Jul. 29--British oil giant BP said Tuesday it will try to reduce costs further this year, particularly within its vast supply chain, amid tough business conditions it doesn't see improving greatly in 2009.

BP now expects to cut its cash costs by more than $3 billion by the end of the year, up from a previous goal of $2 billion, which it said it hit in the first half of the year, partly by eliminating 5,000 jobs.

Going forward, cost-cutting will focus less on the internal business and more on BP's network of product and service suppliers, which BP believes are still charging too much despite sharply lower oil and gas prices from a year ago, BP Group Chief Executive Tony Hayward said.

"We've not really begun to get costs in the supply chain back to where they need to be for a $60 (crude oil) world," Hayward said in a conference call Tuesday to discuss the company's second quarter financial results.

BP's effort could bring more bad news to Houston's oil services industry, which has been squeezed as companies pressure providers to accept lower prices, and weak commodity prices slow oil and gas activity.

It also highlights a theme likely to be echoed this week by other major oil companies releasing second-quarter financial reports, said Robert Kessler, an analyst who follows BP with Simmons & Co. International in Houston.

"The whole industry is trying hard to reduce its cost structure, so I think you'll see a general deflationary trend for everyone, not just for BP," he said.

BP reported a 53 percent decline in second-quarter profits. Net income fell to $4.39 billion, down from $9.36 billion in the same period a year ago but better than analyst forecasts.

Weaker earnings

Other major oil and gas companies, including Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, are also expected to report weaker second-quarter earnings on lower commodity prices and softer global energy demand.

Since last fall, the costs of operating oil and gas exploration and production facilities have fallen 8 percent, reversing a trend of rising costs in recent years, according to IHS Cambridge Energy Research Associates. But the declines have not kept pace with the fall in oil and gas prices, the firm said.

Crude prices averaged $59.33 in the second quarter this year -- down from an average of $123.70 in the April-June quarter of 2008. And natural gas prices averaged $3.44 in that period this year, down from $10.75 last year.