Gazprom Neft through its subsidiary Gazprom Neft Middle East B.V. has entered new hydrocarbon exploration and production projects in Iraq. The company signed two production sharing contracts (PSC) with the Kurdistan Regional Government of Iraq. The production sharing contracts cover Garmian and Shakal blocks located in the south of Iraq’s Kurdistan Region.

Geological prospecting is now underway at the indicated blocks, upon the completion of which full field production should start no later than 2015.

Gazprom Neft shall get a 40% share in the Garmian block. Canadian WesternZagros, which is the other production sharing contract participant with a 40% share, will remain the project operator until the commencement of the development period under the PSC. Gazprom Neft shall also get an 80% share in the Shakal block where the company will be the operator. The Kurdistan Regional Government carried interest in both contracts is 20%.

As appraised by Gazprom Neft, the resource potential of both blocks exceeds 500 million tons of oil equivalent (around 3,6 billion boe).

Gazprom Neft’s cumulative project entrance payment, including reimbursement of past costs shall amount to around $260 million. Gazprom Neft’s share in geological prospecting costs on both projects is estimated at no less than $150 million up until 2015. The production sharing framework provides for compensation of investor’s past costs after start of production at the fields.

"Based on our positive experience in cooperation with the Republic of Iraq, where we are already participating in the development of Badra field, the company had decided to expand its presence in this country. After conducting a detailed analysis of economic parameters of the projects we have identified them as highly effective. Taking into account the synergy that we can get from working on two adjacent blocks, Gazprom Neft considers the territory of the Kurdistan Region of Iraq promising for further geological study and consequent production at the fields. Carrying out these projects will allow Gazprom Neft to increase its input in Iraq’s plans to boost oil production, to gain additional experience in this country and to expand its presence abroad"— said Vadim Yakovlev, First Deputy CEO of Gazprom Neft.