UZBEKISTAN - Gazprom Operations.

Gazprom is the main buyer of Urbek natural gas (see omt16UzbProd-Oct16-06). At the end of April 2004 UNG signed a 15-year PSA with ZarubezhNefteGaz, a 60.01% owned Gazprom subsidiary, to develop the Shakhpakhty gas/condensate field in the North Ustyurt Basin of Uzbekistan. The Russian company pledged $15m of direct investment between 2004 and 2007.

Production at the field, found in 1960 and on stream since 1962, was stopped in February 2002 as a result of failing equipment. Under the PSA, production was to resume during the second half of 2004. Until 2002, the field had produced about 280 BCF. The field's reserves were in 1962 estimated at about 1.4 TCF. But in early 2003, the Uzbek authorities said the field's remaining and recoverable reserves were 1.7 TCF.

The Shakhpakhty block has 20 potentially rich prospects other than the Shakhpakhty field. These prospects were identified in the process of drilling 32 exploration and production wells in the area. It was estimated in early 2003 that the block contained about 10.6 TCF of natural gas and nearly 2.2 bn barrels of oil. Total Russian investments in this area will exceed $1 bn, with Gazprom and UNG having a PSA for this signed in late 2004. The area is in the north-western Karakalpakstan province.

Under a 25-year, $1.5 bn PSA signed recently, Gazprom and UNG will explore for and extract gas and liquids from the Urga, Kuanysh and Achalakskie fields on the 200,000 sq km Ustyurt plateau (between the Aral and Caspian Seas).

Gazprom has prepared a feasibility study for this PSA and will finance all the related upstream operations. Gazprom's export arm Gazexport will market the gas from the fields.

UNG and Gazprom had agreed in early 2006 that the Russian side would develop a stage-by-stage programme to explore new blocks in the Ustyurt region. If new fields are discovered, Gazprom will have an exceptional right to negotiate their development under PSA with UNG/

Gazprom now is improving the capacity of the Central Asia-Centre gas trunkline, given that its Uzbek component represents the greatest bottleneck in the complex.

Joint Gas P/L Venture With Itera: Itera and UzTransGaz, the UNG subsidiary in charge of the country's gas pipelines and gas distribution operations, are partners in a 67-km gas pipeline in the country. This was completed in early 2003. The line runs from the Gazli gas field to Kagan. It links the gas producing region of Bukhara-Khiva with the Bukhara-Ural and Central Asia/Central Russia gas trunklines. The link also allows more gas to be pumped from the fields into a storage facility at Gazli.

The line has a capacity of 30 MCM/day. It allowed Itera to continue to buy gas from Uzbekistan and sell it to nearby CIS markets. But Itera's access to Gazprom's network has since ended. The pipeline has been partly financed through a loan provided by Itera. The loan is guaranteed by the Uzbek government. UNG has contributed to the venture's financing from its internal funds.