* Lowest annual profit in at least a decade
* Raises breakeven oil price to around $60 per barrel
* Expects production to rise in 2017
* OPEC cuts to have limited impact on BP in Abu Dhabi (Recasts, adds details, analyst quote, share price)
By Karolin Schaps and Ron Bousso
LONDON, Feb 7 (Reuters) - BP raised the oil price atwhich it can balance its books this year to $60 a barrel onTuesday due to higher spending following a string of investmentsas annual earnings fell for a second consecutive year.
After the average oil price fell to its lowest in 12 yearsat $44 a barrel last year, BP said it expected prices to havefound a floor for this year at $50 a barrel following a decisionby major OPEC and non-OPEC producers to limit output.
The British oil and gas company, whose fourth quarterprofits fell short of street expectations, had previouslytargeted a breakeven oil price of $50-55 a barrel.
The new target reflects an uptick in planned spending to$16-17 billion from $16 billion in 2016.
BP's annual underlying replacement cost, its definition ofnet profit, slumped to its lowest level in at least a decade to$2.59 billion, while fourth-quarter profit of $400 millionmissed analysts' forecasts by around 30 percent primarily due to$328 million in one-off charges.
It is the latest oil major to miss forecasts followingworse-than-expected results from Royal Dutch Shell,Chevron and Statoil.
BP shares were down 2.9 percent at 0851 GMT at 462.5 pence,underperforming the sector index which was 0.6 percentlower.
"BP are not covering their dividend and they raised theircash breakeven point quite considerably," said Macquarieequities analyst Iain Reid.
"They are having to pay for what they bought and they arethe only company that actually raised their breakeven number,"he said.
BP has been on a spending spree in recent months, concludinga string of deals, including in Eni's giant Zohroffshore gas field in Egypt, contracts in Abu Dhabi andAzerbaijan and a stake in exploration areas off Mauritania andSenegal from Kosmos.
The burst in activity marks a return to growth for thecompany whose deadly 2010 Deepwater Horizon rig explosion in theGulf of Mexico forced it to sell assets worth billions ofdollars. But this growth also means higher costs.
BP's production is expected to rise this year as it is setto start up eight projects, including in Oman and Azerbaijan,the largest number in the company's history in a single year.The company hopes to add 800,000 barrels per day of newproduction by the end of the decade.
Chief Financial Officer Brian Gilvary told Reuters that adecision by oil-producing nations to cut output in order to propup prices would have only limited impact on BP's productionthrough its recently renewed Abu Dhabi concession.
"If everything holds in terms of what OPEC has said I thinkwe will hold north of $50 a barrel," Gilvary told Reuters.
BP reported an annual loss of $542 million in its oil andgas production division, known as upstream, while profits forthe refining and trading division were down 25 percent at $5.6billion.
BP's bill to compensate for damages caused by the explosionand ensuing oil spill have risen to $62.6 billion. (Editing by Jason Neely)
BP (BP.)