This was seen as good news because its bigger rivals in the energy sector, BP and Shell, have reported heavy falls in their earnings.

The North Sea tax is unexpected and unwelcome

Frank Chapman, BG Group

BG, formerly part of British Gas, has a bias towards gas which has shielded it from the worst effects of lower crude oil prices.

But the company warned that the North Sea production tax, announced in last month's Budget, would hit investment in the area.

Getting taxed

BG's operating profit before exceptional items fell 5% to �220m, while pre-tax profits dropped 30% to �197m.

But growth in output is now very close to BG's target of 20% growth for 2002.

One analyst said: "This is the best production growth story in the sector, and it looks as if it's getting better."

The company was clearly unhappy with the new North Sea production tax announced by the Chancellor, Gordon Brown, in his April Budget.

BG said the measure was expected to increase the effective tax rate for the year to approximately 40%.

Share performance

It said that in addition, a one off charge of approximately �50m, that is 10% of annual profits, would be incurred.

Chief executive Frank Chapman said the tax was "unexpected and unwelcome" and said it would definitely hit investment in the North Sea.

BG shares have outperformed the rest of the UK oil sector by 13% in the past six months.

At 1420 GMT BG shares were down four pence at 302p.