Naftogaz of Ukraine NJSC Enters into a Concession Agreement on Prospecting and Developing Alam El Shawish East Oil and Gas Block in Egypt

On December 13, a concession agreement was made in Cairo between the Arab Republic of Egypt (ARE), Naftogaz of Ukraine NJSC and the Egyptian General Oil Corporation (EGOC) for the prospecting and development of oil and gas deposits in Alam El Shawish East in the Western Desert of Egypt. The signatories were Egyptian Minister of Oil Sahmeh Fahmy, EGOC Head Abd El Aleem Taha and Naftogaz of Ukraine Chairman of the Board Volodymyr Sheludchenko. The agreement was signed in the wake of Naftogaz of Ukraine’s victory in a tender competition for the development of the said block, announced by the ARE Government in late 2004.

This agreement is a significant achievement of Naftogaz of Ukraine, as for the first time in its history, the company won in an open international tender competition for the prospecting and development of oil and gas deposits against such leaders of the world’s oil and gas industry as Arabian (Saudi Arabia), Apache (the USA), Santos (Australia) and Sipetrol (Chile).

The company is implementing a hydrocarbon production project in the ARE within the framework of Ukraine’s hydrocarbon supply diversification program. This project presents a unique opportunity for Ukraine to enter the oil and gas production segment of Northern Africa, with an outlook for similar projects to be implemented in other countries of this region.

The area of the Alam El Shawish East block exceeds 900 sq km. The concession agreement is made for 27 years, with a 3-year initial prospecting period. The project’s estimated payback is 5.5 years.

According to the concession agreement, in the three priority prospecting years, Naftogaz of Ukraine will act as a contractor prospecting oil and gas deposits at the Alam El Shawish East block. The company is going to invest at least US$20.2 million in hydrocarbon prospecting in the block area.

Oil deposits of the Alam El Shawish East block have been estimated by NaukaNaftoGaz subsidiary at 73.5 million tons minimum (C-3 category), a 90 percent equivalent of Ukraine’s continental resource base. This estimate was confirmed by the State Commission of Ukraine on Mineral Resources.

There is a developed infrastructure in the block area (oil and gas pipelines, oil and gas preprocessing installations) with transport routes leading to the Mediterranean Sea. In the immediate proximity of the block, there are operating oil fields.

Naftogaz of Ukraine NJSC is to commence works at the block within the 6 months following the date of signing the Concession Agreement. To prepare ground for the implementation phase of the project, a delegation of Naftogaz of Ukraine technical specialists will be visiting Egypt in mid-January 2007.

If an oil and/or a gas deposit is found, NaftoGaz and EGOC will create an operator company in Egypt on a 50/50 basis. Naftogaz of Ukraine’s share of the total output will be within the range of 15 to 19 percent, depending on the output volume.

The company expects to get its first commercial production at the Alam El Shawish East block in the fourth project year. The oil production peak is expected in the sixth-twelfth development year at the Alam El Shawish East block.

For the record: Chronology of the Naftogaz of Ukraine NJSC’s project of oil and gas production in the Arab Republic of Egypt.

January, 2005. The Naftogaz of Ukraine NJSC Board chaired by Yuriy Boyko decides in favor of the company’s participation in the second round of the international tender competition for the prospecting and development of oil and gas deposits at the Alam El-Shawish East block in Egypt.

June 9, 2005. Naftogaz of Ukraine NJSC is named winner in the second round of the international tender competition for the prospecting and development of oil and gas deposits at the Alam El-Shawish East block (Block 2) on the concession terms and conditions specified in the relevant agreement between the ARE, EGOC and Naftogaz of Ukraine NJSC.

May 30, 2006. The Parliament of Egypt adopts Law No 70 “On Authorizing the Minister of Oil to Sign the Concession Agreement with EGOC and Naftogaz of Ukraine NJSC for the Prospecting and Development of Alam El Shawish East.”

June 29, 2006. NaukaNaftoGaz completes the reinterpretation of geophysical data for the Alam El Shawish East block and produces the final estimation of the resource base. According to NaukaNaftoGaz, the oil potential of Alam El Shawish East exceeds 73 million tons. This estimate has been backed by a relevant expert decision by the State Commission of Ukraine for Mineral Resources.

December 13, 2006. Naftogaz of Ukraine NJSC Chairman of the Board Volodymyr Sheludchenko signs in Cairo a concession agreement on prospecting and development of oil and gas deposits of Alam El Shawish East.

N.B. Media representatives can obtain video and photo materials concerning the visit of the Naftogaz of Ukraine delegation to the ARE at the company press center referred in the details specified above.

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