S w

9B07N008

DOMESTOGAZ OF

Professors Tony Frost and Stephen Foerster wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected].

Copyright © 2007, Ivey Management Services Version: (A) 2010-02-09

It was early January 2006, and Jason Wong’s employer, an investment bank that specialized in emerging markets, had recently teamed up with one of the world’s best known financial institutions to launch a US$300 million Eastern European Investment Fund (the Fund). According to the Fund’s prospectus, it was established to:

Achieve long-term capital appreciation by taking significant stakes in the portfolio companies through negotiated transactions while taking an active role to influence their operations and management with the objective of achieving superior returns by restructuring their financial situation or improving their business. We typically aim to realize capital gains on our investments in four to six years.

The investments range from $2 [million] to $10 million of equity and/or quasi equity per transaction. Larger financing can be arranged through our working relationships with other private investment firms. Our interests are broad, however we are particularly interested in fast moving consumer goods, distribution, communications, manufacturing and service businesses.

The role of Wong’s firm in the partnership was to find high-potential companies in which the Fund might invest. The Fund had just been launched, and his firm was now in the process of identifying, evaluating and valuing prospective companies. This morning, Wong’s boss had entered his office and tossed onto his desk a file on Domestogaz, a privately controlled Ukrainian company. She explains the job ahead:

Your team has been following the situation in Ukraine and I need your expertise. I’ve just received a file from a contact of mine in Ukraine on this company, Domestogaz. Apparently, company management is seeking to raise a total of about US$25 million by selling a minority stake in the company to outside investors. That fits the general profile of the kind of investment the Fund is looking for. So, get to work. I want to know what you think we should do and why.

Page 2 9B07N008

BACKGROUND

Headquartered in the Ukrainian city of , Domestogaz was established in 2001, by the merger of two formerly state-owned companies with storage and retail operations in the light oil market in Western regions of the country. In 2006, Domestogaz’s business was centered on its network of 170 gasoline stations in Ukraine, of which 107 operated under the company’s DomGaz brand.

In 2005, Domestogaz earned a net profit of UAH40.5 million on revenues of UAH1,944.6 million.1 Revenues had grown by 51 per over the previous year, and profits by 82 per cent. (Financial statements are provided in Exhibits 1 and 2.) The company was increasingly optimistic about its future and had established an ambitious expansion plan that called for the development of at least 150 new DomGaz- branded gasoline stations. Under this scenario, management aimed to control eight to 11 per cent of the retail market for light oil products in Ukraine by 2008. Needed now were the funds to implement these plans. It was for this reason that Domestogaz was increasingly looking to international sources of investment capital.

The majority of the firm’s shares were currently controlled by insiders who also held the key seats on the firm’s five-person supervisory board, which was responsible for strategic direction and major operating decisions. Domestogaz shares were listed on the PFTS, the main Ukrainian stock exchange. Total free-float market capitalization amounted to less than one-quarter of total equity. Recently, the companies shares (of which there were 16 billion shares outstanding) had been trading in a range between US$8.125 per 1,000 shares and US$8.4375 per 1,000 shares, but there was little turnover. In 2005, the firm had initiated an American Depository Receipt (ADR) program as a private placement in accordance with “Regulation S” (which dealt with offshore securities sales) in order to widen the shareholder base and facilitate trading among sophisticated investors. No public information on such share price quotations was available.

THE LIGHT OIL RETAIL MARKET IN UKRAINE

Prior to 1991, the retail market for oil products in Ukraine was controlled by the state, as were virtually all industries in the former Soviet Union. Under the old regime, regional state enterprises operated the storage and retail distribution of oil products with little consideration as to profit or customer satisfaction. The result was an underdeveloped network of retail stations, poor facilities and service, and frequent gasoline shortages at the retail level. In the early 1990s, as Ukraine established itself as an independent democratic state, the retail market began to change. Private gas stations were built, and most of the existing state- owned companies in the industry were sold off.

