Oil major British Petroleum (BP) managed to build upon the strong oil pricing environment to increase revenue as well as profits in the fourth quarter.

More critically, the company managed to increase its oil and gas production volumes in the upstream segment after a few quarters of production declines. Going forward, BP plans to increase its exploration activity in 2012 with a particular focus on deepwater prospects.

Refining results in the fourth quarter were hit by lower downstream margins, with operations in the U.S. getting a particularly hard beating. Downstream losses have tempered the earnings of most oil majors, including Chevron (CVX) and Exxon Mobil (XOM). (Click here for our full analysis of BP)

Higher production

BP managed to increase production by almost 170,000 barrels a day in the fourth quarter, a 5% increase over the preceding quarter. Production increased in almost all geographies and lifted the company's oil and gas volumes. Results were also supported by good performance by the company's Russian subsidiary, TNK-BP, which boosted its annual output of oil and gas by almost 2.8%. BP said that it expects production levels to remain broadly flat in 2012, excluding TNK-BP's performance, if oil stays at the $100-a-barrel level.

The company continued to feel the impact of the U.S. Gulf of Mexico drilling moratorium on its production levels, but plans to ramp up activity in the region quickly and should have eight rigs in the gulf by the end of 2012. BP will also double the number of exploratory wells it digs in 2012 and increase organic capital expenditures to $22 billion from $19 billion in 2011.

BP is also pursuing exploration off the coast of Angola and other deepwater locations around the world. It is also continuing with plans to sell non-core assets and focus on its primary strengths in exploration and production. With regards to the company's ongoing Macondo spill legal case, CEO Bob Dudley said that the company was preparing "vigorously" for the upcoming trial.

Downstream margins

BP was hit by falling margins in downstream business but is continuing to trim its presence in the refining business and pursuing to improve the performance of its remaining assets. Refinery utilization levels for the company were higher than the industry standard.