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Sibneft and Sibur Sign Memorandum of Understanding on Foundation of Gas Joint Venture

Moscow, January 15, 2003. Sibur and Sibneft have signed a memorandum of understanding on the establishment of a natural gas processing joint venture, to be called CJSC Noyabrsk Gas Energy Company (NGEC). The new company will be based at the Muravlenkov Gas Processing Plant and Compressor Station, located in the Noyabrsk region of the Yamal-Nenets Autonomous District of Russia.

Under the agreement, Sibur will have a 51% stake in the joint venture, while Sibneft will own 49% of the company. The two partners will evenly split any profits from the venture.

NGEC will focus on more effectively utilizing associated gas, improving processing quality, and increasing sales volumes. The company will also be involved in the development of electric power generation.

The creation of joint investment, technology, and marketing policies by these two major Russian companies will boost available resources, expand product lines, enhance investment effectiveness, and increase supplies to this petrochemicals enterprise.

The memorandum calls for sales of associated gas and gas condensate at mutually-agreed prices. The infrastructure of Sibur’s affiliate, Sibur-Tyumen, will be used to transport NGEC products such as tank gas and liquefied gas.

Throughout the remainder of January, Sibur and Sibneft specialists will work to determine the amount of capital investment required and to develop a more detailed outline of the organizational structure of the joint venture.

Dmitry Mazepin, president of Sibur, noted that this partnership with a major oil producer broadens the range of possibilities for the petrochemicals company in terms of processing and utilizing dry gas. “Now, Sibur will be able to use gas to independently generate electricity. For us, this is a new business that will create additional sources of revenue, while the future diversification of our business could be an important factor in competing in the petrochemicals industry,” Mazepin stated.

Sibneft president Eugene Shvidler said the company expects to see improved efficiency in gas production, processing, and sales as a result of this agreement. “This is Sibneft’s second major natural gas project, following the development of the Zapadno-Ozernoye field in Chukotka. This latest agreement will ensure more effective use of associated gas. In the future, we plan to aggressively expand the natural gas segment of our business,” Shvidler said.