Russian Oil and Gas: Business Opportunities The Vision

September 2003 Russia’s Crude Still Underestimated

Russia’s Proved Reserves Russia’s Share in Global 145 Proved Oil Reserves

125 Russia 6% Saudi 105 Arabia

bbl 25% n 85 150

bl 2002

65 Others 76 69% 45 60 48 67%Russia 25 18% 2001(A) 2002(A) 2002(B) 2010-2015E 2002(A) – Western estimates of Russia’s total proved oil reserves (Sources: BP Statistics) 2002(B) – Internationally audited oil reserves of Russia’s ten leading oil 2010-15E and gas companies (Sources: Miller&Lents, DeGolyer and Others Saudi MacNaughton, Company data) 59% Arabia 2010-15E – Expected increase in proved oil reserves due to development of 23% new regions, including Timan-Pechora, region, Eastern , Arctic shelf and Sakhalin

1 Just Getting Back the Historical Volumes

Russia Russia Russia Russia 8% 11% 19% 15%

Rest of Rest of the Rest of 1987 Rest of 1998 2002 the 2012 world the the world 81% world 85% world 89% 92%

Crude oil production in Russia 600 12

500 10

400 8

300 6

200 mln bpd mln tonnes pa mln tonnes 4

100 2

0 0 * 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1985 2012E * On 8 month basis, annualized. 2003E

2 Russia — a Future Oil Supplier to the U.S.

US crude oil suppliers

Canada Arab 15% OPEC USA 28%

Mexico 15% 2002 North Sea 6% Others Other 13% OPEC 23%

Canada 14% Arab OPEC 23%

Mexico As export infrastructure in Russia 14% 2010E expands, Russian oil companies North Sea will be able to supply at least 2% Other OPEC 13% of total oil imports to the Others 20% United States 13% Russia 14% Source: US Energy Department, IEA, WOOD MACKENZIE, LUKOIL. 3 Pipelines Capacities Grow Slower Than Production

450 Deficit of export capacities

400 Alternative export options Дефицит 350 Murmansk Pipeline System

Angarsk — China 300

Odessa — Brody pipeline s ICIT 250 DEF reverse nne o

t Adria pipeline reverse n l 200 m CPC-Transneft connector 150 Venspils terminal 100 Varandei terminal 50 (2nd and 3rd stages)

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Current capacities

4 Alternative Export Options

Export alternatives to Transneft pipeline system are railroads, river transport and commercial pipelines

Export transportation costs for The companies have to boost their railroads and river transport are exports via railroads and river tankers significantly higher comparing to that increase ecological risks pipelines: • Transneft — $10-12/tonne • Murmansk pipeline — $20-24/tonne • River transport — $35-40/tonne • Railroad — 45-60$/tonne

Fire on river tanker in Samara (September, 2003)

5 Russia — A New Source of Crude For the U.S.

Gulf of Mexico Crude Production 1.0 ¾ Russia’s oil industry is expected to grow at a 4-6% average annual rate over the 0.8 next decade

d 0.6 n b/ l

m 0.4 ¾ Russian crude oil production is projected to increase to 11 mbpd by 2010, a 45% 0.2 increase from 2002 0.0 1990 1994 1998 2002 2006E 2010E North Sea Crude Production ¾ Terminals capable of handling 8 supertankers will open the US market to Russian crude oil 6 d /

b 4 n As a new source of crude, Russia can ml ¾ 2 help ensure US energy stability, replacing a portion of declining North Sea and Gulf 0 of Mexico oil production 1998 2000 2002 2004E 2006E 2008E 2010E

Norway United Kingdom Denmark Other Source: WOOD MACKENZIE.

