But its earnings excluding those gains and other unusual items fell 12.5 percent from a year ago. Production declines and refinery outages also hurt the results, BP (nyse: BP - news - people ) said.

BP, delivering its first results since Tony Hayward succeeded John Browne as chief executive on May 1, posted a net profit of $7.38 billion for the quarter, up from $7.27 billion in the same period a year earlier.

Revenue was marginally lower at $73.1 billion compared with $73.2 billion a year ago.

The rise in net profit was overshadowed by a 1 percent drop in BP"s closely watched replacement cost profit, which measures the amount it would cost to replace assets at current prices - viewed by many analysts as the best measure of an oil company"s underlying performance.

Excluding gains from the sale of the Coryton refinery in Britain to Swiss-based Petroplus Holdings AG and the West Texas pipeline in the United States to Occidental Petroleum Corp. (nyse: OXY - news - people ), BP said its replacement cost profit fell 12.5 percent.

BP said that oil and gas production in the quarter averaged 3.8 million barrels of oil equivalent a day, down 5.3 percent from a year ago and 2.8 percent less than the first quarter. The company reiterated that full-year daily output will be between 3.8 million barrels and 3.9 million barrels. Oil equivalents measure energy content, rather than volume, of oil and gas.

BP"s refining division benefited from strong global refining margins, with adjusted profit for refining and marketing surging 48 percent from a year earlier to $2.74 billion. That contrasted with a 12 percent drop in exploration and production profit to $6.89 billion.

Global refining margins averaged $16.66 a barrel in the second quarter, up from $12.59 a year earlier and $9.45 in the first quarter, according to BP. Brent crude futures averaged $68.66 a barrel, 2.5 percent less than a year ago.

Despite the decline in replacement cost profit, Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers, said "the outlook for the remainder of the year looks upbeat."

"It is generally agreed that the oil price is fairly stable at its current levels, and the resumption of projects such as the Gulf of Mexico should consolidate performance as the year pans out," he said.

Citigroup (nyse: C - news - people ), however, was more critical of a 9 percent drop in gas output and 9 percent drop in output by the company"s joint venture in Russia, TNK-BP.

Hayward also warned that BP, which is still struggling to recover from a series of high-profile mishaps including a deadly refinery blast in Texas and an oil spill in Alaska that contributed to Browne"s departure, expects further pressure on its profits in the near term.

Hayward said that he is "determined to fix" BP"s operational performance. He plans to simplify BP"s organization and cut its head office work force by 25 percent.

BP"s shares slipped half a percent to 604.5 pence ($12.44) on the London Stock Exchange.

PIN/Forbes.Com