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ROSNEFTROSNEFT FocusedFocused onon DeliveringDelivering ValueValue Peter O’Brien, Member of Management Board Vice-President, Finance & Investments Investor Roadshow Highlights from Q3 2008 December 2008 Important Notice The information contained herein has been prepared by the Company. The opinions presented herein are based on general information gathered at the time of writing and are subject to change without notice. The Company relies on information obtained from sources believed to be reliable but does not guarantee its accuracy or completeness. These materials contain statements about future events and expectations that are forward-looking statements. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements. This presentation does not constitute an offer or invitation to sell, or any solicitation of any offer to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. No reliance may be placed for any purposes whatsoever on the information contained in this presentation or on its completeness, accuracy or fairness. The information in this presentation is subject to verification, completion and change. The contents of this presentation have not been verified by the Company. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its shareholders, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation. None of the Company nor any of its shareholders, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. 2 Q3 and 9M’08 Highlights Positives Challenges, Priorities Leading EBITDA and FCF growth: 9M’08 Real rouble appreciation against USD EBITDA up to USD 5.3 bln in Q3’08 and USD 17.1 bln in 9M’08 (13.0% for the year ended September 30) Tax payments (export duty and MET) Operating cash flow up to USD 4.4 bln in increased by 91.0% vs 9M’07 Q3’08 and USD 13.8 bln in 9M’08 Q4’08 - 2009 FCF up to USD 2.2 bln in Q3’08 and USD 7.3 bln in 9M’08 Continue to reduce real costs Net debt reduced by USD 6.9 bln Business plan for 2009 during 9M’08 Cash flow positive at Brent $50/bbl Launch Vankor production Daily crude oil production up 8.3% y-o-y vs 9M’07, organic growth 4.5% Participate in continuing discussion to update tax regime Growth in refinery throughput and Continue to optimize downstream activities, corresponding increase in petroleum grow higher margin sales product output (+33.0% y-o-y vs 9M’07) Participate in finalization of the Russian Energy Growth in retail sales volumes and other strategy to 2030 (Government to review in December) support services Incorporate into updated strategy of Rosneft 3 Cost Control & Efficiency Gains: Upstream Upstream OPEX/bbl of crude oil produced Challenging environment through Q3’08: -Inflation 4.5 3.93 - Currency appreciation 4.0 % 16.4 AGR 3.5 ed C mpli I 3.02 Efficiency gains almost 1 USD/bbl since 2005: 3.0 2.94 2.78 - Leading new well flow rates 2.5 2.49 - Cost control 2.0 - Services strategy 1.5 .6% CAGR 6 1.0 Outlook improving: 0.5 -Inflation decreasing - - Materials prices falling 2005 2006 2007 9M'08 9M'08 (at (actual) inflation) - Available service capacity IPO portfolio - Currency vs. If inflated at real ruble appreciation 4 Creating Value in Downstream Average netback vs. net export revenue Average netback now exceeds net export revenue: USD/bbl Revenue 60 57.3 56.2 - sales taxes (export duty, excise) - transportation costs 50 - refining costs 41.2 - retail costs 40 37.1 -related SG&A 34.4 = Netback 30 28.3 Gap reversed from negative $6.1/bbl to positive $1.1 USD/bbl 20 Value created through: 10 - Higher refining cover - Optimized logistics, netbacks - - Increased retail throughput 2006 2007 9M'08 Average Rosneft netback - Increased flexibility Crude export revenue net of export duty - Sakhalin-1 production 5 Capturing More EBITDA USD/bbl 45 40 EBITDA/bbl now > net export revenue/bbl - Enhanced downstream performance 35 - Cost control 30 25 20 15 10 5 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 2008 Rosneft EBITDA/bbl Net export revenue after MET and transport cost for Yuganskneftegas (USD/bbl) 6 Crude Oil Production: Consistently Superior Growth Oil production CAGR (2004-9M’08), % 50% 6.4% 2.9% 2.5% 1.2% 0.9% 0.9% (0.8)% (0.6)% (0.8)% (1.5)% (1.3)% (1.9)% (3.6)% (5.0)% BP ENI Shell Total TNK-BP Tatneft LUKOIL Rosneft Rosneft organic Chevron PetroChina Exxon Mobil Gazprom Neft ConocoPhillips Surgutneftegaz Rosneft Russian companies International majors Source: CDU TEK, company reports, Rosneft, (TNK-BP and Gazprom Neft include 50% of Slavneft each). 