6 Russian Oil Exports — Unsecured

Storms in the Black Sea in Russian Domestic Crude Price Dynamics December 2002 forced the 18 terminal in Novorossiysk to stop 16 14 the operations almost for a month Historical 12 minimum l 10 bb Gulf of Finland (the Baltic $/ 8 6 Sea) has been frozen in 4 December, 2002 — January, 2003 2 resulting in 20% of working time 0 3 3 2 3 02 03 03 0 0 0 0 loss 02 ------l l r p- p- n Ju Ju Ja Se Se Nov Ma May

Total exports — 197 mln The problems with sea terminals tonnes (2002) in December, 2002 — January, 2003 caused the dramatic fall of domestic crude oil price

Russian oil exports are unsecured: • Strong dependence from consumers in Eastern Europe (“Druzhba” pipeline) • Restrictions in Turkish and Dutch straits limit growth of exports Source: Agrus. • Russian sea terminals strongly depend on weather conditions

7 Caspian Oil Will Intensify Competition at the Traditional Markets for Russian Oil Companies

8 «Buyer's Market» in Eastern Europe Will Strengthen (“Druzhba” Pipeline)

Urals/Brent Discount Dynamics (Russian average): •Historical Discount (20 years) — $0.7-0.8/bbl • 2001-2003 — $1.3-1.5/bbl

Urals/Brent Discount ("Druzhba" pipeline) 40 Dated Brent (NWE) $3.6/bbl ) 35 Urals ("Druzhba") bbl / 30 $

( $2.2/bbl e c

i 25 pr

e 20 d u r

C 15

10 2 2 3 2 3 2 3 2 3 0 0 0 0 0 0 0 02 0 0 ------l l v r- r- y y p- n n Ju Ju Ja Ja Se No Ma Ma Ma Ma

9 Low Diversification Causes Losses

Monopoly of “Druzhba” pipeline crude oil consumers and limitation of other export directions causes export revenues losses of up to $2.3 bln pa (comparing to export through Novorossiysk)

24 0.50 1.85 2.45 4.81 7.48 22 20 l* b 18 22.55 22.05 $/b 16 20.70 20.10 17.74 14 15.07 12 FOB Novorossiysk Litva (FIT "Druzhba" - "Druzhba" - Ukraine (DAF Belorussia (FIT Mazeikiu) south direction north direction Krasny Yar) Mozyr)

* Real prices in the middle of 2002. Sources: Petroleum Argus, Ministry of Energy of Russia. 10 The Murmansk Project Gives an Opportunity to Export Oil to the USA

Exports of Russian oil to the USA has not been profitable so far

• Unavailability of deep-water export terminals has not allowed for 270 thousand tons (2 million barrels) and bigger shipments. In this case savings on freight makes it possible to reach efficiency comparable with traditional supplies to the European market.

The Murmansk project provides for an opportunity to profitably export oil to the USA and has advantages over other routes

• Murmansk is the only ice-free Russian port with a closed deep-water harbor allowing a year-round shipments of oil in tankers having 300 thousand tons (2.2 million barrels) deadweight and bigger

• The project’s costs match any other projects with regard to the total transportation costs to the customer

• The project is expected to cover all of forecasted export capacity deficit in Russia

11 Comparison of the Different Routes to Carry Oil to the U.S.

12 Murmansk Pipeline Will Improve Russia’ Export Exposure

Route Western Siberia — Usa region — Murmansk Pipeline capacity — 70 mln tones pa Pipeline length — 2,717 km Pipeline diameter— 1,220 mm Capital expenditures — $5,165 mln Tariff at pay-off period— $20.0 per tonne

Route Western Siberia — Ukhta — Murmansk Pipeline capacity — 70 mln tones pa Pipeline length — 3,241 km* Pipeline diameter — 1,220 mm Capital expenditures — $5,744* mln Tariff at pay-off period— $24.4 per tonne

* Taking into account distance and capital expenditures for Usa — Ukhta pipeline construction.

13 Murmansk Pipeline System Implementation Plan

PROJECT PARTICIPANTS

PROJECT SCHEDULE

Commissioning

Construction

Capital costs and construction feasibility study, executive documents

Elaboration of the pre-project documentation

2002 2003 2004 2005 2006 2007 2008

14 LUKOIL Today

Today LUKOIL is:

1.3% of global oil reserves and 2% of global oil production.

