Investors are shunning oil shares for so-called recovery stocks

The firm reported worse-than-expected net profits for the October to December period of $2.667bn (�1.427bn).

The company's core oil and gas exploration and production division, which produces the bulk of profits, was surprisingly weak, analysts said.

However, higher crude oil prices still enabled BP to deliver record annual profits, up 42% to $12.4bn.

But investors focused mostly on the fourth-quarter figues, and BP shares closed down 10.75p at 416p.Sector woes

Despite the bumper full-year profits, the oil and gas sector has been a weak performer recently, largely due to concerns about rising costs and investors' preference for recovery stocks.

It looks as if profitability in exploration and production has been very low Tony Alves, Investec See BP's latest share price

BP's poor final quarter performance underlines investor disaffection in the sector after its main European rival, Royal Dutch Shell, unnerved shareholders last month with news it would slash its estimated reserves.

BP said that at its exploration and production business, higher oil and gas prices and the contribution of its new Russia venture - TNK-BP - were offset by higher depreciation, foreign exchange effects and one-off charges

Tony Alves, an analyst with Investec, said: "It looks as if profitability in exploration and production has been very low. Other areas are disappointing too."

Dollar weakness

BP said that it intended to resume share buybacks to support its shares in the current quarter.

The firm added that it was raising its fourth-quarter dividend to 6.75 cents a share from 6.5 cents in the third quarter and 6.25 cents a year ago.

However, dollar weakness meant that for shareholders whose payouts are made in sterling, the annual payout would be down 0.8%.

Separately, BP said it would sell its 2.1% stake in Hong Kong-listed Chinese oil producer Sinopec through a public placing of shares.