Refining

Rosneft owns and operates seven major refineries in Russia: the Tuapse refinery on the Black Sea coast, the Komsomolsk refinery in the Russian Far, the Kuibyshev, Novokuibyshevsk, and Syzran refineries in the Volga-Urals region, and the Achinsk and Angarsk refineries in Eastern Siberia (the last 5 refineries were acquired by Rosneft in 2007, which allowed the Company to considerably enhance its vertical integration). The total primary capacity of Rosneft refineries is 394 mln barrels of crude oil per year, which is a record high for the Russian petroleum industry and represents almost 51% of Company production volumes in 2008.

Rosneft also owns three mini-refineries (in Western Siberia, Timan-Pechora and the southern part of European Russia) as well as a 50% stake in the Strezhevskoy mini-refinery in Western Siberia. Total annual capacity of mini-refineries is 4.4 mln barrels of crude oil.

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 petroleum product exports to Europe and the lucrative Asian market.

Rosneft refineries, including mini-refineries, processed 49.3 mln tonnes of oil (360.5 mln barrels) in 2008, representing 46% of Rosneft’s total crude production. Refining volume increased by almost 23% compared with 2007 thanks to an increase in refining at the Komsomolsk and Tuapse refineries, as well as acquisition in 2007 of five large refineries. Utilization of refining capacity exceeded 90%, refining depth rose from 65.5% in 2007 to 66.8% in 2008 and light product yield rose to 57.7% from 56.7% in the previous year. Overall output of petroleum products rose to 46.4 mln tonnes (including outputs from the Angarsk polymer plant and the Novokuibyshevsk oils and additives plant). As part of a cost-cutting program, measures were taken at all Company refineries in 2008 to reduce expenditure of fuel and electricity as well as to reduce irrecoverable processing losses.

A favorable macroeconomic environment for oil refining through most of the year, efficient control over costs and improvement of output structure enabled the refining segment to make a record contribution to Rosneft’s consolidated financial results in 2008.

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.

Many projects in this sphere are focused on compliance with the new Russian technical regulations defining main standards for petroleum products. The regulations were introduced at the start of 2008 and fix precise deadlines for changeover to Euro-3, Euro-4 and Euro-5 standards for motor fuels. Design of respective programs for modernization of Rosneft refineries was completed in 2008 and implementation was initiated. The programs are for the reconstruction of main existing processing units and construction of new units. Plans include reconstruction and installation of: reforming, isomerisation and alkylation units for production of high-octane gasoline components; catalytic cracking units for production of high-octane gasoline components and deeper oil refining; hydrocracking units for production of high-quality components of gasoline, diesel fuel and jet fuel, as well as for deeper oil refining; and hydrotreatment units in order to meet requirements of the new technical regulations for sulphur content in products.

Rosneft is also implementing the project to double the capacity of Tuapse refinery, which enjoys the most favorable location among Rosneft’s refineries. The Company is also studying the feasibility of building a new 20 mln tonnes (146 mln barrels) refinery with a petrochemical block at the end point of the East Siberia – Pacific Ocean pipeline in the Russian Far East.

Refinery throughput and petroleum product output

Refining of crude oil produced by the Company and of purchased crude oil at owned and third-party refineries (including mini-refineries) and corresponding output of petroleum products (including petrochemicals produced at Angarsk polymer plant in 2007-2008).