LONDON (AP) - BP plc. returned to profit in the third quarter but said it does not plan to rush back into the Gulf of Mexico as it raised the likely cost of the devastating oil spill there by $7.7 billion to $40 billion.

The London-based company said that the increased costs from the disaster dragged down third quarter net income by more than 60 percent compared to a year ago, to $1.79 billion from $5.3 billion.

Several residents along the Gulf Coast were happy to see BP turning a profit, keeping the company afloat at least long enough to live up to their promise to compensate those affected by the spill.

"If that's what it takes to make things right, then it's a good thing," said Louisiana fishing guide Mike Helmer. "That's a much better scenario than them going bankrupt and everyone down here being left holding the bag."

All the other major oil companies, except Chevron, have reported stronger third quarter profits thanks to higher oil and gas prices.

Still, BP saw an increase of 18 percent in underlying replacement cost profit - a key industry benchmark which strips out changes in the value of fuel inventories - to $5.5 billion, above the $4.6 billion forecast by analysts.

"What I can report today is that BP is now in recovery mode," chief executive Bob Dudley, presiding over his first quarterly results since taking over from Tony Hayward a month ago, told reporters in London.

"Putting aside the incident...the BP group as a whole delivered a strong business performance throughout the quarter in terms of both financial and safety performance," he added.

Mr. Dudley said BP was committed to operating in the Gulf of Mexico following the lifting of a US government moratorium on drilling after the spill, but said the company would "step back" and look at its equipment and rigs in those waters before attempting to jump back in.

Mr. Dudley, who has already announced a restructure of the company's exploration and production unit into three parts and the creation of a new unit to police safety practices, said he would provide more detail on the company's future strategy in February.

The company's exploratory Macondo well in the Gulf blew out on April 20, killing 11 workers and kicking off the worst oil spill in US history. Oil kept gushing until July 15, but it took BP another two months - until September 19 - to completely seal the well.

"Broadly, I expect the industry to get back to work sometime in 2011," Mr. Dudley said, noting that new regulatory requirements for licenses were still under discussion.

Wells in the Gulf can be very profitable and taxes and royalties in US waters are considered to be much lower than elsewhere in the world. Drilling projects there typically break even when oil sells for $50 to $60 per barrel. It is currently trading near $82 per barrel.

Chevron and Shell have both submitted requests for projects since President Barack Obama lifted the drilling moratorium on October 12, but new regulations, which include more rig inspections, are expected to make it harder for companies to obtain offshore drilling permits.

"It wouldn't be sensible for us to be the first one to raise our hand and rush in with a permit," Mr. Dudley said. "We are still embedding the lessons from this incident...we are going to take our time and be absolutely thorough and rigorous about this."

He declined to comment on the status of the deepwater rigs it has on lease in the Gulf, or its production forecast from the region, which accounts for around 10 percent of BP production.

The company last month sold sold its stake in four mature oil and gas fields in the Gulf to Marubeni Oil and Gas for $650 million.

There has been speculation that BP will be particularly targeted in a tougher regime in the Gulf but Dudley said he had received no such indications from the US administration.

Mr. Dudley has been working to rebuild BP's shattered reputation, particularly in the US, and turn around a 35 percent rout in the company's share price since the Gulf explosion.

The stock was 1.7 percent higher 431 pence ($6.91) in morning trading on the London Stock Exchange.

Evolution Securities analyst Richard Griffith said he was maintaining a "buy" recommendation for the company, with a target price of 510 pence, "as we believe the true liability for the Macondo accident to be nearer $25 to 30 billion as opposed to the around $60 billion the market is discounting".

The hike in the pretax charge for the spill, due to a delay in sealing the busted Macondo well, was far above analysts' expectations of a rise of around $2 to 3 billion and takes the total charges BP has booked for the spill response and future fines and compensation to $40 billion. The cost of response through September 29 was $11.2 billion.

BP faces a fine of up to $1,100 under the Clean Water Act for each barrel of oil spilled and may still be barred from gaining new licenses to operate in the Gulf, which accounts for around 10 percent of its production.

But Mr. Dudley said that the company was working on the assumption that it would not be found grossly negligent "and we are not provisioning for that."

BP has sales agreements in place for around $14 billion of assets - around half the amount it has targeted to build up a war chest to pay for the spill.

"Despite some concerns that BP may have been a forced seller, we have been impressed by the prices generated by recent disposals," said Killik & Co analyst Jonathan Jackson.

Its own investigation into the accident admitted a share of the blame, but also laid responsibility on Transocean, which owned the drilling rig, and contractor Halliburton. It has also billed minority partners Anadarko Petroleum Co. and MOEX Offshore nearly $4.3 billion for their share of the accident - they have so far refused to pay.

BP said the board would consider whether to restore the company's dividend payment to shareholders - the company scrapped the payment for the first three quarters of the year to free up cash for spill costs and to ease political and public pressure - before it announces full-year results in February.

"No decision will be taken until then, but the improving financial condition of the company and the strength of our disposal proceeds are encouraging," said chief financial officer Byron Grote.

He has spent the weeks since becoming CEO on October 1 touring BP's projects around the world, shoring up support from partners and investors. But he is also put a firm emphasis on safety, meeting with experts from other hazardous industries, including the nuclear and chemical industries.