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Both Merrill Lynch and Credit Suisse lowered fourth-quarter expectations to account for weakness in the group’s American refining operations. Credit Suisse’s Edward Westlake lowered his headline earnings per share forecast by 26.6% for the quarter, to 11.72p from 15.97p.

“Aside from the weak US refining, our model for the upstream looks a little too sensitive to the high oil prices in the fourth quarter and this was exacerbated by startup costs and an increase in Alaskan taxation,” he told clients in a research note.

“We note that our 2008 EPS forecasts for the whole integrated group will need to be revised down by up to 5-8% to reflect additional depreciation as a result of lower year end reserves. … This is non-cash and should be looked through by the market but we would now need circa $80/bbl to meet EPS consensus in 2008.”

Merrill Lynch’s Mark Iannotti also took the red pencil to figures, cutting his pre-tax profit forecast by 25% to $5.9bn for the final quarter of 2007 to account for higher than forecast field commissioning costs, weaker than expected marketing margins and higher tax.

Iannotti told investors he now forecast 2007 adjusted EPS down 7% at 46.5p, and additionally cut 2008 EPS estimates by 3.5% to 58.2p to reflect “new cost guidance and lower volume growth”.

According to the Merrill Lynch research, BP’s fourth-quarter volumes will match estimates – up 5.6% on the third quarter at 3.87m barrels a day as new fields come on stream and production in the UK and Alaska returns. But the company has suffered higher costs in exploration and production, including some $400m of one-time field commissioning costs and the same again in non-cash costs due to higher depreciation.

In addition, recent tax changes in Alaska will have a negative $250m impact in the fourth quarter and $125m on an ongoing basis, Iannotti added.

Shares in BP fell as much as 5%, losing 28.5p at 605p amid speculation that the company had been talking down forecasts.

However, BP denied that it had provided any new guidance during the briefings. A company spokesman told Reuters that analysts had been asked for their latest earnings forecasts, and had been directed towards a previously released trading statement showing weakness in the refining division.

In October, BP reported a 45% drop in third-quarter replacement-cost profit to $3.9bn due to refinery stoppages and lower production, a problem that has dogged the company for two years. The group pledged then that production should improve in the fourth quarter after its refineries returned to full capacity during the first six months.

Credit Suisse's Westlake concluded: "We are concerned that the full-year reporting season for Big Oil will continue to deliver a message of higher capital expenditure/weaker volumes and weak reserve replacement/rising depreciation due to PSC (production sharing contracts) impact." Both he and Merrill Lynch's Iannotti repeated "neutral" advice on BP shares.

BP is due to release its fourth-quarter figures on February 5.

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Financial Information for BP PLC