Upstream Capital Investment Plan for 2012

Kiev – Ukrnafta PJSC (UX: UNAF, hereinafter “Ukrnafta” or “the Company”) has finalised the oil and gas upstream capital investment plan for 2012.

The plan aims to stabilise Ukrnafta's production in 2012 and lay the foundation for production growth in subsequent years through the application of modern oil field development technologies and operational practices implemented within a disciplined approach to capital allocation.

The 2012 investment plan emphasizes a more extensive use of modern technologies, such as horizontal drilling, hydraulic fracturing, 3D seismic data acquisition as well as measures aimed at optimisation of field management at the Company's existing asset base. The key building blocks of Ukrnafta's upstream capex plan for 2012 include:

Drilling. In the next twelve months, Ukrnafta will start drilling a minimum of sixteen new oil wells, including nine horizontals – a total investment of at least UAH 425.5 million. The plan will also support the company's gas production via a number of new gas-condensate well projects and additional volumes of associated gas to be produced from new oil wells. Timely implementation of the drilling programme will depend on passing the existing land allotment procedures, which process has already started.

Hydraulic fracturing. In 2012, Ukrnafta intends to frac more than 80 oil wells compared to 46 in 2011. The majority of the frac program will be carried out utilising the company's own fraccing fleet, with the remainder being larger fracs to be performed by international contractors. The program will also include fraccing some gas and gas condensate wells. The Company intends to invest in improving the operational ability of its current fraccing fleet to meet the increased work program.

Field management optimisation. The Company recognises that there is considerable potential to improve production by optimising the existing management of its fields. The 2012 plan includes all measures necessary to improve the quality of the workover process and time taken to work wells over, optimise the use of artificial lift systems and water-flooding.

Seismic data acquisition. The Company plans to significantly increase its investment in 3D seismic data acquisition with nine projects planned for 2012. Such surveys are crucial to better understand the geology of Ukrnafta's fields. The Company will be acquiring modern reservoir modelling software to ensure that it can fully utilise the 3D seismic data. Investments in Geology and Geophysics area will also include acquisition of modern hydrocarbon reservoirs modelling software.

Equipment / other projects. The company intends to modernise a minimum of two existing Uralmash 3D heavy drilling rigs and acquire access to a modern mobile drilling rig that would be more suitable for the company’s shallower fields. The 2012 Upstream capital investment plan also provides for 52 construction projects necessary to support Ukrnafta's operations.

The Company is currently considering options of collaboration with technological and financial partners where necessary to implement some of the above projects in the most efficient way.

David Sturt, Head of Upstream at Ukrnafta, noted: "The quality of oil-producing assets is determined not only by their geological characteristics, but also by the level of technology used to operate them. To unlock the upside existing at Ukrnafta, we will apply production methods that are the most appropriate for the current life cycle stage of our assets. Over the last ten years, many other companies in the former Soviet Union region went through similar changes, and we just need to properly apply this experience."