21 November 2007

The president of Rosneft visits the Vankorskoye field and Khanty-Mansiisk

On 20 November 2007, Sergey Bogdanchikov, president of Rosneft, made a business trip to the Krasnoyarsk Territory and to the Khanty-Mansiisk Autonomous District.

As part of the trip’s itinerary, Bogdanchikov visited the Vankorskoye field, where he held a production meeting, entitled Approach to Fulfilling the Schedule for Completing the Vankor Project, with the general contractors. Following the meeting at Vankorneft, Bogdanchikov also held a press conference for the local members of the media.

When answering the journalists’ questions, Bogdanchikov particularly noted that the Vankor project is proceeding as per schedule. “As anticipated, we shall begin the production and sale of oil here toward the end of 2008, and the Company will begin to recoup its investment,” announced the president of Rosneft. Bogdanchikov also noted that “we have discovered growth in the reserves at the field, meaning that the effectiveness of this project exceeds our previous expectations.”

In speaking about Rosneft’s other project in the Krasnoyarsk Territory — the development of the Yurubcheno-Tokhomskoye field — Bogdanchikov announced that as part of the business plan reviewed by the Company for 2008-2012, “a clear decision has been rendered that this field will be developed and that the number of personnel will be increased at this field to increase the intensity of work.”

According to Bogdanchikov, “the board of directors in December will approve the business plan, according to which specific financing for this project will be outlined, and there will be a significant increase versus 2007. Therefore, this project has a very promising future. Of course, the field is slightly less than Vankor, but the project is also of very high importance for the Company.” During his statement, the president noted the unique quality of the oil at the Yurubcheno-Tokhomskoye field and its relative close proximity to Rosneft’s Achinsk Oil Refinery.

In answering the question regarding the possibility of developing the Yurubcheno-Tokhomskoye field in conjunction with the other companies operating in the region, Gazprom and Slavneft, Bogdanchikov noted that Rosneft will work independently at the field. He also noted that “following the evaluation of the gas potential of the field, we shall study the direction of transportation by Gazprom and the gas belonging to it and we shall try to coordinate the set-up of a single gas-transport system.” Additionally, according to the head of Rosneft, the Company is discussing “the possibility of creating a single transport system to transport Slavneft’s crude along the same flow as our oil” with the shareholders of Slavneft (TNK-BP and Gazrpomneft).

“This is completely logical, as the quality of the oil is virtually identical. It is highly likely that we shall come to an agreement and shall work together,” said Bogdanchikov.

When talking about the plans for the energy assets (including those in Siberia) acquired in the wake of the YUKOS bankruptcy proceedings, the president of Rosneft said that “there is not a set understanding for ‘non-core’ energy assets. We are preparing today an energy-development concept in our Company. What we do know is that we already have definite energy supplies,” explained Bogdanchikov. According to him, when developing the strategy, Rosneft estimated that “by 2020, up to 30% of our own consumption will be met by our own supplies. Accordingly, when operating in this area, we should understand the role of the assets and blocking shares that we have acquired in Tomskenergo and Kubanenergo. When developing this strategy, we shall determine what to do with them.”

In terms of Rosneft’s plans to modernize the oil refinery enterprises in Achinsk and Angarsk, the president of Rosneft said that “a new isomerization unit will be delivered for use in Achinsk, that will produce high-quality gasoline mainly for use on the Russian market.” In addition, according to Bogdanchikov, “we are installing a delayed coking unit at Achinsk Oil Refinery to increase the positive economic effect the moment the oil arrives from the Yurubcheno-Tokhomskoye field.” This will substantially increase the refining rate and release of light petroleum products.

Moreover, the Company is reviewing the possibility of increasing the refining capacity at Achinsk from 6 million tonnes to 8 million tonnes per year. “To ensure that the increased amount of light petroleum products will be fully used, a pipeline will be built from Achinsk to Kemerov. This will lengthen the current pipeline network in the Russian Federation by 300 kilometers to the east, and we shall improve delivery standards of Achinsk fuel to our gasoline pumps in the country’s various regions,” noted Bogdanchikov.

According to him, there are plans also to increase the capacity of the Angarsk Petrochemical Plant from 8 million tonnes to 12 million tonnes per year. In addition, Rosneft plans to double production of petrochemical products at this refinery, as well as begin producing end-products, such as film, which have additional costs added.

In commenting on Rosneft’s supposed plans to set up a type of trading company in the Krasnoyarsk Territory, Bogdanchikov announced that this actually concerns creating a full-scale petroleum-products sales point in the territory. “Given that the refinery is nearby, we need to buy and build gasoline pumps, and this requires an enterprise, which we are currently creating,” said the president of Rosneft.

Following his trip to the Krasnoyarsk Territory, Bogdanchikov flew to Khanty-Mansiisk, where he held a meeting with the governor of the autonomous district, Alexander Filipenko. During the meeting, a cooperation agreement was signed for 2008, and, in accordance with the document, Rosneft will be required to invest RUB 630 million in capital development on the territories of five municipal districts of the region: Neftegansk, Khanty-Mansiisk and Surgut districts, the cities of Neftegansk and Pyt-Yakh. The Company’s program envisages the construction of educational, sports and cultural, residential and utilities facilities, as well as the participation in the cultural and sports and fitness events of the autonomous district.

The Company has also assumed responsibility for tax payments in regards to the autonomous district’s budget, and it is also responsible for increasing, in part, the amount of geological exploration and industrial production and providing for environmental protection. Indeed, Rosneft’s fields in the district must recover 95% of the associated gas (AG) by 2011.

As noted by Bogdanchikov, the partnership with the territories and the social investment is one Rosneft’s priority direction. “Our Company employs a social strategy that incorporates production and social responsibility,” noted the president of Rosneft. “We have social partnerships with many territories of the Russian Federation, but the most significant number is in the Khanty-Mansiisk Autonomous District, given that the largest volume of Rosneft’s oil production comes specifically from this region.” Over the past three years, Rosneft has increased oil production in the district by 10 million tonnes, having laid the foundation to double this growth by 2012 and reach an annual volume of 75 million tonnes.

Rosneft’s subsidiary, Yuganskneftegaz, is responsible for the main oil production in the district, with the most prospective reserves located on the territory of the Priobskoye field. As part of his trip, Bogdanchikov visited the left bank of Priobskoye, and, together with the governor, took part in the groundbreaking ceremony for the construction of a 315-mW gas-turbine electric station. By completing the Priobskoye GTES project, the Company will increase the reliability of the electrical supply, develop the production capacity of Yuganskneftegaz and also ensure environmental protection for the territory, as the amount of hazardous substances emitted from the gas-turbine unit will be significantly lower than the standards set by Russia and other countries. Also, construction of the GTES will increase the effectiveness of using associated gas. The station will burn off about 533.4 million cubic meters of AG per year.

Compressor station #1 will be able to resolve the issue fully with recovering AG. Bogdanchikov also attended the opening ceremony of this station which is the most powerful at Yuganskneftegaz. Indeed, around 2 billion cubic meters of AG annually are recovered here.

When evaluating the new facilities, Bogdanchikov noted that “this is the foundation for forming an entire complex: CS-1, CS-2 (slated to be built nearby) and GTES. These are very important facilities for our company in terms of size, volume, concentration of power, expenditures and anticipated effect.”

Once he had visited these and other facilities at Yuganskneftegaz, Bogdanchikov held a production meeting during which the participants reviewed the results of the enterprise’s activities for January-October 2007, the Company’s goals for the end of the year and the business plan for 2008-2012.