20% of total Russian oil production and 18% of total Russian oil refining.

The only private Russian oil company whose share capital is dominated by minority stakeholders

The 2nd largest private oil company worldwide by .

The 6th largest private oil company worldwide by production.

The leading Russian oil business group with annual turnover of over $15 bln.

The most liquid among Central and Eastern European stocks on the London Stock Exchange (LSE).

The most liquid oil stock and second most liquid stock overall on the Russian Trading System (RTS).

A leader among Russian oil companies for openness and transparency. The first Russian company to be listed on the London Stock Exchange.

Sources: Energy Intelligence Group, Petroleum Intelligence Weekly, International Energy Agency, OPEC, US Energy Department, Russian Ministry of Energy, RTS, LSE, LUKOIL. 15 Part of the World Premier League

2002 Reserves 2002 Production

ExxonMobil 21.0 Shell 4. 3

ЛУ КОЙЛ** 19.7 * ExxonMobil 4. 2

Shell 19.0 BP 3. 5

BP 17. 3 ChevronTexaco 2. 6

ЮК ОС 15. 0 TotalF inaElf 2. 4

ChevronTexaco 11. 9 LUKO IL 1. 6

TotalF inaElf 11. 2 Yukos 1. 4

C onocoPhillip s 7. 7 1. 4

ENI 6. 9 C onocoPhillip s 1. 0

RepsolYPF 5. 1 RepsolYPF 0. 4

0 5 10 15 20 25 01 23 45 Reserves (bln boe) Production (mln boe/day)

* Taking into account acquisitions in early 2003. Crude oil and natural gas liquids Natural gas Source: company’s annual reports 16 LUKOIL’s Global Operations

Baltic States Byelorussia Poland Ukraine Cyprus

Czech Republic Azerbaijan USA Bulgaria Romania Kazakhstan Turkey Uzbekistan

Colombia Georgia Iran Egypt Iraq

17 International Upstream Activities

International Strategy: • proximity to consumer markets • low-cost production • favorable taxation

Region Status CIS (Caspian region) Middle East Latin America Under development, new Kazakhstan, Azerbaijan Egypt, Iran, Iraq Colombia opportunities Algeria, Libya, Kuwait, Ecuador, Brazil, New opportunities Uzbekistan, Turkmenistan UAE, Oman Venezuela

18 International Upstream Activities

Strategy: increasing share of natural gas LUKOIL international activities will help to meet a key target of the Company’s development strategy, which is to increase the share of gas revenues to 30- 40% in the medium term. Gas revenues will be boosted by developments in the Caspian and Northern Africa regions, oriented to sales on liberalizing European markets.

19 Rich Upstream Project’ Portfolio – Strong Competitive Advantage

20 Management Report – 1st Stage of Restructuring Program

In April 2002 LUKOIL launched a restructuring program to increase its efficiency

Restructuring program: implemented measures

Revenue enhancement Cost reduction Corporate structure • Increase exports • Shut down marginal • Consolidate wells subsidiaries • Accelerate development of new • Cost control • Divest non-core fields assets • Centralize treasury and risk management • Establish investment committee

21 Increasing Daily Output per Well – Reducing Costs

Crude oil production cost dependence Targeted daily output per well on daily output per well Targeted production cost

4.5 4.5 Tatneft: 3.82 t/d; $4/bbl 4.0 4.0 2001: 8.76 t/d; $2.7/bbl 3.5 y = - 0,3x + 5 SurgutNG: 3.5 8.48 t/d; $2.96/bbl 3.0 3.0 bbl) bbl / / $

