LORD Browne of Madingley, chief executive of BP, played down concerns about the pitfalls of operating in Russia as the firm reported a 29-per cent increase in first quarter replacement cost profits to dollars-5.5bn (pounds-2.9bn) powered by soaring oil prices.

While Russian tax authorities have presented BP's joint venture with TNK with a pounds-526m tax notice, Browne said the Russian partners had indemnified BP, the world's second biggest oil company by market capitalisation, against any claims.

Stressing TNK-BP had only received a "notification" of a liability relating to 2001, before the venture was formed, rather than a formal demand, Browne was unconcerned that expansion into Russia might be derailed by the country's tax authorities.

These famously brought Mikhail Khodorkov-sky's Yukos to its knees. Lord Browne, however, had a meeting with Vladimir Putin, the president of Russia, last week signalling the importance it attaches to keeping BP onside.

While details of the talks have not been released, directors stressed BP was pleased with progress in Russia where the joint venture has recorded significant production increases.

These offset declines in mature areas like the North Sea, helping BP achieve first quarter output of 4,101 million barrels oil equivalent daily, compared with 4,015 in the first three months of 2004.

This was especially welcome in a quarter when the average price BP realised for a barrel of crude oil surged 38-per cent to dollars-43.37.

Rising oil and gas prices provided a pounds-1bn plus boost to profits and Browne is bullish about the outlook. "Oil prices look set to remain supported at above dollars-40 a barrel for the rest of the year on the back of world oil consumption, growth and limited spare production capacity, " he said.

With output likely to be boosted this year by projects such as Thunderhorse in the Gulf of Mexico coming onstream the key exploration and production division should drive continued profits growth.

Although first oil was produced from the giant Clair oil field in February, UK first quarter oil production fell from 344,000 barrels daily in 2004 to 288,000. Natural decline was compounded by weather related disruptions to production in fields like Foinaven west of the Shetlands. Gas production slipped from 1.355 billion cubic feet daily to 1.242bcf and BP wrote down the value of some fields in the southern North Sea by pounds-68m. Shares in BP closed up 4p at 543p.

FACT FILE

2005* 2004

REVENUES $79.8bn $68.9bn

REPLACEMENT PROFIT $5.5bn $4.3bn

DIVIDEND 8.5cts 6.75cts

* First-quarter figures