* 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 BP, Europe's second-biggest oil company, vowed to return more cash to shareholders and deepen its ties with Russia's Rosneft, trailing what investors should expect from a strategy update next month.
"The fundamental premise is that we should look to return cash back to our shareholder base and we'll do that through both buybacks and progressive dividends," Chief Financial Officer Brian Gilvary told reporters.
The outlook came as some oil sector shareholders call on companies to control spending and return spare cash, amid concerns over the impact of rising costs and the returns available if oil prices drop.
By promising further payouts, BP signalled it would continue to reward investors having already in October hiked its dividend and vowing to return the proceeds of selling assets worth $10 billion in the next two years.
Shell, Europe's largest oil company by stock market value, has followed BP's lead, saying it would slash capital spending and raise its quarterly dividend by 4 percent.
BP's pointer on strategy came as it reported a sharp drop in underlying fourth-quarter profit, in step with its "big oil" rivals whose latest results have highlighted an industry-wide struggle to increase earnings in the face of a tough refining environment and rising costs.
Exxon Mobil reported lower-than-expected profit last week, while Chevron and Shell both issued profit warnings in January.
BP's quarterly profit on Tuesday beat expectations after the hit from lower refining margins were partly offset by strong contributions from its stake in Rosneft.
Chief Executive Bob Dudley said the company was pleased with the investment it made last year in the state-controlled Russian company, having folded its Russian business into Rosneft in exchange for a 19.75 percent stake.
"We will likely at some point I think set up some joint ventures with Rosneft onshore (in Russia)," Dudley said.
He said it was unlikely, however, that BP would partner with Rosneft in the Arctic, where several companies including Exxon have signed a deal, as the best acreage had already been snapped up.
Dudley did not rule out investing in Iran at some point as the Islamic Republic steps up efforts to win back investment as part of its rapprochement with the West.
"We haven't had any meetings or discussions with the Iranians on this. We have no operations there today and no plans to engage until it is really clear that legally we can," Dudley said. BP has history in Iran under its former guise as the Anglo-Persian Oil Company over a hundred years ago.
BP reported an underlying replacement cost profit of $2.8 billion for the fourth quarter of 2013, 28 percent lower than the same period a year ago but ahead of a consensus forecast of $2.7 billion. Analysts at brokerage Investec said BP's beat was partly a result of a lower tax charge.
Unlike its rivals, BP remains in the shadow of litigation related to the 2010 oil spill in the Gulf of Mexico. The company said 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 a three-stage civil trial and has an army of lawyers working to push remaining spill fines and penalties into the future.
Shares in BP, which have recently flirted with post-spill highs, closed up 0.04 percent at 473.8 pence, outperforming Britain's blue chip index which closed 0.3 percent lower.
BP also reconfirmed a 2014 capital expenditure target of between $24 billion to $25 billion and indicated cashflow would be in line with an earlier announced plan. "They're reiterating most of their targets, cashflow and capital expenditure, that's a positive," Bernstein analyst Oswald Clint said.
The group, which has been shedding assets since 2010 to help pay for the costs associated with the spill, sold businesses worth $22 billion in 2013 alone.
BP said the fall in its earnings was partly due to its shrinking asset base, but also reflected difficult conditions in its refining business, which is comparatively smaller after it sold two major U.S. refineries last year.
Rosneft, which also reported earnings on Tuesday, delivered $1.1 billion of BP's fourth-quarter profits.