2.5 $ ( t 2.5 t s s LUKOIL: o o

8.76 t/d; $2.7/bbl C C 2.0 2.0

1.5 YUKOS: 1.5 Target 2005-2008: 13.27 t/d; $1.72/bbl 12 t/d; $2.0/bbl 1.0 Sibneft: 1.0 13.65 t/d; $1.75/bbl 0.5 0.5

0.0 0.0 03691215 03691215 tonnes/day tonnes/day

22 Rising Efficiency of Upstream Operations

Watercut of LUKOIL's oil fields

79

78

) 77 %

( r t

u 9.8

pe 9.6 c 76 t 9.6 r u 9.4 9.4 ) p e t

y 9.4 t u a 9.2 9.0 o /d y Wa t 75 l 9.0 8.8 i (

l 8.8 l

da 8.6 e we g 8.4 a

74 r

e 1999 2000 2001 2002 1H

Av 2003 73 2001 2001 2001 2001 2002 2002 2002 2002 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

23 Crude Production Growth

Da ily crude production 1.52 1.50 1.48 6M 2003 production: d 1.46 +4% comparing to January 2003 1.44 +3% comparing to 6M 2002 1.42 1.40 Jan- Fe b- Ma r- Apr- Ma y- Jun- 03 03 03 03 03 03 Crude p roduction recconsilation 105% 1.8% -0,1% 103. 8% 103% 0.6% 1.5% 101% 100. 0% bpd 99%

97%

95% Production Brown Field Green Field Acquistion/ Inte rnational Production Janua ry 2003 Production Production consolid ation Production June 2003 Growth Grow th Growth 24 Reducing Crude Production Costs* in Spite of Ruble Appreciation

Ruble appreciation 3,6 7% 3,4 6% Decrease of extraction 5% costs per barrel 4% 3,2 3% 2% 1% 3,0 2.92 0%

l 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003

b 2.78 b 2,8 2.75 2.70 $/ 2.66 2.58 2.60 2,6 2.56 2.56

2,4

2001 average — 2.74 2002 average — 2.60 2,2

2,0 1Q 2001 2Q 2001 3Q 2001 4Q 2001 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003

* Exploration and production costs, including lifting costs, maintenance and repair of expensed wells, insurance and other costs; excluding taxes and depreciation. Calculated in accordance with US GAAP data. 25 Restructuring: 1st Stage Results – 2002

• The economic effect of marketing subsidiaries runs up to over $50 mln provided by:

• Group’s income increase due to divesting the companies with low or negative profitability and return on investments;

• Decrease of administrative expenditures.

• Economic effect of shutting down marginal wells accounts to about $110 mln in 2002.

• Increasing refinery throughput and reducing domestic crude oil sales allowed LUKOIL to get economic effect of about $240 mln in 2002.

• TOTAL ECONOMIC EFFECT FROM 1st STAGE OF RESTRUCTURING PROGRAM REACHED OVER $400 mln

26 Restructuring Program Objectives for 2003-2004

Restructuring LUKOIL’s service subsidiaries

LUKOIL has over 35 service subsidiaries employing about 15,000 people (10% of Group’s personnel)

Financial sector Engineering companies Transport companies

Within 3rd stage of restructuring the Group will divest unprofitable, non-core companies and rely on outsourcing 27 LUKOIL’s Development Strategy

• Short-term strategy (2003-2005) – 4% average annual production growth – To improve technology and systems of oil extraction, well-stream gathering, transportation and treatment – To accelerate development of new oil reserves • Medium-term strategy (2005-2008) – 5% average annual production growth – 17-20% weighted-average ROCE in upstream – Technology and equipment renovation in the Company’s core oil producing regions – Completion of preparatory stage and launch of commercial production in Northern sector of the Caspian Sea • Long-term strategy (2008-2010) – To increase output: min (oil – 2.2 mln b/d, natural gas – 0.5 mln boe/d), max (oil – 2.8 mln b/d, natural gas – 0.65 mln boe/d) – To control lifting costs (in constant 2002 prices and at $/RR exchange rate for 2002): oil – 2.0-2.5 $/bbl, gas – 0.10 $/1000 cf – To increase output from international operations to 15% of total production

28 LUKOIL’s Oil Reserves in Russia (PP, mln bbl)

Total reserves 1,208,331 mcm

29 LUKOIL in Timano-Pechora

LUKOIL’s production of hydrocarbons in the province 0,7 forecast 0,6

ay 0,5 d /

0,4

0,3 duction, Mboe 0,2 Pro

0,1

0,0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

30 LUKOIL in North Caspian

LUKOIL’s production of hydrocarbons in the province

0,3 forecast 0,3 ay d / 0,2

0,2 ion, Mboe ct 0,1 odu r P 0,1

0,0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

31 Upstream Sector Outside Russia – Strong Efficient Growth

International diversification of upstream: • Geographical diversification • Strong natural growth of production • Low lifting costs • Attractive taxation environment

30 es Average output growth rate is about 25% n n

o 25 t n

ml 20

15

10

5

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

D-222 Shakh-Deniz Kumkol Karachaganak Colombia Meleiha WEEM

32 LUKOIL’s Export Infrastructure and Expanding Export Operations

4Q 1Q 2002 Sales breakdown 1Q 2002 2002 2003

Export sales and sales on 65.8% 66.0% international markets to total 68.8% 62.2% volume of sales

Refined products to total volume 61.8% 57.0% 56.4% 49.4% of sales

Share of oil products in total 51.4% 49.4% export volumes and international 43.6% 42.7% sales Share of oil products in total 62.2% 58.9% export sales and international 53.6% 48.7% sales

33 Vysotsk — New Export Outlet

Construction•. work on the Vysotsk Export Terminal began in June 2002. The terminal will be able to lift crude oil and finished products (fuel oil, gas oil, gasoline and lubricants) and load tankers of 20,000-40,000 tonnes deadweight at the initial/first Vysotsk stage and tankers up to 80,000 tonnes deadweight when construction finished St.-Petersburg

SWEDEN ESTONIA

r Vysotsk terminal capacity e p

s 12

e 10

DENMARK n 10 n ) 8

to 6 n

l 6 m nnum 4 3 a

( LATVIA

ty 2 ci

a 0 p a Initial First Projected C stage stage capacity LITHUANIA (End- (Mid- (End- 2003) 2004) 2004)

With Vysotsk terminal on stream LUKOIL will get better exposure to European and US markets

34 Aiming to Be Gas Producer #2 in Russia

Natural and associated gas bcm Total reserves (ABC2 category) 1,208

2005 production forecast 11.27 2010 production forecast 38.7

35 LUKOIL’s Gas Reserves in Russia (PP, bcm)*

Total reserves 1,208 bcm

* Including natural gas and associated gas; Russian classification of reserves (ABC2 category).

36 Bolshekhetskaya Depression Gas Reserves

• In 2001 LUKOIL acquired Yamalneftegazdobycha, which holds licenses for significant S. Messoyakhskoe reserves in the Bolshekhetskaya 1st stage: Nakhodkinskoe depression Vareiskoe Yamburg • 290 bcm of total P1+P2 reserves; Pyakyakhinskoe management estimates total reserves L=150км of 1 tcm (including C1-C2 categories) Perekatnoe Khalmer- • Production is expected to start in 2005 payutinskoe • First stage – Nakhodkinskoe field Samburg • Expected payback period 5-10 years Zapolyarnoe • Close proximity to ’s fields and transport infrastructure (150 km) Yevo-Yakhta • Preliminary agreement with Gazprom to connect the field with the trunk Novy Urengoi natural gas pipeline system • At the advanced stage of development program at Yamal peninsula the PipelinesPipelines FieldsFields partners plan to set up a 200 kbpd LNG ExistingExisting gas gas Perekatnoe LLUKOIUKOILL plant ExistingExisting co connddensateensate Yamburg GazpromGazprom ProjectedProjected Samburg ArcticArctic Gas Gas

37 Strategic Objectives

• Main objective — maintaining ROACE at the set level

• Aiming to maintain output growth rate above 5% after 2005

• Export-to-output ratio – 70%

• Reaching and keeping production cost at $2.0-2.5/bbl

• Reaching average daily output per well at 12 t/d (88 bbl/d)

• Targeting one fourth of Russia’s total crude output by 2010

• Targeting over 3% of the world’s total output by 2010

• To be natural gas producer #2, control 5% of Russia’s total gas output

38