Integrated Management and Drill Bit Supply to Companies of the Oil and Gas Industry Presentation September 200 3

1. SmithEurasia Integrated Management and Drill Bit Supply to Companies of the Oil and Gas Industry Presentation September 2003 website: www.smitheurasia.com

2. SmithEurasia – Main Areas of Activities • Supply of equipment and technology • Procurement services • Engineering services • Wellsite services • Integrated project management

3. SmithEurasia– Supply of Equipment • Drill bits (roller cone, diamond andPDC) • Drilling equipment • Directional drilling tools • Fishing tools • Workover equipment • Completion equipment • Production equipment • Mining equipment

4. SmithEurasia– Engineering Services • Well drilling engineering design • Well completion and productionengineering design • Technical data review • Technical and engineering recommendations • Field testing of equipment and technology • Development of feasibility studies • Analysis of economic return from introduction

5. SmithEurasia– Wellsite Services Oversight and provision of the following types of services: • Construction • Drilling • Fishing operations • Workovers • Sidetracking • Multilaterals • Milling • Completions • Perforating

6. SmithEurasia NC SDK AGREEMENT ENGINEER ENGINEER DATA информация DATA

7. Drill Bit Optimization Process Use of D B O S software • Computer simulation of physical and mechanical rock parameters • Optimization of use of roller cone and diamond bits • Statistical analysis of source databases • Drilling programs and review of previous performance • Production of work charts

8. Purpose of Drilling New recommendations yes Special Features of the Well Utilization of Experience no DBOS Review of Input Data Decision Selection Conditions of Use Sectional Analysis of Recommendations Discussion Bit Order BHA ГОБ Csg New Products Discussion of New Proposals no New Technology Muds yes Drill Bit Optimization Process Bit Selection Utilization of Experience DH motors

9. ASE Services Use Examples South Oman:Deepwater Exploration $250 Hourly Rate = $1050 GTXCP03 used in all wells Tripping = 6 hrs Control directional drilling during load variation ASE in $200 Oman Oil Increased load With new BHA $150 Reduced RPM and increased circulation volume $/meter $100 Used asymmetric nozzle $50 $0 Dasimi 1 Har Deep Sarmad 1 Ghafeer 1H1 Sarmad 2H1 Ambrah 1h1 Ajeeb 1H1 Sakhiya 1H1 1H1

10. ASE Services Use Examples

11. Conclusion 1: Optimization of the bit program can significantly reduce drilling time and well costs. A specialized bit company should manage the bit program. Smith Eurasia, an exclusive partner ofSmith International, has the expertise and technology required to provide such services in the former Soviet Union.

12. Specific Features of Drilling Operations in the FSU а) impossibility to fully optimizedrilling parameters due to lack of required drilling equipment; b) low availability of high-end modern equipment and tools in drilling companies; c) low quality of drilling muds and their treatment; d) use of high-RPM turbine drilling;

13. Conclusion 2: а) optimal and efficient combination of available equipment and technology with the most advanced Western equipment and technology. b) optimization of financial and logistical arrangements for equipment. c) introduction of new types of services and organization of operations.

14. Services Provided • Establishment and management of drill bit warehouses • Work with bit manufacturers, contracts, placement of orders, financial settlement • Drill bit supply with payment after actual use (consignment basis) • Engineering support • Introduction of advanced technology • Control use and running of drill bits, train drilling contractor’s staff • Logistics and freight forwarding services

15. Effect fromImplementation of the Project • Implementation of the Integrated Drill Bit Management and Supply Project will: • Reduce well drilling time • Reduce well costs • Reduce well construction costs and provide additional oil and gas production • Increase the service life of drilling equipment and services • Improve safety and health status

16. Additional Effect fromImplementation of the Project • Reduction of drilling crews and a corresponding reduction of administrative and operating costs • Improvement of overall drilling technology, reduction of construction time and, as result, quality improvements and start-up of new wells ahead of schedules with receipt of additional production • Reduction of drilling mud costs due to reduction of the time to drill a well • Reduction of the wear of drilling equipment and its repair costs due to less pipe tripping • Reduction of wear and tear of drilling tools due to less drilling time and amount of pipe tripping

17. Additional Effect fromImplementation of the Project • Savings of considerable amounts of money through reduction of “frozen” warehoused inventory • Improved drilling efficiency through constant engineering control, implementation of new technology and creation of a broad database • Reduction of downhole problems during well drilling through a reduction of drilling time and amount of pipe tripping • Reduction of bit transportation costs an as result a smaller overall amount • Reduction of injuries due to less pipe tripping

18. Bit Optimization Process • Discussed with the Client • The goals and objectives of the Project • A meeting with the local technical group to establish working contacts. • Input Data • Technical and geophysical data packages on basic operations. (E Logs, Mud logs, Bit run • data, Daily Drilling reports, End of well reports) • Selection and Review of Input Data • Processing of input data by D B O S software . • Review of basic bit and drilling programs. • Statistical analysisof base datato determine their average level and development trends • A review of the use of products and bits of different manufacturers. • Proposals • Review and select bits offered by various suppliers. • Select optimal types of bits for specific well sections. • Complete bit program for the well and its discussion with the local technical service. • Introduction of revisions and changes tothe proposals of the local technical people. • Approval of the bit program. • Daily Services • Provision of daily engineering support to drilling crews. • Direct involvement inthe process of optimization of drilling. • Review of Drilling Results. • Review of “immediate” drilling data. • Identification of required changes • Provision of a report on each drilled well and its discussion with the local technical group.

19. Scope of ServicesUnder the Actual Project 1. Smith Eurasiahas established offices and consignment warehouses in each area of NC drilling operations. 2. Engineering groups are operational in each region; a drill bit program is being produced for each well covering both Western and Russian drill bits. 3. An inventory ofboth Western and Russian drill bits is being maintained at warehouses on a consignment basis. 4. The drill bits are delivered individually to each well and are paid for at the time of their use. 5.The engineering group provides engineering support of the drilling process, studies used bits and issues the necessary recommendations.

20. Фактическая Предлагаемая Time-basis comparison of technical and economic drilling performance calculated on the basis of the current Bit Program and the Bit Program Proposed by Smith Eurasia

21. Comparison of Technical and Economic Drilling Performance Estimated on the Basis of the Actual Drill Bit Program vs. the Drill Bit Program Proposed by Smith Eurasia, in $ Value Terms Drilling Costs, US$ Costs per Meter, US$ Bit Costs, US$ actual proposed

22. Economic Benefits Achieved On Drilling SectionsWith Service Support on Completed Wells

23. SmithEurasia 1. Bit Life 2. Rate of Penetration Selection of the optimal range of bits Drilling Parameters Drilling Mud Quality Quality of pay-zone tapping Working culture Drilling operations economics Increased overall oil production due to quicker introduction of wells into production

24. SmithEurasia THANK YOU FOR YOUR ATTENTION Smith Eurasia – Contact Information: USA: 11767 Katy Freeway, Suite 645 Houston, Texas 77079 phone: + 1-281-556 9596 fax: +1-281-556 9277 e-mail: info@smitheurasia.com Russia: 65/4 Leninsky Prospekt Moscow 117917 phone: + 7-095-135 0163 fax: +7-095-9358621 e-mail: info@smithea.ru