Gas Strategy

Rosneft is among the largest independent gas producers in Russia, with gas output currently accounting for about 10% of its total hydrocarbon production. Gas business is becoming increasingly important to Rosneft as the Company has excellent prospects to build on its significant undeveloped gas reserves, which is further supported by the growing gas prices. Rosneft’s potential on a gas production exceeds 55 bln cubic meters a year. Rosneft’s gas production growth is only limited by the access to Gazprom’s transportation system and Gazprom’s ability to procure gas on the domestic market (Rosneft can not export natural gas as Gazprom holds export monopoly, and the capacity of the domestic market is limited) – those two issues are currently being discussed with Gazprom.

As of year-end 2009, the Company’s proved gas reserves under PRMS classification totaled 816 bcm, with only less than one-quarter of these being developed. Approximately 70% of Rosneft’s proved gas reserves are located in Western Siberia, primarily in the Yamal-Nenets Autonomous District, and 46% of proved gas reserves are concentrated at the Kharampurskoye field.

Rosneft is implementing an integrated gas strategy, which covers both onshore and offshore gas fields. The main onshore project is the massive Kharampurskoye field in Western Siberia. Gas produced at this field and within other onshore projects is planned to be sold to Gazprom and domestic end-users. Sakhalin-1 in the Russian Far East is Rosneft’s key offshore gas project, where gas production has been underway since late 2005. The Company also performs full-scale exploration activities within its prospective offshore projects — Sakhalin-3 and Sakhalin-5.

Another strategic priority of the Company’s gas strategy is improving the utilization of associated petroleum gas. The associated gas utilization ratio was 65.3% in 2009, compared with 61.1% in 2008. The Company made progress in 2009 in its program for increasing rates of associated gas utilization. Work included the launch and fine-tuning of the first gas compression station at the Priobskoye field in Khanty-Mansiysk Autonomous District. The station was brought into commercial use, enabling an increase of 700 mln cubic meters per year in the amount of usefully employed associated gas. General construction work at the first stage of the Priobskaya Gas-turbine Power Station was completed at the end of 2009, and installation and start-up work began. The station will have 300 megawatt capacity and will use over 500 mln cubic meters of gas each year.

Construction work was also completed in December 2009 at the Tarasovskaya Gas-piston Power Station in Western Siberia. The station will have 54 megawatt capacity and will use about 80 mln cubic meters of gas each year.

The gas utilization program also envisages using comprehensive mechanisms of the United Nations’ Kyoto Protocol. In 2009, construction work was carried out at the Kharampurskoye and Komsomolskoye fields in the Yamal-Nenets Autonomous District in the framework of agreements on sale of Emission Reduction Units (ERUs) reached in 2008 between Rosneft, the World Bank and Carbon Trade & Finance SICAR S.A. (a joint venture between Dresdner Bank and OJSC Gazprombank). The scale of emission reductions at the Khasyreiskoye field in the Nenets Autonomous District was verified. Implementation of the agreements will partly reimburse investments made in programs for improving efficiency of associated gas use at these fields.

In 2009, the Company’s total gas production was 12.68 bcm, down by 2.4% compared with 2008.

Rosneft’s gas business — key performance indicators