BP plans to sell $10bn (£6.2bn) of assets over the next two years and hand most of the cash back to shareholders, the oil giant announced on Tuesday, as it unveiled a smaller fall in profits than analysts had feared.

The news, combined with an unexpected increase in the quarterly dividend, to 9.5 cents per share, was welcomed by the market, sending shares up 25.4 to 477.5p.

Profits for the third quarter fell 30pc to $3.2bn, dragged down by a 74pc collapse in earnings from the “downstream” refining and marketing arm, primarily because of weak refining margins in the US.

Excluding one-off items, underlying profits fell 26pc to $3.7bn – better than the 37pc slump forecast by analysts.

BP also surprised analysts by reducing its provision for its Gulf of Mexico spill compensation settlement by $400m, thanks to a series of US appeal court rulings earlier this month that have halted the flow of disputed payments.

Bob Dudley, chief executive, said the new $10bn divestment programme showed BP was putting “value before volume”.

The disposals are expected to focus on older, less productive oil and gas fields and other “non-core” assets and are in addition to the $38bn of assets already sold to pay for the Gulf of Mexico disaster, and the $27bn BP got for selling its half of Russian venture TNK-BP.

BP’s pledge that the proceeds from its new asset sales would be used “predominantly for additional distributions to shareholders” – rather than to invest in new projects – was welcomed by the City, amid concern about spending levels by oil giants.

“The stockmarket doesn’t want the oil majors to spend money. Instead, investors want their cash back. And BP has obliged,” Neill Morton, an analyst at Investec said.

Mr Dudley admitted that “opinion is divided” among investors over whether oil giants could convert high levels of investment into strong returns for shareholders.

“We understand that we have to prove ourselves capable of running major global portfolios and balancing investment against returns,” he said, pledging that BP’s capital expenditure for 2014 would remain similar to 2013 levels at $24bn to $25bn.

“I think the approach we are taking in BP, with an intense focus on high-margin quality growth and capital discipline, will prove to be the right one.”

BP is already mid-way through an $8bn share buyback programme using some of the proceeds from the TNK-BP sale and said it had a “bias to share buy-backs” to return future cash.

BP’s share price remains almost 30pc lower than its levels before the Gulf of Mexico disaster, with uncertainty over the final bill for the 2010 disaster continuing to weigh it down.

Trial proceedings next year are expected to decide the scale of multi-billion dollar civil penalties for the damage. BP also faces a series of other legal claims including from investors who allege they lost money because they were misled over the extent of the spill.

BP on Tuesday increased the total estimate for the costs of the disaster slightly, to $42.5bn, but confounded expectations by cutting its provision for the compensation settlement with businesses who claim they lost money due to the spill.

The cost of the settlement had risen to $9.6bn and analysts had feared a further increase of as much as $1bn but BP said it was instead able to reduce its estimate to $9.2bn in light of the court rulings this month, which have stemmed what it calls “fictitious” claims by businesses that did not actually lose money as a result of the spill.

BP has now changed its accounting method to exclude claims that have been approved by the settlement administrator but not yet paid out as it believes the court ruling could prevent them being paid. It said there were about $1bn in such claims and it disputed the validity of 93pc of these.

Elsewhere, BP warned that refining margins in the fourth quarter would “remain under significant pressure due to very high gasoline stocks and new competitor capacity additions as well as lower seasonal demand”. Low margins and the sale of BP’s Texas City and Carson refineries saw third-quarter profits from the division fall to $616m.