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BP profits slip as 'Gulf spill disposals' hit production

BP reported a bigger-than-expected drop in profits, despite higher oil prices, as production fell after it was forced to sell fields to pay for the Gulf of Mexico oil spill.

The oil explorer reported a 12.5pc fall in replacement cost profit - which strips out the effect of oil and other price movements - to $4.93bn (£3bn) in the quarter, against a $5.61bn profit in the same period last year.

BP plans to continue its disposal programme, which has reached $23bn, and aims to sell smaller fields in the Gulf of Mexico as it focuses on larger ones there.

The oil group is still paying out for damage caused by the 2010 oil spill disaster - the biggest offshore oil spill in US history. So far it has paid $16.6bn into a compensation fund and expects to meet $20bn target this year, a year earlier than planned.

BP said oil and gas production, excluding its Russian joint venture, TNK-BP, was down 6pc at 2.45 million barrels of oil equivalent per day. Profits at its upstream unit fell, with underlying replacement cost profit, which strips out one-off items such as the profit on asset sales, for the first quarter of $6,29bn, compared with $6,68bn a year ago.

The company said tough conditions in the refining business led to a drop in profits at its downstream unit. The unit's underlying replacement cost profit more than halved from $2.2bn to $924m.

Group underlying replacement cost profits, which strips out one-off items such as the profit on asset sales, dropped 13pc to $4.8bn. This lower the $5.1bn analysts expect.

Last week Shell reported an 11pc rise in first quarter profits to $7.7bn (£4.7bn) on the back of high oil prices. However, like BP, rival Exxon Mobil also failed to benefit from a rally in oil prices in the first quarter as production at the world's biggest energy company fell.

The amount of oil the Texas-based company produced in the first three months of the year dropped 7.7pc compared with a year earlier. The decline contributed to an 11pc drop in Exxon's overall profits in the quarter to $9.45bn (£5.8bn), short of Wall Street's expectations.

Brent crude prices averaged $118.60 a barrel last quarter, up from $105.43 in the same period a year before.

Bob Dudley, the BP chief executive, said: "We have made a good start against our strategic priorities for 2012. During the quarter we gained access to significant new deepwater and US shale exploration acreage, our ongoing divestment programme has reached $23bn, and we have five deepwater rigs at work in the Gulf of Mexico. This operational progress will underpin the financial momentum we expect to come through as we move into 2013 and 2014."

The company announced a first-quarter dividend of 8 cents a share.

BP shares fell 2.7pc in early trading.