Shell and Naftogaz Ukrainy Sign Cooperation Agreement

National Joint Stock Company Naftogaz Ukrainy and Shell Exploration and Production have signed a Cooperation Agreement covering licenses, agreed work programme levels and the main terms of joint activities at a ceremony attended by President of Ukraine Victor Yushchenko, British Prime Minister, the Right Honourable Tony Blair, Chairman of the Board of NAK Naftogaz Ukrainy Olexiy Ivchenko and Shell's Executive Director for Exploration and Production, Malcolm Brinded.

This is the first important milestone after the two companies agreed in May 2005 to carry out joint studies in an area of over 31,000 km2 in the Dniepr-Donets Basin, which is in central-eastern Ukraine and is thought to contain potentially significant remaining resources of natural gas.

Under the terms of the Cooperation Agreement, Shell will farm into 10 NAK Naftogaz Ukrainy held licences in the Dniepr-Donets Basin with access to deep potential reservoirs, which partly lie beneath large-scale shallower fields already in production. Shell will acquire a 50% interest in a Joint Activity Agreement covering these licences (excluding the producing fields) in exchange for a commitment that comprises acquisition of seismic data and drilling of deep exploration wells over a three year timeframe. It involves a total initial investment by Shell of around US$ 100 mln over this period. Work is scheduled to start in 2006.

Malcolm Brinded, Shell's Executive Director for Exploration and Production said: "We are very pleased to have reached this agreement with NAK Naftogaz Ukrainy on what we believe will be an exciting and mutually beneficial partnership. For Shell this is a significant move in our strategy to add more integrated gas to our portfolio, and we believe that through a combination of our technology and NAK Naftogaz Ukrainy's experience in this basin we will be able to help unlock more of Ukraine's gas resources for the benefit of the country. I look forward to a long and successful partnership."

Olexiy Ivchenko, Chairman of NAK Naftogaz Ukrainy said: "The epoch of international integration dictates the necessity for NAK Naftogaz Ukrainy to cooperate with the largest energy companies with a diversified resource base. We are looking for and finding mutual interests in our partnership with Shell. Through our relationship we will expand both markets and opportunities for both companies."

Shell's existing business in Ukraine consists of downstream marketing (sales of lubricants), based in Kiev. Shell has had a presence in Ukraine since 1992.

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Posted 02/12/05

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