LONDON (Bloomberg) - BP reported profit that beat analyst estimates as a strong refining performance offset the effect of lower oil and natural gas prices, and bad weather that curbed production.

The positive result will please investors expecting a gloomy third quarter for Big Oil. Crude prices have fallen as the U.S.-China trade war stokes demand concerns, while American output has continued to flood the market.

“BP delivered strong operating cash flow and underlying earnings in a quarter that saw lower oil and gas prices and significant hurricane impacts,” Chief Executive Officer Bob Dudley said in a statement.

BP said adjusted net income was $2.25 billion in the quarter, exceeding the average analyst estimate of $1.77 billion. That compares with profit of $3.84 billion a year earlier, when BP decided to buy a $10.5 billion package of U.S. shale assets in cash rather than shares because it was so confident oil prices would stay high.

This year, the London-based company took the unusual step of issuing a statement before earnings to flag up factors affecting business in the third quarter. BP warned it would pay a tax rate of about 50%, higher than the expected full-year rate of 40%. It also signaled that gearing -- a measure of debt to equity -- would remain above its target range.

The company also gave advance warning of a non-cash impairment charge from the sale of gas assets in the U.S. That amounted to $2.61 billion in the quarter, meaning the company reported a net loss of $749 million. In response to that guidance, analysts had already downgraded their estimates for adjusted net income by about a third over the past four weeks, according to data compiled by Bloomberg.

“I think the earnings beat, albeit after sharp downgrades, and the healthy level of cash flow will be taken well,” said Morgan Stanley analyst Martijn Rats “The increase in gearing and the lack of a dividend hike take the shine of it a little bit.”

BP shares fell 0.6% to 509.1 pence as of 8:12 a.m. in London, matching a broader decline in the U.K.’s benchmark index. The company has declined 4.9% in the past year.

BP’s refining and marketing unit posted adjusted profit of $1.88 billion in the period compared with $2.11 billion a year earlier, a much smaller decline than its upstream business.

That result was achieved despite weakening margins as price differentials between heavy and light crude became less favorable to BP. Instead, the strong performance came from high operational reliability, with the company’s Whiting and Cherry Point refineries in the U.S. processed record amounts of crude, the company said.

BP also said that it enjoyed better income from natural gas trading and a higher contribution from oil. Although better known for its oil fields, refineries and pump stations, BP also runs an in-house trading businesses that’s larger than the better-known independent oil traders like Vitol Group, Glencore Plc and Trafigura Group.

“It’s a volatile market,” Chief Financial Officer Brian Gilvary said in a Bloomberg TV interview. “The teams have been making some very good calls.”

Output fell from the preceding quarter as a result of the hurricane and maintenance, sliding to 3.7 MMboepd including the contribution of barrels from strategic partner Rosneft PJSC. Production should rise again in the fourth quarter, the company said.

Cash flow from operations including working capital, an important measure of whether BP’s shale deal is paying off, held steady compared with a year earlier at $6.5 billion.

BP has worked diligently to cut costs and boost the cash it generates from projects after crude’s collapse in 2014. Some of that work can be attributed to Bernard Looney, the company’s upstream director and incoming chief executive officer. Investors and analysts will expect him to continue that push, while expanding efforts to cut carbon, when he takes over the top job in February.

The company’s net debt is “stabilizing” and gearing should start coming down soon as BP’s asset disposal program ends, Gilvary said. By next year, gearing should be back to the middle of the target range of 20% to 30%, down from 31.7% at the end of the third quarter.