With oil prices stuck at less less than $50 a barrel, Tony Hayward, BP’s chief executive, is confronting perhaps the most difficult choice of his career. Should he cut the dividend and face the wrath of investors – and run the risk of losing his job – or curb the group’s spending plans at the expense of future production and growth?

Yesterday, he appeared to offer his answer to this familiar industry dilemma. BP, he claimed, could hold its dividend and spending plans with oil at $55-$60 a barrel. But in the meantime it will set out to rein in its $20 billion capital expenditure programme this year. “We believe we can do $20 billion of work for less than $20 billion,” he said.

It sounds like a tempting idea and BP is right to try to force down costs during the downturn, when suppliers are squeezed and the cost of raw materials such as steel and cement are tumbling. But there are risks in taking this approach too far.

BP had already announced plans to whittle down its spending plans from $22 billion in 2007 to as low as $20 billion this year. Now it says it wants to spend less than this, although it would not be drawn yesterday on how much less.

The danger for BP is that forcing suppliers to reduce costs too much could threaten their ability to carry out the work properly or even to stay in business.

Cheap deals struck with desperate subcontractors are often bad news for everyone, with corners cut and projects delayed – or worse.

At BP, the results of this approach may take a while to feed through. But if Mr Hayward is not careful, their impact will come in the end in the form of lower oil production and engineering problems on key pieces of kit.

BP should understand the risks better than most. Its history is littered with examples of complex projects that have gone awry – and cost far more to put right than if they had been properly funded in the first place.

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