SHAREHOLDERS in BP are looking forward to a windfall after the oil company outlined plans for a three-year share buyback.

BP chief executive Lord Browne pledged to return to shareholders all free cash generated by high oil prices, calling a halt to an acquisitions strategy that has been in place since 1997.

Analysts believe BP will purchase £2.76bn of its stock this year - as much as it has used to buy shares during the past three years.

About £689m has already been spent by the oil company on buybacks in the first three months of this year. Investors were boosted by the BP stating it expected to pay higher dividends over the next three years.

It also said production would increase by five per cent a year in the period to 2008, excluding its lucrative joint venture in Russia.

The announcement was helping to lift confidence among investors in the oil sector after rival Shell rocked the market earlier this year with two downgrades of its proven reserves.

Laying out BP's strategy for the next three years, Lord Browne said the company was in a period of transition after acquiring several rivals during the past seven years, including Amoco and Burmah Castrol.

He said the group was focused on expanding its existing operations, which included a positive outlook for its Russian joint venture TNK-BP.

Lord Browne said the price of a barrel of oil had averaged 20 US dollars over the past 20 years, but was expected to stay above that mark over the next few years.

A barrel costs more than 35 US dollars ahead of an expected cut in production by oil cartel Opec on Thursday.