Troubled oil giant BP was dealt a further blow yesterday after continued problems in Alaska saw production levels fall in the third quarter.

The London-based company said it produced 3.8 million barrels of oil per day between July and September - down from more than four million barrels in the previous quarter.

It was also marginally below its output between July and September last year when production was hit by hurricanes in the Gulf of Mexico.

The decline came after BP was forced to shut down half its operations at the Prudhoe Bay oil field in Alaska - the largest in the US - following a serious spillage and corrosion of pipes.

It followed a massive oil spill in which 270,000 gallons of crude leaked into the Alaskan bay.

The company's shares have fallen 20 per cent since April due to the Prudhoe Bay problems, investigations into its trading operations by regulators in the United States and rumours of an internal battle over chief executive Lord Browne's retirement date. BP is also embroiled in an investigation into a fire at its Texas City refinery which killed 15 workers last year.

And last month it said that safety concerns would delay the start of production at its key Thunder Horse platform in the Gulf of Mexico until 2008.

The platform, which was damaged by Hurricane Dennis in July 2004, is the largest in the Gulf and is expected to produce about 240,000 barrels of oil and 200 million cubic feet of natural gas per day.

The string of incidents has led investors to raise questions about BP's safety record, while falling oil prices have also depressed its share price.

Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said: "These are torrid times for BP. The Prudhoe Bay shutdown, the delay of the return of the Thunder Horse platform, strained Russian relations and potential US litigation have all weighed heavily on the shares."

He added that, with falling production, the trading update had done little to allay the general malaise surrounding the company.

"The silver lining is that BP remains an oil behemoth in global terms, and its strong cashflow can be matched by few of its competitors," Mr Hunter said.

"Its sheer size in many ways enables it to withstand the current problems and, given a dip in the share price over the last six months, the general market view is to be picking the shares up on this weakness."

Despite the fall in the cost of crude in the last few weeks, the average selling price in London in the third quarter was $69.60 a barrel - one cent higher than in the second quarter and around eight dollars higher than a year ago.

A research note from industry analysts at Kepler Teather & Greenwood Merrion stockbrokers said the higher oil price would continue to drive profits despite the fall in production.

The note added that although BP "will struggle" to meet its full-year target of pumping 4.1 million to 4.2 million barrels of oil a day, it was still on course to produce more than 4.88 million barrels a day in 2010.

It said delays to Thunder Horse and shutdowns at Prudhoe Bay "will not affect the ultimate output from these fields".

The problems at BP have placed Lord Browne under considerable pressure and the company has launched a review of its operations.

It is likely to be similar in scale to the major overhaul introduced by US oil giant Exxon following its Alaskan oil tanker spill in 1989.

Shares closed up 1.5p at 570.