September 9, 1997. - The board of directors of Russian oil company LUKOIL met Friday, September 5, to consider the company's performance in the first six months of 1997.

The company together with its subsidiaries and joint ventures boosted production 6% to 30.51 million tonnes of oil and condensate (1.239 million barrels per day) in the first half of 1997, compared to 28.75 million tonnes (1.161 million barrels per day) in the same period last year.

LUKOIL performed 929,000 meters of drilling in the period, 33% more than the 697,000 meters drilled in the first six months of 1996. It drilled 136,000 meters of exploratory wells and 793,000 meters of production wells. The production well stock increased from 18,418 wells to 19,514 and the percentage of idle wells dropped from 22.6% to 17.2% of the number of producing wells.

Application of new production-enhancement techniques, mainly hydraulic formation fracturing, allowed the company to produce an additional 3.8 million tonnes of oil in the period.

In the period, the company's refineries processed 9.727 million tonnes of oil, 2.5% more than in the same period last year. The company also had 1.822 million tonnes of oil refined at plants outside the company. Total volume of oil refined grew 20%. Oil product exports more than doubled to 3.328 million tonnes.

Net sales in the first half of the year totalled 28.2 trillion rubles, up 19% on the same period of 1996. Operating profit was up 6.5% to 2.7 trillion rubles and pre-tax profit was up 13% to 2.4 trillion rubles.

In spite of a number of inauspicious macroeconomic factors, the company managed to maintain net profit at 1.741 trillion rubles, down 2%, although LUKOIL shareholders interest grew 14% owing to the process of consolidation at subsidiaries and exchanges of shares carried out by the company.

The quality of profits also improved, and real growth in income was achieved. Payments in the period reached 95% of the value of the goods shipped. Of this, cash payments exceeded 40%. The company's conversion from a system of predominantly mutual settlements to a system of cash and promissory notes improved the structure and quality of cash flows. Liquidity of payments received on sales shows real growth in net profit from 1.1 trillion to 1.5 trillion rubles.

LUKOIL's assets increased 18% and equity was up 5%. Working assets grew to represent 33% of property and property right assets, compared with 27% a year ago. There were also high rates of growth in the most liquid assets - money instruments and financial investments.

The financial results for 1996 and 1997 were calculated on the same accounting basis using comparatively rigid standards of accounting and of accounting policy, which testifies to the real forward progress in financial results.

LUKOIL's strategic plan to improve production and financial potential is being implemented through an investment program drawing on both domestic and foreign capital. Fixed capital investments in the first half of 1997 grew 12% on the same period last year to 3.3 trillion rubles. LUKOIL spent 650 billion rubles on prospecting.

Some 90% of funds spent on oil prospecting (that part left to LUKOIL) came from payments for development of the mineral raw materials base.

LUKOIL share value climbed 350% in the first half of 1997 compared to the same period last year. The number of shareholders increased from 102,500 to 121,600. Return on investment in LUKOIL stock from January through June 1997 was 70%, compared to 25% in the first half of 1996.

The board of directors also studied ways to improve management and organization of drilling. A new subsidiary, LUKOIL-Drilling, is being set up to consolidate drilling and well service operations.

The board considered the company's program to increase reserves and develop new oil deposits. In the first half of 1997 LUKOIL's proven reserves of oil increased 13.4 million tonnes. It discovered four fields in the period: two in Volgograd region, one in Kaliningrad region, and one in Perm region.

The new "Human Resources" employee training program was approved. This year 30 LUKOIL specialists did internships at Chevron and Amoco. In the future some 100 specialists a year will be sent abroad on such internships.

"The Company's production program in the second half of 1997 is directed toward securing the stable development of real growth in the most effective areas of activity: in exploration and extraction of oil, refining and distribution of oil products, and export trade," LUKOIL President Vagit Alekperov told the meeting. "This will allow us to improve production and financial results, and to strengthen the confidence of our shareholders, investors and partners."

The full text of the LUKOIL performance report for the first half of 1997 will be distributed by mail to shareholders, and will also be available on the World Wide Web at WWW.LUKOIL.COM starting this week.

Profit and Loss Statement

Not audited
Bln rubles

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