BRITISH Petroleum yesterday reported a 30 per cent rise in 1996 net profit to £2.62 billion sterling thanks to productivity gains and strong oil prices.

The result excludes a fourth-quarter exceptional charge of £341 million covering one-off costs related to the merger of BP and Mobil Corp's downstream operations in Europe.

The company said productivity improvements through volume growth, higher value sales and cost cuts produced gains of around $600 million, generating most of the year-on-year improvement in underlying profit.

Although oil prices were higher, particularly during the second half of the year, BP said this benefit was partly offset by lower chemical margins.

BP said "targets are in place to keep underlying performance improving", adding there may be some oil price volatility in coming months because of worldwide production growth.

The company said continuing strong demand, relatively modest production increases and the decision by the Organisation of Oil Producing Countries (OPEC) in December to roll over its production quotas enabled the oil market to absorb the initial resumption in oil exports from Iraq.

But it said a rise in the rate of production growth over the coming months might subject oil prices to renewed volatility.

BP said it expects its own oil production to increase further this year, while pressure on refined oil products margins may moderate if the crude oil price weakens during the year.

Refining margins are likely to remain subdued with some volatility seen over the winter months due to low gas/oil stock levels.

In chemicals, healthy demand should keep prices steady, but margins may continue to be affected by high oil-related feed-stock prices. Results will remain sensitive to sterling's strength, BP said.

Net profits before exceptional items rose by 27 per cent in the fourth quarter to £689 million, and the company raised its quarterly dividend by 5 per cent over the previous quarter to 5.25p, making for a 28 per cent rise in total dividend for the year of 19.5p.

The results compared with market forecasts of between £2.5 billion and £2.75 billion for the year. BP shares fell after the results, however, touching a low of 695p before moving back up to 702p, a loss of 19p on the day.

BP increased capital expenditure by 21 per cent to £3.44 billion in the year, while the net cash inflow was £314 million.