Rosneft’s representative office in China is set to coordinate all of the company’s operations in Asian countries, said Rosneft President Sergei Bogdanchikov at the opening of the company’s Asian representative office in Beijing on November 10.

The opening ceremony was attended by CNPC Deputy General Director Jou Tszipin, Deputy Minister for Industry and Energy Andrei Reus, Head of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin, President of the RF National Olympic Committee Leonid Tyagachev and other officials.

Mr. Bogdanchikov said that the volume of trade and participation in joint projects between Rosneft and companies from China and other Asian countries currently exceeds $10 billion. "We believe that the volume of trade between Rosneft and companies from this region will double over the next five years," Mr. Bogdanchikov said, stressing that collaboration with Chinese companies will occupy a substantial part of these plans.

He mentioned in particular the contract with the China National Petroleum Corporation (CNPC) and the Chinese Development Bank for a sum exceeding $6 billion. This contract contemplates deliveries to China of 50 million tons of oil.

Mr. Bogdanchikov also said that Rosneft may increase its annual deliveries of oil and oil products to China to 20 million tons. He said that between 12.5 and 13 million tons of oil and oil products are scheduled to be delivered in 2006.

"This figure won’t go down in 2007, that’s for sure,» he added, explaining that the increase in the volume of deliveries "will depend on the resolution of three possible additional factors".

Mr. Bogdanchikov named the start of oil deliveries via the Kazakh-China Atasu-Alashankou oil pipeline as the first factor. "We have agreed with the purchaser that we can deliver 1.5 million tons and are awaiting permission from the Ministry of Industry and Energy," Rosneft’s President said.

He named the Sakhalin-1 project’s attainment of its maximum output as the second factor. "We will have over 2 million tons of free oil which we will export to South-East Asian countries," Mr. Bogdanchikov said. "This stock belongs to Rosneft and will be offered to the market."

"Chinese companies will take part in the tender and if they offer a good price then they can obtain another 2 million tons," he explained.

Rosneft’s President considers the third factor to be deliveries by railroad via Mongolia. "We are prepared to return to deliveries of 3 million tons a year, but we haven’t yet agreed a price with the purchaser. Work is continuing," he added.

At the same time, Mr. Bogdanchikov emphasized that Rosneft’s partners "must realize that Russia doesn’t have a deficit but a surplus of pipeline capacity, and we can deliver oil to Europe. This is a market — it depends on who pays more. But we could add 6—7 million tons," he is certain. According to Mr. Bogdanchikov, Rosneft will increase oil production by 12 million tons in 2007.  "In other words, we have the oil," he said.

He noted that the development of cooperation with CNPC also involves the creation of two joint enterprises — one for exploration and production, and the other for refining and sales. Mr. Bogdanchikov said that the producing enterprise — OOO Vostok Energy, in which Rosneft holds a 51% stake — should reach an oil production level of at least 10 million tons a year over the next 3 to 5 years.

Rosneft’s President further noted that Vostok Energy should operate "as closely as possible to the East Siberia — Pacific Ocean oil pipeline that is being built, in other words primarily in East Siberia and the Far East. The fact that "fresh" oil reserves remain effectively only in these regions also backs this up," he added.

As sources of licenses, Mr. Bogdanchikov named participation in tenders for the right to develop prospects in East Siberia and the acquisition of licenses "which have owners but aren’t being developed by their owners".  "We will contact their owners and request that they sell their fields," he said, explaining that dozens of mostly small companies own production licenses in this area.

Rosneft is also planning to review its existing licenses, as a result of which an offer may be made to the joint enterprise, Mr. Bogdanchikov added.

Simultaneously, as agreed, the registration of the joint enterprise Chinese-Russian Eastern Petrochemical Company, which will engage in refining and sales of oil products in China, is almost complete. This company may acquire its first few dozen filling stations by the end of 2007, Rosneft’s President said.

The capacity of the refinery which may be built as part of the joint enterprise is set to total at least 10 million tons of oil a year, and the enterprise will own no less than 300 filling stations.

Mr. Bogdanchikov also added that consultants have already been hired to provide recommendations as to which regions of China would provide the filling stations with the highest profits.

"Prior to 2015, the consumption of oil products in China will virtually double, and this fills us with optimism that the joint enterprise will be successful," he added.

On the subject of deliveries of gasoline and diesel fuel to new filling stations, Mr. Bogdanchikov said "we will work out which way is the most economical" — buying the fuel locally or importing it from the Komsomolsk-on-Amur refinery and other RF enterprises.

Rosneft’s President also described cooperation with China’s other key petroleum company, Sinopec, as highly successful, noting the implementation of a joint project "with a total value of over $3.5 billion", as well as "further cooperation with this company pursuant to the general agreement signed on November 9 during RF Prime Minister Mikhail Fradkov’s visit".

Mr. Bogdanchikov believes that cooperation with Indian and Chinese companies may also have potential in the expansion of Rosneft’s operations in the Asian region.

"Over the next few months, we are planning to open branches of our Beijing representative office in Tokyo, Delhi and other key cities," he said.

On the subject of prospects for Rosneft’s further development, the President didn’t rule out the possibility of the company acquiring YUKOS’ assets in the future.

"If the decision is taken to sell YUKOS’ assets, and if these assets meet our criteria, then we will take part in the tender," he said at the press conference.

He said that Rosneft is constantly acquiring assets: this year around $1 billion was spent on acquiring licenses. At the same time, Mr. Bogdanchikov noted that the company’s approach to the acquisition of any asset is "strictly regulated". Their rate of return must be no lower than 20%.

"We will take part in tenders for the acquisition of those assets which meet our company’s standards," he said.

In response to journalists’ questions, Rosneft’s President said that he wasn’t aware of plans for a possible reduction of the Russian government’s stake in the company.

"I don’t know anything about any plans of our main shareholder — the state — to reduce its stake," he said. "I can venture the guess that there are no such plans, at least no formalized plans".