The threat of ceasing in 2004 development drilling at 20 sites and exploration drilling at 17 sites comprising altogether 175 prospect and development wells has begun to loom very large in Company's mind.

Lubov Malyshkina, Nature Conservancy Department Head has made comments on the issue:

Water protection areas and swampland comprise 75% of the territory where the Company explores and produces oil and gas. It has taken us several years to improve well construction technologies applied at clusters located at water protection areas, mitigating the adverse environmental impact. We apply nonhazardous drilling mud, effective purification systems, and a multiple well platform design of higher reliability. Above that, we have come up with best ways of utilizing pressed and purified boring mud, e.g. as inert footing underneath of a multiple well platform. It has taken two years to assert the necessity of and to develop the technology, then four more years to carry out pilot tests. We held consultations with Russian leading scientific centers and got all required approvals. Although this technology dramatically reduces the environmental impact of the wells under construction, it also increases construction costs by 1.5. The ecological effect considered, we decided to start applying only these new environmentally safe technologies.

The local authorities of Gossanepidnadzor (State Committee for Sanitary and Epidemiological Supervision), Goskomekologiya (State Ecological Committee) and the Hydrologic Department of the Ministry of the Natural Resources of the Russian Federation had approved all of the activities we had been carrying out and the results we had obtained. The results of monitoring at the well clusters where clean drilling sludge had been reused in the platforms as inert footing evidence that this sludge does not impact on the qualitative and quantitative characteristics of the underground water. In fact, it is not any more harmful than natural sands and peat.

As a result, the Company experienced a two-fold cut in the volumes of drill waste.

Ecologically and economically speaking, the method did live up to our expectations, but, however, it did not live up to the expectations of the bureaucrats from the Khanty-Mansiysk Regional Environmental Division since they need money to their ecological fund. Before we applied this method the Company had annually paid RUR 52.3 mn for drilling sludge disposal. By now we have reduced this figure to RUR 14.8 mn. So they go to great pains to make us change back to the old technologies: the more we pollute, the more money they get. They issued an order to stop the work but it was later cancelled by court as being void.

Nevertheless, the bureaucrats do not give up. They refuse to approve the work schedule for the clusters located at water protection areas. Before long, this may result in stopping multiple well platforms construction, exploration and drilling operations, which will further affect oil production.

OJSC "Surgutneftegas" will do its best to defend its interests at all levels, to the point of legal recourse to claim material damages the Company may suffer due to illegal action of the Khanty-Mansiysk Regional Environmental Division.

Press Service of OJSC "Surgutneftegas"