Timan-Pechora Gas Company

Timan-Pechora Gas Company owns hydrocarbons exploration and extraction licenses for five gas fields in Komi Republic. The prospected and proven reserves and resources of natural gas are estimated to amount to 45 —50 bn m3. Pursuant to the terms of the license agreements, Synttech is planning to commission full-scale production from 2010. Our estimation is that by 2012 the annual output figure will reach 500 mln m³.

In future, the Company intends to conduct follow-up explorations for further expansion of the scope of reserves. We believe that the subsequent commissioning of the production activities on the fields will help expand the annual output to 2 bn.m³. The extracted gas will be delivered to our own refining facility and to industrial consumers in Komi.

Today´s consumption of natural gas in Russia grows faster than the extraction rates, and such gap is due to:

• higher demand on the part of industrial consumers;
• installation of gas equipment in residential buildings resulting in higher demand on the part of households;
• export commitments;
• depletion of existing reserves and, as a consequence, lower output of natural gas.

Therefore, the development of a free natural gas market in Russia supported by the government, liberalization of the natural gas price, mitigation of Gazprom monopoly, commissioning of new gas fields, including small ones, by independent producers of natural gas are all necessary for successful development of the natural gas industry in the near future. These development perspectives of the Russian natural gas market underpin Synttech´s aspiration for the success of this project.

Komi Republic is the oldest gas-extraction area in European Russia. The start of the intensive evolution of the local natural gas industry takes root in 1964. Currently, of all 32 oil regions of Russia the Republic of Komi rates 8^th by the output of extracted oil and gas condensate and 5^th in terms of the output of natural gas (out of the total of 28 natural gas-bearing regions in the Russian Federation). Between 1970 and 2000 the local explored natural gas reserves reduced more three times. The key gas fields are now gradually depleting and the exhaust rate of the explored natural gas reserves in Komi is the highest in Russia, i.e. over 76%. The local industrial operations are under a continuously increasing strain of insufficient natural gas supplies.

This situation boosts the appeal of relatively small natural gas fields, and Komi has a number of significant advantages to backup their development rationale, namely:

• availability of an advanced infrastructure at the location of the Company´s fields;
• Gazprom´s plan to construct a new Yamal-Zapad mainland pipeline in 2010 —2012 which will cut directly through our licensed areas;
• local presence of large consumers under significant natural gas supply constraints, i.e. OAO Komienergo, OAO Neusiedler Syktyvkar and ZAO Komi Aluminium;
• regional authorities are interested in and supportive of developing and enhancing the competitiveness of the natural gas industry in the region.

This creates a favorable background for successful implementation of the natural gas extraction project in Komi Republic.

Pursuant to the license agreements, the Company is working on follow-up exploration of the natural gas fields to validate the scope of reserves (seismic prospecting and exploration drilling are handled by Severgeofizika and Intaneft, respectively). The prospecting and exploration on the territory of 2134sq.m will take substantial readjustments of earlier seismic prospecting data, the scope of new seismic prospecting is estimated to amount to several thousands line meters and there is a plan to conduct exploration drilling of a several new wells.

Simultaneously, OOO SeverNIPIgaz is working on a project to develop the gas fields and commission the pilot production to achieve the annual output rates of 500 mln.m³ by 2012. The natural gas reserves and resources in the licensed areas owned by the Company as at the current date are estimated by the following indicators, (figures quoted in mln.m³):