Message from the President

Dear Shareholder,

In 2007, Rosneft distinguished itself as the leading national oil company, posting the best operating and financial performance since its establishment. We continued to implement a coordinated strategy for sustainable business growth, with the primary focus shifting to major asset base expansion to strengthen our future prospects.

Last year, Rosneft acquired major upstream assets in various regions of Russia with total proved reserves of about 1.5 bln. barrels of oil equivalent and an output of more than 300 thousand barrels of oil per day. The Company also acquired five new refineries, thus increasing its aggregate refining capacity to more than 1.1 mln. barrels per day. In addition, Rosneft managed to extend its retail network from 684 to 1,695 filling stations.

Thanks to the expertise and cooperative effort of all Rosneft employees, we successfully integrated newly acquired assets into the Company’s operating structure, which resulted in major synergies and positively affected our consolidated results. Rosneft currently enjoys a more balanced asset portfolio and greater flexibility in operating and strategic planning. We are now able to deliver even better performance as the Company is particularly well placed to build on a streamlined group structure.

Rosneft achieved impressive organic growth in 2007. Organic increase in our hydrocarbon production amounted to 6.6%, which is well above the average of our domestic and international peers. Organic reserve replacement ratio was 111%, while total reserve replacement ratio exceeded 300%. Furthermore, we significantly increased throughput at our Tuapse and Komsomolsk refineries.

The continued favorable price environment in 2007 became another major contributing factor to Rosneft’s performance. Global oil prices grew 11% compared to 2006, reaching an unprecedented level of almost USD 100 per barrel by year-end 2007. Due to a time lag between Russian export duties and international crude oil prices, net export price (excluding export duty and mineral extraction tax) increased by more than 20%. Refining margins in Russia, being a function of export duties for crude oil and petroleum products, were also exceptionally high. Coupled with Rosneft’s massive progress throughout our core operations, this led to a further strengthening of the Company’s financial position.

In 2007, Rosneft’s net income adjusted for extraordinary items reached USD 6,483 mln. — almost a twofold growth compared to 2006. Return on average capital employed (ROACE) in the review period increased to 18.6% from 18.1% in the previous year, while the Company’s adjusted EBITDA grew to USD 14,459 mln.

Constantly striving to optimize consolidated reporting and information disclosure, in 2007, we completed a comprehensive fast-close reporting project, RosA, that now covers more than 300 of the Company’s business units. RosA allows preparation of unaudited consolidated management accounts under US GAAP and RAS on the 30^th calendar day after the end of a reporting period, which gives Rosneft a strong competitive advantage over our national rivals. Thanks to well-planned and targeted implementation of the RosA project, which was launched in June 2006, we can now benefit from improved management decision-making, higher transparency and investor appeal, and compliance with global best practices in information disclosure. The new fast-close system takes Rosneft to a new level of international recognition, and significantly contributes to enhanced strategic planning.

Global economic downturn resulted in highly volatile prices of Rosneft shares in 2007. However, modest annual growth in share prices does not adequately reflect our strong operating and financial performance. I am confident that the Company has vast potential to further drive shareholder value, and we will continue our endeavors to sustain consistently high shareholder returns.

Upstream

In 2007, we continued to develop our upstream segment in accordance with the long-term business strategy. It was a truly remarkable year in terms of strengthening Rosneft’s exploration and production portfolio. Rosneft became the first Russian oil company to hit a landmark crude production level of 100 mln. tonnes a year (more than 2 mln. barrels per day). Crude oil production increased by 27% year-on-year, with organic growth being 6.6%. The Company’s proved hydrocarbon reserves under SPE classification now stand at 21.7 bln. barrels of oil equivalent, up 8% over the previous year. As the leading publicly traded company in terms of proved liquid hydrocarbon reserves, Rosneft has an average hydrocarbon reserve life of 27 years.

In 2007, the Company continued to implement exploration projects in the most promising regions of Russia, such as East Siberia and the Far East. We were also actively engaged in foreign developments in Kazakhstan and Algeria. In 2007, the Company remained the national leader in terms of reserves added per well and replacement cost of reserves. Rosneft’s active participation in numerous exploration projects ensures access to considerable prospective resources, which will further support the Company’s long-term development. According to DeGolyer and MacNaughton, as at the end of 2007, the best estimate of total gross prospective resources of upstream projects with Rosneft’s participation was 75.5 bln. barrels of oil equivalent.

