At its regular meeting on October 11, Rosneft’s Board of Directors examined and approved the results of the company’s operating activities over the first nine months of 2005.

It was highlighted at the meeting that over this period, according to RF Ministry of Industry and Energy data, Rosneft ranked third in Russia for oil production, second for gas production and second for utilization of refining capacity.

Oil and natural gas production

Over the first nine months of 2005, Rosneft enterprises produced 54.8 million tons of oil — 3.4 times more than during the same period in 2004.

Natural gas production totaled 9.45 billion cubic meters, an increase of 38% over 2004 levels. The highest growth was achieved by increasing gas treatment capacity at Rosneft-Krasnodarneftegaz and at Rosneft-Purneftegaz’s Tarasov field.

As of October 1, 2005, the company’s operating oil well stock totaled 17,625, a twofold increase as compared with 2004 levels. During the reporting period, 317 new oil and gas condensate wells were placed in operation, exceeding the target figure of 302 wells.

Oil, gas condensate and natural gas deliveries

Over the first nine months of 2005, Rosneft delivered 53.5 million tons of crude oil to consumers.

The start of 2005 marked the introduction of stable oil exports via the Caspian Pipeline Consortium (CPC) system. 1.7 million tons of oil were shipped through the CPC system in only nine months.

Increases in oil export supplies continued using Severnaya Neft’s rail transportation resources via the Belokamenka floating oil storage facility. Increases in deliveries of Rosneft-Purneftegaz’s oil were also achieved via Rosneft-Arkhangelsknefteprodukt’s terminal at Privodino in the Arkhangelsk Oblast’s Kotlass district. Over 2 million tons of oil and 333,500 tons of gas condensate will be sold via these two routes.

Over the first nine months of 2005, domestic oil sales volumes totaled 4.3 million tons, an increase of 4.8 times over 2004 levels.

Gas supply volumes exceeded 7 billion cubic meters, 34.5% more than in 2004.

Oil refining

Refining volumes over the first nine months of this year comprised around 15.8 million tons. Refining volumes at Rosneft’s own refineries totaled 7.7 million tons, and 8.1 million tons at other refineries.

The average refining depth at the company’s refineries totaled 60%, an increase of 2.2% over the same period of 2004.

At the Komsomolsk refinery, diesel fuel hydrotreating units with a design capacity of 800,000 tons a year, and free sulfur production facilities with a capacity of 15,000 tons a year were placed in operation. These enable the output of environmentally safe diesel fuel with a sulfur content which complies with global standards, as well as the recovery of hydrogen sulfide.

In August 2005, guidelines were established for the long-term development of the Tuapse refinery. These guidelines envisage raising the oil refining depth in order to increase the production share of light oil products and boost the plant’s capacity to 12 million tons of oil a year.

Oil product supplies

Sales volumes of oil products via Rosneft’s subsidiary sales companies totaled 4 million tons over the reporting period, almost one and a half times more than the 2004 figure. Almost 16% more oil products were sold per fuel station per day than in 2004.

Oil and oil products transshipment via the Nakhodka, Tuapse and Arkhangelsk terminals totaled 14.6 million tons.

Investments

Over the first nine months of 2005, Rosneft’s total volume of investments comprised 51.5 billion rubles (101.2% of target investments), of which 37.5 billion rubles was spent on existing projects.

Over this period, subsidiary joint stock companies placed in operation 126 production drilling wells, 127 km. of power transmission lines, 415 km. of pipeline, 59 km. of product pipelines, 15 fuel stations and a number of other objects.

Investments in projects at the initial development stage totaled 15.4 billion rubles, 9 billion rubles more than in the same period of 2004.

Works on the Sakhalin-1, Sakhalin-4 and Sakhalin-5 projects were financed by Rosneft’s foreign partners in the amount of 11.5 billion rubles.

In the Sakhalin-1 project, works commenced on laying the pipeline in the Tatar Strait, and start-up works were completed at the Orlan platform. By September 1, 2005, 2 development gas wells and 5 development oil wells had been drilled. The first oil was produced in this project on October 1 of this year.

In the Sakhalin-3 project (Veninsky block), under the Memorandum of Understanding, Rosneft and the Sinopec group (China) signed a protocol on the establishment of a joint enterprise for the exploration of the block. Participatory interests in the project are as follows: Rosneft (49.8%); Regional State Unitary Enterprise Sakhalin Oil Company (25.1%); Sinopec (25.1%). 2D data is currently being analyzed and a prospecting drilling object selected.

In the Sakhalin-4 (Zapadno-Shmidtovsky block) and Sakhalin-5 (Vostochno-Shmidtovsky block) projects, 100% of 3D seismic exploration works were completed at the Vostochno-Shmidtovsky block and 41% at the Zapadno-Shmidtovsky block. Geological engineering surveys were commenced for drilling operations.

