Responsible Energy Sustainability Report 2011

People Efficiency Innovation Responsible Energy the driver of our the foundation the essence of Sustainability Report 2011 transformation of our success our leadership

TNK-BP 3/1 Begovaya str. Moscow Russian Federation 125284 Contact us on +7 495 787 9681 or email madracheva@tnk-bp.com People. Efficiency. Innovation. www.tnk-bp.com Key sustainability indicators in 2011

82.8% TNK-BP utilization of associated – among 11 international petroleum gas oil companies with minimal total recordable injury frequency rate in 2011

31bn 320mln USD USD paid in taxes in Russia, investment in Ukraine and Belarus environmental in 2011 protection

18 regional and 43 municipal authority agreements on social and economic cooperation

117mln 28,000 161mln engineers and technicians USD took part in external USD investment in social education programs the saving effect from programs for communities energy efficiency and employees programs in 2009-2011

Designed and produced by MerchantCantos. www.merchantcantos.com O O

TNK-BP is a leading Russian oil company and is 01_Overview 02-17 v v e e r r

02 Keeping promises v v

among the top ten privately-owned oil companies i i e e in the world in terms of liquids production. 04 Our approach to sustainability w w 06 Company profile The Company was formed in 2003 as a result of 12 Ma p of operations the merger of BP’s Russian oil and gas assets and 14 Our strategy for the future the oil and gas assets of Alfa, Access/Renova group 02_Corporate governance 18-25 C (AAR). BP and AAR each own 50% of TNK-BP. g o o v r e TNK-BP also owns close to 50% of Slavneft, p r 03_Ethics and compliance 26-31 o n r a a n a vertically integrated Russian oil company. t e c

04_Responsible approach 32-59 e 33 Responsible approach to the Earth 33 Protecting the environment 36 Mature fields – heritage and potential c 42 New fields – challenges and solutions E o t h 46 Responsible approach to water m i c p s

48 Responsible approach to air l i a a n 48 Climate change n d c 52 Raising energy efficiency e 56 Cleaner fuels 58 Efficient use of associated petroleum gas R 05_Fostering the safety culture 60-65 ap p e s r po n oa c 06_Energy of people 66-89 s h i

67 Con tributing to society b l 72 Interaction with indigenous people e 74 Interaction with suppliers and contractors 77 Our team – values and motivation sa f F

07_Standard disclosures 90-97 o s e t t eri n y

08_Independent assurance report 98-99 c u g l

tur e t h e

09_Additional information 100-102 101 Glo ssary 102 Abbreviations

E n e r g y

o f

Visit us online at: www.tnk-bp.com p e o pl e S d i t s a c n l d o a s r ur e d s I a n s d s epe n

Annual Review and Summary u r

Financial Statements 2011 a n c d e e

n r e Cautionary statement Affiliates t

This publication contains forward-looking statements TNK-BP owns close to 50% of Slavneft, which is po r regarding TNK-BP’s assets and financial and operational managed independently and reports as a separate entity. performance and strategy. Actual results may differ In 2011, TNK-BP acquired minority equity interests in t depending on a variety of factors. three upstream producing entities in Venezuela, majority ownership and control in each case is held by Petroleos

de Venezuela S.A. (“PDVSA”), a state-owned oil company. i A n dd i f

TNK-BP’s net income and EBITDA numbers include its o

share of Slavneft’s and Venezuela affiliates’ results. Any r t ma t i

other figures quoted in this publication exclude Slavneft o and Venezuela affiliates unless stated otherwise. na l i o n

Sustainability Report — TNK-BP 2011 01 01 Overview

02 Keeping promises 04 Our approach to sustainability In 2011, we said we would 2011 actual results Goals for 2012 and beyond 06 Company profile 12 Map of operations Responsible operations 14 Our strategy for the future –– Grow production to meet the incremental energy demand. –– Replace at least 100% of production with new reserves. –– Increase the share of higher quality products friendly to the environment and car engines, satisfying the growing demand for quality fuel. –– Embed safety as a top priority in our operations or any Keeping promises associated activity.

“Sustainable development means meeting the needs of the present without compromising the ability of future generations to meet theirs.” UN World Commission on Environment

Responsible attitude to people “W e are committed to supplying affordable oil, natural gas and –– Remain a good corporate citizen; share with society. petroleum products to our customers –– Strive to become an employer of choice in the Russian with the minimum possible impact on oil industry. the environment and without harming –– Strengthen social partnership in the regions where we operate. our people and those who live in the regions in which we operate.” TNK-BP

Responsible treatment of the environment

–– Minimize the environmental footprint of our operations. –– Develop efficient APG utilization. –– Improve the quality of land remediation.

02 Sustainability Report — TNK-BP 2011 Overview

In 2011, we said we would 2011 actual results Goals for 2012 and beyond Responsible operations

–– Production grew by 2.8% including affiliates to 1,987 mboe/d. –– Grow production by 1% – 2% in the mid-term till the launch of the Yamal projects in the middle of the current decade. –– Total proved SEC LOF reserves at 31 December 2011 amounted to 9,115 mln boe, inclusive of Vietnam, – a 145% reserve –– Continue replacing at least 100% production with new reserves replacement ratio. in a cost-effective way with minimum environmental damage. –– The share of light oil products (gasoline, jet fuel and diesel) –– In 2012-2015, we aim to spend USD 2.5 bn on projects to increase amounted to 54.3% of the total product yield. the refining depth and improve the fuel quality at our refineries. –– As of 1 January 2011, all our refineries switched to production Implementation of those projects will allow us to meet the technical of gasoline compliant with at least Euro-3 standard ahead of the regulations imposed by the Russian government and ensure a deadline set by the Government. The share of Euro-4 gasoline sufficient amount of high quality product supply to our retail network. increased to 31% of total gasoline production compared to 18% in the previous year while the share of Euro-4 and Euro-5 diesel –– Strengthen a pro-active approach to embedding safe work went up to 55% in TNK-BP’s total diesel production compared practices and a healthy lifestyle among employees and to 38% in 2010. contractors through involvement in the process of ensuring the safety of all employees of the production team – from the –– Total recordable injuries were reduced by 2.7 times on the worker to the general director, inclusion of HSE procedures 2005 baseline. into business processes and medical care improved at remote production facilities. Sadly, we had 6 work-related fatalities among employees of contracting organizations.

Responsible attitude to people

–– USD 31 bn paid in taxes in Russia, Ukraine and Belarus; –– Timely payment of taxes is one of the main indicators of a continued involvement in activities relating to the oil and gas socially responsible company. We will continue doing so in sector and to the wider business community; development of an open and transparent way, remaining one of the largest the new industry taxation system. taxpayers in Russia. –– USD 80 mln – investment in corporate social programs –– Continue focused training and development programs for + USD 11.7 mln spent on employee professional training and employees of all levels. Maintain a competitive remuneration development. system. Continue with equal opportunities for all employees regardless of age, gender and nationality. TNK-BP – one of the leaders in the rating of “Best Company for Work and Career 2011” and a leader in modern educational –– Social investment budget to be increased to USD 60 mln technologies for blue-collar workers as recognized by the in 2012. Russian Ministry of Energy and the Russian Union of Continue close engagement with authorities in the regions Industrialists and Entrepreneurs. of our operations to identify and support most important –– 18 agreements with regional administrations and 43 agreements social initiatives. with municipal authorities on socio-economic cooperation signed. USD 37 mln spent on external social programs.

Responsible treatment of the environment

–– RUR 9.7 bn spent on environmental protection. –– Improve efficiency of environmental investment and contractor performance. –– 82.8% of APG utilization, one of the highest in the Russian industry. –– Implementation of the APG utilization program to enhance the overall APG utilization rate to 95%. Proceed with construction USD 1.4 bn program for developing facilities for APG utilization. of a second stage of the gas turbine power plant at the –– 388 hectares of remediated land handed over to the government Kamennoye oil field in West Siberia. agencies and recultivation works on 181 sludge pits performed. Work under the Orenburg Integrated Project to maintain A comprehensive check of the inventory of TNK-BP’s legacy momentum with further expansion of the Zaikinskiy gas pollution with the data supplied by the government of the processing plant and other activities. Khanty-Mansiysk autonomous region used to improve accuracy –– The remediation program to continue with an enhanced focus of planning and action plans. on the quality of work. Our priority in 2012 will be improving 396.7 km of pipeline replaced + more than half of our field the land and sludge pit remediation as well as evaluation of the required clean-up of lakes in West Siberia. pipeline network (12,183 km) protected by inhibition. Develop new inhibition technologies and diagnostic techniques The effect resulted in 43% less of oil spilt per 1 th. tons to build in the achieved results. of oil produced.

Sustainability Report — TNK-BP 2011 03 Our approach to sustainability

We are Russia’s third largest and one of the world’s top ten private oil companies. Our activity naturally has broad implications. Our stakeholders include the communities in which we operate, local authorities, non-governmental organizations, customers, suppliers and contractors, employees and their families, investors, the media, the scientific community and all of our shareholders.

Stakeholder engagement Scientific community The sustainability report for 2011 holds no For each shareholder group we select forms –– A number of partnership programs re-statements nor re-evaluation of information of engagement which are most effective, with universities. provided in the earlier report. convenient and of mutual benefit. Through these forms of stakeholder Report boundaries and reporting sessions Federal and local authorities engagement we have been able to reveal have not changed. –– Participation in government working priority issues for our stakeholders, and We use contracting services in some of groups (ongoing). measure them against our own priority issues our operations. Indicators related to the –– Agreements on cooperation with local (see the chart opposite). We have tried to activities of our contractors and services are administrations in the regions in which ensure that all issues identified as top priority not reflected in this report (with the exception we operate (once a year). by our stakeholders and ourselves are of occupational safety data). A similar –– Participation in the Russian Union of addressed in this Sustainability Report. approach was used in preparing the Industrialists and Entrepreneurs (ongoing). Reporting principles sustainability report for 2010. Local communities This Sustainability Report is produced in –– Public hearings and consultations We plan to continue publishing our accordance with the reporting principles and (depending on business needs). sustainability report annually. This report guidelines of the Global Reporting Initiative –– Participation in regional exhibitions and is published in Russian and English and is (GRI) version 3.0 (G3). Our self-declared forums (depending on business needs available on our website www.tnk-bp.com. GRI application level is A+ owing to our and requests). independent external assurance. The data This report is prepared on the basis of Employees and their families in the report has been generated in management reporting and audited financial –– Regular satisfaction surveys (at least accordance with TNK-BP’s internal policies statements prepared in accordance with once a year). and procedures. Independent external Russian Accounting Standards and US GAAP. –– Interaction with labor unions (ongoing). assurance in accordance with international Report boundaries –– An employee hotline (ongoing). standards was provided by PwC. This sustainability report presents information Customers This is our fourth report on sustainable about TNK-BP International Limited and its –– Regular market research. development, which covers the period from subsidiaries, together referred to as “the –– A customer hotline. 1 January 2011 to 31 December 2011. Our TNK-BP group” or “TNK-BP” or, throughout –– Exhibitions. first sustainability report was published in 2009 this report, as “the Company”, “we”, “us” or Shareholders and investors and covered the period from 1 January 2008 “our” (please see the corporate structure of –– Shareholder meetings. to 31 December 2008. The second the TNK-BP group on p. 20). –– Quarterly financial statements and sustainability report was published in 2010 and Our major operations are carried out in Russia investor calls. covered the period from 1 January 2009 to and Ukraine. This is why all indicators shown –– Roadshows and information meetings. 31 December 2009. The sustainability report in this report refer to all operating subsidiaries for 2009 received independent external Non-governmental organizations of TNK-BP International Limited in Russia and assurance from PwC in accordance with –– Round tables. Ukraine. In 2011, the Company purchased the B+ GRI application level. The third –– Ongoing consultations, site visits. interests in several ventures in Vietnam and sustainability report was published in 2011 Venezuela. In the reporting period, those Suppliers and contractors and covered the period from 1 January 2010 acquisitions did not have a material impact –– The suppliers and contractors forum. to 31 December 2010. The sustainability on the Company’s performance. –– Suppliers and contractors trouble-shooting report for 2010 received independent external commissions. assurance from PwC in accordance with the –– Agreements. A+ GRI application level. –– Briefings on our safety/quality requirements.

04 Sustainability Report — TNK-BP 2011 Overview

Priority topics determined through stakeholder engagement

10 4 1

3 9 9 14 31 8 16 5 12 2 21 13 22 29 20 15 26 7 24 8 17

6 18 28 19 30 27 5 10 23 6

4 11 7

3 25 Level of importance for the Company 2

1

1 2 3 4 5 6 7 8 9 10

Convergence of priority issues for the stakeholders and the Company

List of priority topics:

1 Operational efficiency 13 Medical insurance and 24 Opportunities for professional and cardiovascular disease prevention career growth 2 Minimizing environmental impact 14 Eliminating legacy pollution 25 Green office 3 Full and timely payment of taxes 15 Reducing emissions 26 Procurement from local contractors 4 Cost control 16 Energy conservation 27 Transparency in the disclosure of 5 Pipeline replacement and inhibition environmental and safety information 17 Efficient use of water resources 6 Waste management 28 Social programs in the regions in 18 Respecting the rights of 7 which we operate Stable employment indigenous people 8 29 Development of own Timely payment of salaries and other 19 Community investment forms of remuneration electricity generation 20 Fight alcohol abuse 9 Utilization of associated 30 Attracting professionals with petroleum gas 21 Transportation safety international experience 10 Competitive salary levels 22 Interaction with local communities 31 Use of best technology on major projects 11 Social benefits 23 Support for Russian oil and gas 12 Stringent adherence to occupational universities and scientific research safety rules for staff and contractors

Sustainability Report — TNK-BP 2011 05 Company profile

TNK-BP is a vertically integrated Russian oil and gas company, ranked third in Russia in terms of production volume. We formed in 2003, when BP merged the majority of its assets in Russia with oil interests in Russia and Ukraine held by a consortium of Alfa Group, Access Industries and the Renova group of companies (AAR). BP and AAR each own 50% of TNK-BP, along with around 50% of Slavneft, a Russian oil and gas company. Between 2010 and 2011, TNK-BP entered into a number of international partnerships in Vietnam, Venezuela and Brazil that will form the basis of our international portfolio. Please see our corporate structure on page 20 of this report.

Headquartered in Moscow, we employ over in the Yamalo-Nenets Autonomous District We market a wide range of products, from jet 50,000 people in Russia and Ukraine, where and in the north of the Krasnoyarsk Region. fuel and gasoline to fuel oil, tar, polypropylene our main operations and assets are located. We intend to develop our upstream business and bitumen. Our fuels are sold through a Our primary activities are exploration, outside Russia, primarily on the basis of network of over 1,388 service stations, production, refining and marketing of oil and assets acquired from BP in Venezuela and operating under the TNK and BP brands gas. We conduct exploration in our main Vietnam, as a member of the National in Russia, Ukraine and Belarus. For more producing regions, which include the Petroleum Consortium and through information on operations, please read the Orenburg Region in the Volga-Ural area, participation in an exploration and Annual Review 2011. the Yamal-Nenets and Khanty-Mansisk development venture with HRT O&G (please We work as a socially responsible corporate Autonomous Areas and the Tyumen Region see page 13 and the Annual Review 2011). citizen, and are one of the biggest taxpayers in in West Siberia, the Irkutsk Region in East We operate four refineries in Russia – in Russia. In 2011, we paid over USD 31 billion Siberia, as well as in new frontier areas, such Ryazan (Central Russia), Saratov (Volga- in taxes, duties and excises while our spending as Timan-Pechora in the north of Russia and Urals), Nizhnevartovsk and Nyagan on social programs totaled USD 37 mln. Astrakhan in the Southern Federal District. (West Siberia) – and the LINIK refinery in As of 31 December 2011, our total proved In 2011, TNK-BP was a member in a the Ukrainian city of Lisichansk. We also reserves were 9.115 billion barrels of oil number of Russian and international account for 50% of the output of the equivalent on a SEC-LOF basis, and industry associations: YANOS refinery in central Russia, which 13.8 billion barrels of oil equivalent on a we co-own with Gazprom Neft. In 2011, –– Russian Union of Industrialists and PRMS (Petroleum Resources Management our refining throughput amounted to 747 Entrepreneurs System) basis. These figures represent a thousand barrels per day, including our –– Non-commercial organization Russia’s Oil reserve replacement ratio of 145% and share in YANOS. Exporters Union 203%, respectively. We aim to continue –– Gas Processors Association – Europe We sell oil and oil products for export and on replacing 100% or more of our annual –– World Economic Forum domestic markets, including oil deliveries to production with new proved reserves. –– American Chamber of Commerce our own refineries and oil products supplies Our daily production in 2011 reached 1.781 (Moscow) to our marketing subsidiaries. In 2011, million barrels of oil equivalent, representing –– The Royal Institute of International Affairs our oil sales amounted to 332 mln bbl growth of 2.3% on 2010 figures. Our future (London) (45.49 mln tons), of which 78% was exported production growth will be sustained by two –– Russo-British Chamber of Commerce (including exports to other CIS countries) and important greenfield projects – Uvat in West –– US-Russia Business Council 22% was sold within Russia. Oil product Siberia and Verkhnechonskoye in East sales totaled 274 mln bbl (37.48 mln tons), Siberia, which are currently in the commercial of which 62% was exported (including production phase – as well as the next exports to other CIS countries). generation of greenfield projects, primarily

06 Sustainability Report — TNK-BP 2011 Overview

Sustainability Report — TNK-BP 2011 07 Company profile

Key operational and financial indicators

Operating data* 2011 2010 2009 2008 2007 2006 2005 2004 Total liquids production (mb/d), incl. affiliates 1,742 1,713 1,680 1,651 1,664 1,752 1,822 1,671 Total gas sales (mboe/d), incl. affiliates 245 221 207 195 155 188 168 154 Total liquids production (mb/d), excl. affiliates 1,546 1,527 1,489 1,454 1,451 1,477 1,554 1,416 Total gas sales (mboe/d), excl. affiliates 238 215 201 188 149 131 157 120 Refining throughput (mb/d) 747 732 675 698 701 661 620 569 Selected financial information 2011 2010 2009 2008 2007 2006 2005 2004 Total sales (USD mln) 60,199 44,646 34,753 51,886 38,926 35,725 30,180 17,226 EBITDA (USD mln) 14,601 10,391 9,007 10,093 9,565 11,255 9,143 6,386 EBITDA (USD per barrel of liquids production) 23.0 16.6 14.7 16.7 15.8 17.6 13.7 10.4 Net income (USD mln)** 8,981 5,815 4,973 5,284 5,342 6,678 4,784 4,017 Net income (USD per barrel of liquids production) 14.1 9.3 8.1 8.7 8.8 10.4 7.2 6.6 Cash flow from operating activities (USD mln) 10,525 9,682 6,581 8,611 7,0 97 3,078 5,090 4,722 Net debt/net debt plus equity ratio (%) (Gearing) 26% 21% 28% 32% 30% 34% 21% 25% ROACE (%) 36% 26% 24% 27% 31% 48%*** 38% 34% Market data**** 2011 2010 2009 2008 2007 2006 2005 2004 Brent (USD/bbl) 111.3 79.5 61.5 97.1 72.5 65.1 54.4 38.2 Rouble/USD 29.39 30.37 31.72 24.86 25.58 27.19 28.29 27.75

* No other materials are used in significant volumes, so no attributable data set is maintained. ** Attributable to Group shareholders. *** Increased ROACE in 2006 is mainly accounted by the divestment of the Udmurtneft producing subsidiary. **** Our financial performance is described in the TNK-BP Annual Review and Summary Financial Statements 2011.

08 Sustainability Report — TNK-BP 2011 Overview

Awards and ratings in 2011

International Awards for and Russian ratings annual reporting – TNK-BP Holding (Russia-domiciled – TNK-BP Annual Review and Summary subsidiary of TNK-BP) held the 20th Financial Statements for 2010 was position in the Platts Annual Ranking a prize-winner at the annual report of the 250 Top Performing Global competition held by the Expert Energy Companies. rating agency. – The TNK brand was rated 8th in the Best Russian brands ranking held every Awards for two years by Interbrand, an international corporate governance brand consultancy. – The Investor Protection Association named TNK-BP as one of the winners Awards in of the ‘Russian corporate governance human resources leaders 2011’ awards. – TNK-BP became one of the leaders of the rating of ‘Best Company for Work and Career 2011’ and received a special award for its achievements in the field of staff development at the All-Russia Conference of HR Managers.

Sustainability Report — TNK-BP 2011 09 Company profile Retail brands

A distinguishing feature of TNK-BP is our use of two brands, TNK and BP, which address different segments of the customer market. The Company sells oil products through a retail network of 1,388 retail stations in Russia, Ukraine and Belarus.

TNK brand The TNK brand is primarily aimed at drivers Fuel quality, freshness, positive attitude, who spend a large proportion of their time professionalism and reliability are the main behind the wheel. TNK stations offer an features of the TNK brand. To underline this indispensible range of products and services concept, we approved new visual standards to help prepare for road travel, including in 2006, which included a revamped TNK fuelling, vacuum cleaning, air pumps and trademark and added orange to the color water supplies. TNK Express shops offer scheme. At the same time we introduced an a wide range of additional services such enhanced quality control program, using as mini-cafés and ATMs. mobile express-laboratories to make random visits to TNK sites and check the quality and BP brand The BP brand is a recognized leader accuracy of fuelling. As of 31 December in supplying quality gasoline in the 2011, 513 retail sites under TNK brand were Russian market. rebranded under the new offer (please see the TNK-BP Annual Review 2011). The distinctive features of the brand are: TNK sites market the following sub-brands: –– Quick service – our express system allows customers the opportunity to stop and –– PULSAR branded fuel have a snack, take advantage of free –– Quick-service café and TNK Express shop parking and visit one of our BP Connect B2B markets the following TNK sub-brands: food stores. –– A comfortable and pleasant environment –– TNK Lubricants – customers can buy freshly-baked goods, –– TNK Magnum motor oil use gloves provided free-of-charge at all –– TNK Avia pumps, and enjoy open plan shops with –– TNK Bitumen vibrant music. –– TNK Revolux –– Guaranteed quality of our gasoline, –– Alfabit accompanying products and level Overall, consumers are offered around of service. 30 new products under the TNK brand. The key target customers and priority We aim to develop TNK-branded products segments for BP fuel stations are brand-loyal to equal the quality of imported goods, individuals and professionals in major regions but at lower prices. and cities, who are short of time.

