Profits at BP, the UK's largest company, fell 22 per cent to $17.29 billion (£8.7 billion) last year. The oil giant confirmed it would cut 5,000 jobs and target a 20 per cent reduction in overheads by the middle of next year in a drive to improve profitability.

Tony Hayward, chief executive, said the company’s performance had been “very poor”, particularly in refining and marketing. He blamed the lack of reliability of some of BP’s US refineries, which had resulted in production outages and higher costs.

The oil company took a one-off charge of more than $1 billion in the last quarter of the year to cover the costs of restructuring of its business. This included a management shake-up following the departure of Lord Browne of Madingley, its chief executive, in May and an overhaul of the North American business, which has suffered from a series of expensive accidents.

BP’s results for the year are slightly below analyst expectations and compare poorly with its European rival, Royal Dutch Shell. The Anglo-Dutch oil producer reported profits of $27.6 billion (£13.9 billion) last week.

BP’s ongoing weakness, despite sustained high oil prices, prompted Mr Hayward to describe the company’s performance as “dreadful” last September.

Mr Hayward’s restructuring includes the loss of 5,000 jobs and the transfer of a further 9,500 from its US petrol stations to other employers. The move to petrol station franchising cost BP $603 million in the fourth quarter and it took a further $338 million charge to cover the job losses.

Mr Hayward warned that further overhead reduction would result in another $1 billion charge in 2008 but benefits would begin to be seen from 2009.

As part of the group’s new growth strategy, it will increase its capital expenditure from $19 billion last year to between $21 billion and $22 billion this year. This will allow BP to increase its daily production of oil from 3.9 million barrels a day to over 4 million barrels in 2009 and 4.3 million barrels by 2012 - assuming the price of oil remains over $60 a barrel.

BP has decided to distribute its profits in the form of a higher dividend this year rather than a new share buyback scheme. The company said its buybacks in recent years had reduced the shareholder base by 16 per cent so it would now lift dividends instead. Investors will receive a quarterly payout up 25 per cent to 6.8p per share from this year, on top of the 16 per cent increase in 2007’s dividend.

The group's total revenue for 2007 was $284.3 billion, up 7 per cent. Its profits in the fourth quarter were down 23 per cent to $2.9 billion largely as a result of a net loss of $1.3 billion in the refining and marketing division.

BP’s Texas City refinery continues to be upgraded after an explosion in 2005 that killed 15 people and the company is also repairing its Whiting and Toledo refineries, which significantly impacted performance.

Mr Hayward said: “Although our fourth-quarter profits were very disappointing in refining and marketing in particular, we made good, step-by-step progress in bringing new oil and gasfields on stream and rebuilding refining capacity during the period. Output is now ramping up from those fields and refineries and we anticipate that will feed through to the bottom line in the course of the year. We expect BP’s overall oil and gas production to grow in 2008, although our exact net volumes will depend on how the crude price affects entitlements from production-sharing agreements.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax