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Rosneft Reports US GAAP Results for the Three and Nine Months Ending September 30, 2006

27 December 2006

OJSC Rosneft (Rosneft or “the Company”) today, December 27, reported its consolidated financial results in accordance with US GAAP for the third quarter and first nine months of 2006, both periods ending September 30, 2006.

Financial review

 3Q 20063Q 20059M 20069M 2005
USD million
 
Revenue 9,165 7,080 25,521 16,944
EBITDA 2,217 2,325 6,395 5,627
Net income 1,051 1,208 2,930 3,594
Net income before minority interest adjusted for the sale of CJSC Sevmorneftegaz 1,074 1,268 3,027 2,978
 
Net cash provided by operating activity     3,560 1,985

In the first nine months of 2006, Rosneft’s total revenues increased by 50.6% to USD 25,521 million from USD 16,944 million in the first nine months of 2005. In the third quarter of 2006 Rosneft’s total revenues increased by 29.4% to USD 9,165 million from USD 7,080 million in the third quarter of 2005. In the first nine months of 2006 EBITDA grew by 13.6% to USD 6,395 million from USD 5,627 million in the first nine months of 2005. In the third quarter of 2006 EBITDA decreased by 4.6% to USD 2,217 million from USD 2,325 million in the third quarter of 2005. Net income adjusted for the sale of CJSC Sevmorneftegaz and minority interest in the income of subsidiaries increased by 1,6% to USD 3,027 million in the first nine months of 2006 from USD 2,978 million in the first nine months of 2005. At the same time net income for the third quarter of 2006, adjusted for the sale of CJSC Sevmorneftegaz and minority interest in the income of subsidiaries, decreased by 15.3% to USD 1,074 million from USD 1,268 million in the third quarter of 2005. The decrease in both EBITDA and Net income in the third quarter of 2006 was largely due to higher levels of taxation, as taxes other than income tax increased by 22.4% while export duties increased by 66.2%.

In the first nine months of 2006, the Company continued to grow cash flow generation. In particular, net cash provided by operating activities increased by 79.3% to USD 3,560 million compared to USD 1,985 million in the first nine months of 2005. Capital expenditures increased by 64.9% to USD 2,131 million from USD 1,292 million. This increase is primarily attributed to the expansion of operations at Yuganskneftegaz and commencement of full-scale development at the Vankor field. Adjusted free cash flow before interest increased by 62.6% to USD 1,961 million from USD 1,206 million.

In the first nine months of 2006 Rosneft continued to deliver industry leading organic crude oil production growth. In the first nine months of 2006 crude oil production of the consolidated subsidiaries, including equity share in Sakhalin-1 project, increased by 8.6% to 58.464 million tonnes (1,567 kbpd) from 53.850 million tonnes (1,443 kbpd) in the same period of 2005. Primary growth drivers were Yuganksneftegaz and Severnaya Neft as well as Sakhalin-1 project which commenced production at Chaivo field in the fourth quarter of 2005. Yuganksneftegaz increased its production by 9.8% to 41.443 million tons (1,110 kbpd) from 37.734 million tons (1,011 kbpd), while Severnaya Neft grew its production 19.5% to 4.177 million tons (112 kbpd) from 3.496 million tons (94 kbpd). Rosneft’s share of Sakhalin-1 production in the first nine months of 2006 amounted to 207 thousand tons (6 kbpd). Crude oil production including Rosneft’s equity share in affiliates (Polar Lights Company and Adai Petroleum) increased by 8.5% to 58.952 million tons (1,580 kbpd) from 54.352 million tons (1,456 kbpd).

In the third quarter of 2006 crude oil production of the consolidated subsidiaries increased by 9.3% to 20.353 million tonnes (1,618 kbpd) from 18.623 million tonnes (1,481 kbpd) in the third quarter of 2005. Crude oil production including Rosneft’s equity share in affiliates increased by 9.1% to 20.523 million tonnes (1,632 kbpd) from 18.803 million tonnes (1,495 kbpd) in the third quarter of 2005.

Natural and associated gas production by consolidated companies increased by 7.5% to 10.12 bcm in the first nine months of 2006 from 9.41 bcm in the first nine months of 2005. Sales of gas amounted to 6.99 bcm, an increase of 4.6% compared to 6.68 bcm in the first nine months of 2005.

In the third quarter of 2006 natural and associated gas production by consolidated companies grew 1.8% to 3.35 bcm from 3.29 bcm in the third quarter of 2005. These increases were mainly attributed to the fields of Krasnodarneftegaz and Selkupneftegaz. Sales of gas increased by 6.6% to 2.41 bcm from 2.26 bcm. In the first nine months of 2006 production of refined products, including third-party refineries, amounted to 16.89 million tons, an increase of 10.6% over the level of the first nine months of 2005 of 15.27 million tons. Oil products output at proprietary refineries increased by 4.2% to 7.92 million tons from 7.60 million tons. In the third quarter of 2006 production of refined products decreased by 1.7% to 5.68 million tons with share of proprietary refining growing 4.2% to 2.72 million tons.

In the third quarter of 2006 the Company made a number of acquisitions. In particular, Rosneft acquired licenses for exploration and development of Severo-Charsky block at the border of Taimyr and Yamalo-Nenetsky regions in July 2006, Kulyndinsky block in Evenkia in August 2006 and Osoveysky block in Nenetsky autonomous region in September 2006. In July 2006 the Company repaid USD 1.34 billion to ONGC, retiring in full the carry financing provided previously by ONGC to cover the Company’s share of development costs of Sakhalin 1. Upon retiring the carry financing, Rosneft began to account for its 20% share of Sakhalin 1 via the proportional consolidation method.

In July 2006, Rosneft completed the initial public offering of its shares and global depositary receipts. The total amount of funds raised during the placement was USD 10.6 billion making Rosneft’s IPO the fifth largest in the world at that time. Rosneft’s shares have been listed and are traded on Russia’s RTS and MICEX exchanges, and the GDRs are traded on the London Stock Exchange under ticker ROSN.

In October 2006 the Company completed the consolidation of 12 core subsidiaries, thereby. creating a vertically-integrated company with a single profit center and simplified operating structure allowing the Company to increase effectiveness. Following conversion of their shares in the subsidiaries into Rosneft shares, minority shareholders are now owners of the second largest oil company in Russia and will share the success of the united, integrated Company.

In December 2006, Rosneft finalized its acquisition of an interest in OJSC Udmurtneft. Previously, in April 2006, Rosneft and China Petrochemical Corporation (Sinopec) signed an option agreement entitling Rosneft to buy an interest in OJSC Udmurtneft if Sinopec were to win a tender for the purchase of Udmurtneft from TNK-BP. In June 2006, TNK-BP announced the sale of 96.86% of Udmurtneft to Sinopec. To manage the activity of Udmurtneft a joint venture has been established with 51% and 49% ownership by the Company and Sinopec, respectively. The financing of the acquisition of the interest in Udmurtneft by the Company has been arranged by Sinopec as per the option agreement and this financing will be repaid from the cash flows of Udmurtneft directly, without recourse to Rosneft.

Rosneft’s US GAAP financial statements and management discussion and analysis for the first nine months of 2006 and previous periods are available for download at www.rosneft.com.

OJSC Rosneft Information Division
221-31-07 phone
411-54-21 fax
n_manvelov@rosneft.ru
December 27, 2006

These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.