Dudley said the settlement would make it less likely that someone could try to buy BP. There has been speculation that US giant ExxonMobil could bid for the firm.

BP incurred $1bn costs in respect of issues such as losses claimed by businesses following the spill.

The total cost of the disaster for BP has increased to $54.6bn.

BP made a loss of $6.3bn in the second quarter, after accounting for the charge, compared with a $3.2bn profit last time.

The company recorded $600m charges in the second quarter reflecting the impact of the turmoil in Libya on its operations in the country.

The fall in E&P earnings was partially offset by a big jump in profits at the downstream arm, to $1.9bn from $0.7bn.

The drop in crude prices has boosted refining margins.

BP announced a dividend of 10 cents per share, versus 9.75p for the second quarter last year.

Shares in BP closed up 5.35p at 392.65p.