Contents Mažeikių Nafta AB Annual Report

1999 Maþeikiø Nafta AB annual report contents 1 contents 2 board 3 general directors review 4crude oil supply 5 feedstock processing 6 changes in production 7 transportation 7 activities of the Birþai Division 8 activities of the Bûtingë Division 9 marketing 12 process improvements 14personnel 14employee education 15 employee qualifications 16 health and safety at work 17 environmental safety 18 trading in the companys shares 21 Consolidated Statements of Operations, 1999 & 1998 (LTL 000) 22 Consolidated Balance Sheets, 1999 & 1998 (LTL 000) 24Consolidated Statements of Shareholder Equity, 1999 & 1998 (LTL 000) 26 Consolidated Statements of Cash Flows, 1999 & 1998 (LTL 000) 28 Head Office and Representative Offices 1 board J. Scheel Managing Director, Williams International V. Valys Senior Economist, Economy Sectors Division, Company, Chairman of the Board Ministry of Finance G. Vaièiunas Advisor to the State and Municipal Economy Department of the Office of the Government V. Petroðienë Finance Director, Maþeikiø Nafta AB of the Republic of Lithuania K. Balkevièius Head of Fuel Strategy Division, Ministry of Economy R. Majors General Director, UAB Williams Lietuva 2 general directors review 1999 was a year of significant events for our Company. The privatization process, The newly privatized Company was also successful in restoring investor confidence. Be- which had been developing for nearly two years, was successfully completed. On 29 cause of the lack of working capital and continuity of crude supplies the Companys share October 1999 an agreement was signed between the Government of Lithuania, Maþeikiø price on the Lithuanian National Stock Exchange (NVPB) at the beginning of 1999 struggled Nafta AB and Williams International Company, resulting in Williams International be- to reach 0.42 LTL. After the successful privatization of the Company the share price rose to coming owners of 33 per cent of the Maþeikiø Nafta AB stock. It was also then en- 0.82 LTL. Privatization helped solve many financial problems: both major shareholders trusted with the operation of the Company. (the Lithuanian Government and Williams International Company) reached agreement on We can also take great pleasure and pride in the successful completion of the Bûtingë the restructuring of short-term debt into long-term; in addition, the funding necessary for Terminal. The Terminals export scheme began functioning in July, with the import scheme working capital was infused. The Companys liquidity greatly improved, as did our other being first tested in November. The fully operational export-import terminal at Bûtingë can financial indicators. A large-scale modernization programme has been embarked upon. now service oil tankers of up to 150,000 tonnes DWT, almost twice the size of 80,000 All efforts are directed towards becoming the leading oil refining and transportation com- tonnes DWT originally envisioned. We not only have already loaded the biggest tankers in pany in Europe, of being a significant player in the Lithuanian and Baltic regional economy the Baltics, we have also added a third alternative to pipeline and rail shipments. and of being able to increase value to our shareholders. We will continue to steadily Much attention has been paid to product quality. Last year the Refinery began produc- improve our activities, and to add value to the Company. In the year 2000 and in succeed- ing gasoline, jet, and diesel fuels in accordance with new European Union standards. ing years we aim towards increasing profitability, reducing costs, improving the quality of We are delighted that we still remain the largest company and largest taxpayer not only in oil products, introducing new products, expanding production and transportation, and Lithuania, but also throughout the whole Baltic Region we have also begun the necessary offering new services. In achieving our strategic goals we will attempt to implement the work of modernization to improve our leading contribution to the Baltic regional economy. following tasks: to reduce operating costs, to implement the modernization programme, We can take particular confidence in the Companys 1999 financial results. Turnover, which to introduce Western business practices and to expand our participation in important reduced by 20 per cent over the year due to low oil prices, recovered strongly at yearend. markets. We will implement our marketing strategy of developing strategic alliances with Overall results, while negative include large amounts of depreciation and reserves for major market leaders, and by offering our consumers high-quality oil products. We will conversion to US GAAP and demonstrate a strong underlying positive cash flow. also work on improving employee qualifications and consciousness, as well as improving These financial results were achieved