Image source: BP investor presentation.

After watching oil, gas, and refining margins decline over the past quarter, most investors were probably ready for BP (BP 1.58%) to show some pretty awful results. Good thing that's pretty much exactly what investors got.

Let's take a look at the numbers as well as some of the big themes of BP's most recent earnings.

By the numbers
Thanks to yet another quarter of declining oil prices, BP saw earnings fall into the red after eking out a decent profit during the previous quarter. BP's normalized third-quarter earnings on its American Depository Shares came in as a loss of $0.09 per share. Even with a low hurdle to clear this past quarter, it couldn't even beat Wall Street's expectation of $0.25 per share in gains.

Unlike last quarter, where BP was able to lean on its refining and chemicals segments to prop up weak upstream performance, the company realized a huge loss on the upstream, and its downstream results were much more modest as refined product demand started to decline from its seasonal highs in the summer. Here's a quick breakdown of its segmented earnings. 

Image source: BP earnings release, author's chart.

The highlights
As bad as this quarter's numbers looked, they were all mostly a product of the lower refining margins and declining price realizations for oil and gas compared to previous quarters, which are things completely out of BPs control.

Realizations Q4 2014 Q3 2015 Q4 2015
Crude oil ($ per barrel) 69.03 44.01 37.05
Natural Gas ($ per thousand cubic feet) 5.54 3.49 3.47
Average realized price ($ per barrel of oil equivalent) 51.53 33.25 29.54
Average refining marker margin ($ per barrel) 13.0 20.0 13.2

Source: BP earnings release.

If we look at the operations and spending of BP, though, we see a slightly better picture. Compared to this time last year, the company was able to reduce its total spend on operations and capital by $7.5 billion. Even more promising is that BP was able to reduce its 2015 capital spending from its projected level of $22.9 billion to $18.7 billion while still increasing total production by 5.4%. A lot of that reduction from the initial projections came from lower services costs across the board. Several of BPs big oil peers have stated that they too are seeing double-digit decreases in costs thanks to lower contract rates for equipment and services. 

According to CFO Bob Gilvary, the company expects to spend a a little less this year and next on capital expenditures, somewhere on the low end of its $17 billion to $19 billion range. At these rates, the company expects to be cash-flow breakeven at $60 a barrel by 2016, and that includes its dividend payment. It's a ways off from the $29 per barrel equivalent the company saw this past quarter, but it's a large improvement from the company's previous breakeven prices.

The lowlights
It may be better to simply pick one, because low oil and gas prices really wreaked havoc on the company's financials. Cash flow from operations was just a couple hundred million more than its much-reduced capital spending, and even with its asset sales, the company wasn't able to cover both its capital spending and its dividend payments. At these rates, BP's balance sheet will continue to deteriorate.

Also, considering that the company is centering its business plans around 2017, it's pretty safe to assume management has written off 2016 as a wash. CEO Bob Dudley has been saying that he expects oil prices to stay "lower for longer," so this year looks like it's more about weathering the downturn again and planning for an upturn in the oil and gas market toward the end of the year, or possibly into 2017.

What a Fool believes
The oil market keeps turning the screws on BP, and the company has so far been able to respond with cost-cutting and reduced spending. However, it's getting to the point where it will become more and more difficult to cut costs without compromising its future results. 2016 is shaping up to be a rough one, but BPs management still seems to think it can maintain its dividend to shareholders through the year in anticipation of a rebound in 2017.

If the market doesn't play out as BP is predicting, though, investors may want to shy away from the company's tempting 8.2% yield.