General shareholders' Meeting

Rosneft holds annual general shareholders meeting in Moscow

Rosneft’s annual general meeting of shareholders took place on June 30, 2007 in Moscow. This was the first such event in the history of the Company, whose owners now include over 154,000 private shareholders. And it Rosneft’s first meeting as a public company, which it became last year following its successful initial public offering on international and Russian stock exchanges.

The meeting approved the 2006 Annual Report, the profit distribution, passed resolutions on amendments to the Company’s charter and approved related-party transactions.

Shareholders began their work precisely at 11.00am. At the beginning of the meeting, immediately after ensuring that a quorum was present, Igor Sechin, chairman of the Company’s Board of Directors, Deputy Chief of Staff of the Presidential Executive Office and Aide to the President of Russia, opened the meeting. Sergey Bogdanchikov, president of Rosneft, and Hans-Joerg Rudloff, an independent non-executive member of the Company’s Board of Directors and chairman of the Executive Committee of Barclays Capital, then informed the Company’s shareholders about its current operations and prospects going forward.

Rosneft should strive toward being the best, Mr. Sechin told the shareholders when opening the meeting. “We have seen that the Company has achieved excellent results. But we cannot stand still and have to set highly ambitious tasks for ourselves and find the best solutions,” said Mr. Sechin.

Among the Company’s strategic directions, Mr. Sechin noted the “shift in the center of gravity to oil refining, business diversification, expanding its raw-materials base and optimizing logistics.”

Mr. Sechin also told the shareholders about how Rosneft would soon become a global oil company. Sergey Bogdanchikov continued on the same theme and explained the Company’s tactics: Rosneft’s short-term goal is to become one of the world’s top ten companies by capitalization, one of the top five in the medium-term and one of the top three in the long-term.

“Rosneft is already a global company in terms of its influence on global markets, including, of course, the Russian market. We sell our products in Europe and Asia and periodically deliver crude to America, although still not in large quantities yet.”

Mr. Bogdanchikov also noted that Rosneft’s shareholders are drawn from over 40 different countries and that the list is expanding.

Summing up the Company’s work last year, Hans-Joerg Rudloff, an independent non-executive director, said that Rosneft would definitely become a company to rank with the likes of ExxonMobil, Shell and BP. “I’m a newcomer at the Company, but the management’s efforts to play its role, in the widest sense of the word, has made a deep impression on me.”

The second item on the agenda was to approve the annual financial statement, including the profit and loss account, which were presented at the meeting by the Company’s Chief Accountant Sun Ne Kim.

The 900 shareholders were of course focused on the issue of dividends. Vice President Sergey Markarov presented the profit distribution for approval, as well as the size, schedules and form of the dividend payments for last year. These questions, and that of the remuneration paid to the independent members of Board of Directors, were the focus of most speeches and addresses from the shareholders. The mostly minority shareholders were dissatisfied with the size of the dividend payments, as well as the remuneration paid to the Board of Directors which, they believed, was too high.

“We never set ourselves the task of paying more dividends than anyone else,” Mr. Bogdanchikov explained to the minority shareholders. “In that regard, the goal for us is capitalization plus dividends. As far as capitalization is concerned, we are now in 12th place in the world in terms of all publicly traded oil companies, and by 2010 we should be in the top ten and in the long term in the top three.”

Mr. Bogdanchikov also noted that “a priority for the Company is to maintain the leading positions we have already gained, and reduce and restructure our debt.”

He also observed that Rosneft exceeded its promise made at the time of the IPO to pay out not less than 10% of its net earnings as dividends. “This year we paid out 13.3% of net income, so that’s a premium of 30%, which is very positive,” he said.

In 2005, Rosneft, which was still 100% state-owned, paid RUB 11.336 billion in dividends to shareholders. As a result, dividends grew by more than 24%.

The Company’s net profit was approved as RUB 213.216 billion. A resolution was passed to pay dividends on Rosneft shares for 2006 of RUB 14.096 billion, which is equivalent to RUB 1.33 per ordinary share.

Dividends will be paid by December 31, 2007. The approved dividends are the highest ever paid in the history of the Company.

Shareholders also approved the composition of a nine-member Board of Directors, which consists of:

• Kirill Androsov -Deputy Minister for Economic Development and Trade of Russia;
• Sergey Bogdanchikov — President of Rosneft;
• Andrey Kostin — President and Chairman of the Management Board of Vneshtorgbank;
• Sergey Naryshkin -Deputy Prime Minister of the Russian Federation, Chief of Staff;
• Alexander Nekipelov — Vice President of the Russian Academy of Sciences;
• Gleb Nikitin — Head the Russian Agency for the Management of Federal Property;
• Andrey Reus — Deputy Minister of Industry and Energy of Russia;
• Hans-Joerg Rudloff — Chairman of the Executive Committee of Barclays Capital;
• Igor Sechin — Deputy Chief of Staff of the Presidential Executive Office, Aide to the President of the Russian Federation;

The meeting approved the composition of Rosneft?s five-member Audit Committee.

