Bula Resources is to make a provision for £12.3 million in its 1997 profit and loss account arising out of the company's disastrous involvement in the Salymskoye oil field in Siberia.

The company yesterday issued a lengthy statement detailing the history of the investment and the difficulties which currently exist between it and its Russian partners.

The two sides are in dispute over the failure of the Russians to assign the licence for the field to a joint venture which was established to exploit the area.

The £12.3 million being provided against is made up of Bula shares worth approximately £2.5 million, and just under £10 million invested in the Salymskoye deal by Morgen Grenfell and Capital International.

Aspects of the deal are currently the subject of an inquiry being conducted by a Government-appointed inspector, Mr Lyndon MacCann. Mr MacCann was expected to complete his report a number of weeks ago, but it has not yet been handed over to the Department of Enterprise, Trade and Employment.

In its statement, Bula Resouces said the opportunity for it to invest in the Salymskoye oil field was identified by the company's former chairman and managing director, Mr Jim Stanley, who recommended the deal on the basis that the area contained 585 million barrels of recoverable oil reserves.

The company transferred 101 million shares to a Virgin Islands company, Mir Oil, to purchase 25 per cent of that company's involvement in the oil field. Mir owned 50 per cent of the oil field.

The other half was owned by a Russian company, KMNGG. The identity of the beneficial ownership of Mir is one of the matters being inquired into by Mr MacCann.

Since the acquisition Bula supplied finance for a programme of operations in the field conducted by a company called Eastern Resources, which is 50 per cent owned by KMNGG and 50 per cent owned by Mir.

Work was carried out on two wells. "The results of both wells were hugely disappointing in that neither well was capable of producing oil in commercially sustainable quantities," the company said.

An earlier incorrect announcement that one of the test wells was producing 942 barrels of oil, is among the matters being investigated by Mr MacCann.

Complications concerning the licence to exploit the field is preventing further work on the oil field. The licence was issued to KMNGG by the Russian authorities in 1993.

"To date, despite repeated requests from Bula, KMNGG have failed to complete the regulatory procedures necessary for it to assign the licence to Eastern Resources." A spokesman for KMNGG could not be contacted.

Bula has decided that it would be inappropriate to provide any further significant funding to the development of the project until the licence is assigned.

KMNGG is now owned by a US-registered company called KMOC and preliminary discussions on the disposal of Bula's interest in Salymskoye began recently. The company is committed to "pursuing every opportunity available to it so as to derive the maximum value for the company" from the Salymskoye project.

If there is no resolution of the licence issue or the disposal discussions, the company will consider legal action.

Bula is already pursuing legal action in relation to another disastrous Siberian project negotiated by Mr Stanley. That deal involved the Aki-Otyr oil field and led to the company writing off £8 million.

Mr Pat Mahoney, managing director of Bula, said the company was tackling its old problems and working on building up an asset base in new areas.

He pointed out that Morgan Grenfell and Capital International had recently invested £1.7 million in Bula.