* Plans to make further returns to shareholders
* Eyes new onshore partnerships with Rosneft in Russia
* Q4 underlying profit $2.8 bln vs $2.7 bln forecast
* Reiterates spending, cashflow targets
* Shares close up 0.04 pct
By Sarah Young
LONDON, Feb 4 (Reuters) - BP (LSE: BP.L - news) , Europe's second-biggestoil company, vowed to return more cash to shareholders anddeepen its ties with Russia's Rosneft, trailing whatinvestors should expect from a strategy update next month.
"The fundamental premise is that we should look to returncash back to our shareholder base and we'll do that through bothbuybacks and progressive dividends," Chief Financial OfficerBrian Gilvary told reporters.
The outlook came as some oil sector shareholders call oncompanies to control spending and return spare cash, amidconcerns over the impact of rising costs and the returnsavailable if oil prices drop.
By promising further payouts, BP signalled it would continueto reward investors having already in October hiked its dividendand vowing to return the proceeds of selling assets worth $10billion in the next two years.
BP's pointer on strategy came as it reported a sharp drop inunderlying fourth-quarter profit, in step with its "big oil"rivals whose latest results have highlighted an industry-widestruggle to increase earnings in the face of a tough refiningenvironment and rising costs.
BP's quarterly profit on Tuesday beat expectations after thehit from lower refining margins were partly offset by strongcontributions from its stake in Rosneft.
Chief Executive Bob Dudley said the company was pleased withthe investment it made last year in the state-controlled Russiancompany, having folded its Russian business into Rosneft inexchange for a 19.75 percent stake.
"We will likely at some point I think set up some jointventures with Rosneft onshore (in Russia)," Dudley said.
He said it was unlikely, however, that BP would partner withRosneft in the Arctic, where several companies including Exxonhave signed a deal, as the best acreage had already been snappedup.
Dudley did not rule out investing in Iran at some point asthe Islamic Republic steps up efforts to win back investment aspart of its rapprochement with the West.
"We haven't had any meetings or discussions with theIranians on this. We have no operations there today and no plansto engage until it is really clear that legally we can," Dudleysaid. BP has history in Iran under its former guise as theAnglo-Persian Oil Company over a hundred years ago.
BP reported an underlying replacement cost profit of $2.8billion for the fourth quarter of 2013, 28 percent lower thanthe same period a year ago but ahead of a consensus forecast of$2.7 billion. Analysts at brokerage Investec (LSE: INVP.L - news) said BP's beat waspartly a result of a lower tax charge.
Unlike its rivals, BP remains in the shadow of litigationrelated to the 2010 oil spill in the Gulf of Mexico. The companysaid provisions to cover the spill's clean-up, fines,compensation and legal costs had risen to $42.7 billion from$42.5 billion last year.
Having settled criminal proceedings, BP is two phases into athree-stage civil trial and has an army of lawyers working topush remaining spill fines and penalties into the future.
Shares in BP, which have recently flirted with post-spillhighs, closed up 0.04 percent at 473.8 pence, outperformingBritain's blue chip index which closed 0.3 percent lower.
BP also reconfirmed a 2014 capital expenditure target ofbetween $24 billion to $25 billion and indicated cashflow wouldbe in line with an earlier announced plan. "They're reiteratingmost of their targets, cashflow and capital expenditure, that'sa positive," Bernstein analyst Oswald Clint said.
The group, which has been shedding assets since 2010 to helppay for the costs associated with the spill, sold businessesworth $22 billion in 2013 alone.
BP said the fall in its earnings was partly due to itsshrinking asset base, but also reflected difficult conditions inits refining business, which is comparatively smaller after itsold two major U.S. refineries last year.
Rosneft, which also reported earnings on Tuesday, delivered$1.1 billion of BP's fourth-quarter profits.
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