10 Sustainability Report — TNK-BP 2011 Overview

Охранное поле логотипа

Sustainability Report — TNK-BP 2011 11 Map of operations

Map of operations – Russia * Early development greenfield projects Greenfield projects in commercial production phase Gas projects Brownfield Bluefield focus areas * Marketing presence Heavy oil upgrades Refinery assets Power plant + Exploration project

YAMAL Project Krasnoleninsk refinery Rospan St. Petersburg Messoyakhskoye* Russkoye Ryazan Refinery Minsk Suzunskoye and Lisichansk Refinery Timano-Pechora Tagulskoye Nizhnevartovsk Refinery Belarus Russia Saratov refinery Moscow Kaluga Krasnoleninsk Ukraine Kiev Refinery Nyagan Ryazan Ryazan Kamennoye Lisichansk Refinery Samotlor Refinery Nizhnevartovsk Refinery Saratov Nizhnevartovsk Saratov NV GRES** Refinery Orenburg Tyumen Krasnodar Verkhnechonskoye

Astrakhan

Novosibirsk

* Development with Gazprom Neft ** NV GRES - Nizhnevartovsk state regional power plant

Map of operations – South America Map of operations – Vietnam

Maracaibo Caracas PetroPerija PetroMonagas Upgrader Boqueron Maracaibo Barquisimeto PetroMonagasPetroMonagas Upgrader Hanoi Caracas PetroPerija PetroMirandaBoqueron Haiphong BarquisimetoVenezuelaPetroMonagas PetroMiranda

ManausMaracaibo Petromonagas Upgrader Hanoi Solimoes Basin Caracas Petro Perija Boqueran Haiphong Da Nang Barquisimeto Petro Monagas Petromiranda Brazil Brasília

Nha Trang Da Nang Pho My 3 (subject to approval) Rio de Janeiro Ho Chi Minh City São Paulo Lan Tay and Lan Do Nha Trang

Pho My 3 (subject to approval) Ho Chi Minh

12 Sustainability Report — TNK-BP 2011 Lan Tay & Lan Do Overview

Venezuela Vietnam According to a Degolyer and MacNaughton Brownfield opportunity In October 2010, TNK-BP entered into an reserves audit report, which takes account of In October 2010, TNK-BP entered into an agreement with BP to acquire assets in 11 discoveries where oil and gas were tested, agreement with BP to acquire certain assets Vietnam. These include interests in the the blocks bring TNK-BP a net prospective in Venezuela, including minority stakes in integrated gas project, including rights to and contingent resource of 789 mmboe. three producing entities: PetroMonagas operate offshore Block 06.1 (35%), the Initial production from the fields in the (16.67%), PetroPerija (40%) and Boqueron Nam Con Son gas pipeline (32.7%) and Solimões Basin is expected in 2012-2013. (26.67%) with state-owned PDVSA as the the Phu My 3 power plant (33.33%). major partner (OMV also has a 13.3% stake Ukraine In October 2011, the Vietnamese Ministry of in Boqueron). TNK-BP’s assets in Ukraine include the Investment and Trade granted TNK Vietnam 143 mb/d Lisichansk refinery (LINIK) and On 10 June 2011, we closed the deal for B.V., the Vietnam-based subsidiary of 356 retail sites, including jobber sites, purchasing the stakes in the three ventures. TNK-BP, licenses to operate offshore gas operating under the TNK and BP brands. By the end of 2011, the integration process Block 06.1. The acquisition has brought Our operation in Ukraine also includes had been successfully completed and data TNK-BP an additional 30.6 mmboe of proved management of 40 retail sites under the TNK for the entities in Venezuela included in PRMS reserves and approximately brand, which the Company owns in Belarus. financial, operational, organizational and 15 mboe/d of production (net entitlement other group reports. share), which is consolidated in the In 2011, the refining throughput at the Company’s financial, operational, Lisichansk refinery amounted to 109 mb/d, Upon completion, TNK-BP’s net share in or a 6% increase on the previous year with the venture amounts to 200.3 mmboe of organizational and other reports. We also successfully completed acquisition of the the light products accounting for 55% of the proved PRMS reserves and approximately total product yields. 25 mboe/d of production. stake in the Nam Con Son gas pipeline but are yet to finalize the purchase of interest During 2011, we initiated a number of Extra heavy oil greenfield opportunity in the power plant. recovery measures to improve the financial In 2008, TNK-BP and four other major results of the Ukrainian business, including Brazil Russian oil and gas companies formed expanded tolling operations at the Lisichansk In October 2011, TNK-Brasil, a subsidiary of the National Petroleum Consortium (NPC), refinery, feedstock optimization as well as TNK-BP, signed a Farm-In agreement and a with each party receiving a 20% interest. reducing headcount and overheads. The Joint Operating Agreement (JOA) with the recovery program was successful in the first In April 2010, PetroMiranda, a venture Brazilian company HRT O&G. Under the nine months of 2011. In the fourth quarter, between NPC and PDVSA, was set up in agreement, TNK-Brasil acquires a 45% stake however, LINIK showed negative order to develop and operate an integrated in the Solimões Basin project in Brazil. heavy oil project at the Junin-6 oil field in the performance, primarily due to taxation Orinoco oil belt in Venezuela. In March 2012, TNK-Brasil received approval changes in Russia, reducing tolling efficiency. from the Brazilian National Agency of Due to economic and industry conditions The in-place oil at Junin-6 is estimated Petroleum, Natural Gas and Biofuels (ANP) currently prevailing in Ukraine, subsequent at approximately 50 bn bbls of heavy and for the acquisition. The 21 oil and gas to year end, management has proposed a extra-heavy oil. The production plateau exploration blocks in the Solimões Basin, temporary halt to crude deliveries to LINIK is expected to reach 450 mboe/d in 2016. majority owned and operated by HRT O&G, from 1 March 2012 and placed the refinery The venture between NPC and PDVSA is cover an area of approximately 48,500 sq.m. on maintenance. established for 25 years, with a possible The Solimões Basin lies to the west of the city Please read more about our international extension for another 15 years. of Manaus in the Amazon region of Brazil. projects in the TNK-BP Annual Review 2011 at www.tnk-bp.com

Sustainability Report — TNK-BP 2011 13 Our strategy for the future

Our goal is to become a major international oil and gas company and the leader among private companies in the Russian oil and gas sector. Our key focus is on efficient growth aimed at increasing shareholder value. Our corporate strategy is based on the following foundations:

1. Efficient transfer of resources into 4. Development of international reserves and reserves assets in Upstream into production –– Reaching an optimal balance of –– Maintaining oil and gas organic growth materiality/risk/profitability in the at the industry rate of 1% to 2% in the long term medium term –– Acquisition of targets, new expertise and –– Consistent renewal of proved technologies through participation in hydrocarbon reserves at no less than international projects (offshore, heavy 100% a year in the long term crude oil, unconventional gas and crude oil) –– Stabilization followed by a slowdown of natural decline rates in our mature assets –– Priority focus in the next 2 to 3 years – in West Siberia integration of existing international assets in Vietnam, Venezuela and Brazil –– Progressing the development of and potential expansion in Yamal deposits as our future production those countries growth center –– Increasing the greenfield contribution to 20%-25% by 2015 5. Ensure high standards of corporate governance in compliance with international best practice and 2. Margin enhancement continuous improvement –– Balanced refining coverage of –– Health, safety and environment production volumes –– Business ethics –– Increasing the conversion rate and light –– Management processes product yields; improving oil product quality –– Expanding our product range to secure 6. Technologies a competitive market position –– Introduction of advanced technologies –– Developing the retail network to match which have won international recognition – the light oil product yields and growing to create a competitive edge demand, strengthening presence –– Promoting the culture of innovation in in attractive B2B channels the Company

3. Gas 7. People and organizational capability –– Monetization of the gas portfolio –– In-house development of a –– Gradual increase of the gas business management cadre segment in the Company’s asset portfolio; gas production up to 35 bcma by 2020 –– Full field development of Rospan gas fields as a top priority

14 Sustainability Report — TNK-BP 2011 Industry position Overview

We have built a strong industry position companies in terms of total proved oil and enabling us to continue implementing our gas reserves and the 7th largest in terms of goals. TNK-BP is the 10th largest oil solely oil reserves. We hold the 8th highest company among non-fully state-owned position in terms of liquids production.

TNK-BP production and reserves vs. Russian and global peers

2011 total proved oil and gas reserves (SEC), bn boe 2011 oil and gas production, mmboe/d

ExxonMobil 12.2 12.7 ExxonMobil 2.3 2.2

PetroChina* 11.3 10.9 BP 2.2 1.3

BP 10.6 7.2 PetroChina* 2.4 1.0

Rosneft 14.3 3.3 10.9 Shell 1.7 1.5

Lukoil 13.4 3.9 Chevron 1.8 0.8

Shell 6.0 7.9 Petrobras 2.2 0.5

Petrobras 10.8 2.1 Rosneft 2.4 0.2

Chevron 6.5 4.8 Total 1.2 1.1

Total* 6.0 4.7 Lukoil 1.8 0.3

TNK-BP 8.7 1.2 TNK-BP 1.7 0.2

ConocoPhillips 4.9 3.5 ConocoPhillips 0.9 0.8

ENI 3.4 3.7 Statoil 0.9 0.7

Gazprom Neft 5.7 1.3 ENI 0.8 0.7

Statoil* 2.1 3.2 Gazprom Neft 1.0 0.1

Sinopec* 2.9 1.1 Sinopec 0.9 0.2

0 5 10 15 20 25 0 1 2 3 4 5 Liquids Gas Liquids Gas Source: Company data, incl. affiliates. Source: Company data, incl. affiliates. *PetroChina, Total SA, Statoil, Sinopec reserves as of 2010 *PetroChina production as of 2010

Sustainability Report — TNK-BP 2011 15 Our strategy for the future Industry position

Liquids production in 2011 of Russian companies in Russia, including affiliates mmb/d 2.5 2.38 2.0

1.73 1.71 1.5

1.22 1.0 0.99

0.5 0.53 0.37 0.29 0.29 0.27 0.08 0.30 0.0 Rosneft TNK-BP Lukoil Surgutneftegaz Gazprom Tatneft Slavneft Bashneft Gazprom Rosneft Novatek PSA* Neft ventures Source: Company reports, Central Dispatch Unit of the Fuel and Energy Complex of Russia. *PSA - Production sharing agreement

In 2011, the Company’s investment We also displayed a prudent approach performance continued to be one of the to managing our financial resources, with best in important areas such as capital excellent results achieved in net income expenditure and finding and development per boe and return on capital employed costs per barrel of oil equivalent (boe). (please see page 8).

16 Sustainability Report — TNK-BP 2011 Macroeconomic background Overview

TNK-BP is focused on developing and non-fossil fuel groups on a market share expanding its oil and gas portfolio on the of 6% to 7% each. Although the growth in basis of two strategic assumptions. demand for oil is expected to be the slowest of the fuels over the next 20 years, global Firstly, world primary energy consumption liquids demand (also including biofuels and is projected to grow over the period 2010 other liquids) is still likely to rise by 2030, to 2030. sustaining the need in incremental oil and Secondly, fossil fuels are converging on gas production. a market share of 26% to 28% each and

Non-OECD economies drive energy consumption growth 18

15

12

9 Billion toe 6

3

0 1990 2000 2010 2020 2030 Oil Gas Coal Nuclear Hydro Renewables

OECD vs. Non-OECD economies 18

15

12

9 Billion toe 6

3

0 1990 2000 2010 2020 2030 OECD Non-OECD

Source: BP Energy Outlook 2030

In 2011, Russia’s oil output averaged We also feel it important to establish 10.27 mmb/d, a 1.25% increase over the a meaningful presence in the growing previous year and a new post-Soviet high. economies of Asia and Latin America with We believe the country possesses enormous promising resource potential – Vietnam, resource potential, both onshore and Venezuela and Brazil (please see page 13). offshore, and we are privileged to be A diversified oil and gas portfolio enriches developing a number of prospective oil and our knowledge base and improves our gas deposits in Yamal, a greenfield province operational efficiency, strengthening of global significance (please see page 42). TNK-BP’s position as an important supplier of the world’s energy.

Sustainability Report — TNK-BP 2011 17 02 Corporate governance

20 Corporate structure 21 Board of Directors 23 Chief Executive Officer, Management Board and corporate committees 25 Internal audit

18 Sustainability Report — TNK-BP 2011 governance Corporate

The general principles underpinning corporate governance at TNK-BP are stipulated in the Shareholder Agreement between our two principal shareholders, BP and AAR (which is composed of Alfa Group Consortium, Access Industries and Renova). The terms of the Shareholder Agreement were updated by the shareholders in 2009. The revised agreement establishes three decision-making bodies within the TNK-BP Group: the Board of Directors, the Management Board and the CEO.

Sustainability Report — TNK-BP 2011 19 Corporate structure

Corporate structure of the TNK-BP Group showing principal holding and operating companies*

Alfa, Access/Renova (AAR) BP 50% TNK-BP Limited 50%

100%**

TNK Industrial Holdings Limited 100%

TNK-BP Commerce Slavneft (Ukraine) 100% approx. 50% TNK-BP International Limited LINIK (Ukraine) TNK Overseas Limited 95% 100%

Martanco Holdings Co. Novy Investments Limited Limited 100% 100%

100% 96% 4% 95%

TNK-BP Management*** TNK-BP Finance S.A.

TNK-BP Holding

The percentages shown below represent aggregate equity stakes of the TNK-BP group of companies

Production Refining Marketing Buguruslanneft 100% Krasnoleninsk Refinery 100% Kaluganefteproduct 98% Corporation Yugraneft 80% Nizhnevartovsk Oil Refining Karelianefteproduct 100% Nizhnevartovsk Oil Producing Association 100% Kurskoblnefteproduct 100% Enterprise 100% Ryazan Oil Refining Ryazannefteproduct 99% Novosibirskneftegaz 100% Company 100% Saratovnefteproduct 93% Orenburgneft 100% Saratov Refinery 85% TNK-BP Northern Rospan International 100% Capital 100% Samotlorneftegaz 100% TNK Lubricants 100% TNK-Nizhnevartovsk 100% TNK-Stolitsa 100% TNK-Nyagan 100% TNK South Management TNK-Uvat 100% >50% Tyumenneftegaz 100% TNK-Yaroslavl 94% Vanyoganneft 100% Tulanefteproduct 91% Varyoganneftegaz 94% Zapsibnefteproduct 100% Verkhnechonskneftegaz 74%

* Equity stakes are shown as percentage participation in the charter capital ** Of the total number of voting shares *** TNK-BP Management is the managing company of TNK-BP Holding Note: The stake in RUSIA Petroleum, operator of the Kovykta gas field, was sold in March 2011 The stake in Uralskaya oil company was sold in June 2011.

In January 2011, BP announced that it had agreed to enter into a transaction with Rosneft to jointly explore and develop three license blocks belonging to Rosneft on the Russian Arctic continental shelf, and BP and Rosneft would enter into, inter alia, a share swap, following which Rosneft would hold 5% of BP’s ordinary voting shares and BP would hold approximately 9.5% of Rosneft’s shares. The AAR shareholders objected to the Rosneft transaction on the basis that under the Shareholder Agreement, the parties were to use the TNK-BP Group as their primary vehicle for carrying on oil- and gas-related business in Russia and that the transaction with Rosneft should have been notified and offered to TNK-BP. Arbitration proceedings are continuing regarding AAR’s claims against BP that BP’s conduct in relation to the Rosneft transaction constituted breach of the Shareholder Agreement. In August 2011, BP filed for arbitration of its claims that Renova violated the Sale and Purchase Agreement relating to the formation of TNK-BP by not contributing certain assets of the Gazex group and interests in TZK Koltsovo to TNK-BP and/or Renova (and AAR) violated their obligations under the Shareholder Agreement to use the TNK-BP Group as their primary vehicle for carrying on the oil- and gas-related business in Russia by purchasing such assets without offering them to TNK-BP. The parties to these proceedings are in the process of appointing arbitrators. In relation to each of these arbitration claims, it is possible that TNK-BP may have a similar claim against the relevant respondents. TNK-BP’s management does not believe that these actions will negatively impact the day-to-day operations of the Company.

20 Sustainability Report — TNK-BP 2011 Board of Directors governance Corporate The Board of Directors of TNK-BP Limited, the ultimate holding company of the TNK-BP Group, comprises 11 members: four directors representing each of the two shareholder groups (AAR and BP) and three independent directors. The Board is the highest governance body of TNK-BP and provides strategic guidance to the Company, reviews company performance and strategy implementation, advises on major acquisitions and divestments, endorses capital expenditure, appoints and evaluates executives, executes financial control and ensures that TNK-BP meets high ethical standards of business. The terms of reference of the Board of Directors are determined, among others, by the Shareholder Agreement.

On 1 January 2012, two independent In 2011, members of the Board Audit Committee directors resigned from the Board. At the time of Directors were: The Audit Committee assists the Board in of publication, one new director has been AAR nominees fulfilling its functions in relation to internal control appointed. The other one is being sought. –– Mikhail Fridman, Executive Chairman and financial reporting, monitoring compliance with legal and regulatory requirements, As of the publication of this report, the Board of the Board of Directors assessing the work of the internal audit function with 10 members is quorate only for what are –– Viktor Vekselberg and the effectiveness of the risk management defined as “unanimous reserved matters”, –– Len Blavatnik and internal control systems. which contain high value, strategic and other –– Alex Knaster matters as defined in the Shareholder BP nominees Members of the Audit Committee in 2011: Agreement. Meetings are being held in –– RT Hon Lord (George) Robertson of RT Hon Lord (George) Robertson of Port relation to such matters. Port Ellen Ellen (Chairman), Len Blavatnik, Brian Gilvary, –– Anthony Hayward/Michael Townshend Alex Knaster (Vice-Chairman) and Other matters which are the responsibility as of 1 October 2011 Alexander Shokhin. of the Board can only be decided if all 11 –– David Peattie members have been appointed. Currently, the –– Brian Gilvary In 2011, the Audit Committee met five times. majority of decisions which would normally Independent directors* Compensation Committee have been made by the Board of Directors –– Gerhard Schroeder The Compensation Committee determines of TNK-BP Limited (and termed “majority –– Alexander Shokhin compensation packages and agrees reserved matters” under the Shareholders –– James Leng performance contracts for the CEO and top Agreement) are being made at the Boards –– Evert Henkes, from 20 April 2012 of key subsidiary companies which have management and reviews their performance. of representatives BP and AAR as Directors. Gerhard Schroeder and James Leng It also reviews the Company’s performance announced their resignation from the Board against the performance indicators and The shareholders may guide activities of the of Directors in December 2011. agrees on the amount of annual performance highest governance body through their rewards (subject to the Board’s approval). representation on the Board of Directors. Evert Henkes was appointed to the Board of Employees may provide recommendations to Directors as a BP-nominated independent Members of the Compensation Committee the highest governance body through regular director as from 20 April 2012. in 2011: Viktor Vekselberg (Chairman), Len Blavatnik, James Leng, Brian Gilvary reports of the Company’s management to the In 2011, the Board of Directors met nine times. Board of Directors. The highest governance and David Peattie (Vice-Chairman). body may evaluate results in the area of Board committees In 2011, the Compensation Committee met sustainable development when reviewing the To assist the Board in fulfilling its responsibilities, five times. annual performance, approving the business three Board committees have been set up: plan for the next year and at the annual the Audit Committee; the Compensation review of the Company’s long-term strategy. Committee; and the Health, Safety and The highest governance body evaluates its Environment Committee. Each committee own performance on acts within its scope of authority delegated the basis of the annual review of the by the Board. The committees are implementation of the Company’s represented by an equal number of members long-term objectives. from the two shareholder groups and one independent director.

*The Shareholder Agreement describes an independent director as a person who is not and has not been, for the three years prior to his appointment, an employee, officer or consultant to any of the shareholders or their groups; does not receive and has not received, for five years prior to his appointment, remuneration from the TNK-BP Group (except for a director’s fee) and other shareholders or their groups; does not have and has not had, in the three years prior to his appointment, any material business relations with any of the shareholders or their groups; and is not a close relative of any director or senior employee of the TNK-BP Group or any of the shareholders or their groups.

Sustainability Report — TNK-BP 2011 21 Corporate structure

HSE Committee The HSE Committee monitors major HSE risks and compliance with relevant laws and applicable corporate policies, approves the HSE strategy and policy, and reviews the Company’s HSE performance. Members of the HSE Committee in 2011: David Peattie (Chairman), Alex Knaster and Gerhard Schroeder. In 2011, the HSE Committee met four times. As of the date of this report only the Audit Committee has the full complement of Directors. The other two committees will meet once full complements of Directors are appointed (including independent directors).

The Code of Business Policies*

Over the past few years, we have created regard to different areas of our activities. –– The third tier includes other internal a comprehensive internal regulatory At present that includes the Code of documents (procedures, regulations and framework that governs our operations Business Policies containing TNK-BP technical standards) – the documents and the behavior of our people. corporate values and the guidelines for for our employees, explaining the our business practices. rules for doing things in our Company. The documents that make up this –– The second tier consists of corporate Currently, we have 180 internal regulatory framework are structured into three tiers: standards that outline management documents explaining in detail the –– The first tier contains the Codes: public authorities. TNK-BP has 13 corporate provisions of the Code of Business documents issued by the Company which standards, detailing the provisions of Policies and corporate standards. formulate the Company’s position with the Code of Business Policies.

*The Code of Business Policies and corporate standards are mandatory for employees of JSC TNK-BP Management, the managing company of the Group, and TNK-BP Holding, operating the majority of our Upstream and Downstream assets in Russia, and are of an advisory nature for Group subsidiaries.

22 Sustainability Report — TNK-BP 2011 The Chief Executive Officer, the Management Board and corporate committees governance Corporate Beyond matters reserved by the Board business streams, approving the Codes HR Committee for its consideration and decision-making, and corporate standards, establishing and –– Manages the development of corporate all decisions related to the daily running of terminating corporate committees and HR standards and programs. the business are generally delegated to working groups as well as monitoring their –– Assures that these programs are the Chief Executive Officer (the CEO) activities. The senior management committee implemented in headquarters and and the management. sets out guidelines for interaction between subsidiaries. At the time of issuing this report, in the the managing company, TNK-BP –– Makes recommendations related to the absence of a CEO, the powers of the Management, and the Company’s development of our corporate culture. CEO have been delegated to members subsidiaries; and approves candidates in Operations Committee of the Management Board and other the executive bodies with the participation of –– Develops and oversees the delivery senior executives. TNK-BP Management and TNK-BP Holding, of the Company’s business plan. operating the majority of our assets in –– Assures the implementation of major The CEO is nominated by BP and is approved Russia. The committee also issues voting projects and operational strategies. by the Board of Directors generally for a period recommendations at general shareholder –– Assures high standards of operational of three years. The CEO is entitled to make meetings of the legal entities owned by efficiency, optimization and integration decisions related to the business activities TNK-BP Management and TNK-BP Holding. across streams. of the Company, generally up to a limit of –– Assures the efficiency of contracting USD 100 mln, and is accountable to the Corporate committees processes (procurement and marketing), Board for the performance of the Company. Corporate committees are created by the endorses approaches and oversees decision of the Management Board and work In October 2011, the shareholders agreed adherence to contracting rules. to resolve specific issues related to corporate on a number of decisions regarding senior –– Reviews and endorses the guidelines governance and project management. There management roles in TNK-BP, which were of stream operational strategies and are seven corporate committees at TNK-BP. then formally approved by the Board business priorities. of Directors in February 2012. As a result, a Policies and Compliance Committee Investment Committee new senior management committee was –– Oversees risk management. –– Approves and monitors major formed to run TNK-BP on a day-to-day basis. –– Sets the norms for ethical business investment projects. The new senior management committee behavior and monitors adherence to –– Optimizes the investment process and consists of the CEO, CFO, two Executive corporate business ethics regulations. redistributes capital among Company Directors, Executive Director/Executive Vice –– Manages conflicts of interest. streams. President Upstream and Executive Director/ –– Acts as a single co-ordination center –– Approves key performance indicators Executive Vice President Downstream. to control efficient implementation of the and the principles for investment enterprise-wide risk management system project assessment. The senior management committee is and the Internal Control System. Internal Finance Committee responsible for approving the Company’s –– Approves and implements our internal business plan, making changes to TNK-BP’s financing strategy and key principles. organizational structure and appointing –– Reviews financial transactions that may executives, reviewing reports from the lead to material financial or legal risks.

Management structure of TNK-BP Group

Chairman of the Management Board* Vacant

Executive Director – Executive Director – Executive Director – Executive Vice President Executive Vice President Chief Financial Officer Advisor to the Chairman Executive Director Upstream Downstream of the Management Board 100%** J. Muir G. Khan A. Dodds A. Barrios V. Vekselberg

Executive Vice President Executive Vice President Executive Vice President Executive Vice President Strategy and New Support Services Security Legal Business Development A. Tyomkin100%** V. Ogar I. Maydannik M. Slobodin

*On 28 May 2012, M. Fridman submitted a letter of resignation to TNK-BP Limited’s Board of Directors, notifying his resignation from the position of Chief Executive Officer of the TNK-BP Group. M. Fridman also sent TNK-BP shareholders a letter of resignation from the position of Chairman of the Management Board of TNK-BP Management, a Russian subsidiary of the TNK-BP Group which manages the Company’s assets in Russia and Ukraine.

Sustainability Report — TNK-BP 2011 23 Chief Executive Officer and the Management Board

Credit Committee In order to keep our internal control system up — Manages our credit risks by introducing to date and in line with best practice, we are and monitoring a number of internal constantly looking to identify and implement control processes. further improvements. At the end of 2011, — Approves major credit transactions. we launched an Internal Control Optimization IT Committee project in order to further standardize, –– Endorses a uniform IT strategy and rationalize and automate our internal controls. implementation plans, aligned with During 2012, we will continue to use business needs and priorities. international experience and best practice –– Oversees the implementation of our main in order to further develop the internal corporate projects in IT. control system in line with our changing –– Controls the efficiency of IT investments. business needs. A dedicated intranet site on matters related to corporate governance is available to our employees. All normative documents, the Company’s governance structure, decisions of the Management Board and committees, are posted on a regularly updated website. Internal control system Our internal control system underpins the preparation of financial statements, safeguards the integrity of the results of business operations and ensures compliance with relevant legislation. The system has been developed in accordance with the methodology of the Committee of Sponsoring Organizations of the Treadway Commission (the CO SO Framework). The current internal control system was put in place in 2008, since then we have focused on embedding it within the business. Our internal control team acts as a methodological center of excellence and a business partner for our Streams and Functions, helping with this process as well as ensuring that the internal control system remains robust and relevant.