However, the 1990s proved a difficult decade for the petroleum industry in Ukraine. In the wake of the collapse of the former Soviet Union, the country fell into a prolonged and brutal economic recession. Consumption of oil and natural gas collapsed. Moreover, even as the Ukrainian economy started to show signs of recovery, consumption of petroleum products continued to lag behind as Ukrainian industry shifted away from the highly inefficient, energy-intensive technology predominant under the old Soviet model toward a more modern, energy-efficient capital stock. (Exhibit 3 shows consumption of oil and natural gas in Ukraine from 1985 to 2004.) In 2005, it was estimated that Ukrainian oil refineries were operating at barely 40 per cent of capacity. Moreover, much of the country’s refinery stock was outdated, and struggled to produce light oil products of international quality standards.

1 As of December 31, 2005, the exchange rate of Ukrainian hryvnia (UAH) as set by the was UAH5.05 to US$1.

Page 3 9B07N008

Ukraine was currently dependent on crude oil imports from for more than 95 per cent of the country’s needs. This situation was causing increasing concern among Ukrainian government officials who worried about the dependability of the Russian supply, especially in light of several recent shortages. Unfortunately, changing the geographic origin of oil imports to Ukraine would be difficult: practically all of the country’s oil refineries used technology that was specific to the high-sulfur content of Ural crude, which was the type supplied by Russia. Recently the government had announced plans to build new oil refineries in the Odessa and Lviv regions of the country, using technology that would allow the processing of low-sulfur oil, similar to that available from nearby Kazahkstan and the Middle East. For the foreseeable future, however, oil imports would continue to be dominated by Russian inflows.

Demand for light oil products at the retail level was influenced by many factors: the number and type of motor vehicles in a country; a country’s physical size and its geographic location as a transit country for international trade; the density and quality of the road network; the price of oil and the extent to which gasoline was taxed by the government; and the preference for, and availability of, alternatives to motor vehicle transportation, such as rail, subway, bus and plane. (Exhibits 4, 5 and 6 show various figures relevant to retail oil industry demand for Ukraine and selected other countries.)

In 2004, the number of motor vehicles had grown by approximately a quarter million units over the previous year, of which 200,000 were passenger cars, reflecting a 37 per cent increase in new care sales since 2003. By 2005, there were approximately seven million motor vehicles operating in Ukraine, including 5.8 million passenger cars, 1 million trucks and 150,000 buses. In terms of road infrastructure, Ukraine still lagged far behind other countries in Europe, in both quantity and quality of motorways. Few of the country’s roads were up to European quality standards, although the vast majority were paved. The government was currently in the process of developing and upgrading the countries two largest motorways: the -Chop motorway, part of the “Moscow–Lisbon” international motorway (already operational); and the Kyiv–Odesa motorway, part of the “Helsinki–Athens” international motorway (still under construction).

Industry Structure and Market Share

The retail light oil industry in Ukraine was highly fragmented. Sales were divided among 12 competitors, the largest of which controlled less than 15 per cent of the market. In 2005, there were approximately 6,000 gasoline stations spread throughout the country. About two-thirds of these were considered out-of-date — lacking modern facilities and consumer conveniences. Based on statistics from developed countries, it was estimated that one modern gasoline station was needed for approximately every 1,200 cars. (Exhibit 7 provides a list of major competitors and their market shares.)

In Ukraine, the retail gasoline market was divided into two main company types: those that owned their own refining assets, and those that were solely gasoline retailers. Domestogaz was a pure-play retailer. A third type was evidenced by only one company, TNK, which sold oil products produced at its Lysychansky refinery through a network of more than 1,200 TNK-branded gasoline stations that were owned and operated by independent retailers (known as “jobbers”). The market leader in terms of volume of oil products sold was Ukranafta, which also controlled its own producing and processing assets. Ukranafta was 51 per cent owned by the Ukrainian government and in recent years had embarked on an ambitious program of expansion through the acquisition of small regional networks (of 10 to 20 stations) in order to expand its territorial coverage.

