Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

So that's one way to answer the critics. Bob Dudley was mauled by BP shareholders at its annual meeting over his 20 percent pay hike. Had they been able to glance at the oil company's first-quarter earnings, they might have been slightly less apoplectic about rewards for failure.

The BP CEO surprised everyone by reporting an adjusted $523m replacement cost profit in the first quarter, when the Bloomberg consensus of analysts predicted a $245 million loss.

Of course, we shouldn't get carried away. The result is well below the $2.6 billion profit achieved a year ago and, all-in, the company still made a $558 million net loss. But given Brent oil averaged just $34 a barrel during the quarter -- less than two-thirds the prior year quarter -- this was a resilient result.

Big Dipper
Oil has rallied from its first quarter low but prices still spells misery for producers
Source: ICE

Dudley should be credited for running a tighter ship: the Gulf of Mexico spill gave it a start on competitors in the race to cut costs and sell assets. Overall, cash costs were about $4.6 billion lower over the past four quarters than in 2014.

But it isn't all sunshine. BP still spends more cash than it brings in, for example. It generated $1.9 billion in operating cash flow but spent about $3.9 billion on capex during the quarter. About $1.1 billion of payments related to the Gulf spill were offset by a similar amount of divestment proceeds.

So net debt rose to $30 billion and BP's gearing -- the ratio of its net debt to equity -- increased to 23.6 percent from 18.4 per cent a year ago. While cash flows are unbalanced, investors will continue to worry that the company's dividend is not sustainable.

Debt Burden
BP's gearing has increased as BP is spending more money than it brings in
Source: BP

BP's statement that it could balance its books at oil prices of $50-55 a barrel was therefore the standout positive in the quarter. Previously, it targeted $60. Brent rose above $45 a barrel last week, which bodes well if sustained.

If oil prices swing back into reverse again, BP says it can cut capex to as low as $15 billion in 2017, compared to about $17 billion this year. Investors should hope it doesn't have to, because investments are the basis of future profit. Its bigger rival Royal Dutch Shell is expanding further through its 35 billion pound ($51 billion) takeover of BG.

Ahead of the results, the assumption was that BP's downstream operations wouldn't ride to the rescue of the loss-making upstream business as they did last year. That proved false. Refining margins were indeed the weakest since 2010: 

Returns to Nowhere
BP's Q1 refining margins were their lowest since 2010
Source: BP website
Nb. a $1 move in refining margins typically impacts pre-tax replacement cost operating profit by $500 million

Nevertheless, downstream operations still generated a good profit:

Tidy Hedge
Downstream profits offset upstream pain last year. That trend continued in Q1
Source: BP annual report and Q1 earnings release

It's hard to unpick exactly how BP defied the more bearish predictions. It doesn't break out the performance of its trading business, for example, which is included in the downstream segment. But in addition to cost cuts, low oil prices may be encouraging car drivers to take longer journeys, helping volumes in its fuels business.

Unsurprisingly, the shares rose more than 4 percent on Tuesday. Yet there are reasons for caution.

While Dudley's doing the right thing on cost, the failure of the recent Doha talks to freeze oil production suggests the price may struggle to climb back above $50 in a hurry. Plus BP trades on 36 times estimated 2016 earnings, compared to 23 times at Royal Dutch Shell. That seems a stretch.

Optimism Abounds
Even as oil rebounds, BP's shareholders are paying a large multiple of estimated 2016 earnings
Source: Bloomberg

Dudley should be commended for trying to put BP's house in order. There's still a long way to go, though, before oil's long winter can be declared a summer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at

To contact the editor responsible for this story:
James Boxell at