24 Sustainability Report — TNK-BP 2011 Internal audit governance Corporate

TNK-BP is engaged in a continuous process of improving In 2011, Internal Audit the effectiveness of its corporate governance. One of the successfully completed an most important elements of this process is an effective external quality assurance Internal Audit function. review.

The role of Internal Audit, its mission and Organizational structure of Internal Audit Based on the results of an annual goals, are set out in the Company’s Internal Since changes were introduced in 2010, the assessment of the effectiveness of Audit Charter, which has been approved by organizational structure of Internal Audit has Enterprise-Wide Risk Management (EWRM) the Board Audit Committee and complies followed a model usually applied by large carried out in the autumn of 2011, Internal with International Standards for the organizations with a number of remote Audit concluded that the risk management Professional Practice of Internal Auditing. subsidiaries and affiliates: organizationally process generally complies with COSO ERM centralized while geographically dispersed. criteria, which the Company used as a basis The goal of Internal Audit is to provide Company Within the Company’s HQ, Internal Audit is for process design. EWRM is incorporated in shareholders, executives and management with responsible for evaluating the management the Company’s corporate governance, as independent and objective assurance and with and performance of the regional offices in well as in the planning and performance consulting services designed to add value to the Ryazan, Tyumen, Nizhnevartovsk, Kiev and management processes. Company operations. Buzuluk. The appointment and termination The Company’s internal auditors hold CIA, Internal Audit helps the Company achieve of all regional internal auditors, as well as ACCA and CISA certifications, as well as its objectives by applying a systematic, compensation matters, is the responsibility engineering diplomas and other qualifications. disciplined approach to evaluating and of the General Auditor. assisting management in improving the The internal audit cycle has been automated effectiveness of risk management, internal Activities and achievements in 2011 after introduction of the TeamMate system in controls and governance processes. The Company’s annual and audit 2010. The TeamMate software is also used engagement planning processes are to monitor the implementation of corrective To ensure the independence of Internal Audit, risk-based. Their primary objective is to actions recommended after the audits. the General Auditor reports to the Board ensure such a coverage of material business Audit Committee functionally and to the processes and risks that would enable Internal Audit was charged with developing Company CEO administratively. In their internal auditors to express their opinion and implementing an ongoing quality absence, internal auditors report to the on, and provide the Board Audit Committee assurance program for TNK-BP. One of Company’s Executive Director. The Internal with, reasonable assurance regarding the the key elements of the quality assurance Audit Report is a standing agenda item at effectiveness of controls, risk management program, the external review was jointly every Audit Committee meeting. Throughout and corporate governance practices used by undertaken by the Institute of Internal Auditors, the year, the Chairman and members of the the Company. the world’s largest professional association of Audit Committee hold regular meetings internal auditors, and Ernst & Young. with the General Auditor in absence of the Overall, more than 40% of the Company’s The external review embraced all aspects management. The Audit Committee approves risks and processes have been covered of the Company’s internal audit activities, the appointment and termination of the by audits. including organizational structure and General Auditor, as well as annual work plans 102 sheduled and ad-hoc internal audits accountability, interaction with business, and any changes made to them. The Audit were carried out in 2011 to check the employee credentials, methods and Committee also participates in the annual reliability of internal control systems, risk approaches in use, the quality of working performance review of Internal Audit. management and corporate governance. documentation and reporting. The Institute of Internal Auditors concluded that the work of TNK-BP’s Internal Audit complies with Internal Audit Division structure international professional standards. The key tasks facing Internal Audit in 2012 are: General Auditor Methodology and –– Further increase in the quality and General Auditor Quality Assurance efficiency of communication with audit staff Section customers –– Developing the function’s organizational capability, including an active knowledge- Upstream Audit Downstream Audit Corporate Audit sharing with Internal Audit services of the Department Department Department industry leaders; training and certification of internal auditors –– A prompt response to changes which affect the development of the Company’s business, including development of Regional units Regional units Regional units international operations.

Sustainability Report — TNK-BP 2011 25 03 Ethics and compliance

27 Enterprise-wide risk management system

The Business Ethics, EWRM & Compliance Department, which reports to the head of financial control, was formed as a unit of experienced professionals to maintain TNK-BP standards and procedures, provide advice on specific transactions and coordinate the sharing of best practices and training.

26 Sustainability Report — TNK-BP 2011 Enterprise-wide risk management system

EWRM has become an integral part of Each of the Company’s business streams The Board Audit Committee annually reviews TNK-BP corporate governance, long-term and business functions goes through this the overall effectiveness of the Company’s and annual planning processes, and process every three months, culminating in corporate risk portfolio management and performance assessments. It is governed by a quarterly performance review with senior considers selected risks in more detail at corporate standards and key procedures, management. The Operations Committee each meeting. which are reviewed on a regular basis. reviews and manages operational risks, while Risk coordinators meet to review processes the Corporate Investment Committee reviews The TNK-BP EWRM process is focused on and share best practices. Internal Audit and manages risks inherent in TNK-BP compliance Ethics and building a risk management culture through: reviews EWRM on an annual basis. investment programs. –– Understanding the nature of risks and their HSE risks are subject to regular monitoring financial and reputational consequences and assessment by the Board HSE –– Identifying factors that may trigger a Committee, as part of the Board Audit particular risk Committee. The majority of material risks are –– Developing and implementing appropriate managed at corporate level (corporate risk risk management and mitigation actions portfolio) and reviewed by the Policies and –– Reporting regularly on changes in risks Compliance Committee. The risk management and the status of risk management and system includes corruption risks. mitigation actions.

Overview of potential risks

TNK-BP’s operations are affected by a wide –– TNK-BP’s future operations depend on –– Oil and gas reserve estimates are based range of risks in regulatory, legal, financial, successfully recovering mineral reserves on assumptions and subjective economic, social, market, environmental, and developing new oil and gas fields. judgements, and changes in these country and competitive areas. These risks, –– TNK-BP currently sources the majority assumptions or judgements may lead to either individually, or in combination with of its crude oil from mature oilfields. reported oil and gas reserves being others, could have a material adverse effect Declining extraction rates and unfavorable downgraded. The Company could also on TNK-BP’s financial position and operating taxation regimes at mature oilfields could fail to actually recover reserves that are results. Below are some of the most decrease the Company’s operating currently considered recoverable. significant risks that could affect TNK-BP: income and limit its ability to finance new –– A decline in social wellbeing and/or civil upstream projects. unrest in the regions where TNK-BP –– TNK-BP’s financial position and operating –– TNK-BP operations depend on numerous operates could lead to conflicts with labor results could be adversely affected by a suppliers of materials, equipment and unions, employees and state authorities, decline in prices for oil, refined products, services. The Company’s failure to which could significantly affect the natural gas or petrochemicals. establish sufficient control over Company’s business. –– Global economic developments and a contracting and procurement could result –– The nature of TNK-BP’s operations change in market conditions could reduce in suppliers being noncompliant with exposes it to a wide range of significant the profitability of TNK-BP operations, Company requirements regarding the health, safety and environmental risks. because TNK-BP is exposed to trading, timeliness, quality or price of goods and –– TNK-BP depends on providers of foreign exchange and interest rate risks. services, which could decrease the transportation services for crude oil and –– TNK-BP encounters competition from profitability of operations or even cause refined products in Russia, and has no other oil and gas companies and suppliers business interruptions. control over the infrastructure they of alternative energy sources, and its ability –– Limited access to Russia’s gas transit maintain or the fees they charge. to achieve strategic goals depends, to a system, the inability to export natural gas –– Bribery and corruption in countries where degree, on the Company’s success in and the state regulation of the domestic TNK-BP operates could affect the responding to this competition. natural gas market could adversely affect viability of the Company’s business and –– Political, legal and fiscal instability in Russia TNK-BP’s prospects for developing its reputation. could expose TNK-BP to adverse changes natural gas operations in Russia. –– Slavneft, TNK-BP’s joint venture with in laws and regulations or to adverse –– The absence of prior experience in Gazpromneft, may not generate the changes in the interpretation and application integrating international operations could benefits anticipated due to the reduced of existing laws by state officials. undermine the future flow of benefits from degree of control. –– TNK-BP could be seen by the state as the Company’s assets in Venezuela, –– The failure of TNK-BP’s key financial or being in breach of licensing terms for its Brazil and Vietnam, as well as prevent operational systems could result in its subsoil licenses in Russia, resulting in an further international expansion. business activities being interrupted. inability to renew existing licenses, license –– The introduction of new fuel quality –– Any inability to attract or retain qualified suspension or revocation. standards in Russia could result in TNK-BP employees could be detrimental to –– Non-compliance with Russian being forced to further increase investment TNK-BP’s success in maintaining its antimonopoly regulations and the in refinery upgrades, and could limit its competitive position and implementing expected tightening of the same could ability to sell fuel domestically if it is unable its business strategy. expose TNK-BP to sanctions. to comply with the new standards.

Sustainability Report — TNK-BP 2011 27 Enterprise-wide risk management system

Ethical conduct respect for the law, wherever we operate. TNK-BP is committed to the highest Sound ethical conduct is embedded in standards of ethical conduct. The Company our Company values. For example, no The Code of Business primarily operates in Russia and Ukraine, the one can expect to be promoted without Policies business environments of which are at high strong performance in the Company core risk of exposure to high levels of corruption value of Integrity. TNK-BP’s Business Policies and and fraud. In its actions and dealings with others, Corporate Standards Code are the The TNK-BP Department of Compliance, TNK-BP will: foundation of its regulatory framework, EWRM and Ethics is responsible for and are in place to ensure ethical –– Respect the rule of law designing and implementation of control behavior and compliance with applicable –– Promise only what it can deliver; make processes to counter conflict of interests and laws throughout the company. commitments it intends to keep; not unethical behavior, including bribery and knowingly mislead others We have created a comprehensive internal corruption. It also monitors compliance with –– Fulfil its obligations and commitments; treat regulatory framework that governs our the Company’s ethical standards, reporting people with respect; refrain from coercion operations and the behavior of our people. its findings to the Policies and Compliance and never deliberately cause harm to The documentation that regulates our Committee. In 2011 about 500 executives anyone or the environment behavior is outlined below. These in the corporate center and the regions –– Take steps to prevent corruption, or any procedures, which are integrated with our participated in anti-corruption policies and other violation of the law internal control procedures, are designed procedures trainings, that will continue in –– Act in good faith, with its people only using to prevent violations taking place, detect 2012. Also in December 2011 all employees assets to further its business and not seek violations that may be taking place and were trained in the Company’s procedures personal gain by abusing their positions respond to actual and potential violations, to manage conflicts of interest. Overall within the Company as well as keeping up with best practice. supervision of the Company’s ethical –– Respect the culture, dignity and rights compliance programmes is by the main of those who live in the regions in which Board Audit Committee. it operates. TNK-BP promotes a culture of integrity, TNK-BP expects the same commitments from responsibility and openness as well as the third parties it engages and works with.

Hotline results, number of instances 900 865 800 700 600 554 500 510 400 300 267 252 200 134 100 52 111 51 32 16 76 0 Criminal proceedings Disciplinary actions Confirmed information Received information initiated

2011 2010 2009

It should be noted that higher levels of cases processes surrounding the hotline and not reported and achieved in 2011 are regarded due to overall higher instances of fraud in as being due to better communication and the Company.

Policies Standards and procedures – Ethical business conduct; – Standard on Business Ethics – Employees; – Business gifts and entertainment – External relationships; – Managing conflicts of interest – Health, safety and environmental performance; – New Business (M&A) transactions – Security; – Social Investments – Control and finance; – Insider trading – Operations; – Procedure for countering corruption, bribery and – Internal documentation system. money laundering (2006, to be updated in 2012)

Note: These policies and standards regulate aspects such as: the value of accepted business gifts, which should preferably not exceed USD 300 and should always be registered in the gift register; a zero tolerance policy towards corruption – not only in business practices, but in those of partners; due diligence during all merger and acquisition deals; an anti-corruption clause in business contracts; and many others.

28 Sustainability Report — TNK-BP 2011 Taking steps to prevent violations of law Detecting violations Our response and ethical policy –– Employees: we understand and recognize –– Maintaining best practice: we periodically We engage in a broad range of activity that our employees are our best source of review our policies and procedures to aimed at preventing violations taking place. information about possible violations of ensure that we keep up with recognized These include: our ethical policies. Every employee has a best practice. responsibility to inform the Company if they –– Investigations: investigations are carried –– Disclosure of conflicts of interest observe violations. They can report out by professional, experienced we require employees to disclose their incidents in person to their manager or investigators, mainly drawn from the compliance Ethics and potential and real conflicts of interest by hotline or email. Confidentiality and Internal Audit Department and the so that they can be managed in a anonymity are assured. Discrimination and Security Function. transparent manner. Of primary concern retribution against those who inform the –– Integrity commission: we review all are: the investments made by our Company of their good faith observations serious violations to ensure that discipline employees and their close relatives is strictly prohibited. Our employees may is consistently applied and inform in our (potential) business partners receive a reward if their information leads employees about outcomes. We see this and competitors to specific savings for the Company. as a primary manifestation of our policy of –– when our employees work with –– Raising awareness: in our training we zero-tolerance to ethical misconduct. their close relatives at TNK-BP or in raise awareness of what to look out for –– Cooperation with investigations: we other organizations. in cases of fraud and corruption. do not take any steps to interfere with –– Registration and approval of gifts, –– Internal audit: we conduct periodic audits official investigations. entertainment and hosting of of our activity. government officials: gifts, entertainment –– Other parties: we encourage our and hosting, depending on the amount, business partners, customers and other whether offered, given or received, must parties to use our hotlines and email to be registered and may require pre-approval report any violation concerns. Each region before the event. Rules governing what holds a quarterly meeting with contractors can be accepted or offered are included and suppliers to exchange information in our procedures. and feedback on the contracting process. –– Training and communication: we have Contractors and suppliers have the a programme to raise awareness of ethical opportunity to raise issues through the issues which includes e-training, face-to- Conflict Commissions. face training and specific messages delivered by a variety of media channels. We keep records of who has done what training and when. –– Due diligence of our business partners: we collect information from our business partners and take steps to independently verify this information. The level of due diligence depends on our perception of the risks involved in the transaction and includes all our operating activity as well as M&A transactions and social investments. We ensure that we know who our business partners are, fully understand the connections between sequences of transactions and assure ourselves that the economic transfer of value is fully justified. –– Tenders: we ensure the fairness of contracting party selection (which is normally through tenders).

Sustainability Report — TNK-BP 2011 29 Enterprise-wide risk management system

Number of employees passed ethical certification Network of ethics experts Each self-contained unit (business unit, 3,500 function) of the Company has its own 3,000 nominated ethics expert who performs the 2,905 following tasks: 2,500 2,203 2,426 –– Acting as the first point of advice for 2,000 ethical issues –– Advising leadership in ethical issues, 1,500 including how to maintain tone-at-the-top in their respective units 1,000 632 –– Assessing the training needs of the unit 824 500 and ensuring delivery 259 –– Coordinating ethical certification and 0 declaration of conflicts of interest 2006 2007 2008 2009 2010 2011 –– Liaising with the Department for Compliance, EWRM and Ethics on topical issues. It is understood that these individuals do 2007 2008 2009 2010 2011 not answer for ethical behavior of the respective unit. This responsibility lies with Number of employees 632 824 2,203 2,426 2,905 participated in certification the leadership. Number of employees passed 632 824 2,203 2,426 2,905 Developments in 2011 and prospects certification in 2012 Number of conflicts occurred 15 6 4 28 91 Our ethical programs receive strong support Number of conflicts resolved 15 6 4 28 91 from management, the Board and the majority shareholders. The highlights for 2011 include the following: –– Renewal of ethical normative documents –– Publication of Ethical Guidance for all Employees –– Establishment of the network of ethics experts –– Establishment of the Integrity Commission to ensure consistent and transparent disciplinary actions in the event of an ethical breach –– Training and communication in conflicts of interest and general corruption risks, including face-to-face seminars with leaders of eight business units and four business functions. These programs will be completed in 2012.

30 Sustainability Report — TNK-BP 2011 In 2012, we plan to: Monitoring ethics and compliance In accordance with our integrated ethics and compliance report for 2011, we recorded 94 –– Implement tools to aid management of Certification instances of fraud, a corruption practice by conflicts of interest, ethical certification In each of the last three years, more the OECD definition referenced in GRI. and gifts and entertainment, together with than 2,200 senior employees/managers Corruption is interpreted here to include such internal control tools to provide assurance have signed business ethics declarations, corrupt practices as bribery, fraud, extortion, of compliance which include disclosure concerning conflicts collusion, conflict of interest, and money –– Complete basic training for c. 20,000 of interest. Potential conflicts do occasionally laundering. In this context, it includes an offer compliance Ethics and employees through e-based training arise, especially when relatives work in or receipt of any gift, loan, fee, reward, or modules the same company. However, when other advantage to or from any person as –– Create two forums of ethics experts to such conflicts do arise, TNK-BP has an inducement to do something that is jointly learn about developments in ethics always been able to resolve them by dishonest, illegal, or a breach of trust in the and compliance, share best practice and reorganizing responsibilities. conduct of the enterprise’s business. ensure consistency in approach –– Review due diligence procedures as The Business Ethics, EWRM and Compliance The actions taken in response to fraudulent we consolidate our management Department is responsible for monitoring actions discovered in 2011 included (a) of contracting compliance compliance with ethical standards and immediate dismissal (82 individuals) or –– Implement a new procedure to cooperation with Internal Audit and Security, disciplinary penalty (depending on the gravity govern breach reporting and who are responsible for screening contracting of violation of the anti-corruption policies); (b) investigation to ensure alignment parties, testing internal control systems, internal investigation and lessons learnt to between various departments involved spot-checks, internal investigations and prevent the repetition of such violations in the in collecting information about and developing proposals for disciplinary action future; and (c) scaling up training in anti- investigating breaches. against senior management. corruption policies and procedures. Since 2006, TNK-BP has operated a telephone hotline. Cases of petty theft and suspected fraud committed by Company employees or counterparties have been reported, although claims are often unfounded. In 2011, 865 calls were received and processed.

Sustainability Report — TNK-BP 2011 31 04 Responsible approach

33 Responsible approach to the Earth 33 Protecting the environment 36 Mature fields – heritage and potential 42 New projects – challenges and solutions 46 Responsible approach to water 48 Responsible approach to air 48 Climate change 52 Raising energy efficiency 56 Cleaner fuels 58 Efficient use of associated petroleum gas

32 Sustainability Report — TNK-BP 2011 Responsible approach to the Earth Protecting the environment

The aim of oil and gas companies is to be a reliable supplier of hydrocarbons to international markets and meet the world’s energy demands in due time and in sufficient amounts. At the same time, oil and gas companies are responsible to society for observing the most stringent safety standards and preventing damage to the environment. In 2011, TNK-BP’s environmental activities included measures to remediate legacy pollution, recycle waste, increase associated gas utilization, reduce greenhouse gas emissions, and also maintain the integrity of its pipelines. approach Responsible

In 2011, overall investment in environmental In 2011, fines for breaches of environmental protection exceeded RUR 9.7 bn – a 24.7% regulations amounted to 0.14% of our increase from the previous year – and investment in environmental protection, consisted of two equally important which is more than double that in 2010 9.7 bn components: investment in capital assets (see the TNK-BP Sustainability Report 2010). and current expenditure. This relates primarily to changes, applied RUR by government agencies, in the methods Investment in capital assets is about the need invested in of assessing environmental damage: there to fund the development and installation of environmental was an actual reduction in 2011 in the new equipment and facilities, and ensure protection overall number of incidents breaching that existing facilities remain in good working in 2011 environmental regulations. order, so as to maintain compliance with state environmental regulations and corporate In 2011, payments for above-the-norm standards. In 2011, investment in capital emissions, discharge and waste disposal assets amounted to RUR 4.8 bn, which is exceeded USD 7 mln (over RUR 221 mln). a 24.1% increase from the previous year. Payments for above-the-norm impact are not included in the amount of fines paid for Investment in ongoing environmental breaches of environmental regulations. programs includes ecological monitoring and training, support for scientific research, investment in the development of waste processing and water treatment technologies, and land remediation. In 2011, expenditure on current environmental programs reached around RUR 4.9 bn, which is 25.6% higher than in 2010.

Capital investment in environmental protection (cumulative), bn RUR 25

20 20.9

15 16.1

12.3 10 9.4

5 4.9 0.4 1.0 2.1 0 2004 2005 2006 2007 2008 2009 2010 2011

Sustainability Report — TNK-BP 2011 33 Responsible approach to the Earth Protecting the environment

Clear and concise rules In compliance with Instructions for Regular TNK-BP’s strategic health, safety and HSE Reporting, the Company reports its environment (HSE) objectives are enshrined HSE metrics on a monthly, quarterly and in its Code of Business Practice: annual basis. 41 bn –– No injuries in the workplace TNK-BP continued to apply considerable –– No accidents in the workplace effort to maintain an effective system of RUR –– Care for the environment emergency response, meeting the invested in requirements set out in Resolution N 613 of environmental In 2011, we continued to improve our HSE the Government of the Russian Federation protection in performance. As compared to 2010, the dated 21/08/2000, ‘On urgent measures for 2004-2011 total recordable injury frequency rate (TRIFR) preventing and eliminating accidental spills decreased by 21%, the total number of of crude oil and oil products’. All Company fatalities reduced by 36% and the number subsidiaries have approved plans for of high-potential incidents (HIPOs) went liquidation of accidental oil spills. Emergency down by 27.6%. oil spill response is carried out by both the We are committed to making our company Company units and contractors. Each year a safer working place. In 2011, the company the Company upgrades its technical means implemented a number of reinforcing for emergency oil spill response and holds programs to reduce the number of days emergency response training for the staff. away from work cases (DAWFC) and transport incidents. We also introduced the procedure ‘Permit to entry and control of heavy equipment and drivers (machinists) at Company sites during operations’.

34 Sustainability Report — TNK-BP 2011 Cooperation with environmental –– Wetlands International organizations –– The Russian Union for the Protection TNK-BP maintains and builds relationships of Birds with representatives of various environmental –– Zapovedniki Ecology Center organizations as it believes that regular –– Transparent World NGO interaction and the exchange of information –– The Wildlife Conservation Center help the company best define its environmental –– The Natural Heritage Conservation Fund priorities and evaluate performance. –– The Yuganskiy State Nature Reserve –– RAIPON (Russian Association of During 2011 TNK-BP collaborated closely Indigenous Peoples of the North, Siberia with the following environmental and Far East) organizations: –– The Ecojuris Institute of Environmental Law –– Greenpeace Russia –– The Russian branch of IFAW (International –– WWF Russia (the Russian branch of the Fund for Animal Welfare) World Wildlife Fund) approach Responsible

How we collaborated with environmental organizations in 2011

1 5 Ongoing interaction: Annual TNK-BP – NGO round tables –– Responding to requests 1 with the company’s top management for information (in April and December) –– Informal consultations –– Updates on company activities 6 –– Meetings with company Sponsorship of the Main Botanic management and specialists 7 Garden of the Russian Academy of on specific issues 2 Sciences, named after N.V. Tsitsin

2 7 Collaboration with NGOs Participation in NGO events: on environmentally sensitive In 2011, TNK-BP representatives projects: took part in the seminar ‘Methane –– In 2008 and 2011, the Russian emissions of the oil and gas industry Union for the Protection of Birds –– sharing experience on solving the carried out an ornithological problem’, held by WWF Russia in survey of the wetlands and the 6 cooperation with the Pacific core ornithological territory of Northwest National Laboratory Verkhneye Dvuobje 3 (PNNL) of the US Department of Energy (DOE), the US 3 Environmental Protection Agency Participation by NGO (EPA) and Shell Russia. TNK-BP representatives as observers during delegates made a presentation at TNK-BP oil spill response exercises the seminar on our Company’s in Buzuluk, September 2011 innovative approach to utilization of associated petroleum gas and 4 5 reduction of methane emissions Support for conservation 4 initiatives: –– The Shtilmark Environmental Award

Sustainability Report — TNK-BP 2011 35 Responsible approach to the Earth Mature fields – heritage and potential

In 2011, 86% of TNK-BP’s oil production came from mature fields. Although the share of mature fields in overall output will gradually diminish, in the medium term they will continue to provide up to half of the Company’s oil. One of TNK-BP’s strategic goals is to effectively manage the natural production decline at its brownfield asset base and maintain production levels in West Siberia and Orenburg. Operating mature fields involves addressing a range of important environmental issues relating to the remediation of polluted land, waste recycling and the modernization of transportation infrastructure. We are also working to reduce primary water consumption and preserve biodiversity in the regions where we operate.