The annual statements according to Russian Accounting Standards for 2007 were approved by the Auditing and Consulting Group Business Development Systems (CJSC AKG RBS).

A decision was made to amend Rosneft’s Charter to permit the types of business activities the Company can pursue to include the use of precious metals and stones in technological process in equipment and materials.

Shareholders also approved a series of related-party transactions.

Immediately after Rosneft’s general shareholders meeting, the first meeting of the newly elected Board of Directors took place. The members of the Board reelected Igor Sechin as chairman of the Board, and Sergey Naryshkin and Gleb Nikitin, as deputy chairmen.

In addition, the Board of Directors reelected its three committees in the previous composition, each of which is headed by independent directors. Hans-Joerg Rudloff, reelected head of the Audit Committee, Andrey Kostin, reelected head of the HR and Remuneration Committee, and Alexander Nekipelov, as head of the Strategic Planning Committee.

* * *

During the meeting and at the press conference, Sergey Bogdanchikov, president of Rosneft, responded in detail to questions and talked about the Company’s plans for the near future.

According to Bogdanchikov, even though new asset purchases propelled the Company in the role as leader of the Russian oil and gas sector with annual production of approximately 100 million tonnes of oil, Rosneft does not plan to reduce production levels for at least the next twenty years.

“We can continue increasing production up to 2015. Indeed, the Company’s reserves and resources are sufficient to maintain production after 2020.”

Rosneft plans to announce an oil production program for 2008—2012 at the beginning of the fourth quarter this year, said Mr. Bogdanchikov.

“We will adjust our production plans in line with our target of 100 million tonnes per annum, which we will achieve this year, but which we previously thought would be reached only in 2010,” he said.

Discussing the short-term plans to increase oil production, Mr. Bogdanchikov said that Rosneft could exchange a blocking stake in DalTransGaz on the southern part of the gigantic Priobskoye field in the Khanty-Mansiysk Autonomous District, which is now being developed by Gazprom Neft.

Rosneft owns 100% of the pipeline running from Îkhà on Sakhalin Island to Komsomolsk-on-Amur and has a blocking stake in DalTransGaz, which owns the pipeline from Komsomolsk-on-Amur to Khabarovsk, Mr. Bogdanchikov said earlier.

“If we are offered conditions under which we can exchange part of these assets for stakes in other assets in which we are interested and which are owned by Gazprom, then of course we will immediately go for that with great pleasure. We are talking about assets which would result in synergies for us, for example the Priobskoye oilfields (southern part of the Priobskoye field in the Khanty-Mansiysk Autonomous District, the license to which belongs to SibneftYugra), now being developed by Gazprom Neft, or something similar,” said Mr. Bogdanchikov.

“Gazprom needs gas pipelines and fields, and we are positioning ourselves as an oil company, although we are also involved in the gas business. Our plans for the period up to 2020 will increase the proportion of our earnings from gas sales to 30%. Using Gazprom’s potential in a number of vital areas (linked with transport and export, will of course also benefit Sakhalin,” noted Mr. Bogdanchikov.

For its part, Rosneft received four proposals to exchange or sell Tomskneft, which the Company acquired during the auctions for assets being sold as part of the YUKOS bankruptcy proceedings, said Mr. Bogdanchikov.

“We have received serious proposals only for Tomskneft regarding its exchange or sale with a subsequent exchange. Or simply for its sale. There are four variations — they are all different offers,” said Mr. Bogdanchikov, without going into further detail.

At the press conference following the meeting, Mr. Bogdanchikov said that Rosneft “has received similar offers regarding the majority of other assets acquired from YUKOS, including power companies.

The Company’s president had earlier declared that in a series of lots there were assets that the Company did not need. “That doesn’t mean that they are not worth anything. They cost money, but they are not core assets. There is a series of assets outside the areas where the Company has its main operations, and there are other assets which we don’t need for various other reasons. We are now analyzing them and expect to examine the complete list of assets for sale at a meeting of the investment committee in accordance with our established procedures, set the price and after that we will put them up for sale. We are already conducting negotiations regarding some of them and there are already willing buyers,” said Mr. Bogdanchikov.

With regard to the future of several assets acquired during the YUKOS bankruptcy proceedings, Mr. Bogdanchikov noted that Rosneft will not hold negotiations with other shareholders of the Eastern Siberian Oil Company (ESOC) and the Caspian Oil Company (COC) regarding an increase in its stake.

“With regard to COC and ESOC, we don’t plan to begin negotiations regarding the acquisition of additional stakes. Now we have to decide on how fast we will implement these projects and reach the appropriate agreements with our partners,” said Mr. Bogdanchikov.

“We are in no hurry to acquire stakes in these companies from our partners, if we even begin these negotiations at all, since we are thinking first of all about lowering our debt levels,” said the President of Rosneft.

