Refining

2007 was a milestone year in the development of Rosneft’s refining segment. The Company significantly expanded its refining portfolio by acquiring five major Russian refineries: the Kuibyshev, Novokuibyshevsk, and Syzran refineries in the Volga-Urals region, and the Achinsk and Angarsk refineries in East Siberia. Rosneft currently owns and operates seven major refineries: the newly acquired plants, as well as the Tuapse refinery on the Black Sea coast and the Komsomolsk refinery in the Russian Far East. In addition, the Company operates three mini-refineries in West Siberia, Timan-Pechora, and Southern Russia.

In 2007, Rosneft acquired the Novokuibyshevsk oils and additives plant that produces over 300 thousand tonnes of motor oils annually, and the Angarsk polymer plant specializing in the production of olefins, benzene, and polyethylene. The Company also owns the Moscow plant OJSC Rosneft — MZ Nefteprodukt which produces specialty oils and lubricants.

In 2007, Rosneft’s aggregate refining capacity grew fivefold to 56.7 mln. tonnes (415 mln. barrels) per year excluding mini-refineries — currently a record high for the Russian petroleum industry. The 2007 acquisitions also enabled the Company to substantially improve vertical integration. Rosneft is now able to process more than 50% of crude oil it produces. Additionally, the Company will largely benefit from the increased share of higher value-added and better-quality petroleum products.

Total runs of own and procured crude oil at the Komsomolsk and Tuapse refineries, mini-refineries, and newly acquired plants were 40.20 mln. tonnes (294.1 mln. barrels), an increase of 67.5% compared to 2006. Overall, these refineries handled approximately 48.7 mln. tonnes (356 mln. barrels) of crude oil, the average capacity utilization rate being almost 85%. This clearly indicates the Company’s strong potential to further drive refinery throughputs.

Favorable refinery locations ensure Rosneft’s successful petroleum product marketing both domestically and abroad. Moreover, the Company-owned terminals in Tuapse and Nakhodka enable Rosneft to capture much higher margins on crude oil and petroleum product exports to Europe and the increasingly lucrative Asian market.

Rosneft’s development strategy envisages comprehensive refinery upgrades and expansion to further enhance or at least maintain the existing balance between crude output and refinery throughputs, and to boost the production of higher value-added petroleum products meeting the latest environmental and quality standards.

The Company is currently implementing comprehensive modernization programs at the Komsomolsk refinery and its plant in Tuapse, which has the most favorable location among Rosneft’s refineries. Upgrades are expected to bring the refineries’ capacity to 8 mln. tonnes (59 mln. barrels) and 12 mln. tonnes (88 mln. barrels), respectively, as well as to optimize their output structure and significantly improve the quality of petroleum products. In particular, the Komsomolsk refinery will commence the production Euro-4 and Euro-5 motor fuels. In 2007, Rosneft also successfully integrated and was actively upgrading its newly acquired refineries to ensure that their petroleum products comply with the latest environmental standards.

Rosneft’s another high priority in developing its refining sector is the construction of a new plant at the end point of the East Siberia — Pacific Ocean pipeline in the Russian Far East. Phases I and II of the refinery are expected to have a total capacity of approximately 20 mln. tonnes (146 mln. barrels), while petroleum products are planned to be supplied to fast-growing Asian markets, such as China, Korea, and Japan.

Refinery throughput and petroleum product output¹

¹ — Refining of own and purchased crude oil at Rosneft and third-party refineries (including mini-refineries) and corresponding output of petroleum products (excluding petrochemicals produced at Angarsk polymer plant).