Rosneft and the Korea National Oil Corporation (KNOC) signed an agreement on December 14, 2005 in Moscow, pursuant to which KNOC is to acquire from Rosneft a 40% stake in the company managing the West Kamchatka Shelf development project — West Kamchatka Holding BV.

It is planned that West Kamchatka Holding BV’s 100%-owned subsidiary, Kamchatneftegaz, will be the project operator.

In September last year, Rosneft and KNOC signed a Memorandum of Understanding on their plans for the joint development of the Sea of Okhotsk’s West Kamchatka Shelf. Pursuant to this document, the companies were to cooperate through a joint venture holding an exploration and production license for this subsurface area. In February 2005, they concluded an Interim Finance Agreement, envisaging the performance of seismic exploration works this year and exploratory drilling by 2008.

Rosneft obtained a 5-year exploration license for the Kamchatka Shelf in 2003. Under the licensing agreement, the program of works includes the performance of 2D (16,800 linear km.) and 3D (420 sq.km.) seismic research, and the drilling of three exploratory wells. Pursuant to the Memorandum, the Koreans have conducted special technical research in the licensed area. 7,600 linear km. of 2D seismic research have been conducted, and environmental and fishery measures have been taken. An action plan for the creation of conditions for the environmentally sound performance of the licensing agreement has been developed and implemented. Rosneft’s contractor for environmental support of the project, REA-Consulting, developed the initial version of the long-term program for the environmental monitoring of exploration works in 2005. Talks are currently being held with the Kamchatka Oblast’s key organizations on their involvement in this program.

The reserves of the West Kamchatka Shelf, with an area of 60,000 sq.km., are estimated at 900 million tons of fuel equivalent at 26 promising structures. According to Rosneft’s specialists, the project is comparable in terms of scale with the Sakhalin-1 and Sakhalin-2 projects. The first phase of works on the project will take some two and a half years and require investments of approximately $150 million in exploration. It is assumed that the Koreans will finance exploration works, right up to commercial discovery. Rosneft will be entitled to receive a part of the revenues owing to it immediately after the start of commercial production.

Rosneft views this deal as an important stage in the development of the Kamchatka Shelf’s hydrocarbon reserves, which will, together with the Sakhalin oil, provide for a stable energy balance in the Asia-Pacific region.

According to preliminary estimates, by 2015, Russia will be capable of exporting over 50 million tons of hydrocarbons a year to the Asia-Pacific countries from the Far East and Eastern Siberia. It is expected that Rosneft will play an ever greater role in this process.