Continued growth and expansion

Improved management, asset acquisition and consolidation, financial discipline and technological integration all resulted in significantly improved performance from existing assets and allowed Rosneft to embark on a program of growth and expansion.

 

From 2000-2004, Rosneft boosted its annual oil production, from 268 kb/d in 2000 to 433 kb/d in 2004. Gas production increased from 5.6 bcm in 2000 to 9.4 bcm in 2004. In 2001, Rosneft became the official state representative in Production Sharing Agreements (PSAs). In 2002, Rosneft expanded its international operations by entering into projects in Algeria. In 2003, the Company began producing oil at the Aday block in the Caspian Sea region of Western Kazakhstan, and in 2005, it entered a PSA at the Kurmangazy structure on the Caspian Sea shelf in Kazakhstan.

 

Rosneft has pursued its upstream asset acquisition strategy in Russia with a focus on geological quality and transport efficiency. Among the key assets acquired between 2000 and 2004 were Selkupneftegaz (2000), Severnaya Neft (2003), the Veninsky block at Sakhalin-3 (2003) and the Anglo-Siberian Oil Company (2003), owner of the license to the Vankor oilfield in Eastern Siberia. In December 2004, the Company purchased a controlling stake in one of Russia’s largest oil and gas companies, Yuganskneftegaz.

 

This acquisition, together with significant organic growth, has propelled Rosneft into its current position as Russia’s second largest oil producer, with average daily production of approximately 1.5 million barrels in 2005. In early 2005, Rosneft won the auction to the Vorgamusur field in the Timano-Pechora province, an acquisition that will ensure further growth of Severnaya Neft, whose operations are located only 80 kilometers away.

 

At the end of 2005, Rosneft announced the acquisition of a 25.94% stake in Verkhnechonskneftegaz, which was later complemented by the acquisition of an exploration license to the East Sugdinsky block. These acquisitions are consistent with the Company’s goal of establishing a major presence in Eastern Siberia which it believes is poised to become one of Russia’s most significant new oil and gas production bases.

 

In July 2006, Rosneft conducted its first ever public share offering, which raised USD 10.6 billion, making it the world’s fifth-largest IPO. Finally, in October 2006, Rosneft completed the consolidation of 12 of the Company’s upstream and downstream subsidiaries. This consolidation program will allow for further improvements in transparency and management efficiency as Rosneft grows as a public company.

 

1993 - Rosneft established as a state enterprise on the basis of Rosneftegaz, the shortlived successor to the USSR Ministry of Oil and Gas.

1995 - Rosneft transformed into an OJSC.

1998 - New management appointed at Rosneft to begin rehabilitation work. First crude oil produced on the Sakhalin shelf.

1999 - Cost-cutting program launched. Major reconstruction of the Komsomolsk Refinery begins. Well efficiency enhancement program implemented.

2000 - Financial performance improves in all areas. Introduction of modern satellite communications network.

2001 - Rosneft appointed as the state representative in PSA (Production Sharing Agreement) projects.

2002 - Rosneft appointed as official representative of the Russian Federation in developing the Caspian Sea’s Kurmangazy field. Sakhalin-5 gets underway. Rosneft awarded license to develop the Kaygansko-Vasyukansky sector. Rosneft awarded licenses to develop the Kynsko-Chaselskaya and Udmutsko-Chatylkinskaya groups of fields.

2003 - Rosneft purchases Severnaya Neft. Rosneft receives license to develop the Vankor and Northern Vankor fields in Eastern Siberia. Oil production begins at the Aday block in Kazakhstan. Development begins on the Sea of Azov shelf. Oil production begins at the Kynsky deposit. Rosneft receives exploration license to the Veninsky sector at Sakhalin-3.

2004 - First prospective drilling at Vankor. First prospective drilling at Sakhalin-5. Launch of transport system involving the Belokamenka floating oil storage facility and Privodino station. Rosneft purchases Baikalfinansgroup LLC, owner of Yuganskneftegaz.

2005 - Oil production begins at Sakhalin-1. Operational and logistical integration of Yuganskneftegaz. Geological prospecting continues at the Vankor and Northern Vankor fields; a well with a flow of 1,000 cubic meters a day is drilled. Completion of Udachnaya-1 exploration well drilling at Sakhalin-5, with highly promising reserves discovered. Purchase of strategic stake in Verkhnechonsk oil and gas condensate field. Purchase of East Sugdinsky development license. All-time oil production high of 74.6 million tons is achieved.

2006 - Exploratory drilling begins at the Kurmangazy structure. Rosneft acquires 51% stake in Udmurtneft. Rosneft conducts USD 10.6 billion IPO. Consolidation of 12 subsidiaries completed.

 

Words and expressions

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LUKOIL

 

The company was founded by three West-Siberian oil and gas plants: “Langepasneftegas”, “Urayneftegas” and “Kogalimneftegas”. This initial letters of these names formed the first part of the new presence in the Russian oil and gas industry – LUKOIL.

 

LUKOIL is one of the world’s leading vertically integrated oil & gas companies. Main activities of the Company are exploration and production of oil & gas, production of petroleum products and petrochemicals, and marketing of these outputs. Most of the Company’s exploration and production activity is located in

Russia, and its main resource base is in Western Siberia. Most of the Company’s production is sold on the international market. LUKOIL petroleum products are sold in Russia, Eastern Europe, CIS countries and the USA. LUKOIL is the second largest private oil Company worldwide by proven hydrocarbon reserves. The Company has around 1.3% of global oil reserves and 2.1% of global oil production. LUKOIL dominates the Russian energy sector, with 18% of total Russian oil production and 18% of total Russian oil refining. LUKOIL proven reserves at the beginning of 2005 were 15,972 mln barrels of crude oil and 24,598 bcf of natural gas, totaling 20,072 mln.

 

LUKOIL has an outstanding portfolio of production assets. The main production region for LUKOIL Group is Western Siberia. The Company is developing a new production base in Timan-Pechora where its crude oil output has increased by more than 1.6 times in 5 years. LUKOIL is carrying out international exploration and production projects in Kazakhstan, Egypt, Azerbaijan, Uzbekistan, Saudi Arabia, Iran, Columbia, Venezuela and Iraq. With putting into operation the Nakhodkinskoye gas field the Company started its gas program which targets at a rapid growth of gas production in the mid-term.

 

The key regions for development of LUKOIL gas production are the Bolshekhetskaya Depression and the Northern Caspian as well as the Kandym – Khauzak – Shady project in Uzbekistan and the Shakh Deniz project in Azerbaijan. LUKOIL owns significant oil refining capacity both in Russia and abroad. In Russia the company owns four large refineries at Perm, Volgograd, Ukhta and Nizhny Novgorod. Total capacity of LUKOIL facilities in Russia is 41.8 mln tons of oil per year. LUKOIL also has refineries in Ukraine, Bulgaria, and Romania, with total capacity of 16.7 mln tons per year. In 2004 LUKOIL refined 44.0 mln tons of oil at its own refineries, including 35.5 mln tons at its Russian refineries.

 

By the end of 2004 LUKOIL's sales network covered 17 countries of the world, including Russia, the CIS (Azerbaijan, Belarus, Georgia, Moldova, Ukraine), Europe (Bulgaria, Hungary, Cyprus, Latvia, Lithuania, Poland, Serbia, Romania, Czech Republic, Estonia) and the USA, and consisted of 199 tank farms and 5,405 filling stations. LUKOIL sales network consisted of 10 marketing entities operating in 59 regions of Russia.

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