Financing is effected as per Memorandum for social and commercial partnership, signed between the company and Murmansk area government in year 2004. In line with this Memorandum, Murmansk area government issued a resolution to prepare project documentation, as of December, year 2004. Total spending on the above scope of work is estimated to amount to some 10 million Rubles, where Murmanskpromproekt JSC is engaged as the main designer within the project. Arktikshelfneftegaz shall solely finance all the expenses, related to the Murmansk sports centre design preparation.

Government of Murmansk area, Arktikshelfneftegaz JSC and Kuzbassrazrezugol coal resources company signed a Declaration of Intent for Cooperation regarding the construction and operation of a railroad for the purposes of a transshipment point (various cargos, including coal, oil and oil derivatives) within the Murmansk harbour transportation system.
The main target for the intended cooperation is to provide appropriate investment to the construction. It is also anticipated to establish a new company on the territory of Murmansk area that will manage the scope of construction work.

According to this Memorandum Schlumberger, being the leading international provider of integrated services and technologies to the oil and gas production industry will provide technical and organizational support services to the ASNG offshore licenses developments in the Barents Sea. In particular, the services will be provided in such areas as reserve estimate, modeling, field development plans, completion and workover of exploration and production wells, technical consulting for production management and reservoir development, etc.
In the Memorandum both companies also defined the principles of potential long-term cooperation.

In accordance with its programme for the period of 2004-2005, Arktikshelfneftegaz JSC signed a contract for elaboration of geological model for Medyn acreage with Norwegian ROXAR, a service company, which is the leader in 3D geological modeling.
At present, the company is negotiating the elaboration of a hydrodynamic model, reserves evaluation and preparation of technological scheme for the development plan. In order to improve knowledge regarding geological structure, it is envisaged to continue 3D seismic acquisition and spud the next appraisal well within year 2005. The project to develop company’s license blocks is at the stage of completion of the conceptual development plan.

26^th-28^th May, 2004 – delegation of Arktikshelfneftegaz headed by B. Kutychkin (General Director) has visited the leading industrial state companies of Severodvinsk – Zvezdochka machine-building company and North Machine-building Company, being part of Russian State Center of Nuclear-powered Shipbuilding (RSCNS). Major purpose of the visit was to negotiate options for cooperation within the development of Arktikshelfneftegaz license blocks on the Barents Sea shelf. The parties discussed the construction of a drilling unit for Arktikshelfneftegaz company and possibilities to engage industrial companies of Severodvinsk into creating a transport-technological system for the purposes of field development, including building of naval vessels and required floating facilities.
The visit took place in accordance with General Memorandum of Cooperation between Arktikmorneftegazrazvedka (Murmansk), being the founder of Arktikshelfneftegaz and RSCNS as of year 2000.
During staying in Severodvinsk on May, 28^th the delegation took part in the ceremony dedicated to completion of construction of the 3^rd superblock of Prirazlomnaya offshore ice-resistant stationary drilling platform at Sevmash workshop. The ceremony was also visited by representations of Sevmorneftegaz (platform building customer) and its founders, Roneft and Gazprom, as well as managerial staff of the RF Ministry of Industry and Energy and representatives of administration of Arkhangelsk District and North Navy.

For the purposes of realization of the complex project for development of Medyn-Varandei, Pomorskiy and Kolokolmorskiy license blocks Arktikshelfneftegaz proceeds to elaborate projects for construction of surface facilities, oilfield development and commercial operation, including creation of oil transportation system, enabling shipment of production from the field, as well as provision of services during oilfield development.
Conceptual models for these projects are being prepared by A. Krylov central research institute (Saint-Petersburg). Technological solutions for reservoir development and arrangement of drilling operations are undertaken by Morneft research and design institute (Moscow).
Baltic Shipyard and Northern Shipyard shipbuilding enterprises (Saint-Petersburg), Sovcomflot and DMA-Trans transport companies (Moscow) and Transcomshipping (Murmansk) are engaged to elaborate a conceptual model of transportation-technological system.
State inspectorates — Register of Maritime Shipping of the Russian Federation, and expert authorities of State Mining Inspectorate of the Russian Federation were informed of commencement of the first stage of work.

Both parties thereunder will mutually coordinate their activity, focused on the problems of industrial development of Murmansk District, including transport infrastructure for transportation and transshipment of oil and petroleum derivatives. In accordance therewith, Arktikshelfneftegaz shall commit all measures to procure further development of production, maintain environmental safety and decrease industrial -anthropogenic impact, etc.
Within social commitments under the memorandum, Arktikshelfneftegaz will participate in construction of a sports complex in Murmansk and take part in «Save a Child» charity action, arranged under the patronage of Mr. Y. Evdokimov, the Governor of Murmansk District.
In order to elaborate a conceptual design for surface facilities construction and oil transportation from the fields of own license blocks, various contracts are concluded in April between Arktikshelfneftegaz and Russian leading science and research institutes.

Arktikshelfneftegaz working program for the year of 2003 envisaged further preparation of license blocks for the development, as well as improvement of infrastructure for the matters of oil production. For the same purposes, a substantial scope of exploration and technical-organizational work has been planned.
Within the last year, Arktikshelfneftegaz has completed the construction of 4270 m deep exploration well #3 on «Medyn 1» structure and has performed a 300 sq. m seismic 3D survey on Medyn block. Moreover, total of 5000 rm of seismic data from Pomorsky and Kolokolmorsky lisence blocks were re-processed. The company has also performed geological-engineering survey and has already prepared three offshore sites for jack-up installation.
As the planned scope of exploratory activity is rather substantial, Arktikshelfneftegaz continues to scrutinize the market of drilling platforms and evaluate their capabilities to successfully perform within the license blocks.
In order to control the status of environmental background, the company has performed ecological monitoring of the prospect areas along with geologic-geophysical and analytical survey of drilling cuttings, evaluation of producing capacity of the discovered fields and elaboration of technical solutions for their development.

On the 3^rd of September, Russian «Akademik Nemchinov» and «Akademik Shatskiy» vessels departed from Norwegian port of Kirkenes to prospect location on Medyn oilfield to perform seismic survey operations.
By early September, 2,500 m of Pechora offshore «Medyn 3» well have been drilled.

General meeting of jack-up «Murmanskaya» crew held at technical base of Arktikmorneftegazrazvedka in Lavna. The jack-up is planned to depart to offshore Medyn oilfield in one week. This year the party are assigned to perform a hard task, which is to create a precedent of an extremely short-time realization of a license.