By Michel Rose PARIS (Reuters) - French oil company Total reported a drop in profits due to narrow refining margins in Europe and a heftier exploration bill on Thursday, and decided not to match a dividend increase by rival BP . The economic slowdown has hit European oil demand, leaving European refineries with overcapacity and shrinking margins. Total had flagged earlier this month that margins had dropped to a near four-year low. "Refining margins are extremely weak, we still have this endemic problem," Chief Financial Officer Patrick de La Chevardiere told reporters on a conference call. Total shares were down 1 percent by 1010 GMT, slightly lower than the rest of the European oil and gas sector , which dipped 0.68 percent, but a better performance than its bigger Anglo-Dutch rival Shell whose stock fell 4.2 percent. Shell's third-quarter results undershot analysts' forecast, also hit by weak refining margins, coupled with higher production costs and Nigerian output stoppages. The burden of expectation was upon BP's rivals after it reported better than forecast results on Tuesday. "A solid performance from the upstream was partly offset by mixed results in the downstream," said Peter Hutton, an analyst at RBC Capital Markets. Another analyst said the results were "neutral" regarding his view on Total. Total's net adjusted profit fell 19 percent to 2.7 billion euros ($3.72 billion) in the quarter compared to the same quarter a year ago, slightly below a consensus analyst forecast of 2.78 billion euros, according to Thomson Reuters I/B/E/S. The French major, Europe's second-largest oil company after Shell, said a $400 million rise in its exploration bill compared to the same period a year ago had also weighed on profits. "We will continue these exploration efforts until the end of 2013 and all along 2014... We haven't yet found the giant field we're looking for, we have to admit," De La Chevardiere said. The CFO said he expected oil and gas output to grow this year, depending on production at the Kashagan field in Kazakhstan. He declined to reiterate a previous goal for output growth of 2-3 percent for 2013. The Paris-based group said production had risen to 2.299 million barrels a day, the second consecutive quarterly rise, helped by the start-up of Kashagan and the Ekofisk South project in Norway. DIVIDEND PRESSURE Spurred on by historically high oil prices in the past few year, integrated oil companies have increased their exploration spending to look for hydrocarbons in areas that until recently were deemed too remote or risky. But the shareholders who control them have raised pressure to keep a lid on costs as they fear the oil price cycle could turn down and are demanding more generous payouts. Total, which embarked on a so-called "high-risk, high-reward" exploration strategy to find giant fields in areas such as southern African seas, conceded last month it would start what CEO Christophe de Margerie called a "soft landing" in capital expenditure. Total said it would pay a quarterly dividend of 0.59 euro per share, unchanged from the previous quarter. Asked why the group did not raise its dividend this quarter, as its British rival BP did earlier this week, the CFO said: "It's not because there are expectations that we have to dance to the market's tune." "Nonetheless, we have good fundamentals and we have room to raise the dividend in the future," he said. Total also said it had taken a final decision to invest in the Fort Hills mining project in Canada, which its Canadian operator Suncor announced overnight. Third-quarter revenue dropped 6 percent from the same period a year ago to 46.7 billion euros. Analysts on average expected revenue of 43.8 billion euros with a dividend of 0.51 euro per share, according to Thomson Reuters I/B/E/S. Shares in Total are up 15 percent so far this year, outperforming a 3.5 percent rise in the European sector index. ($1 = 0.7262 euros) (Additional reporting by Benjamin Mallet and Alexandre Boksenbaum-Granier; editing by James Regan and Tom Pfeiffer)