* Refining paying the bills at time of low oil prices
* BP, Total post strong oil production growth
* Oil firms cancel rig contracts to cut costs (Combines BP and Total results)
By Ron Bousso and Michel Rose
LONDON/PARIS, April 28 (Reuters) - BP and Total reported higher than expected profits on Tuesdaythanks to steep increases in profits from refining, showing theresilience of global oil firms in the face of slumping oilprices.
Large oil companies have closed down dozens of refineries inthe past few years due to over capacity and because refining, ordownstream in industry jargon, has been long seen as a drag onearnings compared to more profitable oil and gas production.
But a slump in oil prices, benchmark Brent prices almost halved to $55 a barrel in the first quarter of 2015 froma year ago, meant refineries could process much cheaper crudeand generate higher profits on fuels such as diesel or gasoline.
As a result, BP's underlying pre-tax replacement cost profitfrom downstream businesses in the first quarter of 2015 morethan doubled to $2.2 billion. At the same time, pre-tax profitsfrom oil and gas production, or upstream, collapsed to $0.6billion from $4.4 billion a year earlier.
At Europe's largest refiner Total, adjusted net operatingincome from refining and chemicals more than tripled from thefirst quarter last year to $1.1 billion, almost matchingcontributions from upstream of $1.36 billion, down 56 percent.
"Majors with high downstream exposure such as Royal DutchShell, Total or ExxonMobil should benefit fromthe strong global refining environment, which BP expects to lastinto the second quarter," analysts from Edison InvestmentResearch said in a note.
Weaker refining margins so far in the second quarter as aresult of higher crude oil prices mean next quarter's resultsmight not benefit so much from downstream, analysts said.
BP's overall profit fell 20 percent from last year to $2.58billion and Total's was down 22 percent at $2.60 billion, but inboth cases their strong refining performances meant the resultsbeat analysts' expectations.
Shares of BP and Total rose 1.4 and 2.0 percentrespectively, both outperforming the broader European oil andgas sector's index.
OIL PRODUCTION RISES
Despite the collapse in upstream earnings, analysts pointedout that both BP and Total had hefty increases in productionafter years of unimpressive growth, meaning earnings shouldrecover quickly as soon as oil prices rise.
Total said its oil and gas output of 2.4 million barrels perday of oil equivalent (boed) during the first quarter was up 10percent year-on-year thanks to new projects in Norway, Nigeriaand the North Sea, as well as a new concession in the UAE.
Bertrand Hodee from Raymond James said five more newprojects later this year in Russia, Australia, the North Sea,Canada and Argentina should help support growth further.
BP's overall production, excluding Russia and adjusted fordivestment, was up 3.7 percent to 2.3 million boed, also drivenby new projects.
BP said besides lower oil prices, its upstream results werealso hit by a $375 million break fee for two deepwater rigcontracts in the US Gulf of Mexico, which sent BP's U.S.upstream business into a $545 million loss.
"Rig cancellation costs are likely to show up in othermajors' results this quarter, as all majors rein in offshoredrilling activity," analysts from Edison said.
Oil giants have responded to the sharp drop in oil prices inrecent months by cutting 2015 capital spending by an average of10-15 percent and initiating large restructuring programmes andrenegotiating service contracts.
On the downside, BP disappointed analysts with a plunge incash flow to $1.86 billion from $8.23 billion a year earlier dueto the lower oil prices and as a result of a large build-up inthe company's oil stocks.
Total's first quarter adjusted cash flow from operations wasdown 25 percent from a year earlier at $4.64 billion. (Writing by Dmitry Zhdannikov; editing by David Clarke)