Page 4 9B07N008

Many of the existing players had a geographic emphasis. For example, Continium owned a network of 170 stations mostly in the Western and Southern regions of Ukraine, whereas Hefest was strong in the East. In terms of ownership, the industry was composed of a mix of foreign and domestic players. Russian oil companies were particularly dominant: for example, Lukoil operated 177 gasoline stations in Ukraine, which it supplied from its own oil refinery in Odessa; another Russian company, Alyans, owned a refinery in Kherson City and operated a network of 140 gasoline stations. With the exception of British Petroleum, which had a joint venture in Ukraine with Russian partner TN, the world’s major oil companies were not yet a significant presence in the retail light oil market.

Government Regulations

Market players generally operated without strict regulations in terms of their day-to-day operations and new station construction. The one exception was pricing, which had recently become a sensitive political issue when the price of Russian oil rose from $37.4 per barrel in December 2004 to a record high of $50.7 per barrel in March 2005. The government’s main concern was with the broader macroeconomic consequences of rising oil prices, given Ukraine’s troubled history with inflation.

As a result of its concerns, the government issued a resolution in April 2005 that effectively capped prices for petroleum products in the Ukrainian market. It did so under the 1990 law “On Prices and Pricing,” which allowed prices for certain products to be determined by local authorities. The resolution, passed in April 2005, stipulated that the trade margin on gasoline and diesel should not exceed 15 per cent of the wholesale price. As a result, the retail price of gasoline was set at approximately UAH2.99 (US$0.57) per liter, significantly below market levels.

Barely a month after passing the resolution, the market slipped into a shortage situation. To avert a crisis, the issued a decree that reversed the price regulations on petroleum products. After aggressive lobbying by Russia’s top oil companies in Ukraine, the decree also stipulated that:

1. The Cabinet of Ministers’ regulations and interferences in the petroleum products market were unacceptable as they did not comply with market economy principles. 2. The Cabinet of Ministers was instructed to secure stable policy in the pricing, taxation and customs issues related to the petroleum market. 3. The Ministry of Economy was ordered to abolish its regulation on putting price ceilings on petroleum products.

DOMESTOGAZ

Domestogaz operated in the Ukrainian market as a retailer of light petroleum products. The company did not own assets relating to oil exploration, extraction, production or processing, and had no plans to do so in the future. In 2005, it employed approximately 2,800 people.

Domestogaz’s main asset was its network of 170 retail gasoline stations and complexes, which were located primarily in the Western region of Ukraine. The company also owned 14 storage facilities used in the distribution of gasoline from the wholesale to the retail level. (Exhibit 8 shows the location of Domestogaz’s retail stations and storage facilities in Ukraine.) The company sought to place its service stations in population centers and along busy transport routes. In 2005, Domestogaz opened several stations in key markets where it previously had no presence: two outlets in Kyiv, the capital of Ukraine and

Page 5 9B07N008

the country’s most affluent city; another in Kharkiv in the Eastern region, Ukraine’s second largest city; and one in Kirovograd, in the central region.

The company purchased raw materials (light oil products) produced at oil refineries in Ukraine, Belarus and from large wholesale oil traders. Raw materials were priced and transacted mainly in U.S. dollars. In 2005, Domestogaz was not tied to any single oil producer by a long-term contract. (Exhibit 9 shows the Domestogaz’s oil products suppliers, by volume.) Raw materials were transported by railway to Domestogaz’s storage facilities, then delivered to retail outlets by the company’s network of 77 tank trucks.

Domestogaz sought to distinguish itself in the gasoline refueling retail market by offering additional services, including sales of ancillary convenience goods, car wash and tire pumping services, and restaurants and cafés. Of its 170 retail stations, 114 were DomGaz-branded, which were considered the modern face of the company. The remaining 56 stations were slated to be either renovated and rebranded as DomGaz stations, shut down or sold off. Looking ahead, the company saw significant upside potential to the expansion of its services offerings outside of gasoline; its goal was eventually to have a greater percentage of revenues derived from the sale of ancillary goods and services.

