Rosneft and Sinopec to Jointly Control Udmurtneft


Rosneft Oil Company and Chinese Petrochemical Corporation (Sinopec) have executed the bilateral agreements indicative of successful development of cooperation between the largest national oil companies of Russia and China.

Meeting in Beijing on November 11, 2006, officials with Rosneft and Sinopec signed a shareholder agreement establishing the joint management principles for the jointly acquired Russian company of OJSC Udmurtneft. On November 13 in Hong Kong, the companies a share transfer agreement regarding Udmurtneft shares allocation to the joint management venture through which Rosneft and Sinopec would control Udmurtneft. They also signed a loan agreement with the Bank of China that facilitates the acquisition financing.

Under the achieved agreements, Udmurtneft's board of directors will comprise nine members: a general director to be nominated by Rosneft, four Rosneft representatives, and four Sinopec representatives. A joint advisory committee established at the board of directors level will address strategy and business planning issues. It will constitute five people from each company.

Officials from Sinopec and Rosneft met in Beijing in March 2006 to sign a memorandum of cooperation, also agreeing upon the joint acquisition of Udmurtneft assets planned to be sold by TNK-BP. The following month, Rosneft and Sinopec entered the option agreement by which Rosneft acquired the shares of Udmurtneft from the Sinopec should the Chinese company have won a tender on the Udmurtneft acquisition from TNK-BP. Under the deal, Rosneft and Sinopec were to establish a joint venture to manage Udmurtneft production activities; Rosneft and Sinopec would hold 51% and 49% stakes in the company, respectively.

In June 2006, TNK-BP declared Sinopec the winner of the tender based upon the open auction for the shares of Udmurtneft. In August, Sinopec completed its acceptance of properties from the previous owner. Both companies' presidents subsequently met to view the newly acquired assets in Urmurtia.

At that point, a session of the new shareholders of Udmurtneft took place and the new company's board of directors was established and launched. The company's production and commercial operations performed as normal, said Rosneft.

During a November 11 meeting in Beijing, the presidents of Rosneft and Sinopec decided that the companies should jointly develop a business plan and a five-year development program for Udmurtneft to enhance the company's operational efficiency. In order to set up grounds for long-term development of the Udmurtian venture, the new shareholders will expand the investment scope of exploration and development, as well as the upgrade of production infrastructure.

OJSC Udmurtneft, formed in 1973, produces more than 60% of the oil in the Volga-Ural region of Russia. In 2005, the company produced 5.98 million tons of oil (43.6 million barrels), with daily production standing at 16,400 tons (115,000 barrels). As of December 31, 2005, Udmurtneft's proved reserves stand at 78.4 million tons (551 million barrels), proven and probable reserves — at more than 131 million tons (922 million barrels) of oil equivalent, as estimated by DeGolyer & MacNaughton.