Maersk Oil reported a net operating loss after tax of $29 million in the first quarter, compared with a profit by the same measure of $208 million a year earlier.
The loss was smaller than the $58 million predicted by analysts.
Chief executive Nils Smedegaard Andersen said the company is adapting its cost base to prepare for the risk of lower crude prices as the world keeps producing more petroleum than it can consume.
The division cut costs by 21% in the first quarter, a higher rate than the 20% it targets for end-2016 when comparing with 2014 levels.
That means cuts will probably end up deeper than initially planned, Andersen said. Those measures helped Maersk deliver a bigger profit than analysts expected, driving its shares up as much as 6.7 percent on Wednesday.
Oil has risen about 60% from a 2016 low. But the risk that prices will again fall is forcing Maersk’s oil unit to explore bigger cost cuts than previously planned, said Andersen.
“The price will obviously be driven by the balance between supply and demand and there will be oversupply for many months still,” he said by phone from Copenhagen. “It definitely can’t be ruled out that the oil price will fall again.”
Oil traded at about $45 today, compared with a low of $28 in the middle of January.
“I have previously said the oil price was too low, but it’s very plausible that the balance between supply and demand will continue to be unfavorable,” Andersen said.
Maersk Oil, which has its main operations in the North Sea and Qatar, raised its full-year forecast and now sees the unit breaking even, compared with a forecast for a 2016 loss in February. The unit can now break even with oil at $40 to $45. It previously said oil needed to trade at about $45 to $55 in order to avoid a loss.
“We’re happy we’ve reached the goal we set,” Andersen said. “We will definitely work on cutting costs even further.”
“We don’t outright expect that the oil price will fall, but we want to make sure we have a solid oil business even at an oil price in the $40 to $50 range,” Andersen said.
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