At the Kaigansko-Vasyukansk sector (Sakhalin-5), Exploration Well No. 1 was drilled at the Udachnaya structure. Works continued on the re-interpretation of 3D data on the results of last season’s drilling of Exploration Well No. 1 at the Pela Leich structure.

In February 2005, the Korea National Oil Corporation (KNOC) decided to participate in and finance the West-Kamchatka Shelf development project. Kamchatneftegaz LLC was registered as the operating company. 2,770 linear km. of profiles have been collected as part of the 2D seismic exploration works.

15,400 m. was drilled as part of the development of the Vankorsky group of fields in the Krasnoyarsk Territory (CJSC Vankorneft). The addition to reserves gained totaled 9.9 million tons of oil. Tests of the lateral face of Well No. 9 uncovered flows of over 1,000 cubic meters per day, and over 400 cubic meters at Well No. 10. The yearly plan for seismic exploration works was completed in full.

As part of the 245-Yug development project in Algeria (within Rosneft-Stroytransgaz Ltd.) 600 linear km. of 2D seismic survey and 300 square km. of 3D was collected for the identification of new prospective features. The data obtained was processed and analyzed.

Production sharing and joint activity agreements were signed in relation to the Kurmangazy prospective feature on the Caspian shelf (Kazakhstan). A signature bonus was paid.

2,100 linear km. of 2D marine seismic exploration works were performed, and processing of previous 2D seismic survey data (1,068 linear km.) was completed to assess the petroleum potential of the Tuapse Depression on the Black Sea shelf. Analyses continued of geological materials on the coastal zone and regional marine geoscience data. Works were commenced on compiling geo-chemical data on the Tuapse license area.

Economics

According to preliminary data, sales profit for the company as a whole over the first nine months of 2005 totaled 153.4 billion rubles, 32.2% above the target level. Net profits amounted to over 96 billion rubles, or 21.8 billion rubles in excess of target figures. Net profits of 28.6 billion rubles were also obtained from the sale of a number of unpromising and non-core assets.

Relations with budgets and extra-budgetary funds

Over the first nine months of 2005, the company transferred 161 billion rubles in taxes to budgets and extra-budgetary funds, an increase of 5.6 times over taxes paid during the same period of 2004. Payments to the federal and local budgets totaled 120 billion and 38.9 billion respectively, 7.2 and 3.7 times more than in 2004.

The sum of taxes paid (exclusive of customs duties) per ton of oil produced increased over the first nine months of 2004 from 1,936 rubles to 2,997 rubles.

Security

Main efforts were directed at preventing the theft of oil and acts of sabotage and terrorism at Grozneftegaz’s production objects. During the reporting period, an attempted terrorist act at the Severnye Braguny field was foiled. The issue of the allocation of around 6 million rubles in additional funds for trains transporting oil to be accompanied by the Ministry of Railways’ security forces was agreed.

5,700 tons of oil were stolen from 24 unlawful cut-ins into oil pipelines (as compared with 43,600 tons over the first nine months of 2004), and 2 acts of sabotage were committed (as compared with 14 during the first nine months of 2004). 141 mini-units for unlawful oil refining, 379 tanks for storing stolen crude, and 21 illegal tappings into oil pipelines with a total length of over 900 m. were destroyed. 46 vehicles re-equipped to transport hydrocarbons were detained, and attempts to make 12 unlawful cut-ins were crushed.

Upon decisions of Rosneft’s management, 108 vehicles, 290 radio station sets, uniforms and other necessary equipment were acquired to increase security. Technical works were performed to increase security at the main production objects (including the oil-loading points at the Ischerskaya and Chervlenaya-Uzlovaya stations) at a cost of 21 million rubles.

Social responsibility

2.2 billion rubles was spent on social programs during the first nine months of 2005. Hostels for employees were built at Rosneft-Purneftegaz’s and Severnaya Neft’s fields, new camps were built at Purneftegaz and existing camps at Yuganskneftegaz and Severnaya Neft were re-developed. 227 million rubles was allocated for the construction of residential buildings at Sakhalinmorneftegaz, Purneftegaz and Grozneftegaz.

A cooperation agreement was signed between the Government of the Khanty-Mansi Autonomous Okrug, Rosneft and Yuganskneftegaz, envisaging the allocation in 2005 of 230 million rubles for the construction of social and cultural objects in municipal formations and regions of the Khanty-Mansi Autonomous Okrug. By October 1, 2005, 180 million rubles had been transferred for this program.

156.4 million rubles was spent on charitable donations.