LONDON, Feb 11: British group BP announced on Tuesday a major expansion into the burgeoning Russian oil industry, signalling renewed confidence in the country’s complex business world with a multi-billion-dollar investment.

BP said the investment of $6.75 billion over four years — the single largest made by a foreign company in Russia in the post-Soviet era — would create the country’s third-biggest oil and gas business.

It will also raise BP’s own daily oil output by about 25 per cent at a time when the company has attracted criticism from shareholders about its failure to meet its production growth targets.

Chief executive John Browne said the deal with partner TNK was a “major strategic step into a country with massive oil and gas reserves and immense potential for future growth.”

Under the deal, which has been agreed in principle, BP and Russian holding company Alfa Group and Access-Renova (AAR) will combine their interests in the country, which is rapidly emerging as a major rival to Gulf oil producers.

The new group, in which the two partners will each own a 50-per cent stake, will incorporate Russian oil firms Sidanco, in which BP owns 25 per cent, and TNK. BP said the venture was expected to produce 1.2 million barrels of oil a day and would add over 500,000 barrels to its own daily oil production of about two million barrels.

The new company will also own significant exploration interests in Siberia and Sakhalin, together with a major downstream business.

BP said it would pay AAR $3 billion in cash for a 50-per cent stake in the new company and three subsequent annual payments of $1.25 billion in BP shares.

But the deal has unsettled some investors who remember when the British giant got its fingers burnt in the past in Russia.

Deutsche Bank analysts said that while Russian oil companies were cash-rich, resurgent and had low costs, they had “little experience of partnerships, and are unwelcoming to foreign partners in all but the most expensive and complex projects.”

“The perception that Russia is an oil province crying out for foreign upstream investment is too simplistic, in our view,” they added.

But Browne said BP had learnt its lessons after having a “tough time” initially after entering Russia five years ago when it bought 10 per cent of Sidanco, and had conducted a thorough examination of the new deal.

“These prudent measures, combined with Russia’s greatly improved economic stability, improved legal system and increasing commitment to international rules of trade and business, have convinced BP that now is the time to deepen our partnership with AAR,” he said.

The announcement came as BP reported a 25-per cent fall in 2002 pro forma profits, adjusted to take account of exceptional items, to $8.7 billion, notably owing to weak gas prices.

But the company put on a better performance in the fourth quarter, when profits rose by 49 per cent from the year-earlier period to $2.6 billion.

The price of shares in the company rose 2.8 per cent to 390 pence as investors digested the flurry of news from Britain’s biggest company.—AFP