BP spends billions on Russian deal

Lord Browne says the deal is a major strategic step

The British energy giant BP is investing billions of pounds in a new joint venture in Russia.

We have... learned a great deal about doing business in Russia

Lord Browne, BP chief executive

The company said it was joining with the Alfa Group and Access-Renova (AAR) to create Russia's third biggest oil and gas business.

For its 50% stake in the new company BP will pay a total of $6.75bn (£4.17bn) in cash and shares over the next four years.

Chief executive Lord Browne described the transaction as "a major strategic step into a country with massive oil and gas reserves and immense potential for future growth".

"This is one of the six great places we are investing in, not just for the next five years, but for the next 20 years," Lord Browne told the BBC's World Business Report.

He said that BP had a tough time initially when it entered Russia five years ago by buying 10% of Sidanco.

"We have gradually built an important, mutually beneficial relationship with the owners of AAR and learned a great deal about doing business in Russia."

Profits leap

Lord Browne said BP had carried out a thorough examination of assets involved in the deal and had put a system of governance in place to protect all the parties involved.

Business is not a cut and dried mechanical process driven solely by financial frameworks

Lord Browne, BP chief executive

"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.

BP made the announcement as it reported that profits in the three months to the end of December jumped 49% to $2.6bn.

But over the full year profits were down by 25% to $8.7bn.

Abandoning growth targets

BP also confirmed that it was moving away from giving growth targets.

At the end of last year it shares suffered when it had to cut its gas and oil production forecasts three times in two months.

Lord Browne told oil analysts: "Business is not a cut and dried mechanical process driven solely by financial frameworks.

"Reality is different... and that's why we've moved from single-point targets, whether for production, return on capital or anything else, because such targets can distort the implementation of strategy."

He said the group was moving instead to using indicative ranges.

In the City, BP shares closed 14p higher at 393.5p on Tuesday.