The Company’s superb performance was also largely due to a major expansion of its production portfolio, ongoing introduction of cutting-edge field development technology, and new projects. The key factors of impressive organic growth in crude output were accelerated development of the Priobskoye field in West Siberia and successful implementation of the Sakhalin-1 project in the Russian Far East. Continuous application of enhanced recovery methods also enabled us to maintain consistent production levels at mature fields.

In 2007, we significantly broadened our operations in East Siberia. Enjoying high development potential, oilfields of this region (Vankor group of licensed blocks and Yurubcheno-Tokhomskoye) will soon become the primary resource pool for the Company, as well as the main source of our organic growth in production. Particularly gratifying was our progress with large-scale infrastructure development activities at Vankor. This massive project, with proved oil reserves of 1.46 bln. barrels, is among the top 10 global oil and gas developments, and is in fact a foundation of a new and highly promising oil province.

In 2007, we continued to implement a comprehensive gas program, primarily aimed at increasing petroleum gas utilization to reduce environmental impacts of Rosneft’s operation. Our major goal is to achieve a target gas utilization rate of 95% in line with international environmental standards. An important milestone for Rosneft was the signing of a joint implementation agreement with the World Bank to develop a gas flaring reduction program that envisages purchases of emission reduction units by the World Bank’s Carbon Finance.

Downstream

Rosneft’s downstream business also continued to expand throughout 2007. Thanks to the new acquisitions, our total refinery throughput reached 806 thousand barrels per day, whereas petroleum product output amounted to 38.3 mln. tonnes — an increase of 69% compared to 2006. We also significantly diversified oil product mix and improved the average complexity index of our refineries. Rosneft is now able to refine more than half of produced crude, which will provide a significant contribution to the Company’s steady business growth.

In downstream, apart from the key focus on integrating new assets acquired in 2007, Rosneft was actively implementing a large-scale upgrade program. In particular, Komsomolsk Refinery completed the upgrade of an atmospheric and vacuum distillation unit to an annual capacity of 100,000 barrels per day, and launched the construction of a delayed coking facility. Additionally, a comprehensive hydrocracking project set to run through 2012 will enable the plant to further improve light product yield, and to increase the output of high-quality petroleum products complying with the Euro-4 and Euro-5 standards. Tuapse Refinery, which is favorably situated on the Black Sea coast, completed the design and engineering stage of a new atmospheric and vacuum distillation unit with a capacity of 240,000 barrels per day, which will be the first phase of the refinery’s major expansion project.

In 2007, Rosneft took control and successfully led comprehensive modernization of newly acquired refineries, which was primarily aimed at upgrading motor fuel production to Euro-3 and Euro-4 standards. We also initiated a set of strategic development projects for these refineries. Our key objective is to increase the refining capacity to maintain, and preferably enhance, the current balance between the upstream and downstream segments. The Company also strives to raise the share of higher value-added products complying with the latest environmental standards.

Acquisition of new petroleum product suppliers in 2007 enabled us to substantially increase the volume and profitability of wholesale and retail operations. Rosneft became the second largest oil company in Russia in terms of filling station network, which now covers 36 regions of the country. In 2007, we sold 18.3 mln. tonnes of petroleum products in the domestic market, including 2.3 mln. tonnes sold through proprietary filling stations.

The Company will continue extending the retail network in areas close to its refineries and tank farms, as well as in the rapidly developing markets of Moscow and St. Petersburg. By the end of 2008, Rosneft plans to complete large-scale rebranding of the filling stations acquired in 2007. Broader access to the Russian retail market will enable us to mitigate the impacts of high price volatility in the international crude oil market, and to enhance Rosneft’s competitive position through better brand recognition.

In 2007, we launched a major program to develop bunkering operations, which is a new business for the Company. Rosneft’s conveniently located refineries and modern transshipment infrastructure ensure environmentally safe year-round shipments and efficient sales of bunker fuel at the largest ports of the Far East, the Black Sea, and the Northwest region, as well as on major domestic sea routes.

The combination of state and private ownership is a solid basis for Rosneft’s further business growth. 2007 clearly demonstrated that Rosneft’s development strategy is effective and robust. Furthermore, we can now benefit from a diverse asset base and a wider range of future opportunities, supported by the experience and dedication of all of our staff. In the years to come, we will continue to pursue our key strategic priorities to ensure sustained growth in Rosneft’s operating and financial results for the benefit of our numerous shareholders.

Sergey Bogdanchikov President of Rosneft