Jan. 11 (Bloomberg) -- BP Plc, Europe's largest oil company, said a decline in oil and gas production worsened in the fourth quarter, with damage from hurricanes costing more than $900 million in profit at its Texas City refinery.

Output fell to 4.01 million barrels of oil equivalent a day, 2.2 percent less than the 4.1 million reported in the year-earlier period, London-based BP said today in a statement. BP said it would cut more than 1,000 jobs in Europe to reduce costs.

The hurricanes hurt BP's output after Chief Executive Officer John Browne spent about $90 billion on acquisitions in the U.S. to build the country into the company's most important market. The Texas City plant, the third-biggest refinery in the U.S., remains closed after a March explosion and damage from the storms and is a setback for BP at a time of high oil prices.

``Like other oil companies, they have not captured all of the upside'' of higher prices, said Ivor Pether, who helps manage about $12 billion, including BP stock, at Royal London Asset Management. ``I'm not sure why they haven't been able to give us a target start-up date'' for Texas City.

Some oil companies have reported higher output for the fourth quarter. ConocoPhillips, the third-largest U.S. oil company, said last week that production in the period accelerated after disruptions caused by hurricanes and repair work eased.

BG Group Plc, the No. 3 U.K. oil and gas company, said Dec. 19 that it increased fourth-quarter oil and gas output ``significantly'' amid high prices.

Lost Output

Shares of BP fell 3 pence, or 0.5 percent, to 640.5 pence in London. The stock dropped 8.1 percent in the fourth quarter as concern about the effects of the hurricanes on the supply of products such as gasoline overshadowed an average oil price in New York that was about 25 percent higher than the year-earlier period.

Oil futures, which peaked in New York at $70.85 a barrel on Aug. 30, the day after Hurricane Katrina struck the U.S. Gulf coast, averaged $60.05 a barrel in the fourth quarter, ending the year at $61.04.

Damage from Katrina and Rita cut output by 160,000 barrels of oil equivalent a day in the fourth quarter, compared with 135,000 in the third quarter, BP said. Had the Texas City refinery been running during the quarter, BP would have made at least $900 million more in pretax profit, said Toby Odone, a London-based spokesman. In the third quarter, the lost profit was $500 million, Odone said.

Texas City

The Texas City refinery, which has a capacity of 460,000 barrels of oil a day, stayed shut throughout the fourth quarter after being closed during the hurricanes, BP said today.

BP's Odone wouldn't say today when processing at the plant would begin again. W.E. ``Sonny'' Sanders, an international representative for the United Steelworkers, one of the unions at the site, said yesterday he expected a start-up before April.

The refinery was to have resumed gasoline production last month, BP said Oct. 25. Last year's explosion at the facility killed 15 people and injured 170.

The U.S. accounted for about 39 percent of BP's sales in 2004, according to data compiled by Bloomberg. The company's third-quarter production fell 2.1 percent from a year earlier, the first quarterly drop in two years.

BP said the fourth-quarter result will include charges of about $1.3 billion, mainly to reflect a surge in U.K. natural gas prices when compared with the revenue the company plans to receive under long-term sales contracts.

`Unsustainably High'

Credit Suisse First Boston, which yesterday predicted that BP's production would be 4.04 million barrels of oil equivalent a day, today cut its fourth-quarter profit estimate for the company by 3 percent to $5.67 billion. Analysts including Edward Westlake in London also lowered their predictions for BP's 2005 and 2006 earnings per share.

Of the 33 analysts who track BP, 23 recommend buying the shares, according to data compiled by Bloomberg. Three advise selling the stock, while the remaining seven give it a ``hold'' recommendation.

Browne in November said that crude oil prices were ``unsustainably high'' and may fall to $40 a barrel, without giving a time-frame. Oil prices may fall further over the ``very, very long term,'' Browne said.

``I don't think we're going to see the same performance from oil in 2006 as in 2005,'' said Jeremy Batstone, an equity strategist at Charles Stanley & Co. in London.

Job Cuts

BP said Oct. 25 that its $1 billion Thunder Horse platform in the Gulf, which was damaged during Hurricane Dennis, would start production in the second half of this year, more than six months later than expected. BP said fourth-quarter costs would include $130 million, partly to repair Thunder Horse.

BP will take a charge in excess of $400 million in the fourth quarter as it cuts more than 1,000 jobs at its European operations, Robert Wine, a spokesman in London, said today by telephone. In October, the company said about 2,500 jobs, or 9 percent of its refining and marketing workforce, may be eliminated, mainly through retirement and attrition.

The company said Oct. 25 that third-quarter earnings climbed 16 percent to $4.41 billion from $3.79 billion a year earlier as record energy prices more than compensated for losses at hurricane-damaged rigs and refineries. BP earlier that month estimated that hurricanes cut its pretax profit in the period by more than $700 million.

There is ``some disappointment in refining and marketing, specific to the quarter, including Texas City,'' said Peter Hutton, an analyst at NCB Stockbrokers Ltd. in London, who has a ``buy'' recommendation for BP.

Innovene Sale

The company last month completed the $9 billion cash sale of its Innovene unit to Ineos Group Holdings Plc. BP has said it will give the proceeds of the sale to shareholders.

``After the Innovene sale, BP is sitting on a mountain of cash and we think they can comfortably afford to increase the dividend by about 15 percent,'' Hutton said.

BP, which said today it couldn't immediately comment on the dividend, will report fourth-quarter earnings on Feb. 7, when it also will announce what the dividend payout will be.

Royal Dutch Shell Plc, Europe's second-biggest oil company, gives its results on Feb. 2, while Exxon Mobil Corp., the world's No. 1 publicly traded oil company, will report profit on Jan. 30, according to the company's Web site.

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net; Stephen Voss in London at sev@bloomberg.net

Last Updated: January 11, 2006 12:06 EST