During the YUKOS bankruptcy proceedings, Rosneft acquired 70.77% of the shares in ESOC, which owns the license to develop the Yurubchensk oilfield in the Krasnoyarsk Territory (Evenkia). The Yunikor management company is a minority shareholder in ESOC and holds a 28.5% stake.

COC was established in August 2000 by Lukoil, YUKOS and Gazprom, which each held equal stakes, to carry out the exploration and development of oilfields in the northern part of the Caspian Sea. Russia’s Ministry of Natural Resources at the end of 2000 awarded COC an exploration license to the North Caspian block of the Caspian Sea. Rosneft acquired 49.9% of the company during the auctions of YUKOS’ property. The remaining 49.9% is owned by Lukoil.

Rosneft plans to retain its stake in COC, said Mr. Bogdanchikov. “With regard to upstream projects, we very rarely sell something looking back at our previous experience — as a rule, we buy. This project has to be studied thoroughly, but I can confidently say that we will not sell it — we are developing relations with our partner Lukoil and will work,” he said.

He also said that Rosneft would perhaps continue to consolidate its subsidiaries. “At the moment, we are not planning further consolidation, but that doesn’t mean that it will never happen,” he said in response to questions from shareholders during the annual meeting.

At the press conference, Mr. Bogdanchikov said that after 2007, the Company plans to consider introducing a single share with a series of subsidiaries, including those that used to be subsidiaries of YUKOS. He also added that “it is necessary to assess the advisability of going over to a single share since in the main assets, in the oil producing companies and refineries, we already have control.”

He also answered a frequent question about merging with one of the biggest private oil companies in Russia, Surgutneftegaz, saying that the two companies will not be joining forces. “There have not been any moves from the owners of Surgutneftegaz,” he said.

Bogdanchikov also detailed the Company’s strategy to increase oil refining, saying that refining capacity by 2015 would nearly double to 90-95 million tonnes. “Last year, the Company was able to refine 15% of its production, while at Lukoil this figure was 44%,” said Mr. Bogdanchikov.

He reminded shareholders that this year, the Company had acquired five oil refineries and will in the very near future decide on a strategy for their development as well as complete a feasibility study for an oil refinery on the Pacific coast.

“Capacity has increased, but it is still insufficient and in the next few years we will be increasing it to 90 million tonnes. If during that time any opportunities appear to acquire additional capacity and it is economically effective, then we will buy, but we will not have less than 90 million tonnes annual refining capacity,” said Mr. Bogdanchikov.

In this regard, Rosneft wanted to purchase Bashneft and the Bashkir oil refineries, but has not yet had the opportunity to do so, he said on the sidelines of the shareholders meeting.

“We are looking at the possibilities and are studying these assets, but unfortunately they are not up for sale at the moment,” he said.

Mr. Bogdanchikov said the most promising new markets for Rosneft, were Southeast Asia, including China, where the Company is looking into the possibility of building an oil refinery.

By 2010, Rosneft intends to sharply reduce its debt from USD 25 billion to USD 15 billion, said Mr. Bogdanchikov.

He noted that debt amounting to USD 15 billion will correspond to the demand from the bondholders to maintain the ratio of pure debt to the Company’s equity at 30%.

“Two weeks ago, the Company approved a debt restructuring plan involving debt reduction and switching from short-term to long-term debt,” he said.

In particular, over the short-term we plan to place Eurobonds and also attract at least ten-year credit lines, which will allow the Company to optimize its debt portfolio by increasing the maturities of its borrowing, as well as lowering borrowing rates.

In particular, he said that at the end of the week the Company plans to embark on a road show for Eurobonds. The presentations will begin in Moscow, and then continue in major European and American cities. The placement should take place in mid-July. The amount of the placement has not been announced.

Discussing the sale of shares to reduce the Company’s debt, Sergey Bogdanchikov noted that the decision to sell could be taken only under favorable market conditions and not in the short-term. However, the Company could put up for sale part of the 9.44% of Rosneft’s shares which formerly belonged to YUKOS.

“At the moment, the market conditions that would lead us to examine the questions do not exist,” he said. No one should expect that a new major block of Rosneft shares would appear on the market. “The main part of the stake which we acquired is not up for sale,” he said.

Discussing dividend payouts, M. Bogdanchikov declared that the Company plans to pay dividends to the Company shareholders on its 2006 results in August and September, although the official deadline to pay is the end of this year. Mr. Bogdanchikov noted that there were no plans to pay interim dividends in the near future.

According to Bogdanchikov, Rosneft could consider the possibility and introduction of an option program for management.

“This is not only reasonable, but many Western shareholders have been asking to do so, in order to stimulate managers. We will prepare such as proposal for presentation to the Board of Directors,” he said.

Mr. Bogdanchikov noted that at the moments this issue is not on the agenda of the Board of Directors.