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Rosneft Oil Company

December 28, 2005

Rosneft’s Board of Directors examines 2005 preliminary results

At its meeting of December 28, 2005, Rosneft’s Board of Directors assessed the company’s preliminary results for 2005.

The Board confirmed that the company had achieved in full its 2005 business targets. It is expected that the company will have produced a total of 74.6 million tons of oil and gas condensate and 13.1 billion cubic meters of gas over 2005. The company succeeded in fully restoring drilling and well-repair facilities at Yuganskneftegaz, allowing it to increase daily production as of January 1, 2005 from a level of 138,000 tons/day up to 149,500 tons/day (8.3%). Rosneft now ranks second in the RF in terms of daily production of oil.

The greatest increase in oil production volumes over 2005 was achieved by Severnaya Neft — 42.8% (due to continuing drilling at Gamburtsev Swell fields and transferring wells to artificial lifting), by Grozneftegaz — 11.4% (due to the restoration of objects and the increase of the producing well stock) and by Rosneft-Sakhalinmorneftegaz — 2% (as a result of the putting on stream of lateral wells at the Odoptu-More field).

The increase in gas production as compared with 2004 comprised 39.2% as a result of the placing in operation of gas treatment facilities with an annual rate of production of 3.2 billion cubic meters at Rosneft-Purneftegaz and of two gas control units at Rosneft-Krasnodarneftegaz.

2005 saw the placing in operation of Phase I of the Khasyrey energy depot (Severnaya Neft), which will allow the reservoir pressure maintenance system to be increased to its design capacity and oil production to increase at the Gamburtsev Swell deposits.

77,800 meters of exploration wells were drilled in 2005. 11,900 linear km. of 2D seismic exploration works and 4,400 sq. km. of 3D works were performed. The level of effectiveness of exploratory drilling is expected to be double the 2004 figure — 932 tons of oil and 16 million cubic meters of gas per meter drilled. An increase in the effectiveness of exploration works was brought about by the performance of major works on prospective areas of the Vankor field in the Krasnoyarsk Territory and adjacent licensed areas (Vankorneft) and on the shelf of the Sea of Okhotsk.

An increase in reserves is also expected in the new Vorgamusyursk licensed area (Severnaya Neft): of some 33 million tons of Category C2 crude.

The company’s total increase in reserves of over 100% added to crude production volumes and comprised 84 million tons of oil and 40 billion cubic meters of gas.

Commercial production of oil and gas commenced in the Sakhalin-1 project in October 2005.

The drilling and testing of the Udachnaya and Pela Leich wells at the Kaigansko-Vasyukansk sector (Sakhalin-5) resulted in the discovery of two oil deposits.

Production sharing and joint activity agreements were signed on the project involving the development of the Kurmangazy (Kulalinskaya) structure on the Kazakh shelf of the Caspian Sea in 2005, project management bodies and an operating company were established.

The sale of oil to China began in February 2005. Sales volumes to China are set to reach 4.4 million tons by the end of the year. In 2006, delivery volumes are set to double. Deliveries take place via the Caspian Pipeline Consortium system from Grozneftegaz, Yuganskneftegaz and Purneftegaz. As of November 2005, deliveries of ‘early’ oil from the Sakhalin-1 project to the Komsomolsk Refinery are set to begin.

In 2005, the volume of oil refined by Rosneft at Russian refineries comprised 22 million tons. Processing of Rosneft oil at outside refineries increased to 11.6 million tons (of which 93% was at YUKOS refineries and 7% at KrasnodarEKOneft refineries).

It is expected that 2005 refining levels at the Komsomolsk Refinery will comprise 6.4 million tons. Diesel fuel hydro-treatment and elemental sulfur production units have been placed in operation, allowing environmentally friendly diesel fuel to be produced and hydrogen sulfide to be recovered.

Refining volumes at the Tuapse Refinery are expected to total 4.1 million tons. New stands on the AT-1 and AT-2 units were placed in operation at the plant in 2005 following reconstruction.

the end of 2005, the total debt to financial institutions will not exceed 10.8 billion US dollars (not including the debts and conditional obligations of Yuganskneftegaz to structures affiliated to YUKOS, disputed by Rosneft).

According to Rosneft’s 2005 results, net profits total 146.6 billion rubles.

In 2005 the company is set to transfer to budgets of all levels and extra-budgetary funds 220.3 billion rubles, including 167.5 billion rubles to the federal budget (7.3 times higher than 2004 levels), and 49.7 billion rubles to the local budgets (3.4 times higher than 2004 levels). The total sum of taxes, including customs duties, comprises 396.6 billion rubles, and increase of 6.6 times over 2004 levels.

During 2005, the company worked with higher educational establishments to recruit graduates to Rosneft. 3.7 billion rubles was spent on social programs during 2005. New employee housing and hostels were built at Purneftegaz, existing housing was developed at Yuganskneftegaz, Purneftegaz and Severnaya Neft, housing conditions were improved at Krasnodarneftegaz objects, and new housing was built. With Rosneft’s assistance, a pediatric department of the Central Regional Hospital in the village of Nogliki (Sakhalin) is being built. Pension contributions to the Neftegarant private pension fund for pensions for war veterans and retiring employees comprised some 370 million rubles over the reporting period.

The Board of Directors also considered the 2006 business plan. The tasks set for 2006 include:

  • the increase of Rosneft’s raw materials base both through exploration works and by acquiring new licenses;
  • the increase of performance indicators;
  • the increase of the production of oil to 80 million tons and of gas to 13.9 billion m3.

The capital investment program envisages investments in basic assets of up to 102 billion rubles.

In order to increase its resource base, Rosneft plans to borrow additional funds (including from its partners) to participate in auctions and tenders for the acquisition of promising subsoil plots in the main regions of its operation.

The company also plans to consolidate its main subsidiaries over the first half of 2006, and to hold an IPO in the latter half of the year.




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