despite unsteady crude oil supplies, steep rises in the conditions in the workplace environment, and the capability of our assets. price of oil on world markets, and general economic decline in Lithuania with reduced local Thank you for taking the time to meet our company. consumption of oil products. However, the Company did not let its position slip in the regional market, in Poland, and successfully negotiating a marketing JV with BP Amoco. Stephen F. Hunkus General Director 3 crude oil supply Crude oil is supplied to Maþeikiø Nafta AB from Russia through a spur of the mainline Druzhba pipeline, the original design capacity of which is 16 million tonnes per year. This year, Maþeikiø Nafta AB has also demonstrated the ability to receive over 4 million tonnes per year of crude and other feedstock by separate rail facilities, a process which continues. We have now added a third access for crude supply. For the first time, a cargo of North-sea crude oil was imported via the newly operational Bûtingë Terminal, thus affording the Com- pany even greater flexibility in crude oil suppliers. Maþeikiø Nafta AB continued to work with suppliers on a contract-to-contract basis as in previous years. Crude oil was supplied by international oil companies directly or through intermediaries on an agreed price basis. Major crude oil suppliers this year were the following: Tintrade, Andre & Cie SA, LUKOIL, YUKOS, and the Rosby Oil Corporation. The refinery also purchased alternative feedstock types, such as gas condensate, atmospheric residue and middle distillates to produce refined products. This enabled better utilization of production capacities. 1999 Atmospheric residue and vacuum distillate were mainly supplied by Tintrade, Santana Trading LLC and Naftextra p&T Company LLC; the major supplier of gas condensate was Tintrade. The refinery continued to provide refining on a fee basis to other oil companies for both operational and market access reasons. 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 1999 4 1999 feedstock processing The Refinerys utilization rate decreased from 45% to 31% in 1999. This lower utilization rate was due to several shutdowns resulting from lack of crude. The Refinery processed 4.56 million tonnes of feedstock consisting of 4.45 million tonnes of its own feedstock and 0.11 million tonnes of feedstock supplied by third parties for processing for their use. Of the feedstock processed, 4.25 tonnes consisted of crude oil purchased by Maþeikiø Nafta AB. feedstock procesing revenue from main activity 707.5 700 7.000 6.073.2 685,7 1.754.6 650 550 607,0 6.000 3.916.4 562,1 500 111.2 450 5.000 3.398.6 4.448.4 2.259.0 735.4 400 4.000 1.269.9 350 300 3.000 250 232,5 249,6 200 2,000 150 Revenue, Revenue, millions millions USD USD Revenue, millions USD Revenue, Revenue, millions millions USD USD 100 1.000 Own feedstock 50 Quantity ,000 metric Quantity tonnes ,000 metric tonnes Quantity ,000 metric tonnes Quantity ,000 metric Quantity tonnes ,000 metric tonnes Third Party 0 0 1995 1996 1997 1998* 1999* 1995 1996 1997 1998 1999 * after reorganisation 5 1999 changes in production The Maþeikiø Nafta AB Refinery produces and markets only environmentally safe grades of unleaded gasoline. In 1999 the Refinery brought into production the following newly certified products: Gasoline, LST EN 228 - Grades 92, 95 and 98, Classes 3 and 6 Diesel fuel, LST EN 590 - Classes C, E and F Diesel fuel, LST EN 590 - Classes C, E and F with multifunctional additives Polymer-modified road bitumen, LST 1507 Also, new Certificates of Conformity were approved for new products in Russia: Gasoline, LST EN 228 Grade 92, Class 3 Gasoline, LST EN 228 Grade 95, Class 1 and 3 Diesel fuel, LST EN 590 Classes C, E and F Polymer-modified road bitumen, LST 1507 6 1999 transportation activities of the Birþai Division 1998 1999 Ventspils Maþeikiai Pipeline Ventspils Maþeikiai Pipeline Pipeline capacities, million tons 15,0 15,0 4,0 15,0 15,0 4,0 Actual transportation, million tons 14,5 6,3 3,2 13,0 4,9 3,6 Capacity utilization, % 96,442,080,0 86,7 32,7 90,0 Birþai pipeline transportation dynamic 15 14,350 14,611 14,586 14 13,053 13 12,100 12 11 T T T T T 10 9 8 , mln. , M mln. M , mln. M , mln. , M mln. M 7 6,295 6 5,011 4,949 5 3,663 Quantity Quantity Quantity Quantity Quantity 4 3,588 3,121 2,890 2,962 3,206 3 2,710 Crude Oil to Maþeikiai 2 Crude Oil to Ventspils 1 Product to Ventspils 0 1995 1996 1997 1998 1999 7 activities of the Bûtingë Division On November 22, 1999 State Commission of the Republic of Lithuania signed the Acceptance Act for Stage II Work, thus completing Bûtingë Terminal projects for crude oil export/import. On July 23, 1999 the first tanker, Centaur, was loaded with crude oil owned by the Russian YUKOS Oil Corporation, which up to now is the largest customer of the Terminal.

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