TNK-BP Will Invest $400 Million in the Irkutsk Region in 2006

TNK-BP will invest approximately $400 million into the development of hydrocarbon fields and construction of infrastructure on the territory of the Irkutsk Region in 2006, said Alistair Ferguson, Deputy Executive Director, Gas development, TNK-BP, to the press in Irkutsk on Wednesday.

In particular, approximately $200 million will be invested into the development of the Verkhnechonsk oil and gas condensate field (the operator of this project is OJSC Verkhnechonskneftegaz of which 62.7% is owned by TNK-BP) in 2006 and another $200 million in 2007.

Mr. Ferguson explained that these funds will be used, in particular, for the pilot industrial development of the field and preparations for its full-scale development. Thus far, approximately 500 km of pipes have been delivered to the field for the pilot industrial development project.

According to the annual financial report of the Company, capital expenses in 2006 amounted to 1.53 billion rubles. Last year, for financing the field development works, Verkhnechonskneftegaz attracted a loan of 1.31 billion rubles from TNK SH Investment Limited (incorporated into TNK-BP) until December 31, 2009 with the interest rate equal to the refinancing rate of the Central Bank of the Russian Federation. Apart from that, in December 2005, OJSC TNK-BP Holding transferred a financial support of 200 million rubles to Verkhnechonskneftegaz.

The annual financial report says that in late 2005 Verkhnechonskneftegaz signed an agreement with Neftegazengineering for construction and installation works.

Verkhnechonskneftegaz noted in its press release that the company performed works in 2005 for preparing the field for pilot industrial development. By mid-April of the last year, all the equipment necessary for well drilling and reentering was delivered to the field. A temporary camp for workers was built on the well site. Currently, the company is performing works for reentering the existing wells and preparing them for pilot industrial development.

In 2006, Verkhnechonskneftegaz will produce approximately 2,500 tons of oil. According to the press service of the company, the production volume is small because of the absence of transportation infrastructure. Oil was and will be delivered to consumers in vehicles along a winter road.

Aside from that, according to the press release, Verkhnechonskneftegaz is going to construct its own oil loading and unloading railway terminal on the left bank of Lena River in 2 km from the city of Ust-Kut. The company has chosen the construction site for it and signed an agreement for designing the terminal.

Verkhnechonskneftegaz was established and registered in April 2002. It main activities are oil exploration and production and field development works on the territory of the Verkhnechonsk oil and gas condensate field.

The overall recoverable reserves of hydrocarbons of categories C1+C2 are estimated at 201 million tons of oil, 95.5 billion cubic meters of gas, and 3.36 million tons of gas condensate.

The total cost for the full-scale development of the Verkhnechonsk oil and gas condensate field is estimated at $6 billion and capital expenses at $4 billion.