BP plc, the first of the Big Oil producers whose operations are weighted to the United States to disclose 1st quarter results, is dropping deepwater rigs in the Gulf of Mexico (GOM) and laying off hundreds, but the restructured Lower 48 business has become more competitive, CFO Brian Gilvary said Tuesday.

The financial chief spent close to an hour discussing first quarter results, in which he explained the expected decline in profits and expressed optimism about the future of BP's U.S. upstream.

It's not going to be an easy road ahead, Gilvary said. "The upstream environment remains challenging, and we continue to expect oil prices to remain weak in the short- to medium-term."

To that end, BP has cut its 2015 capital expenditure (capex) by 13% year/year to about $20 billion. In the first quarter it canceled two of its 11 deepwater GOM rigs; it still has the highest rig count in the U.S. offshore. Depending on market conditions, two more GOM rigs could be cancelled this year.

Still, BP may be in better shape than some of the other oil majors, not because it avoided the oil collapse, but because it already was in the midst of a massive restructuring following the 2010 Macondo well blowout. Several high-dollar projects already were in progress, with dollars earmarked, while some final investment decisions are shelved for better times. In addition, while the upstream arm's profits sharply fell, the refining arm's earnings more than doubled from a year ago, proving that the integrated business model may provide a cushion.

Still, "it's quite a painful process that we're going through," Gilvary said. "It's a journey that we've been on for close to two years. We're starting to see the benefits of that in lower costs across both of the major businesses and corporate functions."

On the positive side, quarterly oil and gas production jumped 8.3% year/year to 2.31 million boe/d. In the United States, natural gas production rose to 1,517 MMcf/d from 1,478 MMcf/d. Total U.S. hydrocarbon output was 653 million boe/d, nearly flat from 651 million boe/d.

In addition, there's more confidence about prospects in the Lower 48.

"I think we've learned a huge amount since David Lawler was brought in" to run the U.S. onshore business, said Gilvary. Lawler, the former COO of SandRidge Energy Inc., joined BP last August (see Shale Daily,Aug. 20, 2014).

As part of the restructuring, the Lower 48 business was put "more at arm's length" with operations based in Houston. As of this year, BP is reporting more details about its Lower 48 results.

"We've now gone through a thoroughly major restructuring of that business, and so therefore, we are seeing the benefits of the way in which David's approach has effectively made this business competitive with the typical independents in the Lower 48," said Gilvary.

"We have a specific financial framework around it, with specific capex allocated to it and an opportunity for them to reinvest in various options...I think it's still early days" but there is more clarity.

About 800 jobs total were lost in the first quarter, and more are expected to lose their jobs this year as operations are streamlined. Since the end of 2012, BP has reduced its global workforce by about 3,500.

Today BP is working nine rigs in the U.S. onshore, including one in the Wamsutter gas field in Colorado, which at one time was one of BP's top onshore prospects (see Daily GPI,Oct. 15, 2005). One rig also is running in the San Juan Basin, with four more in the Anadarko Basin, one in the Haynesville Shale and two in the Woodford Shale.

"I think we'll continue to pursue opportunities," said Gilvary of the U.S. onshore. "Our cash breakeven is almost certainly coming down, as we lower our costs in that business. But it's really about how we make that competitive...and there will be more to follow on that as we progress through this year."

At IHS CERAWeek last week, CEO Bob Dudley said BP could be looking for assets to buy if oil prices remain low and sellers are pressured. Gilvary acknowledged that acquisitions are on the agenda, but "certainly not...at this point." He also declined to detail where BP might be looking.

Dudley last week also attempted to shoot down rumors that BP is being eyed for takeover.

He said BP has not been approached and has not had any conversations with potential suitors. Volatile prices, he said, often lead to rumors.

BP has sold $7.1 billion of its assets since the start of the year and is on track to sell $10 billion worth of properties in 2015, Gilvary said.

The dividend remains a priority. BP announced a quarterly dividend of 10 cents/share, unchanged sequentially and up from 9.5 cents a year ago. Although Dudley wasn't on the conference call, he said Tuesday the "dividend is the first priority within our financial framework and the board is committed to maintaining it...We can sustain this by successfully resetting our capital and cost base and rebalancing our sources and uses of cash in the prevailing oil price environment."

BP posted a first quarter profit of $2.6 billion (86 cents/share), versus year-ago profits of $3.5 billion ($1.15). Revenues fell to $55 billion from $93 billion. Cash flow plunged to $1.9 billion from $8.2 billion. One-time charges included $545 million for the U.S. upstream arm related to dropping the GOM rigs and severance costs. At the end of March, costs related to the Macondo blowout also had reached $43.8 billion, either paid or set aside.

Global upstream profits plunged in the quarter to $604 million from $4.4 billion in 1Q2014. The U.S. upstream arm lost $545 million, attributed to a $375 million charge for the dropped rigs and severance costs. A year ago, the domestic upstream arm earned $731 million, and profits in 4Q2014 were about $1 billion.

U.S. upstream capex in 1Q2015 totaled almost $1.14 billion, versus year-ago spending of $1.7 billion. Average global gas realizations were $4.44/Mcf, compared with $6.20 in 1Q2014, with average Henry Hub prices of $2.99 versus $4.95. West Texas Intermediate realizations averaged $48.49/bbl in 1Q2015 versus $98.69.

Estimated underlying net income from OAO Rosneft, in which BP owns a 20% stake, was $183 million in 1Q2015, versus $270 million in 1Q2014.