36 Sustainability Report — TNK-BP 2011 Remediation of polluted –– Attracting contractors for continued and damaged land application of new techniques for the One of TNK-BP’s HSE priorities is the remediation of badly polluted land, including remediation of land inherited from its bituminized oil contamination based on predecessor companies and, since its land successful testing in the previous year. remediation programme was launched in In 2011, the Company continued to practise 2005, TNK-BP has reclaimed and returned a new approach to land remediation: hiring 3,199 hectares of remediated land to the contractors to work on areas it considered state. In 2011, we remediated 388 hectares as having suffered severe or medium levels of land and carried out activities to clean of pollution, and using its own resources to up 181 sludge pits. work on areas that had suffered lower levels In 2011, given the limited capabilities of of pollution and hand them over to the state the services market, we concentrated our commissions. As a result, the acreage of the efforts on remediated land increased by 15% as compared to the previous year.

–– Increasing in-house participation in approach Responsible remediation activities;

Land remediation (cumulative), ha 3,500 New remediation

3,000 3,199 techniques 2,811 2,500 2,484 Scaling up the new remediation 2,209 techniques for bituminized oil 2,000 contamination with on-site 1,751 1,500 1,582 treatment and application of bio-destructors to achieve rapid 1,000 1,176 neutralization of bituminized oil. 721 500

0 2004 2005 2006 2007 2008 2009 2010 2011

3,199 hectares of land remediated The total area of remediated land in 2004 is equal to 3,199 hectares and is approximately 50% of the legacy of polluted land. In the future we plan to continue our widescale remediation program.

Sustainability Report — TNK-BP 2011 37 Responsible approach to the Earth Mature fields – heritage and potential

Taking inventory of polluted land

In 2008, TNK-BP’s Upstream made a government of the Khanty-Mansiysk Area of polluted land decision to start taking an inventory of autonomous region and signed a protocol as of 1 January 2012, ha where and how the natural environment on maintaining a joint database of was being modified as a result of human polluted land. 4 1 business activity, using the most We received examples of high and promising and economically viable ultra-high resolution space images taken method – remote sensing. by the Quick Bird, Ikonos, Kompsat-2, 3 Having implemented remote sensing Alos and Geo Eye satellites. of the modified environmental sites, we The images were used to take an inventory prepared environmental maps of the area, of modified environmental sites, including put together a database, fed the acquired 2 polluted land, update and make corrections data into an automated, geographic to the topographic bases and implementation information system (GIS) for monitoring of the environmental monitoring. subsurface resources and created a process for maintaining and updating Using data from the remote sensing surveys, 1 810 – Low pollution (10%<) these inventories. we estimate that the total area of polluted 2 1,044 – Medium pollution (10-25%) land at our upstream sites is 2,336 ha. 3 425 – Severe pollution (>25%) In 2011, TNK-BP coordinated its 4 57 – Blanket coverage with oil inventory of polluted land with the Almost all polluted land is concentrated at our information at the disposal of the brownfield assets in West Siberia.

Waste* generation** by volume, th. tons Waste* generation** in 2011 1,200 by type of activity, %

1,091 1 1,000 1,049 2

800 800

600 648 678 555 507 400 338 200 226 184 202 154 154 133 141 70 0 2004 2005 2006 2007 2008 2009 2010*** 2011 1 88% – Upstream 2 12% – Downstream Total waste incl. oil sludge Oil sludge

* We define waste in accordance with Federal law N89-FZ dated 24/06/1988 (edition of 18/07/2011) “On industrial and household waste”: industrial and household waste is the remainder of the feedstock, materials, semi-finished products and other goods and products generated during operations or household use as well as goods/ products which lost their consumer value. ** Waste generated at our operations is allocated to 3-5 danger classes under the Russian classification which includes drilling waste (used drilling mud, drill cuttings), oil sludge, construction waste (as a result of installation, dismantlement and reconstruction), scrap metal and household waste. *** The data for 2010 was updated based on stock-take performed.

38 Sustainability Report — TNK-BP 2011 Waste utilization recycling (the volume of waste which is TNK-BP’s waste* management strategy recycled, decontaminated and handed involves efficiently combining in-house and over to third-party organizations) was select contractor resources to best dispose 14% up on 2010. of, recycle and process waste. This approach Company subsidiaries usually hand over the is fully aligned with the Company’s long-term generated industrial and household waste goals of recycling ‘heritage’ waste at its to specialized contracting organizations for license blocks. processing (decontamination, utilization or In 2011, the volume of waste produced by disposal). Secondary use of the generated the Company had an insignificant increase waste is mainly applicable to oil sludge: our of 4%, compared to the previous year, producing and marketing subsidiaries use mainly due to the development of a number 25.2% of the generated waste (the of new fields in the Khanty-Mansiysk and outstanding volume is handed over to Yamalo-Nenets autonomous regions, and specialized contracting organizations) also as a result of the 2011 inventory of and our refineries use about 75% of the waste and disposal sites at our license areas generated waste. In 2011, average oil approach Responsible in the Nizhnevartovsk region of the Khanty- sludge utilization amounted to 27% of the Mansiysk autonomous region. Thanks to an total oil sludge generated volume. effective waste management system, waste

Waste utilization* by volume, th. tons Waste utilization* in 2011 400 by type of activity, %

375 350 1 2 300

250 255 240 200 210 210 181 150 149

100 104 64 66 66 62 50 59 51 60 10 0 2004 2005 2006 2007 2008 2009 2010 2011 1 88% – Upstream 2 12% – Downstream Total waste utilized, incl. oil sludge Oil sludge utilized**

* Waste utilization is the recovery of useful materials from generated waste. ** Oil sludge is used in road construction as an additive for the asphalt mix.

Waste generation and utilization in 2004-2011 2004 2005 2006 2007 2008 2009 2010* 2011 2011 2011 Upstream Downstream Waste generated per annum, th. tons, incl. 338 555 507 648 800 678 1,049 1,091 954.4 136.3 Oil sludge generated, th. tons 70 154 154 133 184 141 202 226 186.8 39.2 Waste utilized per annum, th. tons, incl. 240 210 104 149 181 210 375 255 224.6 30.5 Oil sludge utilized, th. tons 10 59 51 64 66 60 66 62 32.1 29.5

* The data for 2010 was updated based on stock-take performed.

As part of its new waste management In 2011, the Company received a positive strategy, in 2011 TNK-BP commissioned a state expert review for its geological and ‘MegaMax’ mobile oil sludge processing unit hydrogeological materials, substantiating at the Samotlor oil field which helped to utilize geological tests to check the viability of about 45% of the oil sludge generated at the re-injecting drilling waste into deep layers field during the year. at the Uvat group of fields and at the Samotlor field.

Sustainability Report — TNK-BP 2011 39 Responsible approach to the Earth Mature fields – heritage and potential

Pipeline integrity of worn-out pipe and repaired 77.1 km of The pipeline system is the main means pipeline. Pipeline replacement allows the Incidents of integrity of crude transportation. The integrity of use of a higher quality product: in particular, damage reduced two TNK-BP’s 21,685 km of pipelines is one of pipes with enhanced corrosion resistance, fold to 2,331 cases the Company’s strategic environmental a factory-applied internal coating or non- over five years priorities and plays a key role in ensuring the metallic pipes. accident-free transportation of hydrocarbons In 2011, we continued to elaborate and and reducing its environmental footprint. introduce new technologies of inhibition Since 2004, TNK-BP has been working on a and electrochemical protection, as well pipeline integrity program that aims to replace as diagnostic techniques and appraisal of obsolete pipelines and uses anti-corrosion hazardous production facilities, in order to techniques to protect the pipelines in use. maintain and further improve performance The program has already shown positive in this area. results in terms of reducing the number of oil spills and, as a result, the extent of Since 2008, the Company has been also current soil pollution. implementing a program for managing the integrity of production sites, having By the end of 2011, anti-corrosion work had decreased the number of incidents at been carried out on 12,183 km of pipeline. production sites to 217 cases in 2011. During the year we also replaced 396.7 km

Pipelines integrity program, km (cumulative) In 2011, we replaced 12,000 11,107 4,500 396.7 km of pipelines. The 12,166 12,183 4,259 4,000 total length of the pipelines 9,080 10,000 3,862 protected by inhibition 8,606 3,500 3,545 amounted to 12,183 km, 8,000 3,282 3,000 6,547 or more than half of our 2,651 2,500 field pipeline network. 6,000 2,000 3,438 1,794 4,000 2,300 1,500 1,000 2,000 982 500 434 0 0 2004 2005 2006 2007 2008 2009 2010 2011 Pipelines inhibited Pipelines replaced

Oil spills reduction on 2005 baseline, % In 2011, the number of spills 0 fell by 77% vs the 2005 base 10 11 level. This is a result of risk 20 management pro-active 30 programs at the production 40 facilities including the improvement of inhibition 50 52 quality and pipeline inspection 60 and better protection from 70 69 external corrosion. 74 80 77 90

100 2006 2007 2008 2009 2010 2011

40 Sustainability Report — TNK-BP 2011 Diagnostics is an important aspect of In 2011, the average spill volume was 0.01 effectively ensuring pipeline reliability. tons per one thousand tons produced, while In 2011, TNK-BP performed diagnostic the number of pipeline ruptures equalled Innovative techniques in work on 6,460 km of its pipelines. Particular 0.022 per one thousand tons produced. pipeline inhibition and attention was paid to the program to ensure In 2004-2011, investment in the integrity diagnostics reliability of water crossings. of hazardous facilities, including pipelines, As a result of the measures undertaken, in amounted to USD 1.045 bn. All our pipelines – Integrated field pipeline protection by 2011, we achieved 10.5% reductions in the are compliant with the demands of feeding a corrosion inhibitor through number of technical breaches of integrity of Rostechnadzor and the acting norms production wells and to pressure dangerous industrial objects (DIO) compared and standards. According to the existing maintenance pumping stations – to the same period in 2010. Volume of crude legislation, all pipelines which reach the end a turnkey contract implemented by oil and petroleum products loss as a result of of their nameplate operating life go through a a specialized contractor technical breaches of the integrity, incidents safety check with a view to determining their – Electrochemical protection techniques and accidents on the DIO declined by 60%. future use. to combat external corrosion – Corporate approach to diagnosing oilfield pipeline problems and prioritizing approach Responsible by serviceability and productivity.

Sustainability Report — TNK-BP 2011 41 Responsible approach to the Earth New fields – challenges and solutions

TNK-BP has been successfully implementing major projects in East and West Siberia and the Yamalo-Nenets autonomous region (see the TNK-BP Annual Review 2011). Each new field development requires its own technological and managerial solutions and has its own specific environmental aspects to consider. In addition, each project involves a range of measures to preserve wildlife and flora and to utilize associated gas, and a general focus on minimizing the impact of industrial activity on the environment.

Preserving biodiversity are taken into consideration when preparing That commitment means that oil can be TNK-BP carries out baseline studies, the project documentation as well as building produced in the Kamennoe field floodplains engineering and environmental surveys of the and operating the project facilities. and exploration activities carried out in territories where the Company plans to ecologically sensitive areas of the Astrakhan Both staff and contractors make a develop major new projects, with a view to region and the Yamalo-Nenets autonomous commitment to apply individual technological checking the state of the ecosystem and district with no danger to the natural habitat solutions in each project and to comply with drawing up recommendations for maintaining of local wildlife. stringent corporate environmental standards. the natural balance. Those recommendations

License areas under development by TNK-BP in or adjacent to conservation areas or areas with a high biodiversity value.

Protected areas with Acreage, ha Notes Adjacency of license areas high biodiversity Natural areas of special protection – – Astrakhan biosphere reserve, regional natural areas of special protection within the territory of the Astrakhan license area (excluded from licenses) International conventions 14.1 th. ha, the floodplain 3% of the land protected under the Ramsar Convention Ob river estuary acreage of the Kamennoye (the Upper Dvuobye). Operations in the Upper Dvuobye field lowlands including exploration activity are carried out without a significant impact on the local native habitat, breeding and migration of waterfowl. Regulations and the timing of our activities are coordinated with the Committee for Environmental Protection of the Khanty-Mansiysk autonomous district. Forests Not estimated Installation of our ground and infrastructure facilities is made with minimal impact on forestry – cedar (very valuable) and near tundra forests. Habitat of rare and protected The Kamennoye field, the The Kamennoye field. species Uvat group of fields, the On the whole, in the Upper Dvuobye wetlands there are Svetlosharinskiy, Kirikilinskiy 11 bird species considered rare and included on the and Vatazhny license areas endangered-species lists of the International Union for in the Astrakhan region Conservation of Nature and Natural Resources (IUCN), Red Book of Russia and of the Khanty-Mansiysk autonomous district. The Floodplain zone, which is part of the Upper Dvuobye and is located in the Kamennoye field, is home to 5 rare bird species out of that total. The Uvat group of fields is the habitat for 5 bird species on the endangered-species lists of Russia and of the Tyumen region. The license areas in the Astrakhan region may be the habitat of 9 rare and vanishing plants on the endangered-species lists of the Astrakhan region and of Russia as well as 14 bird species on the endangered- species lists of BP and of the Astrakhan region (one bird species is on the IUCN endangered-species list).

42 Sustainability Report — TNK-BP 2011 Our activities in environmentally sensitive –– Interacting with our stakeholders from zones have had no material impact on the earliest project phases specially protected conservation areas –– Carrying out additional studies and or biodiversity due to the steps we have consulting with the expert community taken to: and local population. –– Restore disturbed land after completing Any such activities carried out by TNK-BP operations and return it to its owners – are always based on corporate regulations, in accordance with Russian law and which include: corporate procedures 1. A Procedure for Project Health, Safety and –– Monitor the environment before, during Environment Categorization, Control and and after operations – in accordance with Management (edition N° 2 dated Russian law and corporate procedures 26/01/2011). –– Apply technology to minimize The need for environmental studies and environmental impact, including on flora the scale and forms of interaction with the and fauna. An example of this would be public on planned activities, as well as the approach Responsible seismic data gathering in the Astrakhan level of disclosure of measures to prevent license areas (environmentally sensitive safety and environmental risks, are region in the Volga delta) using safe determined at each project stage. non-explosive methods. 2. The corporate procedure “Organization When working in ecologically sensitive or of public hearings on assessment complex areas we follow TNK-BP’s corporate of environmental impact during strategy, which sets out the regulatory project execution”. framework for our activities. The purpose of this document, which is Our corporate strategy for working in mandatory for all major projects, is to apply ecologically sensitive territories is based a common corporate approach to creating on the principles of: awareness through public hearings of our environmental promises. –– Controlling and managing the health, safety and environmental aspects of 3. PHSER (Project HSE review), HAZOP projects, with due consideration for (Hazard and Operability Study). ecological, social and reputational risks IMAGE 4. Specially devised operating conditions –– Analysing the experience and application to minimize environmental impact. of the best available international practices –– Developing additional HSE restrictions for sensitive areas

Sustainability Report — TNK-BP 2011 43 Responsible approach to the Earth New fields – challenges and solutions

Unique features of developing the –– Round tables with Company experts Kamennoye oil field and managers, public discussions with local The Kamennoye oil field, which is part of residents and the environmental community the Krasnoleninskaya suite, is located in –– Incremental environmental studies: the Khanty-Mansiysk autonomous district in –– An ornithological study of the wetlands West Siberia. and the key Upper Dvuobye ornithology area, together with the Russian Union for Its northern section, known as the Floodplain, the Protection of Birds in 2008 and 2011 forms part of the internationally important –– Eco-landscape mapping to determine Upper Dvuobye wetlands, 12 km higher up the scale of man-made disruption in the River Ob. The Floodplain zone covers different areas, with the ensuing creation 3% of the total wetland area. of an interactive map based on satellite Covering an area of 470,000 hectares, Upper image interpretations, together with the Dvuobye is one of the largest nesting habitats World Wildlife Fund (WWF) for waterfowl, including five rare and –– Preparation of specific requirements for endangered species. It is protected by the working in the environmentally sensitive international Ramsar Convention, which Floodplain zone imposes a total ban on economic activity –– Preparation and approval of the regulation in the wetlands, and also establishes strict of economic activity for the construction regulations for using natural resources so and operation of field facilities in the as to avoid any adverse impact on waterfowl Floodplain zone and their habitat. –– Field visits for representatives of key environmental NGOs: TNK-BP has adopted additional regulations –– Before construction work started in the governing operational activity in the area and Floodplain (May 2008) its conformity with the legal requirements: –– After completion of construction work –– Documents regulating construction and (September 2010). operation of infrastructure facilities in the To reduce any environmental impact during Floodplain zone of the Kamennoye development of the Kamennoye field license area Floodplain zone, TNK-BP used the best –– Additional health, safety and environmental available technology: requirements for oil and gas production in the Floodplain zone of the Kamennoye –– Pitless drilling license area. –– The optimal size and number of well pads (5 units) The Company has worked closely with –– Well pads mounted by 4.5 meters representatives of public and environmental on a waterproofed base non-governmental organizations (NGOs) in –– Approach roads with pipe culverts to all project planning stages, and over and preserve the existing surface water above the legal requirements, and runoff pattern. implemented the following:

44 Sustainability Report — TNK-BP 2011 – Approach roads and well pads constructed – An airtight system for gathering and in winter in absence of mass bird migration transporting well products Innovative approach to disposing – Underground pipelines with improved – Automatic adjustment, shutdown and of waste grades of steel, enhanced corrosion alarm systems installed at well pads and Company specialists working at the Uvat resistance, and internal anti-corrosion exploration wells in the Floodplain zone group of fields are preparing to use a new and external protective coatings – Restricted vehicle movements in the technique to dispose of drilling waste into – Underwater pipeline crossings using Floodplain zone to rule out unsupervized the subsoil, by re-injection into the directional drilling and unscheduled trips reservoir. The new technique does not – Well drilling with the use of – Ban on all kinds of hunting equipment require the construction of sludge pits and environmentally friendly reagents in the Floodplain, as well as on dogs will reduce the area of land used. and polymer-based materials and any unsanctioned vehicle movement – Drilled cuttings processed with resulting within the area. Re-injection into the reservoir involves products removed from the Floodplain zone injecting granulated cuttings and liquid – Used drilling mud injected into disposal drilling waste into a special underground wells during well construction disposal site (watertight rock formation) identified by geo-mechanical modelling. approach Responsible It has the following advantages: –– Use of all drilling waste –– No need for phase separation –– Minimal creation of secondary waste –– Complete disposal of waste –– Complete use of liquid waste The Company plans to begin a geological study of the subsoil area for further re-injection of the drilling waste in deep horizons at the end of 2012, provided we have received the necessary state approvals. In this way the drilling waste accumulated at the Urnenskoye and Ust-Tegusskoye fields of the Uvat group will be utilized within three years.

Sustainability Report — TNK-BP 2011 45 Responsible approach to water

We realize the importance of conserving water, one of the Earth’s most valuable resources. The Company aims to gradually reduce its use of clean water to maintain formation pressure and to use re-circulated water instead.

In 2011, water consumption across account for 47% of water usage and Some of our refineries dispose waste water, TNK-BP as a whole rose by 5.7%, relative municipal water grids provide a further 2%. treated to the approved standards, in surface to 2010. This was due to an increase in Our subsidiaries use water from surface water bodies. The Ryazan refinery disposes hydrocarbon production and refining water resources only in accordance with treated waste water in the Listvyanka river, volumes, and also due to the use of water agreements on usage of surface water which is an affluent of the Oka river. The for operational needs, including for reservoir bodies, while water usage from subsurface Saratov refinery disposes treated waste water pressure maintenance. At the same time, water bodies is regulated by licenses. in the Volgograd water reservoir located on water discharge onto surface water bodies Compliance with water usage rules is the Volga river. Both water bodies are fell by 15.1%, mainly thanks to measures regularly monitored by authorized fisheries waters. taken at TNK-BP’s refineries. supervisory agencies. Our refineries implement environmental Our water usage does not have a significant Our producing subsidiaries do not activities and use water recycling units to impact on water resources. Surface sources dispose untreated waste water into avoid a negative impact on water bodies. of water supply account for only 51% of our surface water bodies. total water usage. Subsurface water sources

Water usage, mln cub. m Water usage, % 80 1 70 68 66 65 60 58 60 59 58 50 54

40 2 30

20

10 1 67% – Upstream 0 2004 2005 2006 2007 2008 2009 2010 2011 2 33% – Downstream

Note: A re-calculation of the 2009 data resulted in an increase in absolute terms over the previously announced figures.

46 Sustainability Report — TNK-BP 2011 Water discharge, mln cub. m Water discharge, % 35 33 1 31 30 30 29 28 25 27 23 20 22

15

10 2 5 1 47% – Upstream 0 2004 2005 2006 2007 2008 2009 2010 2011 2 53% – Downstream approach Responsible

Re-used water, mln cub. m recycling systems are mainly applied at In 2011, the volume of re-used water fell by our refineries, where the volume of water 6.2% compared to the previous year, due to recycling constitutes approximately 92% of growth in production and the commissioning the total annual water usage. Repeated water of new fields. By re-used water we mean the recycling is not significant and accounts for combined amount of the recycling water approx. 1% of refinery water usage. supply and repeated water recycling. Water

Re-used water, mln cub. m Re-used water, % 900 1 800 816 821 775 768 790 700 741 669 600 623 500 400 300 2 200 100 1 64% – Upstream 0 2004 2005 2006 2007 2008 2009 2010 2011 2 36% – Downstream

Water Consumption, mln cub.m 2004 2005 2006 2007 2008 2009 2010 2011 2011 2011 Upstream Downstream Water usage 66 58 54 60 59 58 65 68 46 22 Recycling water supply 254 287 306 289 301 301 299 264 0 264 Repeated water recycling 370 382 469 479 515 520 491 476 473 3 Water re-used 623 669 775 768 816 821 790 741 473 268 Water discharge into water surface bodies 19 18 18 19 18 19 18 16 0 16 Water discharge to soak away 0 0 0 0 1 1 1 0.522 0.156 0.366 Water discharge into the subsurface horizons 4 4 9 9 9 12 14 14 14 0 Water discharge 23 22 27 29 28 31 33 30 14 16

Sustainability Report — TNK-BP 2011 47 Responsible approach to air Climate change

Climate change is a global issue that affects everyone. The Board of Directors of TNK-BP and the Company’s management consider the climate change issues in the context of our activities and effective management of existing risks. The risks related to oil and gas activities may include the impact of weather changes and resulting threat of diseases and incremental capital expense to meet the government regulations. TNK-BP believes it can make a contribution to combating climate change by minimizing the adverse impact of its activities on the environment and on the lives of people living in the regions where it operates. In this respect, opportunities may include encouragement of application of new technologies and products to combat the climate change and gaining a competitive advantage associated with application of new technologies. Our efforts are primarily aimed at improving the energy efficiency of each business segment, achieving efficiency in the use of associated gas, increasing the share of clean fuels in our oil product slate and restoring vegetation to land we have used. We are confident that transparency in information disclosed, international collaboration under the Kyoto Protocol and an exchange of expertise and technologies will help to stop climate change before the consequences become irreversible.

In 2009, TNK-BP became the first major oil The overall greenhouse gas emission figures, and gas company in Russia to disclose quoted in CO2 equivalent, follow the general information on its greenhouse gas emissions trend in associated gas use during the according to international reporting 2005-2011 period. Measures designed to standards. Comparative analysis of boost associated gas use and reduce greenhouse gas emissions per ton of greenhouse gases have been consistently oil produced or refined in major global applied to the Company’s mature fields companies shows that TNK-BP is (so-called brownfields). At the same time, competitive on this scale. commissioning of new fields (known as greenfields) with no associated gas utilization The methods used to calculate the infrastructure offsets the benefits from these Company’s greenhouse gas emissions measures. Across the Company as a whole, were developed on the basis of IPIECA the level of greenhouse gas emissions is (International Petroleum Industry stable, despite growing hydrocarbon Environmental Conservation Association) production and refining levels. and API (American Petroleum institute) recommendations and were verified in collaboration with our shareholder, BP, which has a well-deserved reputation in the field of technological innovation.

