BP, the world's second-largest oil group, has delivered a record set of profits for the first half and pledged to pay shareholders a bumper dividend, as it continues to benefit from the high price of oil.

BP, led by chief executive Lord Browne of Madingley, made profits of nearly $12.2 billion for the first six months of the year, almost a third higher than the $9.25 billion it made during the first half of last year.

The group reported this morning that profits in the second quarter reached $5.59 billion, lower than the $6.6 billion it made during the first quarter but in line with its warning earlier in this month that gas, power and renewable energy profits would be "significantly lower" than in the first three months of the year.

BP's results were aided by its extremely healthy exploration and production division, which pushed up revenues by 38 per cent compared with last year.

The group said that the second quarter trading environment was "generally stronger than a year ago with higher oil and gas realizations, higher refining and chemicals margins, but with lower retail marketing margins."

Lord Browne said: "Our record first half financial results could not have been delivered without the significant investments made over the last decade. These are capturing the benefit of the strong trading environment. Discipline in returning capital to shareholders after continuing to invest for the future is allowing us to reduce the number of shares outstanding, further improving per share performance."

BP will increase the quarterly dividend to 5.119p taking the half-year dividend hike to 25 per cent. The group also disclosed this morning that it spent $4.1 billion during the first half buying back 396 million of its own shares.

The group revealed that as at the half year point it is sitting on $16.1 billion of cash, almost exactly $4 billion higher than that $12.2 billion figure for a year ago.

But investors marked the shares down 3.5p to 639p in early dealings, a fall of 0.5 per cent, after BP said it would record a non-operating charge of $826 million for the second quarter compared with a $198 million charge at the same point last year.

This is higher than the $500 million charge that was predicted earlier this month in a move that is linked to calculating the market value of derivatives contracts used by BP.

BP reported in February that profits for 2004 rose by 26 per cent to more than $16.2 billion. The previous year, the group made profits of $12.9 billion.

It currently produces about 4.1 million barrels of oil per day.

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