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Rosneft Oil Company

June 26, 2006

Rosneft intends to exercise its option to acquire 51% of shares in Udmurtneft

Rosneft has announced its intention to exercise its option to acquire 51% of shares in OJSC Udmurtneft from Sinopec (China Petroleum & Chemical Corp), having reached an agreement with TNK-BP (owner of 96.9% of Udmurtneft) on the acquisition of the Udmurt enterprise's assets.

The option exercise by Rosneft for the acquisition of the controlling stake in Udmurtneft will be completed once Sinopec and TNK-BP have completed their agreement. The option exercise will be completed on the basis of an option agreement reached between Rosneft and Sinopec in May of this year.

At the current time, Sinopec and TNK-BP have exchanged written confirmation of the commercial terms of the transaction and are holding negotiations on the parameters of the final agreements on this issue with the intention of signing a detailed Purchase and Sale Agreement. These negotiations were preceded by a highly competitive tender involving a number of leading domestic and international oil and gas companies, which began in late 2005.

Sinopec will be responsible for financing the acquisition, and funds will be repaid based on the asset's cash flows, without recourse to Rosneft assets. The cost of the financing is similar to that of other recent borrowings by Rosneft.

Management at Rosneft and Sinopec believe that this is a significant step toward closer collaboration between the two companies and toward the development of strategic relations with China's leading industrial corporations. This will enable Sinopec to realize its strategy of entering international markets, including oil and gas production in Russia.

Rosneft expects that its contribution in terms of administrative and operational expertise will enable maximum increases in this project's value in the interests of both companies.

Udmurtneft was established in 1973 on the basis of an oil and gas producing department of the same name, and has been operating as an open joint stock company (OJSC) since 1994. At present, Udmurtneft is the main oil producing enterprise in the Udmurt Republic, producing over 60% of the oil in the Volga Ural region. In 2005, the company produced 5.98 million tons of oil (43.6 million barrels), with daily production standing at 16,400 tons (115,000 barrels). As of December 31, 2005, Udmurtneft's proved reserves stand at 78.4 million tons (551 million barrels), proven and probable reserves - at more than 131 million tons (922 million barrels) of oil equivalent, as estimated by DeGolyer & MacNaughton.

Since it was established, the company has produced more than 200 million tons of oil. Among Udmurtneft's achievements are undoubtedly the active use of new methods for enhanced oil recovery, horizontal drilling and the testing and introduction of contemporary oil industry equipment. The enterprise closely collaborates with many of the world's leading oil industry equipment producers.

China Petroleum & Chemical Corporation (part of the Sinopec Group) was established in 2000 and is the largest producer of oil products and petrochemicals in China. In 2005, the company produced 39.3 million tons of oil and 6.3 billion cubic meters of gas. Sinopec's proved recoverable oil reserves at the end of 2005 stood at 3.3 billion barrels of oil and 2.9 trillion cubic feet of gas. In March 2006, during a visit by Rosneft President Sergey Bogdanchikov to China, a Memorandum of Mutual Understanding was signed between Rosneft and Sinopec.

 

 

 

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