48 Sustainability Report — TNK-BP 2011 Greenhouse gas emissions, CO2 equivalent, mln tons Greenhouse gas emissions by business stream, % 35 33 6 29 1 30 28 28 27 6 27 27 6 4 27 6 6 7 25 23 23 22 20 21 21 21 2 15

10

5

0 2005 2006 2007 2008 2009 2010 2011 1 75% – Upstream

2 25% – Downstream approach Responsible Upstream Downstream

Note: A re-calculation of the 2007-2010 data resulted in an increase in absolute terms over the previously announced figures. Nevertheless, we are seeing a positive trend, as greenhouse gas emission volumes are remaining stable against a backdrop of sustained production growth. The re-calculation of data was possible thanks to an improved method for the assessment of greenhouse gas emissions, based on the findings of an internal audit and verification program in our subsidiaries. The increase in greenhouse gas emissions in 2007 was caused by a process failure at the Belozerny gas processing plant in the Nizhnevartovsk district, which resulted in restrictions on the offtake of associated gas from our subsidiaries.

The Company’s efforts to reduce In 2011 we continued the implementation greenhouse gas emissions are focused of our program for utilization of associated on the following areas: petroleum gas and air protection. The Company has put in place three gas turbines –– sustained reduction in the flaring of and gas compressor plant, as well as associated gas additional capacity at the Nizhnevartovsk –– improved energy efficiency in our gas processing plant (see page 58). Our operations refineries increased production of fuel with –– installation of floating roofs in oil depots to improved environmental characteristics prevent evaporation of oil during storage – (see page 56-57). one of the main sources of emissions –– continuous upgrading of our facilities to TNK-BP does not record the emissions of reduce process losses substances that destroy the ozone layer, as –– application of best international practice, these are negligible in our operations. The to which we have access through BP, same applies to indirect greenhouse gas to reduce greenhouse gas emissions. emissions. We do, however, recommend that our employees reduce business travel and In 2011 the decrease in the emission of use video-conference facilities where greenhouse gas was insignificant due to possible. The Company is also encouraging increased oil and gas production. the use of environmentally friendly means of transport (and we also recommend that employees do not use private vehicles on World Environment Day).

Sustainability Report — TNK-BP 2011 49 Responsible approach to air Climate change

Atmospheric emissions with as yet no infrastructure for APG The Company continues working on utilization and restricted opportunities for gas increasing the utilization rate of associated transportation which led to more gas flaring. petroleum gas (APG) in compliance with the In 2011, the average APG utilization rate program adopted by the Company for amounted to 82.8% (please read more on 2009-2014. An insignificant increase of 5.9% page 58). in the gross volume of atmospheric emissions in 2011, as compared to 2010, occurred as a result of incremental production at new fields

Gross emissions of pollutants into the atmosphere, th. tons Gross emissions of pollutants 1,400 into the atmosphere by business stream, % 1,200 1,279 1 1,124 2 1,000 1,072 965 991 973 955 919 800

600

400

200

0 2004 2005 2006 2007 2008 2009 2010 2011 1 94% – Upstream 2 6% – Downstream Note: The increase in the gross emission of pollutants in 2007 was caused by a process failure at the Belozerny gas processing plant in the Nizhnevartovsk District which resulted in restrictions on the offtake of associated gas from our subsidiaries.

Atmospheric emissions Atmospheric emissions in Upstream, % in Downstream, % 7 1 2 6 1 7 2 3 6

3

4

5 5 4

1 7% – Solid matters 1 1% – Solid matters 2 1% – Sulphur dioxide 2 19% – Sulphur dioxide 3 57% – Carbon monoxide 3 7% – Carbon monoxide

4 1% – Nitric oxide (in terms of NO2) 4 5% – Nitric oxide (in terms of NO2) 5 20% – Volatile organic compounds 5 62% – Volatile organic compounds 6 14% – Hydrocarbons (without 6 0% – Hydrocarbons (without volatile organic compounds) volatile organic compounds) 7 0% – Other emissions 7 6% – Other emissions

50 Sustainability Report — TNK-BP 2011 Kyoto Protocol projects

TNK-BP believes that the Kyoto Protocol the issuing of emission reduction units for mechanism is an important step towards the ‘Gas Collection at the Samotlor Field’ extending the efficient use of associated project. According to the monitoring report petroleum gas. The ‘Joint Implementation and the verifier’s findings, reduction in Mechanism’ under the Kyoto Protocol to greenhouse emissions as a result of the the UN Framework Convention on Climate project’s implementation in 2009 to 2010

Change incentivizes implementation of amounted to 355 th. tons of CO2 equivalent. APG utilization and other projects aimed at Revenue from the transfer of the relevant reducing greenhouse emissions. In 2011, emission reduction units to the buyer, we moved further in broader application BNP-Paribas, amounted to 65.2 mln of the ‘Joint Implementation Mechanism’ RUR (around USD 2.2 mln). The above to our activities. mentioned amount was transferred in approach Responsible December 2011 on the account of the In particular, the Company carried out an investor – JSC “Samotlorneftegaz”. analysis of our energy efficiency and APG utilization programs 2006 to 2011, resulting We continue to review projects which may in a list of 40 projects which may potentially lead to reduced greenhouse emissions in qualify for implementation under the West Siberia and the Orenburg region. In Kyoto Protocol. 2012, the Company plans to prepare the necessary documentation for the In 2011, TNK-BP and Sberbank, an ‘Associated petroleum gas utilization at the authorized operator of the allocation of Khokhryakovskoye field’ project and take carbon units in Russia, signed an agreement part in the project selection organized by on partnership and co-operation, under Sberbank. Estimated emission reduction which Sberbank supports TNK-BP in units under this project correspond to choosing projects which answer Russian 3 mln tons of CO equivalent. and international criteria for implementation 2 under the Kyoto Protocol, in recruiting In 2012, we also plan to draw up consulting services to prepare the design documentation for a number of projects documentation and in choosing a buyer for under the heading ‘Construction of the emission reduction units (ERU). small-scale power projects using associated petroleum gas’ as well as for initiatives on The Company prepared and co-ordinated efficiency improvements in APG utilization with Sberbank, and the Ministry of Natural in West Siberia and the Orenburg region. Resources a set of documents (a verification report, monitoring report and a verifier’s expert findings) which is necessary for

Sustainability Report — TNK-BP 2011 51 Responsible approach to air Raising energy efficiency

Given the consistent growth in the cost of energy resources and the high energy intensity of processes associated with the production, transportation and refining of oil, gas and gas condensate, the Company regards the continuous improvement of its energy efficiency as a vital element of its business activities and as a contribution to the sustainable development of society as a whole.

Energy efficiency framework Energy efficiency program: scope, TNK-BP’s permanent Energy Efficiency implementation and impact Commission, set up in 2010, continues A process for monitoring and managing to function successfully. Its main aim is to improvements in energy efficiency in oil ensure cost-efficient improvements in the production, which we started to establish energy efficiency of systems, business early in 2009, has now evolved into a key processes, structural units and equipment corporate initiative for operating costs in all areas of activity over the long term. reduction. In 2010, following the creation of the Energy Efficiency Commission, we On the basis of TNK-BP’s Key Procedure launched a comprehensive application of this ‘Organization of the Energy Management process in the oil and gas refining segment. System’, in 2011 one of its oil production In 2011, we shared the best experience subsidiaries, OJSC TNK-BP Nizhnevartovsk, gained in energy efficiency activities ran a pilot project to deploy the new Energy with TNK-BP’s joint ventures – Management System with pre-certification Yugragazpererabotka and Slavneft. to the ISO 50001 international standard. The Energy Efficiency Commission has decided The overall benefit achieved through the to roll this project out to a further five Company’s energy efficiency programs in subsidiaries in 2012. 2009 to 2011 amounted to USD 161 mln. Key objectives of improving energy efficiency: –– Apply advanced techniques and approaches in energy efficiency management –– Optimize existing technological processes and improve the energy efficiency of operations in terms of energy input, while maintaining key process parameters –– Improve energy efficiency in electricity and heat transmission and distribution systems –– Use energy efficiency criteria to analyze and improve existing business processes and in the design and construction of new facilities –– Deploy modern systems for the technological metering of energy and key technological process parameters

52 Sustainability Report — TNK-BP 2011 Economic effect of energy-saving programs, USD mln 120

100 94 9 80 85

60 42 7 40 25 35 3 20 22

0 2009 2010 2011 approach Responsible Downstream, USD mln Upstream, USD mln

Key energy efficiency initiatives Energy efficiency improvements in implemented or launched in 2011: upstream –– An agreement signed between TNK-BP In 2011, Upstream saved 1,222 mln kWh of 161 mln and the Skolkovo Foundation on electricity through energy efficiency measures collaboration in improving energy efficiency, –– 38% more than was initially planned. including an intra-university competition on Direct energy use USD energy-saving projects Actual electricity consumption by Upstream in the saving effect –– A concept devised and approved for the 2011 amounted to 11,994 mln kWh, of which from energy creation of energy-efficient metering and 816 mln kWh, or 6.8%, was produced by control systems; a pilot project to test this efficiency programs TNK-BP’s own generator facilities with the in 2009-2011 system launched in Upstream in 2012 remainder being purchased from external –– Energy audits of TNK-BP’s Upstream power supply grids. We plan to increase the subsidiaries completed; energy inspections share of in-house electricity generation at our launched to improve energy efficiency in greenfield projects. the Company’s oil refineries –– An active search underway for new Indirect energy use technologies and technical solutions to At present, the Company does not monitor improve energy efficiency; the energy its indirect energy consumption, including efficiency program for 2012 to 2014 electricity used for lighting and heating includes a roll-out of successful projects at its facilities. Nevertheless, we make completed in 2010 to 2011 efforts to ensure careful use of energy –– Company staff being trained in the for those purposes. fundamentals of energy efficiency and standard energy-saving measures in Upstream and Refining –– Work initiated to integrate energy efficiency aspects at the design and engineering stage of our greenfields.

Sustainability Report — TNK-BP 2011 53 Responsible approach to air Raising energy efficiency

Electricity consumption per unit in upstream, kWh/ton In 2011, energy consumption 185 per 1 ton of oil produced reduced by 8.8% relative to 180 180.2 2008 due to increasing 175 175 operational efficiency.

170 170.9

165 164.4 162.5 160

155

150 2008 2009 2010 2011 2012 (forecast)

TNK-BP – a winner of the Annual National Award ‘Save the energy!’ with the project ‘Calculation and maintenance of minimal costs for fuel and energy through optimization of technological processes in refining’

54 Sustainability Report — TNK-BP 2011 Achievements in improving the energy efficiency of production in 2011

1 –– Submersible electric motors with 2 Energy efficiency improvements in increased voltage. In 2011, successful Improving energy efficiency of surface artificial lift pilot tests of submersible electric motors facilities –– In 2011, the Company continued with increased voltage should enable a –– Application of variable speed drives implementation of the strategy for reduction in cable energy loss by 30% (VSD). In 2011, OJSC Samotlorneftegaz improving the efficiency of oil to 60%. This practice will be scaled up started application of VSD in oil pump production using artificial lift, aimed from 2012. and water injection blocks. Actual energy at driving down unit costs. Artificial lift –– Cycling well exploitation. Successful consumption decreased by between accounts for 63% of total electricity implementation of the cycling low-rate 10% and 40%, depending on which consumption in Upstream. The energy- well exploitation method was started. This operating mode was in use. In 2012, this saving effect in this area amounted to method, which involves the application initiative will be implemented in other approach Responsible 344 mln kWh in 2011. of higher capacity pumping facilities with oil-producing subsidiaries. –– Energy-efficient designs – application higher power efficiency, will enable a 3 of specialized software to design decrease in energy consumption by 15% Other energy efficiency initiatives configuration options for electric to 25% for the same production level. –– Introduction of energy management submersible pumps, pump depths and –– Electricity metering in individual wells. system. In 2011, OJSC TNK- tubing diameter. This involves selecting In 2011, a framework for a well-by-well Nizhnevartovsk carried out a successful the option with the lowest energy energy efficiency control system was pilot project on implementing the consumption for a given volume of approved. This framework will help requirements of the ISO 50001 production and configuring the to establish a new level of energy international standard ‘Energy equipment accordingly. In 2011, more consumption management in the management system’. Its main goal is than 2,000 energy efficient designs most power-consuming process. to increase the manageability of power were implemented. Implementation of the first phase of consumption through concerted action the project is expected in 2012-2013. by all business units. This project will be implemented in five producing subsidiaries during 2012.

Energy efficiency activities in downstream Energy efficiency activities Direct energy usage in downstream in 2011 In 2011, Downstream’s actual energy –– Energy efficiency programs for 2012 consumption (excluding the Lisichansk and 2012-2014 were developed refinery in Ukraine) amounted to 60.6 mln GJ, and approved. including 12.1 mln GJ (1.25 bn kWh/hour) of –– Daily energy efficiency monitoring of electricity consumption. main process units at the refineries was introduced and activated. Indirect energy usage –– The first stage of introducing the The Company does not monitor its indirect energy management system at the energy use in downstream as its share in the Ryazan refinery was completed. total energy use is negligible. –– Terms of reference for energy audits In 2011, implementation of the energy-saving at the refineries were developed. program in refining resulted in an actual The energy audit at Saratov refinery, decrease of 1.97% in energy consumption with integration of heating processes per 1 ton of processed oil from 2.53 GJ/ton (pinch analysis), got underway. to 2.48 GJ/ton. At the same time the refining –– Total energy savings in refining volume increased by 2% compared to 2010. amounted to USD 26 mln. –– In 2011 TNK-BP became a winner of the Annual National Award ‘Save the energy!’ with the project ‘Calculation and maintenance of minimal costs for fuel and energy through optimization of technological processes in refining’.

Sustainability Report — TNK-BP 2011 55 Responsible approach to air Cleaner fuels

Production of cleaner fuels is an important part of our commitment to caring for the environment and for society’s needs. TNK-BP’s investment program in the refining sector will amount to USD 2.5 bn from 2012 to 2015, of which USD 1.5 bn will be spent on maintaining integrity and improving product quality (for more details on refining strategies see the TNK-BP Annual Review 2011). We are constantly working to improve the quality of our oil products, primarily to meet modern environmental regulations and satisfy the growing demand for higher-quality fuel as the design of vehicles changes. Investment in quality projects is also driven by product quality standards set out in technical regulations approved by the Russian government.

During 2011, we made a number of Euro-4 major changes to the range of oil products In 2011, production of Euro-4 gasoline we market. amounted to 1.6 mln tons, or 31% of our 31% total gasoline production. Our flagship the share of Euro-4 Gasoline Ryazan refinery produced 47% of its gasoline In 2011, production of high-octane gasoline compliant with Euro-4 standards and also gasoline in increased by 11.4%* and amounted to launched production of Euro-5 gasoline. TNK-BP’s total 4.9 mln tons. gasoline production Euro-3 in 2011 From 1 January 2011, all our refineries produced motor gasoline compliant with at least Euro-3 standards as a result of implemented upgrades.

Light oil product yields, % 60

23.9 23.2 23.4 50 22.3 22.8

40

30 4.1 4.2 3.9 4.3 4.5 28.2 28.3 27.7 27.4 27.0 20

10

0 2007* 2008* 2009* 2010 2011 Diesel fuel Jet fuel Gasoline

* The data was modified due to changes in calculation methodology

56 Sustainability Report — TNK-BP 2011 Diesel no recorded instances of non-compliance In 2011, production of Euro-4 and Euro-5 with laws and regulations concerning the diesel amounted to approximately 55% provision and use of products and services of the total diesel yields as a result of the in 2011, no significant fines were imposed Company’s effort to increase the share of to that effect. In 2011, TNK-BP Holding, light oil products in its product slate. a subsidiary of the TNK-BP group Euro-3 and Euro-4 companies, paid fines imposed by the In 2011, we produced diesel compliant with Russian Federal Antimonopoly Service for Euro-3 and Euro-4 standards at the Ryazan the stated violation of Russian antimonopoly and Saratov refineries. legislation. No other fines were recorded to that effect in the period. Euro-5 Diesel compliant with Euro-5 standards In the area of marketing communications, was produced at the Ryazan and Yaroslavl including advertising, product promotion and refineries. In 2011, we sold Euro-5 diesel sponsorship, we act in strict compliance with both for export and in the Russian Russian law. All our activities in this area are approach Responsible domestic market. duly approved and registered by the relevant state regulatory agencies, including the Please read more about our downstream Russian Federal Tax Service. operations in the TNK-BP Annual Review 2011 at www.tnk-bp.com In addition, there were no recorded complaints about violations to customer Compliance with standards and privacy or loss of customer data. voluntary codes In 2011, Downstream implemented a We strictly comply with the standards and procedure for handling customer complaints voluntary codes that govern the quality of that includes a methodology for evaluating our products and services. TNK-BP is customer satisfaction. This procedure will constantly assessing and identifying 55% be in line with the ISO 10002:2004 standard opportunities for improving the impact of its – the share of Euro-4 on Quality Management – ‘Customer products on health and safety. Crude oil and and Euro-5 diesel in Satisfaction. Guidelines on Handling oil products produced by the Company TNK-BP’s total diesel Complaints in Organizations’. comply with state quality standards existing production in 2011 in the Russian Federation. No customer satisfaction surveys were carried out in 2011. Our website publishes In 2011, there were no recorded violations of the hotline telephone numbers, available standards and voluntary codes relating to the 24 hours a day, and department addresses, impact of products and services on health including e-mail addresses for customer and safety, information on products and complaints. In addition, telephone hotline services, marketing communications, numbers are always displayed clearly at all including advertising, and promotion of TNK and BP retail sites. products and sponsorship. As there were

Sustainability Report — TNK-BP 2011 57 Responsible approach to air Efficient use of associated petroleum gas

TNK-BP is a major producer of associated petroleum gas (APG). In 2011, APG production amounted to 14 bcm, which was 6.9% higher than in the previous year. APG production increases as oil production grows. Our strategic priority is to make efficient use of associated gas and achieve an overall utilization level of 95%. Associated gas utilization is an important component of our environmental obligations and licence compliance. In 2011, associated gas utilization stood at 82.8%. We plan to invest USD 1.4 bn in associated gas utilization projects, including building new gas gathering and processing facilities, potential gas re-injection as well as the development of captive generation.

TNK-BP’s strategy for associated petroleum gas utilization

Associated Associated Marketing gas gas and products production transport & trade & gathering processing

Associated petroleum gas utilization, % In 2011, the associated 100 petroleum gas utilization rate reduced to 82.8% compared 80 84.4 84.6 82.8 to 84.6% in 2010 due to 79.8 79.6 75.5 77.6 incremental greenfield 68.4 60 production. We continue to work on increasing the APG utilization levels as per the 40 approved corporate program.

20

0 2004 2005 2006 2007 2008 2009 2010 2011

58 Sustainability Report — TNK-BP 2011 Projects of associated petroleum gas utilization Refinery Key projects Future projects

Yamal (Suzunskoye, Saint Petersburg Tagulskoye, Russkoye, Russko- Rechenskoye, Messoyakhskoye fields) Nyagan

Moscow (Kamennoye, approach Responsible Talinskoye, Em-Egovskoye)

Nizhnevartovsk

Orenburg Uvat

Verkhnechonskoye

Orenburg Nyagan Nizhnevartovsk Uvat Yamal Verkhnechonskoye APG Utilization Program Expanding APG Utilization Program Gas turbine power plant Review of different Power plant «Orenburg Integrated Yugragaspererabotka «Nizhnevartovsk construction is in options including power construction. Gas Project» is implemented LLC by including gas Associated Gas». Joint progress. generation, gas re-injection project in the Orenburg region. processing facility ventures in partnership re-injection and for underground gas Nyagangazpererabotka with TNK-BP operate transportation by the storage for subsequent LLC. in the region in gas pipeline. use. processing (Yugragaspererabotka, 49%) and power (Nizhnevartovsk GRES, 25%) industries.

Milestones in associated petroleum gas utilization

2007 Completion of a project to create a gas A long-term contract for the supply of Commissioning the Khokhryakovskaya gathering system at the Samotlor field associated gas to the Nizhnevartovsk power compressor station, increasing the annual (commissioning of five vacuum compressor station for 18 years was signed, the first of associated gas utilization by 0.25 bcm. stations), increasing the annual associated gas its kind in the Russian oil industry. utilization by 0.06 bcm. 2007-2008 Construction work began on Phase 1 of the Optimization of the gas gathering system in 2009 3rd unit at the Nizhnevartovsk Power Plant. Nizhnevartovsk district, increasing the annual Completion of an associated gas utilization 2011 associated gas utilization by 0.2 bcm. project at the Vakhitovskoe field, increasing Memorandum of understanding signed to the annual associated gas utilization by extend the gas processing venture with 2008 0.2 bcm. Commissioning of the MAU-3 gas processing SIBUR till 2026. unit at the Nizhnevartovsk gas processing 2010 Commissioning Phase 1 of the gas plant, increasing the annual associated gas The SIBUR petrochemical holding turbine power plant at the Kamennoye oil utilization by 0.7 bcm. and TNK-BP signed an agreement field with the installed capacity of 24 MW. on the expansion of LLC Yugragazpererabotka through integration Gas processing capacity of LLC with the LLC Nyagangazpererabotka gas Yugragazpererabotka expanded by 0.7 bcm. processing company.

Sustainability Report — TNK-BP 2011 59 05 Fostering the safety culture

61 Fostering the safety culture

60 Sustainability Report — TNK-BP 2011 Continued development of a safety culture is a priority for TNK-BP. The safe operation of our production facilities depends not only on the state of the equipment but also on our people and contractors and their safe working practices. Our unconditional adherence to corporate health, safety and environmental standards (HSE) and compliance with hygiene and safety rules is equally important.

In 2011, the Company continued to improve transportation safety monthly campaigns performance in the area of health, safety which are carried out across the Company. and environment (HSE). Due to effective In 2009-2011, reduction in the total application of the HSE corporate standards, recordable injuries slowed down relative which are more stringent than requirements to the previous period. However, it should imposed by Russian law, we managed to be noted that our current performance is reduce the total recordable injuries by comparable or complies with international 2.7 times and the number of fatalities by best practice which is confirmed by 1.9 times on the baseline of 2005. This result benchmarking TNK-BP against the was attained largely through improved safety members of OGP (Association of Oil and leadership by management at all levels. Gas Producers). We need to take a more The share of employees represented in proactive approach in increasing efficiency, joint HSE committees and elaborating focusing on the role of regional management recommendations with regard to health and as well as on the continuous improvement security programs varies from 50% to 75% of the safety culture among Company staff and includes interaction within the framework and contractors. safety culture Fostering the of trade unions, Coordination councils and

Reporting transparency

2011

I I Work-related fatalities 1 1 1 1 0.005 0.005

II II + Day away from work cases* 22 22 13 13 0.068 0.068

III III + Restricted work cases 93 93 29 + medical treatment*29 0.23 0.23

OGP TNK-BP

*Injuries per one work-related fatality.

Note: Safety triangles are based on the OGP methodology and display a ‘safety triangle’ in oil and gas producers – OGP members. The triangles are used to compare HSE reporting transparency. Level I represents one work-related fatality, which is the base for building the proportion. Level II includes the total days away from work cases (more than one work shift) divided by the total number of work-related fatalities + one casualty indicated in Level I. Level III includes the total number of victims of fatal cases in the production + the total number of days away from work (more than one work shift) + restricted work cases + the total number of individuals who received medical treatment divided by the total number of work-related fatalities.

Sustainability Report — TNK-BP 2011 61 Fostering the safety culture

Total recordable injury frequency rate (TRIFR) – 12 month rolling average During 2011, the rolling Total recordable injuries, headcount January – December 2011 = 261 average of the total 0.4 0.35 recordable injury frequency rate decreased by 21% and at the end of December 0.3 31 30 0.28 amounted to 0.23 compared 0.27 0.26 0.27 26 27 26 to 0.29 in the same period of 24 0.25 0.24 0.25 0.24 0.24 0.24 0.24 0.23 0.23 the previous year. 0.2 20 17 17 17 14 12 0.1

Significant improvement 0.0 Jan 11 Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec in a key safety indicator Total recordable injury TRIFR Target level TRIFR Rolling Average Average OGP (2011) TNK-BP – among 11 international oil companies * The Total Recordable Injury Frequency Rate represents the total number of fatalities and injuries resulting in lost with lowest total recordable time, restricted work cases and medical-treatment cases multiplied by 200,000 man-hours worked and then divided by the actual number of man-hours worked. injury frequency rate in ** The rate of man hours lost is calculated as the total number of man hours lost through lost time injuries (staff 2011. and contractors) multiplied by 200,000 man hours and divided by the total number of work hours (staff and contractors). In 2011, the rate of man hours lost amounted to 24.5. *** The rate of work days lost per one lost time injury is calculated as the total number of work days lost through lost time injuries (staff and contractors) divided by the number of lost time injuries (staff and contractors). In 2011, we had 49.6 work days lost per one lost time injury.

