BP accelerated its restructuring drive yesterday, unveiling plans to cut 5,000 jobs and shave up to $1.5 billion (£764 million) from its annual cost base, starting next year.

Speaking as BP revealed that profits had slumped by 22 per cent last year to $17.29 billion (£8.7 billion), Tony Hayward, the new chief executive, confirmed that, as part of this push, the oil group would take a $1 billion charge in 2008 on top of a $350 million charge in the fourth quarter of 2007.

Mr Hayward said that the drive to restore profitability was intended to achieve “fewer layers of management and a smaller corporate infrastructure” and to simplify the group into two divisions, compared with four a few years ago.

BP employs 97,000 people globally. Its British and American operations will suffer about 1,500 losses each, with the rest split between Europe and the rest of the world. About 60 per cent will be from the corporate side, with 30 per cent from the refining and marketing business and 10 per cent from exploration and production. Mr Hayward said: “We expect to see benefits from these measures in 2009 and beyond.”

The chief executive, who has been working on a turnaround since his appointment after the departure of Lord Browne of Madingley last May, admitted that BP’s financial performance, after a series of operational problems on key projects last year, had been “very disappointing in refining and marketing, in particular”.

However, Mr Hayward sought to draw a line under BP’s annus horribilis of 2007 by raising its dividend by 31 per cent and insisting that 2008 would be a year of recovery in both profits and production. “2007 was a year which most of us will be glad to leave behind,” he said, emphasising that problems at BP’s refining units at Whiting, Indiana, and Texas City, where 15 people died in a fire in 2005, had been “stabilised” and were close to being resolved.

He added that recent commissioning of projects in Angola, Trinidad and Egypt, as well as the expected start-up of the huge Thunder Horse platform in the Gulf of Mexico this year, would help to boost overall production.

Although BP’s average daily production for the full-year 2007 was off slightly at 3.8 million barrels of oil, production for the fourth quarter rose 3 per cent to 3.9 million barrels compared with the final quarter of 2006.

BP’s weak financial results for 2007 masked progress in its efforts to find new reserves of oil and gas. Mr Hayward said that there had been exploration successes last year in Azerbaijan, Egypt and Angola and the company had secured new access to fields in Oman and Libya and in Canada’s oil sands through a joint venture with the Calgary-based Husky Energy.

For the fourteenth consecutive year, BP said that it had managed to replace more than 100 per cent of its reserves in 2007.

BP’s dividend rise was welcomed as a sign of confidence in the company’s future ability to generate cash.

Byron Grote, chief financial officer, said that demand growth was likely to continue to affect price, as would geopolitical factors such as concern about security of supply and a mismatch between sources of supply and centres of demand.

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