Rosneft and BP Sign Sakhalin Cooperation Pact

Rosneft and BP have signed shareholder and operating agreements for joint activity on the East-Schmidt (Sakhalin-5) and the West-Schmidt (Sakhalin-4) license blocks.

Projects are implemented under the effective legal framework between Rosneft (51%) and BP (49%). Operational management of the projects will be conducted by CJSC Elvary Neftegas established in 2003 for exploration on the Kaigansko-Vasuykansky license block (Sakhalin-5). It is planned that exploration activities on both blocks including drilling of 6 wells will be financed by BP until commerciality is confirmed; following commercial discovery the expenses will be reimbursed from Rosneft's share of production.

Subsoil users of the blocks are two 100% Rosneft subsidiaries CJSCs "Vostok Schmidt Neftegas" and "Zapad Schmidt Neftegas".

Exploration on the blocks and design of the joint development strategy on Sakhalin-4 and Sakhalin-5 are being conducted by the parties. Set up of joint production and transportation infrastructure will allow optimization of the projects' capex and may support the creation of the island's biggest oil and gas complex in the North Sakhalin.

Management of the companies believes BP's considerable offshore knowledge combined with more than 75 years of Rosneft's experience in Sakhalin would allow the most effective use of modern technologies and compliance with health, safety, security and environmental requirements.

Lord Browne and Sergey Bogdanchikov signed a joint statement expressing satisfaction with the achieved agreements that open up new opportunities for both companies at the next stage of their cooperation.

"These agreements are the major step in the ongoing cooperation of our companies offshore Sakhalin" — the announcement says. "We would like to congratulate employees of Rosneft and BP who worked on the agreements and wish them every success in 2007 and in the future".

East-Schmidt (11,800 square km) and West-Schmidt (9,400 square km) blocks are located in the north offshore Sakhalin in the harsh climate with complex ice conditions and sea depths from 100 to 200 m.

There are over 22 prospective structures identified on the blocks. Considerable scope of exploration activities has been recently conducted on the blocks. Joint investment to date exceeds $80 million. Future investment is planned to reach $700 million.

Exploration program specified by the license agreements includes 2D and 3D seismic acquisition on each block as well as drilling of 3 exploratory wells.

2D seismic data re-interpretation and 3D seismic acquisition covering about 3000 km2 were conducted on the blocks in 2005. Site — survey data from 2005 has been processed in 2006; in 2006 OSJC Dalmorneftegephysica (a contractor) has acquired 3D data from more than 3000 km2 on the East-Schmidt block.

Drilling of one exploratory well on each block is planned for next year.

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