It is the 16th production-sharing agreement signed by Azerbaijan with foreign firms.

But it is in contrast to many countries which have pulled out or cut back on their investment plans because of disappointing results and a fall in oil prices.

The largest off-shore consortium in the Caspian, which is currently exporting 75,000 barrels of oil a day, has been forced to scale down its plans for 1999.

Azerbaijanii officials say one international consortium will be closing down after failing to strike oil in sufficient quantities.

Poor results

The BBC correspondent in Baku, Stephen Mulvy, says another is expected to follow suit early in 1999 after receiving disappointing drilling results.

Our correspondent says a decision to build a high capacity pipeline to the West could now be delayed for months, if not years.

But the investment by the consortium, consisting of three Japanese companies, Japex, Itochu and Taikoku, and their Indonesian partner Inpex, shows they have confidence in the Azerbaijani oil industry.

They are planning to develop the oilfields of Atesh Kyar, Yanan Tava and Mugan Deniz.

The consortium has been waiting to close the deal since February.

Need to diversify sources

Japan's interest in the Caspian is partly due to its need to reduce its dependence on Middle East suppliers.

The Japanese-led consortium has undertaken to drill three appraisal wells by 2000, by which time it is hoped oil prices will have recovered.

With interest in Azerbaijan still in the balance attention will now focus on exploration being carried out by British Petroleum in an area known as Shah Deniz.

If they strike out it will be a major blow both to the Azerbaijani government and to investors, who have spent billions of dollars in the Caspian region.

Companies' profits have been hit by the low oil price and it has had a knock-on effect on their willingness to make big investments.