The price had been US$130 per 1,000 cubic meters.

The gas Lukoil extracts under the Kandym-Khauzak-Shady project is delivered by the Central Asia-Center pipeline or the Bukhara-Ural pipeline to the Uzbek-Kazakh border where it is sold at the price fixed in the agreement between Russia and Uzbekistan. That price was US$100 per 1,000 cubic meters in 2007, rising to US$130 per 1,000 cubic meters effective January 1.

Lukoil began producing gas in Uzbekistan under the Kandym-Khauzak-Shady project in the fall of 2007. It plans to produce up to 2.5 billion cubic meters (bcm) there in 2008. Lukoil has set up a special marketing company LUKOIL Overseas Supply & Trading Ltd. to sell the crude oil and gas. At the end of last year Lukoil announced that the price for gas sold by LUKOIL Overseas Supply & Trading Ltd to Gazprom Export would not be lower than the price at which Gazprom purchases gas from Uzbekneftegaz.

Following the construction and launch of the Kandym gas processing plant and achievement of peak production by 2012-2013, natural gas exports will rise to 12 bcm a year. By that time Lukoil will be producing 15 bcm of gas a year in Uzbekistan overall.

Under the terms of its production-sharing agreement, Lukoil pays reduced royalties for production. Lukoil has also been granted a seven-year holiday from profit tax. At the end of that period, it will pay profit tax at a reduced rate. The states stake in profit production varies with the projects internal rate of return for Lukoil.