Oil giant BP will cut 5,000 jobs after profit fell 22% last year. Analysts believe a recovery is possible as restructuring plans kick into action.

The world's third biggest oil firm saw profits tumble to 1$7.29 billion as problems with its US refineries hit the company.

Corporate overheads will be cut by up to 20%. Chief executive Tony Hayward wants to create a leaner business by stripping out management layers.

He said: 'We are absolutely determined to transform our downstream business as a whole. It will not happen overnight, but we believe that the performance gap with our competitors can be progressively narrowed in the next few years.'

BP remains in the shadow of Royal Dutch Shell which last week reported record profit for a UK company. It made nearly £14 billion as earnings grew 9% during 2007.

BP has struggled with lower margins and production problems with its US refineries, which sent its refining and marketing operation to a fourth-quarter loss of $1.34 billion.

Mr Hayward said the performance of refining and marketing was 'very poor - despite the fact that we have a strong set of assets. The principal reason is poor reliability in some of our US refineries, which is compounded by the complexity and overhead structure of the business segment.'

Earnings from the firm's exploration and production division lifted 51% to $7.65 billion after an improved performance in the final three months of last year.

The group began production from five major projects in Angola, Trinidad and the Gulf of Mexico, and enjoyed exploration successes in Azerbaijan and Egypt.

Seymour Pierce analyst Peter Hitchens said the 25% rise in the dividend marks a 'significant change in the strategy of BP'. He explained: 'The company has decided to shift the balance between buyback and dividends. Having bought back $48 billion of shares over the course of the last decade, the company has decided that it has shrunk its equity base enough and will now pay a higher dividend.'

BP will focus on improving operational performance during the current quarter. The financial benefits of the 'self-help' programme should be seen from Q2, said Evolution analyst Richard Griffith. 'BP may be flatlining in valuation terms versus Shell but the internal drivers that are at work give scope for BP to exceed expectations and therefore achieve a re-rating,' he added.