By Daniel Hunter

BP has reported a sharp fall in profits for the first three months of the year as falling oil prices take effect.

The oil giant reported profits of $2.13 billion (£1.39bn) for the first quarter, down from $3.5bn in the same period last year.

However, the results were above many market expectations.

Oil prices have lost more than 50% of their value since last summer, causing huge problems for oil companies. Some have issued profit warnings and others are planning to scale-back their operations.

"Upstream result was significantly affected by lower oil and gas prices as well as weaker gas marketing and trading and $375m costs associated with the cancellation of contracts for two deepwater rigs in the Gulf of Mexico," BP said.

"The result reflects the stronger overall refining environment, increased refining optimisation and production and improved marketing performance. There was also a stronger contribution from supply and trading than a year earlier. Simplification and efficiency programmes also contributed to lower costs in the downstream."

BP is the first of the major oil firms to announce its first quarter results. Shell and Exxon Mobil are due to announce theirs on Thursday.