We are saddened to report that in 2011 The investigations resulted in adoption we experienced six work-related fatalities of corrective actions mandatory for (employees of contracting organizations). implementation at all our subsidiaries In 2010, there were nine work-related to prevent similar events in the future. fatalities (two Company employees and seven We sincerely believe that introduction of employees of contracting organizations). comprehensive safety programs should In addition, we lost one Company employee minimize the risk of work-related fatalities in a health-related fatality compared to four within the next few years. health-related fatalities amongst Company employees in the previous year. We will continue to embed safe working practices in every aspect of our business, We carried out a thorough investigation to which includes safety training, rewarding identify the root causes of each incident in staff who prevent hazardous situations at accordance with the Company’s procedures. work and increasing managers’ personal Investigation commissions are chaired by the responsibility for compliance with safety rules. general director of a subsidiary or a member of TNK-BP top management.

High-potential incidents In 2011, we managed (299 excluding 49 alcohol-related incidents in January – December 2011) to significantly reduce the 500 number of high-potential 413 incidents to 299 cases 400 168 compared to 413 cases 299 in 2010. 300 159 239 200

132 100 4 1 2 7 0 2010 2011

Upstream Downstream Gas Other

62 Sustainability Report — TNK-BP 2011 Breakdown of DAFWC in 2011: Despite the achieved improvements, a 0.060 in 2010, mainly due to a DAWFC –– West Siberia – 27 number of safety metrics do not show increase in our downstream business. –– Orenburg region – 15 significant progress or are improving at The situation is closely monitored by –– East Siberia – 4 –– Yamalo-Nenets a slower pace than in previous periods. Company management and, in particular, Autonomous District – 0 In 2011, we witnessed a 3% growth in the the HSE team are endeavouring to reverse –– Saratov – 3 rolling average of days away from work the trend. –– Ryazan – 10 cases (DAWFC) to 0.062 compared to –– Ukraine – 8 –– Other – 3 –– Total – 70

HIPO incidents Fatalities and days away from work cases (DAFWC) 80 13 1 2 70 12 70 68 3 45 11 58 10 60 4 50 9 40

8 30 22 5 20 7 6 9 10 6 10 1 8 1 5% – Spills 3 1 5 0 2 5% – Injured by equipment, 2010 2011 2010 2011 safety culture Fostering the moving items & parts DAFWC, headcount Work-related fatalities, headcount 3 10% – Powerline contacts 4 19% – Road traffic accidents Upstream Downstream Other 5 7% – Falls, trips

6 6% – Fires & explosions In 2011, we undertook a number of actions –– Modern telemedicine projects launched at 7 13% – Equipment breakdown & failure to reduce the number of days away from three remote and difficult-to-access sites in 8 8% – Other work cases: Yamal. A telemedicine facility commissioned 9 9% – Inflammation (dried grass and video-links tested with medical centers –– The Head of Downstream held a meeting burning/3rd party facilities burning, in Moscow and Novy Urengoi clients’ cars inflammation) with the general directors of our refineries –– A ‘Health day’ focused on the prevention 10 2% – Damage to retail site to agree on injury prevention measures of cardiovascular diseases 11 –– Safety Academy classes held as a pilot 5% – Criminal acts by 3rd parties –– Actions held at retail sites to reduce project for 51 line manager at the Ryazan 12 8% – Other injury causes accident risks with participation of (RNPK) and Saratov (SNPZ) refineries. In 13 3% – Health site customers. 2012, we plan to roll out this project to other downstream subsidiaries We have highlighted the key priorities for –– A group of refinery employees visited 2012 to achieve reduction in the injury rate: refining facilities in East Europe for –– Prepare safety operations instructions and knowledge-sharing. In 2012, we plan to introduce them in each subsidiary with the carry out a similar visit to refineries in the Safety Month compliance check held on a east of Germany followed by master- quarterly basis classes on safe working habits –– Review of the standard control procedures –– A process called ‘One step away from an for safe operations, including isolated accident’ has been put in place to involve power grids and work in a closed space operational staff in daily risk management –– Introduction of collective responsibility for –– A pilot project introduced the ‘Control over HSE violations. safe operations’ procedure in Saratov –– Regular meetings held with contractors emphasized safety requirements before the launch of significant maintenance and construction works

Sustainability Report — TNK-BP 2011 63 Fostering the safety culture

Transportation safety well as specialised equipment and vehicle- Road safety remains one of the greatest based road-building equipment. We consider areas of concern for us. Over 16,000 vehicles the environmental impact of automobile belonging to TNK-BP subsidiaries and transport vehicles used in the Company contracting organizations are in operation as immaterial. at various Company sites, including gasoline Unfortunately, in 2011 the Company saw tankers, buses and passenger vehicles as an increase in the rate of road accidents.

Road accidents In 2011, we registered six 50 major road accidents; three 2010: 45 road accidents 2011: 56 road accidents occurred through 3rd party 40 36 fault and three happened 1 through the fault of 30 contracting organizations. 9 24 In the previous year, there 1 26 6 20 had been just one major 20 1 12 14 14 road accident involving 17 12 1 7 14 a contractor. 12 10 6 5 6 1 4 1 0 Major Significant Insignificant Share Major Significant Insignificant Share of 3rd of 3rd party party fault fault

Upstream Downstream Other

64 Sustainability Report — TNK-BP 2011 Direct causes of road accidents Systemic causes of road Improving the emergency in 2011 accidents. management system 1 – Human factor – Lack of due attention to 5 sources of danger and In 2011, the Company maintained the to risk assessment trend for reducing the number of incidents – Emotional state connected with fires and oil spills (please or tiredness, fixation see page 40). Our main effort in this area on problems*. was focused on improving the emergency management system.

4 3 *As described in the procedure In September, we successfully held an 2 ‘Investigation of HSE incidents, preparation, roll-out and taking account integrated emergency response exercise in the Orenburgneft producing subsidiary 1 55% – Wrong actions of of lessons learnt and drivers (contractors) action plans’. in the city of Buzuluk. Delegates from 2 2% – Bad road cover HSE departments of other Company 3 2% – Technical fault subsidiaries, executive authorities of the Orenburg region and the local self- 4 25% – 3rd party fault governing bodies observed the exercise. 5 16% – Wrong actions of drivers (subsidiaries) It involved the demonstration of actions to eliminate a fire and an oil spill onshore and on water, localization and extinguishing a forest fire and evacuation of village residents. safety culture Fostering the In a pioneering move, the situation was evaluated on the basis of data sent from a drone to computers installed at the

We have undertaken the following –– Decision taken to assess efficiency of emergency management headquarters. measures with a view to reducing the fitting on-board monitoring systems number of road accidents: and of mandatory use of safety belts The exercise was highly appraised by in transportation vehicles in 2012 the management of the local units of –– Improved the efficiency of training in –– Tightened control over the quality of the Ministry of Emergency Situations, defensive driving for drivers and machinists. pre-work checkups as well as working the Rosprirodnadzor and Rostechnadzor In 2011, reputable providers trained 3,407 and leisure conditions for drivers. compliance agencies and by the executive drivers, which is more than a twofold authorities of the Orenburg region. increase over the number of drivers trained We will continue implementation of the above in the previous year programs in 2012 paying special attention to –– Held the Road Safety Month, the results defensive driving in order to minimize risks of of which were considered in the future road accidents due to weather conditions. action plan with a decision to repeat this event in 2012 –– Tightened control over the installation of special equipment on trailers for further transportation; relevant instructions issued for use by all subsidiaries –– Introduced the procedure ‘Access to and control of heavy equipment and drivers (machinists) at the Company facilities during work activities’

Sustainability Report — TNK-BP 2011 65 06 Energy of people 67 Contributing to society 72 Interaction with indigenous people 74 Interaction with suppliers and contractors 77 Our team – values and motivation

66 Sustainability Report — TNK-BP 2011 Contributing to society

TNK-BP is actively involved in the community in the regions where the Company operates. Our responsibilities include paying our taxes on time, creating stable jobs and supporting 31 bn social projects aimed primarily at assisting vulnerable people and also at developing sports, education and preserving USD cultural heritage. The Company is one of the largest paid in taxes in taxpayers and employers in many regions of our activities. Russia, Ukraine and Belarus The impacts of our operations on local communities when in 2011 entering, operating and exiting, and ways for improvement are assessed during interaction with local authorities and non-governmental organizations. Successful examples of interaction are published on pages 70-71.

Our business is a part of the society around them with industry-leading workplace us. Our success is measured not only in conditions and opportunities for professional satisfying the need for energy: it also requires and career development. 162 bn the well-being of our stakeholders. Public TNK-BP holds regular meetings with good dictates that oil and gas should be non-governmental public organizations USD produced safely, should benefit the national (NGOs), providing detailed information economy and should make the minimum paid in taxes in on the progress of our major projects. impact on the environment. 2004-2011 In 2011, the Company held 10 meetings TNK-BP is actively involved in activities with representatives of environmental NGOs relating to our sector and to the wider and regional public groups, including visits business community: the development of the to two project sites with an active new industry taxation system; improvements environmental component. to standards in professional education; and socio-economic co-operation with local Taxes Energy of people authorities in the regions in which we operate. Timely payment of taxes is one of the most important indicators of a socially responsible In 2011, TNK-BP paid, in aggregate, USD 31 bn company. Total taxes paid by the Company of taxes in Russia, Ukraine and Belarus. The over 8 years since inception have reached Company’s social investments amounted to USD 162 bn. USD 37 mln. TNK-BP is also responsible for over 50,000 employees across 30 regions in Russia, Ukraine and Belarus, providing

Federal and regional taxes paid in Russia, Ukraine and Belarus USD bn 40

30 31 30

20 22 20 20 16 16 10

7

0 2004 2005 2006 2007 2008 2009 2010 2011

Sustainability Report — TNK-BP 2011 67 Contributing to society

Government relations Dialogue between the Company and the Our Company is an active participant in Government continues via working groups industry discussions with the Government established under the leadership of ministries to facilitate and support the successful and government commissions. TNK-BP development of Russia’s resources. is also a member of the Russian Union of In 2010 and 2011, we were involved in Industrialists and Entrepreneurs (RSPP), discussions concerning: a non-governmental organization that co-operates with government authorities. –– Russian oil industry development Our Company does not take part in political until 2020 activities and does not make financial or –– Development of hydrocarbon resources in-kind donations to political parties and their in the Yamal-Nenets autonomous region associated organizations. in the north of the Krasnoyarsk region –– Oil industry taxation.

68 Sustainability Report — TNK-BP 2011 External social programs Interacting with the regional authorities TNK-BP provides significant funds for social In accordance with bilateral agreements with programs at a national level and social the local authorities, TNK-BP supports social investments in all the regions where it projects in the regions where it operates. 575 mln operates. From 2005 to 2011, the In 2011, the Company entered into Company’s social investments amounted 18 agreements with regional authorities and USD to USD 575 mln. Social investments are 43 agreements with municipal authorities. managed on the basis of the Code of TNK-BP social The Company provides regional social Business Policies and corporate standards investments in investments in four key areas: and procedures. The Company’s social 2005-2011 programs are approved annually by Company –– Generation – 2020 – supports educational management and are adjusted, if required, institutions of various levels and searches taking into account changing circumstances. for and nurtures young talent –– TNK-BP Family: love, support and care Pursuant to corporate standards, we – facilitates projects aimed at helping carry out external social activities in the children, teenagers, children with following areas: disabilities, veterans and other socially –– supporting vulnerable people in the vulnerable groups population –– Our health is our success – promotes –– promoting healthy lifestyles healthy living and supports regional health –– protecting cultural and historical heritage systems and people with poor health. 23 mln –– supporting education and realizing –– The Green Program – arranges potential of the youth environmental events and implements environmental educational programs for RUR From 2005-2011, the Company provided the children and young people. following financing for external social in financial assistance programs (all numbers are rounded): donated to the Tarko-Sale (YaNAO) 2005: USD 90 mln Youth Centre 2006: USD 100 mln 2011 2007: USD 148 mln

2008: USD 95 mln Energy of people 2009: USD 56 mln 2010: USD 49 mln 2011: over USD 37 mln In 2012, social investments are expected to amount to USD 60 mln. In 2011, TNK-BP supported the following federal projects of national importance: –– Funding of the Gorchakov boarding school in Pavlovsk (USD 0.25 mln) –– Supporting top-level Russian sports (USD 5.7 mln).

Sustainability Report — TNK-BP 2011 69 Contributing to society

Examples of TNK-BP social initiatives in 2011

Tyumen region Omsk region Krasnoyarsk region –– Sponsoring the Open World Judo –– Funding the preparation of district sports –– Purchasing astroturf for football field in Championships held in the prestigious and community facilities in Tevriz for the (RUR 11 mln). Olympic Training Center ‘Tyumen-Judo’, regional winter sports and cultural ‘Holiday Tyumen on 29-30 October 2011 – the first of the North – Tevriz 2011’ celebrations time this event has been hosted by Russia. (RUR 3 mln). Sponsorship funded the accommodation and transport for 200 athletes and coaches (RUR 10 mln). Around 120 athletes from 45 countries attend the event and competed for a prize fund of USD 0.16 mln.

Irkutsk region Yamalo-Nenets autonomous region Novosibirsk region –– Funding repairs, medical equipment, –– Creating additional places for children at –– Capital repairing of municipal secondary supplies and vehicles for Katangsky kindergarten level in Novy Urengoy school Severnaya (RUR 9.7 mln). Central District Hospital (RUR 7 mln). (RUR 13 mln). –– Supporting the junior ball hockey team at –– Funding construction of a hospital within the Sibselmash hockey club (RUR 15 mln). CRH Erbogachen (RUR 6.5 mln). –– Funding project Block 130 to preserve historical objects and restore original homesteads and unique monuments in the city as part of the 350th anniversary celebration of Irkutsk (RUR 15 mln).

Nenets autonomous district Ryazan region –– Financing the construction of the district –– Purchasing snowmobiles for Oka hospital in Khorey-Ver (RUR 10 mln). Biosphere Reserve (RUR 0.5 mln). –– Gifting three fire trucks and a foamer truck to the Ministry of Emergency Situations. –– Making a donation to the Municipal Hospital #1 (RUR 0.25 mln).

70 Sustainability Report — TNK-BP 2011 Khanty-Mansiysk autonomous district Orenburg region Saratov region –– Funding for the development of the – In 2011, over RUR 76 mln was provided to Generation – 2020 (over RUR 3 mln), cost-design documentation for School finance various social projects within including: –– Kindergarten building in the village of regional charity and sponsorship programs. –– Support provided to Saratov Aero Club for Kamennoye and Talinka in Oktyabrsky area In addition, TNK-BP provided RUR 88 mln implementation of a patriotic education (RUR 11 mln). for the implementation of the most program (RUR 2.2 mln). important regional social programs. Support Program TNK-BP Family: love, support and care (over The most important programs of 2011: –– Supporting vulnerable people through RUR 4.73 mln), including: –– Repairing the ropeway across Ural river projects aimed at helping vulnerable –– Social projects aimed at the social and in Orenburg (RUR 6 mln). children, troubled teens, children and psychological rehabilitation of elderly –– Carrying out construction and repair of adults with disabilities, World War Two people living in nursing homes. veterans and the retired in cities and the ‘House of Mercy’ in Saraktash regions (RUR 20 mln) including targeted (RUR 30 mln). Our health is our success (over RUR 4.77 mln), including: financial assistance to pay for treatment Orenburg Region charity program includes: and living costs (245 people, RUR 5.6 mln). –– Constructing 13 multipurpose sports –– Giving financial support for social programs grounds over five years. Our Talents Program (for gifted children and in the oil-producing areas in agreement –– Supporting the Saratov Regional Sports young people) (RUR 19.3 mln), including: with regional authorities (RUR 35.8 mln). Centre with arrangements for the 2011 –– Supporting orphanages, boarding schools –– Funding for the work of creative circles with football competition among neighborhood and other social institutions through our secondary schools and local municipal boys’ teams, culminating in a prize regional Children Program (RUR 3 mln). agencies and the organization of local presentation by the Governor of the –– Financing sports and sport club youth clubs, including the provision Saratov Region (over RUR 4 mln). and support of student teaching teams development (RUR 32 mln). (RUR 9.7 mln). –– Funding support for social institutions, The Green Program (over RUR 0.6 mln),

–– Developing interest in chess, organizing organizations and vulnerable citizens including: Energy of people (RUR 3 mln). and holding various competitions, events, –– Rolling out the environmental project –– Sponsoring regional sport, cultural and festivals, meetings with interesting people, ‘Innovative models and programs aimed at other social events (RUR 2.6 mln). classical music concerts featuring famous ecological education of citizens and Russian musicians (RUR 2.8 mln). development of new approaches to The Green Program (RUR 17.8 mln), ecological development’ and summer including: ecological children camps. –– Facilitating long-term action program ‘Ensuring environmental safety of the Khanty-Mansiysk region in 2011-2013’ (RUR 11 mln).

Sustainability Report — TNK-BP 2011 71 Interaction with indigenous people

TNK-BP produces oil and gas in regions inhabited by indigenous ethnic groups and in doing so we pursue a Malyhl I., Deputy Chairman of the Tyumen Regional Public Organization (TOOO) balanced policy of interaction with the indigenous peoples, Indigenous Peoples (WHC), “Cedar”: helping them to preserve their traditional way of life and TNK-BP is taking an active part in cultural identity, as well as creating opportunities for their socio-economic development of the harmonious integration into modern economic activity. peoples of the far north in the Tyumen region. For the first time this year, about TNK-BP’s Health, Safety and Environment Standard states six million rubles were allocated for this purpose. Oilmen helped to solve the that “the Company avoids working in places where problems with transporting doctors to the indigenous ethnic groups make use of natural resources; nomads camp and children to schools. at natural, archaeological and cultural sites and monuments; Our organization sees in TNK-BP a reliable partner in the socio-economic and in specially protected conservation areas, and minimizes development of the indigenous peoples its impact on them where it is impossible to avoid operations of the Tyumen region. in such areas”. In 2011, we had no recorded instances of violations affecting the rights of indigenous people. We participated in the scientific and practical conference, ‘The Nordic nations of the Tyumen region: problems of legal support,’ which was devoted to the Tyumen region In 2011, TNK-BP continued to assist the interaction of the indigenous peoples of Indigenous ethnic groups live in both Uvat Purov office of the Association of ‘Yamal-to the Tyumen region with legislative and (in the south of Tyumen Region) and in the descendants!’ by purchasing cloth, first aid executive authorities, as well as oil and Yamalo-Nenets Autonomous District – kits, food for tuberculosis patients, books gas companies in the field of socio- regions where TNK-BP produces oil and gas. for boarding schools, as well as financing economic development and the participation in the International exhibition Support of traditional occupations is an protection of the legitimate rights and ‘Treasure of the North 2011’ (RUR 0.75 mln). important aspect of TNK-BP’s relations with interests of indigenous peoples living in One of the most significant contributions was indigenous people. The Company purchased the south of the Tyumen region. the funding of equipment and other resources snowmobiles, boats, outboard motors, essential for fishermen and reindeer herders at inventory and other materials necessary the State Farm Purovsky costing RUR 5 mln. for fishermen and reindeer herders. Structure of the indigenous people of the north The Company helps indigenous peoples to The indigenous population in the Uvat district in the Yamalo-Nenets autonomous region: adapt to modern life by financing the consists of 350 people, 100 of which live a Area of living As of 01.01.2012 following activities in the Yamalo-Nenets traditional way of life in the distant districts Autonomous District: Krasnoselkupsky region 1,604 of TNK-BP’s licensed areas. The Company spent RUR 5.8 mln on social-economic –– Training the unemployed among the incl. nomadic ethnic groups 200 development of indigenous ethnic groups. indigenous peoples in specialized skills Purovsky region 3,080 required by energy sector (RUR 2 mln) In 2011, the Company financed monitoring incl. nomadic ethnic groups 977 –– Funding education of ten students of the of the original habitat of the indigenous Tazovsky region 8,500 Taz region in universities of Tyumen, population living the traditional lifestyle within Salekhard and N.Urengoy. (RUR 0.4 mln) incl. nomadic ethnic groups 5,308 the Uvat region (RUR 3 mln). The study –– Providing funds for temporary employment considered the problems faced by indigenous of minors in summer (RUR 0.7 mln). peoples and providing timely responses to their appeals in connection with industrial development of ancestral territories.

72 Sustainability Report — TNK-BP 2011 Khanty-Mansiysk autonomous region Irkutsk region In 2002, TNK – one of TNK-BP’s predecessor In 2011, the Company contributed financially companies – set up the Eleen charity to the following charity organisations in the foundation to support the indigenous peoples Irkutsk region: of the North. The foundation has since spent –– Katanga regional public organization’s over RUR 90 mln on funding various Evenk National Cultural Center, for the programmes aimed at: following activities and programs –– Preserving traditional cultures (such as (RUR 0.5 mln): ethnic, traditional and cultural festivals and –– Participation of the Katanga region’s celebrations involving public organizations Evenk creative team in cultural events of the indigenous peoples) during the regional cultural festival ‘Days –– Supplying rural schools and culture centers of spirituality and culture of the Irkutsk with materials and equipment, building region’ (RUR 0.1 mln) children’s playgrounds according to ethnic –– Arrangement of the national holiday traditions and holding ethnic sports ‘Archaldyn’ (RUR 0.1 mln) competitions –– Purchase and delivery of New Year gifts –– Educating local schoolchildren from for Evenk children (RUR 0.06 mln) ethnic minorities in environmental –– Purchase of furniture and toys for studies (providing funding to purchase the kindergarten of Hamakar equipment for school campsites and (RUR 0.17 mln) work training bases). –– Purchase of computer equipment for the school of Nakanno (RUR 0.07 mln) An important aspect of our work with –– The Irkutsk regional public organization indigenous ethnic groups involves providing ‘Union for Support of Indigenous support for those who maintain a traditional Peoples of the North of Irkutsk way of life, often in the form of employment, region’, including activities and but also by: programs (RUR 0.5 mln) –– Purchasing equipment and consumables –– Participation in the Regional Conference for ethnic communities of Indigenous Peoples of Irkutsk Region –– Purchasing materials to produce souvenirs, (RUR 0.1 mln) household items and develop decorative –– Purchase of food supplies, hunting

and applied art equipment for the families of reindeer Energy of people –– Purchasing bark and wood working tools herders (RUR 0.15 mln) –– Purchasing snowmobiles, boats, outboard –– Acquisition of two “Logosol” headrigs motors and power generators, netting (RUR 0.25 mln). material, radio stations and other major equipment essential for maintaining a traditional way of life –– Providing funds to cover travel costs within the district –– Providing economic assistance to indigenous reindeer herders, hunters and fishermen in financial difficulty –– Giving summer vacation trips and New Year gifts to indigenous children.

Sustainability Report — TNK-BP 2011 73 Interaction with suppliers and contractors

Among oil and gas companies in Russia, TNK-BP is one of the largest consumers of materials, equipment and services. Our procurement budget averages USD 7 bn a year, and over >50% of materials and 85% of our orders are placed with Russian contractors and equipment and more suppliers. The Company considers its business relationships than 40% of services with suppliers in the areas in which it operates to be purchased under very important. long-term contracts

Transparency in business relations is an contractors can rely on technical support underlying principle in TNK-BP’s purchasing from TNK-BP experts who take an active activity. We establish the necessary interest in the technological leadership of their conditions for fair and open competition suppliers and the high quality of products among suppliers and contractors, and ensure supplied. At present we have established a candid and impartial approach at all long-term contractor relationships in selection stages, as well as during further procurement of tubular goods, submersible co-operation. According to TNK-BP’s pumps and drilling services. Corporate Procurement Standard, the TNK-BP operates according to the principle Company undertakes to carry out its that long-term business relations, based purchasing activity in good faith, adhering to on good faith, respect, and mutual benefits, the principles of integrity and transparency play a key role in a Company’s success. based on high professional standards and Relationships that violate laws or business strict observance of legal norms. ethics are expressly forbidden, as they can Maintaining long-term relationships with tarnish a Company’s reputation and the contractors is one of TNK-BP’s highest good name of its employees, as well as priorities, evidence of which is that more than undermine the Company’s stable and 50% of materials and equipment, and over sustainable development. 40% of services are purchased under In our purchasing activities, we also put long-term contracts. By signing contracts for significant effort into developing the potential several years, the Company guarantees its of our counterparties, our contractors and partners constant sales over an extended suppliers – incentivizing them to improve the period, helping those partners to be confident quality of their performance, the goods and about investing in development and services they supply, and to be innovative in innovations. While a contract is in place, their work.

