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BP has announced that fourth-quarter profits fell 22 per cent but revealed plans to increase its quarterly dividend by 25 per cent.

Oil prices have nearly doubled over the past year, peaking at $100 a barrel in early January and averaging around $90 a barrel over the last three months.

Royal Dutch Shell announced record earnings last week, drawing fire from consumer watchdogs concerned over the price of petrol and its effects on consumers.

The oil and gas firm also said that it had replaced its reserves by more than 100 per cent and said its quarterly dividend would be increased to 13.525 cents (6.86p) per share.

Analysts, however, had expected a better performance than BP's $4 billion (£2 billion) profit for the quarter which fell short of forecasts predicting $4.65 billion (£2.36 billion).

Replacement cost profit, which is calculated at the cost of replacing supplies at current prices, rather than the prices they were bought at, fell from about $3.9 billion (£1.98 billion) in the fourth quarter of 2006 to $3 billion (£1.5 billion) in the same quarter of 2007 - a loss of about 22 per cent.

"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 gas fields on stream and rebuilding refining capacity during the period," said BP chief executive Tony Hayward.

The company said it expects oil and gas production to continue to grow in 2008 and raised its crude price assumption from $40 (£20) to $60 (£30) a barrel.

Production for the quarter increased two per cent over the last year.

BP announced cost-cutting measures last October and confirmed that the slimming down of its management and infrastructure remained on track.

"The steps we have already initiated will cut BP's headcount by some 5,000 by the middle of next year," said Mr Hayward in a statement.

He said restructuring would cost the oil major $350 million (£175 million) in the fourth quarter of 2006, and a further $1 billion (£500 million) in 2008.

Shares in the UK's largest oil company have fallen 12 per cent this year, but have opened the day up three per cent to 558p per share.