TNK-BP and Rosneft Agree Verkhnechonskoe Field Pipeline Route

Monday, September 4, 2006

TNK-BP has come to an agreement with Rosneft to construct a permanent oil pipeline from the Verkhnechonskoye oil field in East Siberia to Surgutneftegaz' Talakanskoye field whence oil from both fields will be supplied into the East Siberia – Pacific Ocean pipeline system or ESPO.

The discussions with Sugurtneftegaz are being conducted through OJSC Verkhnechonskneftegaz (VCNG), the operating company for the VC field, pursuant to the terms of a Memorandum of Understanding signed by these companies. The agreement in principle with Transeft, the operator of the ESPO, has now also been reached.

TNK-BP and Rosneft are the major shareholders of VCNG, which holds the license for development of VC, the largest oilfield in Irkutsk Oblast. Both companies have agreed to revise their earlier oil transportation project for pilot production from this field, which had envisaged building and operating a much longer and temporary pipeline from VC to a new rail terminal at Ust-Kut for the first three to five years of field development.

The change to the original plans has been enabled by the re-routing and confirmation of timing of works on the ESPO and the stated intention of Transneft to commission reversal of the Ust-Kut –Talakan pipeline section.

The Company signals its intention to accelerate the construction of the supply pipeline from VC to align with Transneft plans. Surveys along the proposed pipeline route have already been commenced by Verkhnechonskneftegaz. In the near future the company will hold a tender among Russian design institutes for the right to develop the Feasibility Study for construction of the 120 km line to the cut-in point of the main ESPO.

OJSC Verkhnechonskneftegaz was established in 2002 and the company holds the license to develop the Verkhnechonskoe oilfield. The company's shareholders are TNK-BP 62%, Rosneft 25% and East Siberian Gas Company 11%.

The Verkhnechonskoe field is located on the territory of the Katanga District of the Irkutsk region, 1100 km northeast of Irkutsk. This is the largest oilfield in the Irkutsk region. The field's reserves are expected to support production of 7 to 10 million tons per year by 2010—2011.

The pilot development project currently in progress at the field includes drilling and testing wells and construction of field infrastructure required for full-scale field development. Total investment in the pilot stage of the project is estimated at $200 million

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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