74 Sustainability Report — TNK-BP 2011 Innovative approach to our relations with suppliers and contractors

In 2011, TNK-BP continued its open Most participants in the Supplier and The Forum reviewed TNK-BP’s interaction dialogue with companies – providers of Contractor Forum are leaders in their with suppliers and contractors and reported materials, equipment and services for the oil industry sectors, including recognized in detail on the activities of corporate and and gas industry. In September 2011 we leaders in the international service industry regional councils and of arbitration held the second TNK-BP Supplier and such as Halliburton, Schlumberger, commissions in relation to disputes with Contractor Forum, which had already Weatherford and KCA Deutag. The forum suppliers and contractors. In 2011, those developed into an effective platform for a also welcomed new delegates from medium bodies received over 70 complaints, out direct dialogue between the Company and and small businesses. Anatoliy Tyomkin, of which 30 were resolved in favor of our its counterparties. In his opening speech at Executive Vice President Business Support, counterparties. The key function of the the forum, German Khan, Executive Director TNK-BP, told the Forum that “The Company councils and arbitration commissions is of TNK-BP, said: “TNK-BP is consistently is interested in long-term partnerships with to establish an open dialogue with our improving the efficiency of our contracting all the contractors based on level playing counterparties, increase the efficiency system on the basis of global best practice. field rules and TNK-BP’s corporate values.” of the contracting system, and to clarify the We also urge our partners to unconditionally co-operation principles for our For the first time, the Forum made awards for observe the standards of business ethics counterparties as well as identifying and ‘Long-standing partner of TNK-BP’ to 87 of upheld in TNK-BP. This is a most important eliminating violation of those principles. our suppliers and contractors. The award prerequisite for our mutually advantageous recognizes counterparties’ impeccable work The polling of the Forum participants co-operation, and a guarantee of and commitment to developing long-term showed that 90% of them had seen sustainable growth and success for our partnerships with TNK-BP. It offers improvements in their interaction with suppliers and contractors.” considerable benefits to its holders, and also our Company in 2011. acts as a strong incentive for other companies.

TNK-BP strives to create and maintain a strictly observe applicable laws, regulations, All policy and procedural matters related to corporate culture based on zero-tolerance ethical and business standards and human the Company’s interaction and co-operation towards bribery, corrupt business practices rights. If this screening detects any violation with suppliers and contractors are brought and money laundering. The Company of laws and regulations, the provision of to the attention of all contractors, suppliers, understands that the unethical and illegal fraudulent information, or the complicity of and Company employees. TNK-BP regularly Energy of people activities of contractors can seriously tarnish contractor owners, founders or managers inspects the activities of its employees, in its reputation and it pays considerable in illegal activities, the contractor in order to check their compliance with relevant attention to all stages of the contracting question will be excluded from the list of laws, regulations and corporate standards system. In 2011, we identified cases of potential contractors. and practices. Every year, TNK-BP corrupt practices by our counterparties, in employees in management roles fill in a One part of the standard contract between some cases involving Company employees. declaration stating their compliance with TNK-BP and the contractor relates to health, After thorough investigation, the employees business ethics policies and Company safety and environmental protection. This involved were dismissed and the standards, including those related to states that contractors must comply with counterparties’ relationship with TNK-BP countering corruption, bribery and money current laws and regulations of the Russian terminated – demonstrating our zero- laundering. The declaration facilitates the Federation, implement all necessary health, tolerance approach to wrongdoing. detection and resolution of conflicts of industrial safety, fire safety and environmental interest that may arise in relation to suppliers The Company analyzes the activities of protection measures, and ensure that natural and contractors. potential contractors within the framework resources are used appropriately. The of existing laws and regulations. Potential standard contract also contains an anti- contractors are screened to ensure they corruption clause.

Sustainability Report — TNK-BP 2011 75 Interaction with suppliers and contractors

Efficiency improvements in supplier and contractor relationships in 2011

–– Open dialogue with the services market –– Contest for contract standardization established via the TNK-BP Supplier and with participation of largest contractors Contractor Forum continued (70% of the Upstream –– The status of ‘Long-standing partner procurement budget covered by of TNK-BP’ introduced standardized contracts). –– United list of prequalified counterparties publicly available

76 Sustainability Report — TNK-BP 2011 Our team – values and motivation

Today, as never before, the success of any company depends on the people who work in it, their professionalism, team spirit and sense of belonging. Achieving our strategic goals would be unthinkable without a strong professional team. Employees play a crucial role in the evolution of any strong and successful company. In 2011, we employed over 50,000 people, most of whom are Russian and Ukrainian citizens due to concentration of our activity in these countries, as well as some expatriates. Access to advanced expertise and technologies is a priority for us, and for that reason we shall continue to attract talented experts from around the world.

Staff numbers arduous working conditions (regulated by the Number of employees TNK-BP’s core activity is exploring for and state). Nevertheless, both women and men by business area producing oil and oil products, therefore enjoy equal rights and opportunities for 92% of our employees work in geological professional development at our Company. 3 1 exploration, production, refining and Women make up 16% of the Company’s marketing. As oil in Russia is generally management, including branches and located in remote regions with a severe subsidiaries. More than 70% of the climate, most of our employees are men. Company’s top managers are

According to Russian legislation, female labor Russian citizens. Energy of people is restricted or prohibited if conducted under

2

1 21,282 – Upstream 2 25,306 – Downstream 3 3,722 – Business support units

Number of employees by region 9,000 8,000 8,430 8,338 7,000 6,555 6,000 5,000 4,738 4,667 4,000

3,000 3,161

2,000 2,025 2,115 1,916 1,703 1,000 1,127 914 619 731 600 758 705 612 44 149 0 403 Tula Kaluga Kursk Moscow Ukraine Belarus Vietnam Raduzhny Venezuela Ryazan regionSaratov regionTyumen regionRostov regionNyagan region Irkutsk region Novy UrengoiKareliya regionSt. Petersburg Orenburg region Yaroslavl region

Nizhnevartovsk region

Sustainability Report — TNK-BP 2011 77 Our team – values and motivation

Male/female ratio in overall Male/female ratio Company staff, % in leadership, %

1 1

2

2

1 66 – Male 1 84 – Male 2 34 – Female 2 16 – Female

Another important indicator of the Company’s To improve the quality of reporting and further attractiveness as an employer of choice is enhance the performance of its HR function, staff turnover. In 2011, the average total TNK-BP is introducing human resource turnover rate amounted to 17.6%. The total modules into the SAP information system. turnover rate takes into account all possible Data on roughly 65% of all TNK-BP group reasons for dismissal, including business employees are currently being processed restructuring, staff reductions and retirement. in SAP. This will increase as the SAP The actual turnover rate, reflecting only roll-out continues. employee resignations, amounted to 12.7%. TNK-BP’s HR departments comply with all The turnover figures as a whole are not a the reporting requirements of the government cause for concern. Current levels are no statistics agencies, including breakdown by higher than the industry average. Turnover gender composition. Reporting on age rates are studied in more detail for specific groups is not performed due to lack of categories of employees (managers or highly statutory reporting requirements. qualified specialists with unique skills).

78 Sustainability Report — TNK-BP 2011 Collective agreement The collective agreement includes a process TNK-BP operates a collective agreement for notifying employees of material changes in model in its subsidiaries, guaranteeing equal the activities of their organization. For rights to all parties and taking account of example, we undertake to inform employees external factors, as well as changes in the of any forthcoming staff reductions or law, regulations and Company standards and possible termination of employment contracts policies. Recommendations on the format no later than two months before the changes and execution of collective agreements are begin. The collective agreement also contains provided to the subsidiaries in the form of a section on health, safety and environment. a Model Collective Agreement. Collective The Company has no united trade union agreements in the subsidiaries are regularly organization and there is therefore no general renegotiated. They contain a special section agreement with the trades unions. The on occupational health and safety programs. functions of the united trade union Our model collective agreement provides staff organization are performed by the with legal protection and assistance, and Coordination Council. helps to pre-empt labor conflicts. More than 80% of our staff in the regions are covered by the collective agreements. All conflicts are resolved with the help of commissions appointed on a parity basis. Employees in our Moscow and Kiev offices prefer to sign individual employment contracts, which means that there is no need to create a dedicated public organization to protect their rights. Energy of people

Staff turnover by region, % 60 55 57.2 50 45 45.2 43.3 40 38.1 35 36.5 30 28.3 24.4 25 24.2 20 21.9 21.8 20.6 13,8 16.1 15 14.7 13.2 14.0 11.5 11.8 8.7 10 8.9 10.2 6.1 9.2 5.7 9.7 8.2 7.3 5 5.7 6.6 3.0 5.7 6.6 5.5 5.4 4.2 4.5 4.5 0.1 0

Raduzhny Tula region* Kursk region Tyumen regionNyagan region Ryazan region Kaluga region Irkutsk region Novy Urengoi Saratov region Rostov region* Orenburg regionMoscow region* Yaroslavl region St. Petersburg* Republic of Karelia Novosibirsk region Yekaterinburg region Nizhnevartovsk region

Total turnover Actual turnover

*High staff turnover in Moscow, Tula region, Rostov region and St. Petersburg is due to a high quantity of retail sites in these regions which have the highest turnover rate compared to other businesses.

Sustainability Report — TNK-BP 2011 79 Our team – values and motivation

Trade unions Recruitment principles The trade union organizations in our We seek to recruit talented professionals and subsidiaries are mostly affiliated to the provide them with opportunities to develop. Professional Union of Workers of the Oil Our recruitment principles are identical for all and Gas Industries of the Russian Federation. levels of employees, including management, To ensure better interaction between the and do not depend on nationality or location. Company and the trade union organizations The principles of equal opportunity, respect a Coordination Council has been set up, and fairness towards all employees are providing an opportunity for open and mandatory and have been enshrined in the effective discussion of vital Company issues. TNK-BP Code of Business Policies. The Trade union representatives sit on the qualifications, experience, skills and coordination councils on a permanent basis, competencies for sustainable development thereby helping to address important issues and leadership potential of candidates for affecting our people and the regions in which senior management positions are assessed we operate. We believe that the coordination by the Board for the Development and councils are an effective tool in our work with Motivation of Senior Managers before being the trade union organizations. approved by the Management Board. Coordination councils exist at the corporate The Company has a corporate standard and regional levels, and consist of equal entitled Employees, which establishes the numbers of representatives of Company following recruitment guidelines: management and regional trade union –– Respectful and fair treatment of committee leaders. In each region where all candidates TNK-BP operates there is a regional –– No discrimination against candidates coordination council, which includes the on the basis of sex, race, nationality, directors of our regional branches, managers language, age, place of residence, religion of subsidiaries and representatives of the 14,852 or political convictions trades unions in the subsidiaries. –– Proactive search for candidates amongst employees (over 28% of total Respect for human rights existing staff for new vacancies workforce) had training related We consider it our duty to respect human –– Long-term cooperation with Russian to human rights. The training rights, and our support for the United Nations and foreign higher educational institutions programs totaled 132,009 Universal Declaration of Human Rights is to recruit talented graduates hours. The share of security enshrined in TNK-BP’s corporate standard –– Partnership with regional personnel trained in human entitled Employees. As one of Russia’s recruitment agencies rights amounted to over 30% biggest companies, TNK-BP is one of the –– Multi-stage process of tests, interviews and of the total security personnel checking of recommendations to ensure main employers in the regions where it head count. operates. We understand that our employees that candidates are assessed as objectively can belong to different age groups, as possible. nationalities and races and differ in other Most unoccupied vacancies in TNK-BP are ways. We respect and observe human rights published online at www.tnk-bp.com in the and freedoms and do not permit “Career” section. All interested people with discrimination on the grounds of sex, race, the necessary experience and qualifications nationality, language, age, place of residence, may apply to participate in the selection of religion or political convictions. The Company available open positions or to save their CVs prohibits all forms of discrimination in the in our database. workplace. We rigorously comply with Russian Federation law prohibiting child labor Remuneration or forced labor, and have enshrined this TNK-BP operates an effective salary and provision in our corporate documents. compensation system based on the best No cases of discrimination have been international practices. This system helps us recorded in the Company. In light of the to attract highly-qualified specialists and to nature of our activities and our compliance motivate and retain our best people. with Russian law, we regard the risk to the right to exercise the freedom to create organizations and enter into collective agreements as minimal.

80 Sustainability Report — TNK-BP 2011 Ratio of entry level salaries of our people compared to minimum salaries in the regions in which we operate 4

3.3 3 2.9 2.7 2.4 2.4 2.2 2.2 2 2.0 1.8 1.9 1.9 1.9 1.9 1.5 1.6 1

0

Moscow Kursk region Tula region St. Petersburg Ryazan regionSaratov region Kaluga regionRostov region Tyumen region Irkutsk region Orenburg region Novosibirsk region Republic of Karelia Yamalo-Nenets region

Khanty-Mansiysk autonomous region

The Company’s overall compensation This provides for a transparent compensation package comprises the following elements: system that is understood by each employee. –– Base salary Due to the nature of the oil industry, we –– Short-term and long-term incentive employ more men than women. The average programs salary of men at our Company is 17% higher –– One-time bonuses for outstanding than that of women. This is mainly due to the achievements different types of work they perform. Employees

–– Various types of compensation at the same level (grade) receive comparable Energy of people (business travel expenses, vacations, compensation, irrespective of their gender. and a Company car) –– Social benefits and payments –– Additional compensation for expatriate staff. The size of each element in the overall compensation package depends on the level (grade) of the position held by the employee. The grade is determined using an international job assessment methodology and takes into account the knowledge and skills required by the employee, job description and complexity, and level of responsibility. A base salary range – minimum, average and maximum – is defined for each grade, as well as target levels and performance bonus criteria.

Sustainability Report — TNK-BP 2011 81 Our team – values and motivation

Male/female salary ratio per job category 1.5

1.25 1.17 1.17 1.13 1.0

0.5

0.0 Total Management Professionals Workers

The ratio of male and female salaries is significantly influenced by the nature of technological and operational processes as well as the personnel structure of an oil company.

Male/female salary comparison, RUR 60,000

50,000 50,760 50,760

40,000

30,000

20,000

10,000

0 Average Average salary, salary, men women

Employees showing the same quality and performance results, regardless of their gender, receive comparable salaries in the same positions (data based on salaries of our professional staff in West Siberia).

82 Sustainability Report — TNK-BP 2011 Example of the salary structure

Spot bonus On the eve of Oilman’s Day, all successful employees engaged in operations for Oilman’s Day receive a spot bonus for their holiday.

Bonus for special In recognition of achievements in improving operations and business processes, achievements successful coaching and prevention of theft and misappropriation, employees may receive a bonus.

Short-term incentive A short-term incentive is paid to all Company employees depending on their (annual) business unit/division/personal ef ciency. A bonus is paid to the overwhelming majority of employees on an annual basis; personnel employed at retail stations receive quarterly bonuses. Payment for irregular work (at night, after of ce hours, during weekend and holidays, Compensation required hazardous working conditions, etc.) is made in compliance with the Labor Code by law of the Russian Federation.

Base salary Base salary differs over 13 general categories including regions, professions and job positions and also takes into account employee ef ciency and professional quali cations.

Base salary is maintained at a level comparable with the average salary level of peer companies.

Base salary and short-term incentive depend on the job grade estimated according to the international system for job assessment. Remuneration linked to an employee’s grade and the bonus system apply to all Company staff.

All Company employees are enrolled in a performance to determine the size of their short-term incentive program. Annual bonus bonus under the short-term incentive payouts depend on fulfillment of the scheme. All Company employees undergo Company’s overall performance, the personal efficiency evaluation twice a year. performance of the department in which Energy of people For top and senior management levels there the employee works and on personal is a long-term incentive program, aimed at performances. Social cooperation and ensuring the Company’s sustainable development compliance with environmental standards and achievement of its strategic goals. comprise from 20% to 80% of annual bonus of executives and senior management. Every year, we assess each employee’s

Sustainability Report — TNK-BP 2011 83 Our team – values and motivation

Link between Company performance and executive management compensation, % 180 165.53 160 148.60 140 136.1 120 116.00 117.00 100 100 100 94 82 95 80

2007 2008/2007 2009/2007 2010/2007 2011/2007 Change in management compensation Company short-term against 2007 baseline (100%) incentive plan score

Elements of executive management compensation

Long-term incentive Depends on 3-year Company performance against its long-term goals plan (LTI)

Annual short-term Depends on annual performance: incentive plan (STI) – Company – Stream/Function (if applicable) – Individual performance

Base salary Depends on the grade assigned for a particular position (determined according to the Hay System), taking into account the results of a regular market analysis of similar positions

To ensure that TNK-BP’s salary practices remain competitive, we carry out an annual review of salary levels across leading Russian companies in the regions where we have a presence, making appropriate adjustments to salary ranges and individual salaries where necessary.

Social protection 80 mln As part of its salary and compensation system the Company operates an effective social benefit scheme, designed to provide USD employees and their families with a high level investment in corporate of social protection. social programs The package of social benefits provided by the Company includes: –– Voluntary medical insurance –– Voluntary pension scheme –– Life and health insurance against accidents –– Health resort treatment –– A tailor-made housing program in the Company’s main regions –– Additional social benefits, guarantees and compensations, as stipulated in the Collective Agreement. Social benefits are provided to our employees, members of their families and pensioners of our subsidiary companies who are no longer in employment. In 2011, we invested around USD 80 mln in corporate social programs – the same as before the crisis.

84 Sustainability Report — TNK-BP 2011 Payments and benefits provided to full-time employees, RUR/year per 1 employee 14,000

12,000 37%* 43%*

10,000 100%*

8,000 13%* 6,000 97%* 4,000

2,000 100%* 0 Old New Voluntary Accident Recreation Compensation Other pension pension medical insurance and of travel plan plan insurance rehabilitation expenses to recreational spots for people working in the northern regions

In 2011, corporate spending on core social benefits for employees at subsidiaries and members of their families increased on 2010, including an 11% increase in medical insurance, a 32% increase in recreation and rehabilitation and a 22% increase in the pension program.

Average corporate spending on social benefits per full-time employee in the corporate headquarters, RUR/year per 1 employee 120,000

17.5%* Energy of people 100,000

80,000 37% 97% 13% 43%

60,000

40,000

100%* 20,000

0 Old pension New pension Voluntary program program medical insurance *% of participating employees

In 2011, corporate spending on social benefits for employees at corporate headquarters increased by 7% on 2010.

Sustainability Report — TNK-BP 2011 85 Our team – values and motivation

Corporate pension plan implementation in 2011 The strategic goal of the corporate pension plan is to ensure 100% employee participation by 1 January 2016. By the end of 2011, the number of participants in the new corporate pension plan which provides for joint financing of pensions by employees and the Company amounted to 15,750 people after its introduction in 2008. In 2011, pension payments exceeded 151 mln RUR which is 18% higher than in 2010.

Participants of new corporate pension plan in 2008-2011, number of employees 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000

0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011

– Number of employees

Average corporate spending on new pension plan per one subsidiary employee in 2011, RUR/year 14,000

12,000 38%*

10,000

8,000

6,000

4,000 80%* 2,000

0 Old New pension pension plan plan

*% of participating employees

86 Sustainability Report — TNK-BP 2011 Merit recognition Training and professional development Each year we hold two company-wide Training and professional development of TNK-BP strictly adheres to the Labor competitions for our people. The Awards of our people is part of the Company’s Code of Russian and offers its employees the Chairman of the TNK-BP Board of corporate culture. a competitive compensation package, as Directors recognize outstanding achievement well as a number of opportunities for In 2011, over 28,000 engineers and in our priority areas – health, safety and professional learning and growth. In 2011 technicians took part in external education environmental protection. The other the Company spent about USD 11.7 mln programs, at a cost of USD 11 mln. company-wide competition celebrates to provide professional training and career Moreover, 53,000 man-hours of training were achievements in innovative and efficient development to its employees. provided using a budget of USD 1.5 mln and technology application. more than 12,000 people completed In 2011, 110 teams took part in the in-house training programs. competitions. The winners were praised and TNK-BP was recognized in the ‘Best their achievements were promoted in our Company for Work and Career 2011’ Company as best practices. category and received a special award for its achievements in the field of staff Business streams have their own development. The prize was presented competitions for employees and contractors at the All-Russian Conference of HR as an effective way of knowledge-sharing and Managers awards ceremony held on improving performance standards. 29 March 2012. Elite Staff magazine together with the Club of HR Managers and rabota.ru website compared more than 200 leading Russian and international companies. Companies were evaluated on twelve criteria, including the system of training and staff development, involvement in the workflow and professional independence. More than one hundred experts, including Average annual training hours by different programs experienced consultants of recruitment 70,000 agencies, business school lecturers and editors of major business publications, 60,000 voted to select the winners

60,384 Energy of people 50,000

40,000 36,324 30,000 29,304

20,000 19,464

10,000

0 Induction Leadership Science and Technology technology

Average hours of training per year per employee by employee category** 50 47 47 40

30

20

10 8

0 Professional Managers Workers staff

** The figures changed compared to previous period due to changes in calculation methodology

Sustainability Report — TNK-BP 2011 87 Our team – values and motivation

Our corporate training programs

Our corporate training programs

Targeted Second higher Oil and gas Interaction with Individuals Leadership programs professional universities universities programs programs (1-10 years) education

and l l chnica te personne , Line Top e Mid-level

t manager manager fic tion

of StudentYoung specialist star

Managers Specialist Expert Advisor comple s Career

er Young work er Forema n

rk StudentWorker apprentice site manager Career Wo

Certification Certification/ professional Corporate Professional enhancement mastering Targeted programs training centres enhancement second/ related trade

In 2011, our main priorities were: processes common to all oil and gas Priority #2: Maximum use and distribution Priority #1: Arrangement and efficiency companies. Participants in the multi- of internal expertise increase of employee training functional groups ‘operate’ the Company for The effective use of our own resources, The result of our work was the creation and a 10-year period within five days’ training. along with the preservation and transfer of implementation of corporate programs for the Systematic development of professional knowledge within the Company, is one of development of managerial, leadership and competencies our priorities. The Company has about professional skills of employees at all In 2011, TNK-BP developed comprehensive 500 internal trainers and spends USD 0.2 mln organizational levels within the Company. programs for development of technical annually on their comprehensive development. expertise in five key technical disciplines: Each employee belongs to one of 25 Systematic development of managerial drilling, downhole operation, reservoir disciplines, 19 of which have designed and leadership skills management, geological disciplines and internal training sessions. Development programs are built on the basis capital construction. These programs arrange of a new corporate competency model, In 2011, more than 12,000 employees training for experts, provide a career planning benefited from in-house training. Emphasis which appeared in late 2010, and focused on tool for one to two positions forward, and the values of the Company. The purpose of was given to Health, Safety and Environment motivate technicians to pursue their careers issues with 140 trainers conducting sessions each program is to obtain knowledge and in TNK-BP. skills to enable the employee to effectively on 20 different aspects of this key topic. perform their work tasks and achieve their In 2011, 1,582 employees participated in We seek to use the most up-to-date business goals. technical training, 180 people more than in technologies. Our innovative ‘Knowledge the previous year. In 2012, the Company Over the next few years, about 1,500 Portal’ has increased access to training plans to double investment in technical resources and features videos, e-learning employees will participate in these programs training and make it more focused. From each year. courses, tests and professional online forums. now on, employees will acquire only the In 2011, the knowledge and skills of Along with the new corporate programs, we knowledge needed by TNK-BP in the nearest more than 7,000 employees were assessed continue to study existing ones, such as future, according to the business strategy. using the portal and the same number ASSET program, which simulates the of employees received e-knowledge on 193 subjects.

