A Commission of the Russian Legislature Approves Development of Priobskoye Oil Field Through Production-Sharing Agreements.

MOSCOW--(BUSINESS WIRE)--April 16, 1999--

The Interparty Commission of the Russian Federation's lower house of parliament, the State Duma, has voted to include the Priobskoye oil field on its list of oil fields that can be developed through Production Sharing Agreements (PSA).

Russian legislators made the decision after Mikhail Khodorkovsky, Chairman of YUKOS Oil Company, made a report to members of the Duma's Interparty Commission, who are responsible for reviewing production-sharing issues.

Mikhail Khodorkovsky said that excavation of vast Priobskoye field's reserves will be difficult since they are located primarily in the Ob River flood plain. Costly, environmentally sound technologies must be used to ensure that no damage is done to the ecosystem. Mr. Khodorkovsky believes that Russia's current taxation system makes the development of such promising, but technically challenging oil fields unprofitable. YUKOS will be able to maintain a high level of production from the field if it can be developed through a production-sharing agreement.

"YUKOS regards the development of the Priobskoye oil field as its most important strategic project," says Mr. Khodorkovsky.

Mr. Khodorkovsky feels strongly that implementations of the Priobskoye project could make up for the natural drop in oil production at the Yuganskneftegas oil fields and considerably mitigate unemployment problems caused by cutbacks in production at those fields. Yuganskneftegas is a YUKOS subsidiary. The company intends to increase the number of employees at the Priobskoye field from 800 this year to 9,500 by the beginning of the next century.

Currently, YUKOS is independently developing the Priobskoye field, which makes technological support from an outside investor less significant to the company than previously.

"In recent years, Yuganskneftegas, which is leading the development of the field has made serious advancements in oil field exploration and acquired the know-how and relevant equipment for opening the beds and completing the wells," said Mr. Khodorkovsky.

Thus even though it continues to look for a foreign partner, YUKOS has the capacity to develop the field on its own. In addition, because Yuganskneftegas has at its disposal the latest industry technology, YUKOS can look for partners in the Priobskoye project not only among other companies, but among banks as well.

According to the next five-year plan for the development of the Priobskoye field, capital investments will amount to $1,598.8 million of which $645.6 million is to be borrowed. At present, YUKOS is engaged in negotiations to obtain a World Bank credit for the development of the field. It hopes to successfully conclude these negotiations by the end of 2000. In the event YUKOS is unsuccessful, it has alternative plans to attract resources from other lenders. During the past two years the company has repeatedly proved that it can effectively attract Western credits to implement its priority projects.

The Priobskoye oil field, which was discovered in 1982, is now one of the largest undeveloped oil fields in Western Siberia covering an area of 5,446 square kilometers. The license to develop the field's northern part belongs to Yuganskneftegas. The territory under license is located at the junction of the Ob and Irtysh rivers 65 kilometers to the east of Khanty-Mansiiysk. The oil reserves are estimated at 680 million tons. The project will take approximately 56 years to complete and will produce about 578 million tons of oil. Currently, the field is experiencing growth in production. Since the beginning of its development, the Priobskoye field has produced over 5 million tons of oil.