How Oil Majors Adapted to Lower Prices and Beat Earnings Expectations by Reuters @FortuneMagazine November 1, 2016, 6:23 AM EST E-mail Tweet Facebook Linkedin Share icons Royal Dutch/Shell and BP on Tuesday joined peers in reporting higher than expected earnings by making further deep cuts in spending to cope with an oil price downturn now in its third year. Shell’s stocks rose by over 3% as it announced higher quarterly earnings than arch-rival U.S. Exxon Mobil, the world’s largest listed company by output. Anglo-Dutch Shell is hoping to outgrow Exxon over the next few years after acquiring rival BG for $54 billion earlier this year. By contrast, BP’s stock fell by 3% as some analysts said its results were boosted by a one-off tax gain, meaning its longer-term profits and ability to pay dividends could still be at risk. Shell’s Chief Executive Officer Ben van Beurden said the oil sector had yet to emerge from troubled waters, but huge cost savings meant oil majors were getting closer to balancing their operations at today’s oil prices of around $50 a barrel. The prospects for an oil price recovery are still unclear, van Beurden said, despite attempts by OPEC and other producers to agree a deal to limit output and reduce the global glut which has pushed oil prices down by 50% since June 2014. “Lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain,” van Beurden said. The world’s top oil and gas companies, including Exxon and Chevron, reported sharp drops in quarterly results last week due to lower oil prices and weaker refining margins. But at the same time, companies have adapted to the new environment with both Exxon and Chevron beating earnings expectations. French oil major Total tot also beat third quarter income expectations helped by cost cuts, new projects and renewables and only smaller rivals Norway’s Statoil and Italy’s ENI missed expectations due to lower-than-expected output. For more on oil prices, watch Fortune’s video: BP Chief Financial Officer Brian Gilvary said the British company was on track to rebalance cash flows next year at $50 to $55 a barrel. BP reported a near halving in third-quarter earnings and slashed another $1 billion from its 2016 investment plan, while Shell saw an 18% rise in profits and lowered next year’s capital spending to the bottom of the expected range. The Anglo-Dutch oil major, whose acquisition of BG Group transformed it into the world’s top liquefied natural gas producer, has been under pressure from shareholders to cut annual spending to ensure it can maintain its dividend given the slow recovery in the oil prices. Shell disappointed the market with its second-quarter results, the first full quarter following the completion of the BG acquisition in February, by missing expectations by around 50%. At $2.8 billion in the third quarter, Shell’s net income was above Exxon’s third quarter net income of $2.65 billion. Oil companies have slashed spending, scrapped new projects, slashed tens of thousands of jobs, renegotiated supply contracts and increased borrowing in order to weather the more than halving of oil prices since June 2014. “Drilling down to the key fundamentals, oil producers have to cut costs to survive in a lower-for-longer price environment,” said Neil Wilson, analyst at ETX Capital. Exxon warned last Friday it may need to slash proved oil and gas reserves on its books by nearly 20%, or some 4.6 billion barrels, if oil prices stay low for the rest of 2016. BP benefited from UK fiscal regime changes, resulting an a $164 million tax credit in the third quarter, compared with a $1.16 billion tax bill in the same quarter last year. “Despite mixed numbers and a modest increase in gearing, the overall trend in cost and capex savings and cash flows at BP continues to head in the right direction,” analysts from Morgan Stanley said in a note. 1 billion, although this was down from $2.6 billion a year ago. RBC Capital Markets analyst Biraj Borkhataria said there was “room for Shell to outperform its peers in the near term” following the solid results. BP on Tuesday also beat earnings expectations, trimming its 2016 capital spending by another $1 billion. Other rivals, including Exxon Mobil xom and Chevron cvx , reported sharply lower in quarterly results last week due to lower oil prices and weaker refining margins.