MOSCOW, September 4, 2008 (AFP) - British and Russian shareholders on Thursday announced an end to a months-long feud for control of joint oil venture TNK-BP, in a move hailed by the Kremlin as a positive signal to foreign investors.

The agreement, which envisages the departure of British chief executive Robert Dudley but no shift in the balance of ownership, is 'a sensible means of resolving a situation that could not continue without causing serious damage' to TNK-BP, BP chief executive Tony Hayward said in a statement.

In a separate statement, Mikhail Fridman, representing the group of Russian billionaires that owns 50 percent of the company, said the agreement 'opens fundamentally new opportunities for the development of TNK-BP.'

Officials in the offices of President Dmitry Medvedev and Prime Minister Vladimir Putin quickly welcomed the resolution to a conflict that analysts said had cast a cloud over an already weak business environment.

'This resolution will benefit the shareholders, the company itself and naturally Russia as a whole,' Medvedev's economics advisor, Arkady Dvorkovich, was quoted by Interfax news agency as saying.

'The resolution... will undoubtedly have a favourable influence on Russia's investment climate,' he said.

The dispute between British and Russian shareholders in TNK-BP, Russia's third largest oil producer, was seen as a test of Medvedev's promises to improve the business climate.

Many commentators suspected that probes by state institutions such as the labour, tax and migration offices were used by the Russian shareholders to help push out Dudley and force other changes.

So important is TNK-BP's production to Britain's BP that the row had raised worries about the future prospects of the British company and talk of an ownership shake-up.

Thursday's memorandum of understanding, due to be finalised in the coming months, was greeted by investors, with BP shares trading around 3.6 percent higher around midday on the London Stock Exchange.

TNK-BP was formed in 2003, with 50 percent owned by BP and the other 50 percent by a group of Russian industrialists known as AAR (Alfa, Access/Renova).

BP's portion of TNK-BP accounts for a quarter of the British company's global production, 10 percent of its earnings and a fifth of its reserves, BP's press office said.

Thursday's agreement envisaged a shake-up of the management structure of the firm but no change in the balance of ownership between the two sides.

Dudley will leave his post by year's end, BP said.

BP will nominate an independent chief executive for approval by TNK-BP's board, the two sides said.

The deal also envisages a public floatation of up to 20 percent of a TNK-BP subsidiary, the BP statement said.

Dudley's departure was a key demand of the Russian shareholders who accused him of running the company purely in accordance with BP's interests and hindering its international expansion.

Under pressure from Russian labour and migration authorities TNK-BP's British staff, including Dudley, had left the country.

The row had aggravated relations between Britain and Russia, which were already strained, notably by the 2006 poisoning death in London of former Russian agent Alexander Litvinenko.

Russia's Vedomosti newspaper quoted one expert as saying the company was currently undervalued by 40 percent on the markets as a result of the frictions.