UZBEKISTAN - The LUKoil Project.

LUKoil, Russia's second largest oil company, on June 16, 2004, signed with UNG a PSA for the Kandym-Khauzak-Shady complex of fields, under which the two partners will produce natural gas in the Bukhara-Khiva region of south-western Uzbekistan. LUKoil will own 90% and UNG will hold the remaining 10% of an operating company that will develop the area.

UNG Chairman Abdusal Azizov and LUKoil President Vagit Alekperov signed the deal. Alekperov said that, in return for UNG's agreement to raise LUKoil's stake from 70 to 90%, LUKoil will take on responsibility for all investment, which will amount to about $1 bn. The share of production will depend on the profitability of the project and will fluctuate "from 50% to 80%", Alekperov said. The PSA will last 35 years and commercial gas production is due to start in 2007.