Updated September 3, 2008

   Russia's Lukoil Overseas, Lukoil's operator of the international projects, signed the agreement with the French company Gaz de France on the 15%-stake sale in the offshore project D-222 (Yalama) in the Azerbaijan sector of

the Caspian Sea.

As it is said in the press release of the Russian company, the State Oil Company of Azerbaijan Republic (SOCAR) should approve the deal. At closing of the deal, Lukoil will own the 65%-stake in the project, SOCAR – 20% and Gaz de France – 15%.

   The total area of the contract block is 3 037 sq. km. In July, 1997, Lukoil and SOCAR signed the agreement on exploration, development and production sharing (Production Sharing Agreement; PSA) in the offshore D 222 Block (Yalama), and in November, the agreement was ratified by the National Parliament of Azerbaijan and in December, 1997 it came into effect. The term of the exploratory period ends in 2011.

The period of the development and extraction is 25 years, and can be extended by 5 years more.

   The drilling of the first exploratory well in this area was started in October, 2004 and was finished in June, 2005. The drilling activities were conducted from Geydar Aliev semi submersible offshore

drilling rig. As it is marked in the press release, the depth of the first drilled well reached 4 500 meters with the water depth of 332 meters.

"During the drilling, the signs of gas showings were fixed, the commercial hydrocarbons' reserves were not found", Russia's company specifies. The minimum exploratory program on Yalama D 222 Block lists 2D and 3D seismic surveys and the drilling of two

exploratory wells. The drilling of the second exploratory well is planned for November, 2008.

    Russia-France agreement became the first project of Lukoil and Gaz de France. Earlier, the French company declared about the intention to take part in the development of Azerbaijan's gas fields, in the development of the deep-lying production formations of Azeri-Chirag-Guinishli gas

fields in particular.

Yalama D 222 Block is the first project of Gaz de France in Azerbaijan.

Expert comments

Maxim Rozov, the head of 2K Audit – Business consulting Group's department for mergers and acquisitions

Inviting the French company to take part in the project, Russia's Lukoil tries to share the investment risks. The first exploratory well didn't found the hydrocarbons' reserves. Thus, the investment risks of the project grew. In addition to the risks' reduction, Lukoil gets Gaz de France as the experienced partner that will give a hand, if

the results of the exploration are positive.

It is better to mark that Lukoil keeps the control over the project and the stake reduction will affect insignificantly the Russian company, if hydrocarbons are found on D 222 Block