Falling oil prices and production levels together with escalating costs have been blamed by BP for a 17 per cent drop in its first-quarter profits to £2.18 billion.
The world's third-largest non-government controlled oil company by market value said the price it received for its oil was down over four per cent while higher costs also hit profits at the upstream oil and gas production division, which generates most of BP's profits.
Refining profits dropped sharply, and lagged estimates considerably, despite a rise in margins and in the volumes of crude processed.
Profits also declined in the fourth quarter of 2006, although the figure for the year still came in 15 per cent higher at £11.34 billion.
The petroleum giant is under increasing pressure to improve its performance after one of the toughest trading periods in its history.
Chief executive Lord Browne is due to leave in July while the oil major was recently rapped over process safety failings at its US oil refineries in the independent Baker report, commissioned in the wake of the 2005 explosion at BP's Texas City operation which killed 15 workers.
There have also been a series of leaks at its Prudhoe Bay field in Alaska.
BP said in February that it would produce nearly one million fewer barrels a year by 2009 and would adopt a more conservative approach to its production guidance until 2012, blaming a shortage of trained workers and the need to put safety before output.
It has already indicated that production would remain flat in 2007 at 3.8 to 3.9 million barrels of oil equivalent, increasing to four million barrels by 2009 - 900,000 fewer than the levels forecast in its production guidance last year - and 4.3 million by 2012.
BP is the first of the international oil majors to report first-quarter earnings and analysts expect profits to be down across the sector, due to weaker oil prices and generally lower output.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "BP continues its dogged fight to recapture former glories. Faced as it is with reduced production and higher costs, lower oil prices and the ongoing barrage resulting from its earlier failures, its challenges are not yet over."
With the appointment of the new chief executive this summer, the company is working to solve its safety and management weaknesses and to bring delayed projects into operation, in the hope it can return to growth next year.
Analysts at KBC said a relative lack information in the results statement compared with previous years, such as BP's failure to include an outlook, was a sign that the company was working on a new strategy, likely to focus on higher output growth.
Investors have already started to reward BP, helping its shares to outperform the sector since February.
However, Citigroup described yesterday's results as "uninspiring", and suggested BP shares' recent strong performance might run out of steam.
BP's reported earnings included one-off items, such as oil field sales, which amounted to a net gain of £181.5 million. The replacement cost net profit excluding one-off items was £1.999 billion, just behind average forecasts of £2.04 billion.
The replacement cost figure excludes changes in the value of inventories. Analysts say this figure, excluding one-offs, best reflects the underlying performance of BP.