7 Leading Earnings Growth Earnings per share (EPS) growth rates: 2007 vs. 2006, 1H’08 vs. 1H’07 205% 102% 94% 89% 77% 52% 38% 27% 22% 13% GazpromN SurgutNG LUKOIL Tatneft Rosneft* Tatneft LUKOIL GazpromN SurgutNG Rosneft* 2007 vs. 2006 1H'08 vs. 1H'07 * Adjusted (reduced) for net income from Yukos bankruptcy 8 Progress on Tax Regime October- July’06 July- August ‘06 July’08 September’08 November’08 Rosneft Mineral Extraction Tax Mineral Extraction Tax formula Export duty reduced Export duty reduced IPO holidays in East Siberia reviewed, rate reduced by USD to USD 372.2/t from to USD 287.3/t from (Republic of Sakha 1.3/bbl October 1 November 1 (Yakutia), Irkutsk (should have been (should have been region, Krasnoyarsk Mineral Extraction Tax holidays changed to USD 483/t) changed to USD 483/t) territory) (to the north of the Polar Circle, FCF effect in offshore Azov and Caspian seas, November 2008 – Nenets autonomous district, the FCF effect Zero Mineral Extraction USD 0.7 bln Tax rate for high- Yamal Peninsula) in October 2008 – viscosity crude USD 0.5 bln Cancellation of requirement to Export duty further use direct method of oil volumes Reduced Mineral reduced to USD calculation for fields depleted Extraction Tax rate for 192.1/t from more than 80% fields depleted more December 1 than 80% Shortened depreciation period FCF effect in for oil and gas assets December – In effect since USD 0.5 bln January 1, 2007 In effect since January 1, 2009 Income tax reduced from 24% to 20% (effective January 1, 2009) 9 Further Changes Needed USD/bbl 100 80 60 40 20 - 2002 2003 2004 2005 2006 2007 2008E 2009E Urals Exporter's revenue per bbl net of export duty, MET and transport Areas of concern Potential steps Net revenue to exporters nearing ‘02 level Short term: amend tax regime for inflation and growing capital intensity Cash costs up ~3 times since ’02 (inflation, tariffs) Longer term: profit based Increasing capital intensity of production growth 10 Looking Ahead: Current Priorities Short term Always Record results for 2008 Create value for shareholders - Grow earnings, dividends 2009 business planning - Grow cash flow - Prudent assumptions - Cost control Increase profitable volumes - Free cash flow generation - Upstream production - Prioritize investments - Refining, retail throughput - Sales: crude, products, gas Optimize financing cost Develop technologies, capabilities Slow monopoly tariff increases, other inflationary effects Constantly improve governance, transparency Balanced proposals for further tax reform 11 Cost Reduction Program: Key Priorities I. Reducing non-controllable costs Lower tax burden Lower natural monopoly tariffs (transportation, electricity) II. Reducing capital expenditures Prioritizing capital expenditures (short payback period, compliance with Rosneft’s Strategy) Reducing costs of construction, materials and equipment III. Reducing operating expenses Reducing, and improving the efficiency of, resource use (fuel and lubricants, electricity, etc.) Reducing prices of materials and services Headcount optimization Cutting administrative expenses Reducing debt and interest expenses Reducing the number of entities and related expenses 12 Current Valuation: Reality Check Current trading multiples* 14 12 10 8 6 4 2 0 Rosneft PetrobrasPetrochina BP RD/Shell Exxon Mobil EV/Proved Reserves (USD/boe) P/E '08E Relevant facts Rosneft: Russia: - 22 bln boe proved reserves - ~ USD 450 bln f/x reserves - >100 bln boe 3P + resources - 3% external debt to GDP ratio - Strategic enterprise - Sound fiscal policy - Exporter, ruble depreciating - Portfolio for East & West * Source: ‘Valuation Comparison’ by UBS as of 27 November, 2008. 13 Best in Class Transparency, IR Effort Consistently enhancing disclosure IPO and bond Quarterly US GAAP, Investor presentations, New website prospectus MD&A conference calls Recent awards S&P Transparency & Disclosure IR Magazine (October ’08) Rankings Best Overall IR for Large Cap in Russia & CIS Best Annual Report 2nd in 2008 & Corporate Literature 10th in 2007 4 other awards 12th in 2006 Multiple awards for website 14 Rosneft Q3 and 9M 2008 US GAAP Financial Results Appendix 15 Macroeconomic Environment Q3’08 Q3’07 ∆,% 9M’08 9M’07 ∆,% Average RUB/USD rate 24.25 25.51 (4.9%) 24.05 25.89 (7.1%) Inflation for the period, % 1.9% 1.8% 10.6% 7.5% Real RUB appreciation/depreciation (5.3)% 5.3% 7.5% 13.5% against USD for the period, % Urals price (av.
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