ANNUAL profits at oil company BP dropped 21 per cent to £8.3bn last year.

Earnings were hit by a fall in production after assets were sold off, as well as from weaker margins in its refining business.

Fourth quarter underlying profits were also down, by 27 per cent, to £1.7bn.

Markets had been expecting a fall and the figures were slightly better than expected.

BP’s profits were also hit by write-offs due to the failure of an exploration well in Brazil to encounter commercial quantities of oil or gas.

But these factors were partially offset by strong growth in underlying gas and oil production, particularly from key regions such as the North Sea, Angola and Gulf of Mexico.

The company continues to grapple with the costs of the Gulf of Mexico oil disaster in 2010, which left 11 workers dead and sparked the worst oil spill in US history. It said this had an adverse impact on a pre-tax basis of £288m for the year.

The total charge recognised to date stands at £26.2bn.

BP is appealing a court ruling over bogus claims on its compensation scheme and is asking for an injunction ‘’to prevent awards to claimants whose losses are not traceable to the spill’’.

Chief executive Bob Dudley said BP had delivered a strong operating performance .

It announced a fourth quarter dividend of 5.8p per share to be paid in March, 5.6 per cent higher than the payout for the same period last year.

BP has completed a £23.3bn divestment of assets and said in October that it expects to dispose of £6.1bn more by the end of 2015. It said that to date, 1.7 bn US dollars (£1bn) of these transactions had been agreed.

It has so far repurchased £4.2bn of stock under an £4.9bn share buyback programme announced last March.