Salym JV Announces Announces 2005 Development Budget

Salym Petroleum Development, a joint venture between Shell and Sibir Energy's Evikhon announced that US$278 million will be allocated for the operations and continued development of the Salym Group of oil fields in Western Siberia in 2005. This decision was made by the Supervisory Board of Salym Petroleum Development N.V. (SPD), which holds the licenses for development of the three Salym fields West Salym, Upper Salym and Vadelyp. SPD is a 50/50 joint venture between Shell Salym Development B.V. and Sibir Energy's Evikhon subsidiary.

The 2005 budget approved by the SPD Supervisory Board (composed of directors nominated by the two shareholders) ensures the fulfillment of license commitments, and includes the implementation of a Work Program for early commercial development of West Salym, the biggest of the Salym fields. As part of implementation of this program, which commenced in the autumn of 2003, an all-season 50-kilometer long road connecting the three Salym fields has already been built as well as the first well pad where drilling operations are ongoing. In addition energy supply facilities, storage tanks, warehouses, a field camp and a helipad have been constructed. The construction of the Central Processing Facility (CPF) designed to handle production of about 6 million tons of crude per year has also started.

With ongoing development of Upper Salym taken into account the investments into the Salym Project in 2003-2004 will total some US$330 million. The majority of the funds are used for payments for the goods and services of Russian companies, mainly regional contractors and subcontractors of SPD. "In 2005 the US$278 million budget will ensure fulfilling a major task of SPD to begin commercial oil production in West Salym in Q4 2005 as contemplated by SPD's license commitments", commented SPD CEO Dale Rollins. "By the end of 2005, this will take the total expenditure by SPD in the Salym Fields development to over US$600 million. We are proud of our record of achievement in a relatively short time, and proud of the fact that some 75% of our expenditure goes into Russian-made equipment and paying the salaries of our predominantly Russian staff. This is of benefit to the local communities and the Russian economy as a whole, and as we start producing and selling oil from West Salym, our contributions will increase as the Government receives the appropriate tax revenue."

"The priority activities in the next year include laying and commissioning a 90-kiliometers long oil export pipeline, which will transport the Salym crude to the Transneft pipeline system, and completion of the CPF. Simultaneously we will build new well pads and drill new wells and construct other key field facilities in West Salym. SPD will also continue developing Upper Salym and preparing for Vadelyp development. We must do all this in a safe and environmentally conscious manner, as these are our key values. SPD and its contractors are confident that based on the experience gained to date, we will successfully carry out the 2005 Work Program, which represents an important milestone in the Salym Project implementation. We will also continue with our important programs of sustainable development and community interaction, particularly in the areas around our base of operations."

Salym Petroleum Development NV is a company established on a 50:50 basis by Shell Salym Development B.V. and OAO NK Evikhon controlled by Sibir Energy. SPD holds production licenses for all three fields of the Salym group of fields located in the Khanty-Mansiysk Autonomous Okrug in Western Siberia, 190 kilometers from the town of Nefteyugansk. It includes West Salym, Upper Salym and Vadelyp.

Development and production from Upper Salym has already begun, and Vadelyp production is due to start in 2006. The production from West Salym, the biggest in the Salym group of fields, will start end 2005 and is expected to peak with at least 120,000 barrels per day in 2009. Oil will be evacuated via a tie-back to the existing Transneft pipeline system.
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