Production and Development

Rosneft operates seven production business units and six fully consolidated production and development subsidiaries. The Company also has a 20% stake in the Sakhalin-1 project consolidated under the proportionate consolidation method. Five production joint ventures of Rosneft and its partners are accounted for under the equity method.

The Company’s 19 production and development business units, subsidiaries, and joint ventures operate in the most promising hydrocarbon-bearing regions of Russia: Western Siberia, Timan-Pechora, Central Russia, southern part of European Russia, the Russian Far East, and Eastern Siberia. Yuganskneftegaz and Purneftegaz in Western Siberia, and Samaraneftegaz in the central part of European Russia are Rosneft’s most important production and development units, collectively accounting for 79% of total crude oil production in 2008.

Rosneft confirmed its status as Russia’s leading oil producer in 2008 and posted the highest crude production growth rates among its Russian and international rivals. The Company produced 776.3 mln barrels of crude oil and gas condensate (including 707.7 mln barrels produced by subsidiaries), up 4.9% compared with 2007. The increase in output was largely driven by sustained organic growth, as well as acquisitions made in 2007. The organic increase in oil production (excluding the 2007 acquisitions of subsidiaries and shares in affiliates) was 3.6%, due mainly to further development of Yuganskneftegaz fields, particularly the Priobskoye field.

Being one of the largest independent gas producers in Russia Rosneft produced 12.4 bln cubic meters of gas in 2008, which represents a 21.2% decrease compared with 2007. The decline was due to temporary suspension of production at several gas fields in the Yamal-Nenets Autonomous District as part of the Company’s policy of rational reserve use and environmental protection, which envisages reduction of gas flaring and increase of gas utilization rates. Gas sales declined by only 9.8% in 2008 compared with 2007, despite the production decline of more than 20%.

Company efforts in 2008 were focused on controlling costs, improving operating efficiency of producing assets and bringing existing hydrocarbon reserves into production. Upstream production and operating expenses decreased by USD 68 mln in 2008 compared to 2007 and amounted to USD 3.41 per bbl produced and USD 3.11 per boe produced compared with USD 3.48 per bbl produced and USD 3.08 per boe produced in 2007. The decrease in operating expenses per barrel of crude oil produced was due to deconsolidation of Tomskneft (after its sale in December, 2007) and replacement of third-party services (repair, workovers, etc.) to upstream entities by intra-Group services (service companies were acquired in 2007). However, the savings were partly cancelled out by increases in electricity tariffs and consumption, increased costs of well workovers by external service providers, as well as additional accruals for polluted lands.

Production drilling by Rosneft subsidiaries (excluding the Sakhalin-1 project) was 2,103 th. meters in 2008. A total of 618 oil wells and one gas well were put into operation after production drilling. Production from new wells (including wells put into operation from other drilling categories) was 65.4 mln barrels of crude oil and 0.2 bln cubic meters of gas. As of December 31, 2008 Rosneft subsidiaries had 18,487 wells producing oil and gas condensate. The decline in numbers from the end of 2007 was due to optimization works including mothballing of wells with low flow rates and high watercut.

Rosneft’s average daily flow rate per new production well was 635 barrels in 2008, which is 2.5 times higher than the Russian average, and average flow rate for all production wells was 105 barrels per day, which is 1% higher than in 2007. Rosneft’s average oil flow rate, net of effects from 2006 and 2007 acquisitions, increased by 7% year-on-year to 122 barrels a day.

Development costs of Rosneft’s subsidiaries totalled USD 6,405 mln, up 38.5% year-on-year. This growth was primarily due to the implementation of large-scale development projects such as the Vankor field as well as cost inflation and acquisition of new assets in the second quarter of 2007.

Key Indicators