88 Sustainability Report — TNK-BP 2011 Priority #3: Identifying and supporting Health and safety young talents The health of employees and their own The oil and gas community in Russia has TNK-BP aims to attract graduates into the commitment to health protection must recognized the leadership of TNK-BP in oil industry. The Company identifies and underlie effective occupational and industrial the development and application of develops future graduates long before safety. TNK-BP’s strategy in health, safety modern training technology for workers: and environment prioritizes the life and safety their employment. –– Experience of TNK-BP was noted at the of employees in all our operational activities. Subsidiaries of TNK-BP work with students meeting of the Labor Market and HR and select the most talented, who then have In 2011, we launched our ‘Live Longer’ Strategies Committee of the Russian the opportunity to participate in the program. program, a large-scale campaign aimed at Union of Industrialists and promoting healthy lifestyles amongst our Entrepreneurs (RSPP) held on Three Horizons is a comprehensive employees, encouraging them to take 16 December 2011 as the best example professional development program for responsibility for their own health and the of an integrated approach to the design graduates. In 2011, it was updated in health of their families. The program consists of the desired qualifications for workers accordance with established Company values of a number of projects, including prevention –– In 2012, the Ministry of Energy is and a new model of corporate competencies of cardio-vascular and other diseases, planning to organize its work on the and 1,000 graduates and their trainers medical check-ups, giving up harmful habits design of industry standards for oil participated in the program. Investment and motivating employees to stick to healthy professionals on the basis of TNK-BP amounted to USD 1.6 mln. Each year, around eating habits and take up exercise. corporate professional standards. 400 graduates join the Company. In 2011, our focus remained on prevention of In addition to recruiting graduates directly, cardio-vascular diseases. We identified the TNK-BP also works with universities. In 2011, main risk factors and identified employee the Company launched a grant competition groups requiring constant medical monitoring to encourage universities to improve training and preventive treatment. As a result, we programs for subjects of specific interest to succeeded in reducing mortality due to the Company. The best projects were cardio-vascular diseases amongst our supported and financed by the Company. employees by 14% as compared with 2010.* Investment in higher education institutions amounted to USD 0.2 mln. To improve the quality and timeliness of emergency medical help, the Company Priority #4: Increased professionalism of implemented an innovative ‘telemedicine’ the workforce project at three of our remote locations in the A skilled production workforce is crucial to

Yamal Region, providing for consultation from Energy of people the Company’s success. high-level medical experts in Moscow and The Company employs 26,000 workers. In Novy Urengoy via a videolink. 2011, around 600 young workers took up employment and were inducted into the Company via the mentoring program. The *We do not conduct stand alone statistics on occupational diseases due to absence of illnesses workers’ training budget in this year totaled directly linked to professional activities. USD 1.4 mln. Each worker participated in at least two training courses. The Company is constantly improving the activities of its training centers. In 2011, an independent audit of 18 educational and training centers in five regions of the Company’s operation showed TNK-BP’s training centers delivered a competitive advantage.

Sustainability Report — TNK-BP 2011 89 07 Standard disclosures

90 Sustainability Report — TNK-BP 2011 Standard disclosures part I Profile disclosures

The table of standard disclosures is compiled in accordance with the sustainability report framework of the global reporting initiative (gri)

GRI indicator Description Report section Report page 1. Strategy and analysis 1.2 Description of key impacts, risks, and opportunities. Key sustainability indicators 1st spread Key sustainability indicators 2nd spread Our approach to sustainability 1, pp. 4-5 Key operational and financial indicators 1, pp. 8 Our strategy for the future 1, pp. 14-17 International Presence 1, pp. 12-13 Overview of potential risks 3, pp. 27 2. Organizational profile 2.1 Name of the organization. Company profile 1, pp. 6-8 Awards and ratings 2011 1, pp. 9 Our approach to sustainability 1, pp. 4 2.2 Primary brands, products, and/or services. Company profile 1, pp. 6 Retail brands 1, pp.10-11 Cleaner fuels 4, pp. 56-57 2.3 Operational structure of the organization, including Corporate governance 2, pp. 18-20 main divisions, operating companies, subsidiaries, and joint ventures. 2.4 Location of organization’s headquarters. Company profile 1, pp. 6 back cover www.tnk-bp.com 2.5 Number of countries where the organization Our approach to sustainability 1, pp. 4 operates, and names of countries with either major Map of operations 1, pp. 12-13 operations or that are specifically relevant to the Key sustainability indicators Inside front cover sustainability issues covered in the report.

2.6 Nature of ownership and legal form. Corporate governance 2, pp. 18-20 disclosures Standard

2.7 Markets served (including geographic breakdown, Company profile 1, pp. 6-11 sectors served, and types of customers/ Map of operations 1, pp. 12-13 beneficiaries). 2.8 Scale of the reporting organization. Company profile 1, pp. 6-11 Map of operations 1, pp. 12-13 2.9 Significant changes during the reporting period Our approach to sustainability 1, pp. 4-5 regarding size, structure, or ownership. 2.10 Awards received in the reporting period. Awards and ratings in 2011 1, pp. 9

Sustainability Report — TNK-BP 2011 91 Standard disclosures part I Profile disclosures

GRI indicator Description Report section Report page 3. Report parameters 3.1 Reporting period (e.g., fiscal/calendar year) for Our approach to sustainability 1, pp. 4-5 information provided. 3.2 Date of most recent previous report (if any). Our approach to sustainability 1, pp. 4-5

3.3 Reporting cycle (annual, biennial, etc.) Our approach to sustainability 1, pp. 4-5

3.4 Contact point for questions regarding the report or Contact information Back cover its contents. 3.5 Process for defining report content. Our approach to sustainability 1, pp. 4-5

3.6 Boundary of the report (e.g., countries, divisions, Our approach to sustainability 1, pp. 4-5 subsidiaries, leased facilities, joint ventures, suppliers). See GRI Boundary Protocol for further guidance. 3.7 State any specific limitations on the scope or Our approach to sustainability 1, pp. 4-5 boundary of the report (see completeness principle for explanation of scope). 3.8 Basis for reporting on joint ventures, subsidiaries, Our approach to sustainability 1, pp. 4-5 leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations. 3.9 Data measurement techniques and the bases of Our approach to sustainability 1, pp. 4-5 calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report. Explain any decisions not to apply, or to substantially diverge from, the GRI Indicator Protocols. 3.10 Explanation of the effect of any re-statements of Our approach to sustainability 1, pp. 4-5 information provided in earlier reports, and the reasons for such re-statement (e.g.,mergers/ acquisitions, change of base years/periods, nature of business, measurement methods). 3.11 Significant changes from previous reporting periods Our approach to sustainability 1, pp. 4-5 in the scope, boundary, or measurement methods applied in the report. 3.12 Table identifying the location of the Standard Table of standard disclosures 7, pp. 91-97 Disclosures in the report. 3.13 Policy and current practice with regard to seeking Our approach to sustainability 1, pp. 4-5 external assurance for the report. 4. Governance, commitment, and engagement 4.1 Governance structure of the organization, including Corporate governance 2, pp. 18-25 committees under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight. 4.2 Indicate whether the Chair of the highest governance Corporate governance 2, pp. 18-25 body is also an executive officer. 4.3 For organizations that have a unitary board structure, Corporate governance 2, pp. 21-22 state the number of members of the highest governance body that are independent and/or non-executive members.

92 Sustainability Report — TNK-BP 2011 GRI indicator Description Report section Report page 4.4 Mechanisms for shareholders and employees to Corporate governance 2, pp. 18-25 provide recommendations or direction to the highest Company profile 1, pp. 6 governance body. 4.5 Linkage between compensation for members of the Energy of people 4, pp. 80-84 highest governance body, senior managers, and executives (including departure arrangements), and the organization's performance (including social and environmental performance). 4.6 Processes in place for the highest governance body Corporate governance 2, pp. 18-25 to ensure conflicts of interest are avoided. Ethics and compliance 3, pp. 26-31

4.7 Process for determining the qualifications and Energy of people 6, pp. 80 expertise of the members of the highest governance Corporate governance 2, pp. 21-24 body for guiding the organization’s strategy on economic, environmental, and social topics. 4.8 Internally developed statements of mission or values, Corporate governance 2, pp. 22 codes of conduct, and principles relevant to Ethics and compliance 3, pp. 26-31 economic, environmental, and social performance and the status of their implementation. 4.9 Procedures of the highest governance body for Corporate governance 2, pp. 21-24 overseeing the organization's identification and Ethics and compliance 3, pp. 26-31 management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles. 4.10 Processes for evaluating the highest governance Company profile 1, pp. 6-7 body’s own performance, particularly with respect to Corporate governance 2, pp. 21-25 economic, environmental, and social performance. 4.11 Explanation of whether and how the precautionary Our approach to sustainability 1, pp. 4-5 approach or principle is addressed by the organization. Responsible approach to air 4, pp. 52-55 Cleaner fuels 4, pp. 55-56

4.12 Externally developed economic, environmental, and Awards and ratings 2011 1, pp. 9 social charters, principles, or other initiatives to Energy of people 6, pp. 79-80 which the organization subscribes or endorses. Responsible attitude to the earth 4, pp. 35 Responsible approach to air 3, pp. 51, 57 4.13 Memberships in associations (such as industry Company profile 1, pp. 6 associations) and/or national/international advocacy organizations in which the organization: *Has positions in governance bodies; *Participates in projects or committees; *Provides substantive funding beyond routine membership dues; or

*Views membership as strategic. disclosures Standard 4.14 List of stakeholder groups engaged by the Our approach to sustainability 1, pp. 4-5 organization. 4.15 Basis for identification and selection of stakeholders Our approach to sustainability 1, pp. 4-5 with whom to engage. 4.16 Approaches to stakeholder engagement, including Our approach to sustainability 1, pp. 4-5 frequency of engagement by type and by stakeholder group. 4.17 Key topics and concerns that have been raised Our approach to sustainability 1, pp. 4-5 through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting.

Sustainability Report — TNK-BP 2011 93 Standard disclosures part II Performance indicators

GRI indicator Description Report section Report page Economic EC1 Direct economic value generated and distributed, Company profile 1, pp. 8 including revenues, operating costs, employee TNK-BP International Ltd. http://www. compensation, donations and other community Consolidated Financial Statements as of tnk-bp.ru/upload/ investments, retained earnings, and payments to and for the years ended 31 December 2011 iblock/b21/1.pdf capital providers and governments. and 31 December 2010 pp. 2-3 EC2 Financial implications and other risks and Responsible attitude to the air 4, pp. 48-51 opportunities for the organization's activities due to climate change. EC3 Coverage of the organization's defined benefit Our team 6, pp. 86 plan obligations. EC4 Significant financial assistance received TNK-BP International Ltd. http://www. from government. Consolidated Financial Statements as of and tnk-bp.ru/upload/ for the years ended 31 December 2011 iblock/b21/1.pdf and 31 December 2010 pp. 24 EC5 Range of ratios of standard entry level wage Our team 6, pp. 80-81 compared to local minimum wage at significant locations of operation. EC6 Policy, practices, and proportion of spending Our team 6, pp. 74-76 on locally-based suppliers at significant locations Ethics and compliance 3, pp. 31 of operation. EC7 Procedures for local hiring and proportion of senior Our team 6, pp. 77-86 management hired from the local community at significant locations of operation. EC8 Development and impact of infrastructure Our team 6, pp. 67-73 investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement. EC9 Understanding and describing significant indirect Responsible attitude to earth 4, pp. 37-41 economic impacts, including the extent of impacts. Environmental performance indicators EN1 Materials used by weight or volume. Company profile 1, pp. 6

EN2 Percentage of materials used that are recycled Responsible attitude to earth 4, pp. 39, 45 input materials. EN3 Direct energy consumption by primary Responsible attitude to air 4, pp. 53-55 energy source. EN4 Indirect energy consumption by primary source. Responsible attitude to air 4, pp. 53-55

EN5 Energy saved due to conservation and Responsible attitude to air 4, pp. 53-55 efficiency improvements. EN6 Initiatives to provide energy-efficient or renewable Responsible attitude to air 4, pp. 53-55 energy based products and services, and reductions in energy requirements as a result of these initiatives. EN7 Initiatives to reduce indirect energy consumption Responsible attitude to air 4, pp. 53-55 and reductions achieved. EN8 Total water withdrawal by source. Responsible attitude to water 4, pp. 46-47

EN9 Water sources significantly affected by withdrawal Responsible attitude to water 4, pp. 46-47 of water. EN10 Percentage and total volume of water recycled Responsible attitude to water 4, pp. 46-47 and reused.

94 Sustainability Report — TNK-BP 2011 GRI indicator Description Report section Report page EN11 Location and size of land owned, leased, managed Responsible attitude to earth 4, pp. 42-45 in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas. EN12 Description of significant impacts of activities, Responsible attitude to earth 4, pp. 42-45 products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas. EN13 Habitats protected or restored. Responsible attitude to earth 4, pp. 42-45

EN14 Strategies, current actions, and future plans for Responsible attitude to earth 4, pp. 42-45 managing impacts on biodiversity. EN15 Number of IUCN Red List species and national Responsible attitude to earth 4, pp. 42 conservation list species with habitats in areas affected by operations, by level of extinction risk. EN16 Total direct and indirect greenhouse gas emissions Responsible attitude to air 4, pp. 48-51 by weight. EN17 Other relevant indirect greenhouse gas emissions Responsible attitude to air 4, pp. 48-51 by weight. EN18 Initiatives to reduce greenhouse gas emissions and Responsible attitude to air 4, pp. 48-51 reductions achieved. EN19 Emissions of ozone-depleting substances by weight. Responsible attitude to air 4, pp. 48-51

EN20 NOx, SOx, and other significant air emissions by Responsible attitude to air 4, pp. 50 type and weight. EN21 Total water discharge by quality and destination. Responsible attitude to water 4, pp. 46-47

EN22 Total weight of waste by type and disposal method. Responsible attitude to earth 4, pp. 39

EN23 Total number and volume of significant spills. Responsible attitude to earth 4, pp. 40-41

EN24 Weight of transported, imported, exported, or Not applicable treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally. EN25 Identity, size, protected status, and biodiversity value Responsible attitude to water 4, pp. 46-47 of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff. EN26 Initiatives to mitigate environmental impacts Responsible attitude to earth 4, pp. 44-45

of products and services, and extent of disclosures Standard impact mitigation. EN27 Percentage of products sold and their packaging Not applicable materials that are reclaimed by category. EN28 Monetary value of significant fines and total number Responsible attitude to earth 4, pp. 33-34 of non-monetary sanctions for non-compliance with environmental laws and regulations. EN29 Significant environmental impacts of transporting Responsible attitude to earth 4, pp. 40, 52 products and other goods and materials used for the organization's operations, and transporting members of the workforce. EN30 Total environmental protection expenditures and Responsible attitude to earth 4, pp. 33-34 investments by type.

Sustainability Report — TNK-BP 2011 95 Standard disclosures part II Performance indicators

GRI indicator Description Report section Report page Social performance indicators referring to labor practices and decent work LA1 Total workforce by employment type, employment Energy of people 6, pp. 77-78 contract, and region. LA2 Total number and rate of employee turnover by age Energy of people 6, pp. 78-80 group, gender, and region. LA3 Benefits provided to full-time employees that are not Energy of people 6, pp. 80-84 provided to temporary or part-time employees, by major operations. LA4 Percentage of employees covered by collective Energy of people 6, pp. 79 bargaining agreements. LA5 Minimum notice period(s) regarding significant Energy of people 6, pp. 79 operational changes, including whether it is specified in collective agreements. LA6 Percentage of total workforce represented in formal Fostering the safety culture 5, pp. 61 joint management-worker health and safety committees that help monitor and advise on occupational health and safety programs. LA7 Rates of injury, occupational diseases, lost days, and Fostering the safety culture 5, pp. 60-65 absenteeism, and number of work-related fatalities Energy of people 6, pp. 89 by region. LA8 Education, training, counseling, prevention, and Fostering the safety culture 5, pp. 60-65 risk-control programs in place to assist workforce Energy of people 6, pp. 89 members, their families, or community members regarding serious diseases. LA9 Health and safety topics covered in formal Energy of people 6, pp. 80 agreements with trade unions. LA10 Average hours of training per year per employee by Energy of people 6, pp. 87-88 employee category. LA11 Programs for skills management and lifelong Energy of people 6, pp. 87-89 learning that support the continued employability of employees and assist them in managing career endings. LA12 Percentage of employees receiving regular Energy of people 6, pp. 80-84 performance and career development reviews. LA13 Composition of governance bodies and breakdown Energy of people 6, pp. 80-84 of employees per category according to gender, age group, minority group membership, and other indicators of diversity. LA14 Ratio of basic salary of men to women by Energy of people 6, pp. 80-84 employee category. Social performance indicators referring to human rights HR1 Percentage and total number of significant investment Energy of people 6, pp. 69 agreements that include human rights clauses or that 6, pp. 74-76 have undergone human rights screening. HR2 Percentage of significant suppliers and contractors Energy of people 6, pp. 74-76 that have undergone screening on human rights and actions taken. HR3 Total hours of employee training on policies and Energy of people 6, pp. 80 procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained. HR4 Total number of incidents of discrimination and Energy of people 6, pp. 80 actions taken. HR5 Operations identified in which the right to exercise Energy of people 6, pp. 79-81 freedom of association and collective bargaining may be at significant risk, and actions taken to support these rights. HR6 Operations identified as having significant risk for Energy of people 6, pp. 80 incidents of child labor, and measures taken to contribute to the elimination of child labor. HR7 Operations identified as having significant risk for Energy of people 6, pp. 80 incidents of forced or compulsory labor, and measures to contribute to the elimination of forced or compulsory labor.

96 Sustainability Report — TNK-BP 2011 GRI indicator Description Report section Report page HR8 Percentage of security personnel trained in the Energy of people 6, pp. 80 organization’s policies or procedures concerning aspects of human rights that are relevant to operations. HR9 Total number of incidents of violations involving Energy of people 6, pp. 72-73 rights of indigenous people and actions taken. Social performance indicators referring to society SO1 Nature, scope, and effectiveness of any programs Energy of people 6, pp. 66-73 and practices that assess and manage the impacts Responsible approach 4, pp. 43 of operations on communities, including entering, operating, and exiting. SO2 Percentage and total number of business units Ethics and compliance 3, pp. 26-31 analyzed for risks related to corruption. SO3 Percentage of employees trained in organization’s Ethics and compliance 3, pp. 26-31 anti-corruption policies and procedures. SO4 Actions taken in response to incidents of corruption. Ethics and compliance 3, pp. 31

SO5 Public policy positions and participation in public Energy of people 6, pp. 68 policy development and lobbying. SO6 Total value of financial and in-kind contributions to political Energy of people 6, pp. 68 parties, politicians, and related institutions by country. SO7 Total number of legal actions for anti-competitive TNK-BP International Ltd. http://www. behavior, anti-trust, and monopoly practices and Consolidated Financial Statements as of and tnk-bp.ru/upload/ their outcomes. for the years ended 31 December 2011 iblock/b21/1.pdf and 31 December 2010 pp. 30 SO8 Monetary value of significant fines and total number TNK-BP International Ltd. http://www. of non-monetary sanctions for non-compliance with Consolidated Financial Statements as of and tnk-bp.ru/upload/ laws and regulations. for the years ended 31 December 2011 iblock/b21/1.pdf and 31 December 2010 pp. 30 Performance indicators referring to product responsibility PR1 Life cycle stages in which health and safety impacts Responsible attitude to earth 4, pp. 33-45 of products and services are assessed for Responsible attitude to air 4, pp. 48-51, improvement, and percentage of significant products 56-59 and services categories subject to such procedures. PR2 Total number of incidents of non-compliance with Responsible attitude to air 4, pp. 57 regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes. PR3 Type of product and service information required by Responsible attitude to earth 4, pp. 57 procedures, and percentage of significant products

and services subject to such information requirements. disclosures Standard PR4 Total number of incidents of non-compliance Responsible attitude to earth 4, pp. 57 with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes. PR5 Practices related to customer satisfaction, including Responsible attitude to earth 4, pp. 57 results of surveys measuring customer satisfaction. PR6 Programs for adherence to laws, standards, Responsible attitude to earth 4, pp. 57 and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship. PR7 Total number of incidents of non-compliance with Responsible attitude to earth 4, pp. 57 regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes. PR8 Total number of substantiated complaints regarding Responsible attitude to earth 4, pp. 57 breaches of customer privacy and losses of customer data. PR9 Monetary value of significant fines for non- Responsible attitude to earth 4, pp. 57 compliance with laws and regulations concerning the provision and use of products and services.

Sustainability Report — TNK-BP 2011 97 98 Sustainability Report — TNK-BP 2011 COPY TO BE SUPPLIED assurance report Independent

Sustainability Report — TNK-BP 2011 99 09 Additional information

101 Glossary 102 Abbreviations

100 Sustainability Report — TNK-BP 2011 Glossary

2D seismic – a seismic survey which produces Industrial incident – a failure or damage of a known or inferred fluid contacts. They have been a two-dimensional image of the subsurface. technical device, used at a hazardous production defined to a lesser degree of certainty than proven facility, as abnormal operation, violations of the reserves because of limited well control and/or the 3D seismic – a seismic survey which produces provisions of the Federal Law # 116-FZ on Industrial lack of definitive production tests. a three-dimensional image of the subsurface. Safety of Hazardous Facilities, other federal laws and Proved reserves – estimated quantities of crude oil, 3P reserves – possible, probable and regulations of the Russian Federation, as well as and/or natural gas which, based on geological and proved (reserves). regulatory technical documents, prescribing work engineering data, with reasonable certainty, can be rules at a hazardous facility. Associated petroleum gas (APG) – a natural gas recovered in the future from known reservoirs under found with oil, either dissolved into it or as a cap of Inhibition – the action of treating pipelines with existing economic and operating conditions. free gas above it. APG contains significant quantities chemicals (inhibitors) to slow down metal corrosion. PRMS – Petroleum Resources Management of ethane, propane, butane and other saturated Inorganic capital expenditure – capital System, formerly Society of Petroleum Engineers hydrocarbons. APG can be utilized in two areas: expenditure on acquisitions. (SPE); a methodology that provides a reflection of a) energy – to produce power for oil field purposes the total resources available to be managed over Lost time injuries rate is calculated in accordance the whole life of a field. PRMS guidelines rely to a b) petrochemistry – refined to produce dry gas with the OSHA (Occupational Safety and Health large extent on continuity of reservoir geology rather (supplied to main pipeline), natural gasoline, Administration) regulations as the total number of that production. natural gas liquids and liquefied gas for injuries (including fatalities) relative to the total time domestic consumption. worked, multiplied by 200,000. Remediation – the action of removing pollution or contaminants from soil, groundwater, sediment bbl – barrel (1 bbl = 0.134 metric tons) Net debt – long-term and short-term debt less cash or surface water to protect public health and and cash equivalents. boe – barrels of oil equivalent. Boe is a measurement the environment or from a brownfield site intended of gas by its thermal equivalent in barrels of crude oil. Organic capital expenditure – capital expenditure for redevelopment. excluding acquisitions. Condensate – light hydrocarbons produced with Reserve replacement ratio – ratio of total natural gas. Condensate condenses into a liquid at Possible reserves – reserves that may exist but proven reserves added in a given year to that normal temperatures and pressures. are less well-defined by well control than probable year’s production. reserves. Possible reserves include: EBITDA – earnings before interest, taxes, ROACE – return on average capital employed. depreciation and amortization. a) reserves based on log interpretation and other This is calculated as the ratio of net income to ESP – electric submersible pump. evidence of hydrocarbon saturation in zones average capital employed; average capital employed behind the pipe in existing wells is calculated as the average sum of total shareholder Industrial accident – a) a destruction of b) possible extensions to proven and probable equity, minority interest, long-term and short-term a construction and/or technical equipment used at debt at the beginning and end of a period. a hazardous facility, uncontrollable explosion and/or reserve areas where indicated by geophysical release of hazardous substances; b) dangerous and geological studies SEC – the U.S. Securities and Exchange man-caused incident creating at a facility, on a c) those to be recovered by enhanced recovery Commission. The standard for proven certain territory or in a water zone, a threat to life and methods where data is insufficient to classify reserves requires that continuity of production health of people, leading to destruction of buildings, the reserves as proven or probable. be demonstrated. constructions, equipment and vehicles, affecting Probable reserves – reserves that are based on SEC LOF (life of field) – our total proved reserves operating and transportation processes as well as reasonable evidence of producible hydrocarbons are quoted according to SEC criteria taken to the causing damage to the environment. within the limits of a structure or reservoir above economic life of the field rather than license expiration. information Additional

Sustainability Report — TNK-BP 2011 101 Abbreviations

Abbreviations Units mboe/d – thousand barrels of oil equivalent per day 2P (reserves) – proved and probable (reserves) bbl – barrel (1 bbl = 0.134 metric tons) mln – million 3P (reserves) – proved, probable and bcm – billion cubic meters mmbbl – million barrels possible (reserves) bcma – billion cubic meters per annum mmb/d – million barrels per day APG – associated petroleum gas b/d – barrels per day mmboe – million barrels of oil equivalent HSE – health, safety and environment bn – billion mmboe/d – million barrels of oil equivalent per day LOF – life of field boe – barrel of oil equivalent mmcm – million cubic meters OGP – The International Association cub. m – cubic meters RUR – rouble of Oil and Gas Producers ft. – feet sq. km – square kilometer PRMS – Petroleum Resources Management System ha – hectare th. – thousand SEC – US Securities and Exchange Commission km – kilometer tons/d – tons per day mb/d – thousand barrels per day USD – US dollar

102 Sustainability Report — TNK-BP 2011