OIL industry profits continued to gush yesterday as BP reported an £8.7bn annual surplus to mirror its £1m-an-hour rival Shell.

The record earnings by the UK's largest quoted company was achieved after the average price of Brent crude rose by a third and refining margins were boosted by the continued surge in demand from emerging economies.

Chief executive Lord Browne also hailed the operational strength of the group, which managed to avoid the reserves difficulties experienced by Shell.

While the Anglo-Dutch group has restated its reserves figures five times in a year, BP said it had replaced more oil and gas than it used last year, compared with its counterpart's recent estimate of between 15 and 25 per cent.

Shareholders will reap the rewards of BP's strength after Lord Browne announced plans to lift the company's dividend by 26 per cent.

The move, which should increase returns for UK investors affected by the weakness of the dollar, reflected the strong prevailing circumstances of the group, BP said.

The annual profits figure, which followed a haul of £9.3bn by Shell last week, has lent weight to calls for the Government to consider a windfall tax on UK profits.

Transport and General Workers' Union general secretary Tony Woodley said the Government needed to grasp the nettle in order to raise the money to bolster under-funded pensions.

In response, BP said it made £1.35bn in profits in the UK, but also paid £1.1bn to the Treasury.

Confederation of British Industry director-general Sir Digby Jones defended the company's profits and said it was important that leading companies were encouraged to stay in the UK.

Lord Browne said he expected demand for oil this year to moderate compared with last year, but said prices were unlikely to fall below about 30 US dollars a barrel for at least the medium term.