The company had steadily increased the average volume of product sold at each service station: daily volume per station reached nearly eight tons2 in 2005, the highest volume ever achieved by the company. For the company’s DomGaz-branded stations, the daily volume per station was nearly 10 tons, also a new high. Domestogaz’s daily volume figures were thought to be high in comparison to its competitors.

Finance and Governance Structure

To date, Domestogaz had relied mostly on debt capital to finance the growth of its retail network and the upgrading of its older stations. Most of its existing bank loans relied on credit agreements with banks based in Ukraine, which had access to lower cost sources of foreign capital, some of which were subsidiaries of major multinational banks. In 2005, approximately 78 per cent of the company’s debt was denominated in U.S. dollars. Interest rates on secured bank loans in U.S. dollars range from London Interbank Offered Rate (LIBOR) + 5.25 per cent to LIBOR + 8.75 per cent.3 Interest rates on secured bank loans in Ukrainian hryvnia ranged from 11 per cent to 17 per cent. In recent years, the company’s debt had shifted toward longer terms instruments: in 2005, 77 per cent of company debt had a repayment period between three and seven years and only four per cent was due in less than one year.

In May 2004, Domestogaz had adopted a corporate governance code based on Ukrainian legislation as well as “best practice” international corporate governance standards. The code committed the company to honor the rights and legal interests of shareholders, employees, business partners and other stakeholders. It also pledged openness and transparency in terms of financial information; to that end, the company had engaged the international accounting firm Ernst and Young to independently audit its financial statements (which were otherwise prepared in accordance with the Ukrainian financial reporting standards). In 2005, Ernst and Young had expressed the opinion that Domestogaz’s statements “present fairly, in all material respects, the financial position of [the company] and its subsidiaries . . . in accordance with International Financial Reporting Standards.”

2 For conversion purposes, one ton of crude oil was equal to approximately 308 gallons. 3 The three-month LIBOR was around 4.7 per cent and the one-year LIBOR was around 4.9 per cent.

Page 6 9B07N008

Future Plans

Looking ahead, Domestogaz management had developed a set of ambitious expansion plans, based on the company’s share of the Ukrainian domestic retail light oil products market increasing from its current 5.5 per cent to between eight per cent and 11 per cent. This strategy would involve capital expenditures totaling more than US$100 million between 2006 and 2009. The main thrust of the company’s strategy was to expand its retail network of DomGaz-branded stations into the Central and Eastern regions of Ukraine. (Exhibit 10 provides a list of proposed expansion plans.)

To fund its expansion, Domestogaz planned to continue using a combination of debt capital from existing sources and bond issues in the open capital market. However, the company also realized that its expansion plans were likely to require additional equity capital, and management was now considering various equity expansion options.

VALUATION

Within a short period of time, Wong was able to gather some information related to Domestogaz, which would assist in his assessment of the intrinsic value of shares of the firm. He hoped to take two approaches. The first was to identify any comparable firms and determine whether any current trading multiples might assist in his assessment. The second was to develop a discounted cash flow (DCF) analysis.

Wong had limited success gathering information related to comparable firms. Of the direct competitors in Ukraine’s retail petroleum industry (see Exhibit 7), he was able to obtain information on only two publicly traded firms: Lukoil and TNK-BP. (The information is presented in Exhibit 11.) Wong was unsure how to utilize this information, if at all.

In terms of the DCF approach, Wong realized that projecting revenues for the next 10 years (and beyond) would be the crucial starting point. There were many factors to consider, including the source of revenue (gas sales versus ancillary goods and services, which were currently estimated to be around six per cent to seven per cent of total sales), the types of gas stations, the price of gas, the volume of gas sales and exchange rates. He felt a reasonable estimate of net sales for 2006 would be approximately US$400 million, but he knew he would need to justify this number. Wong felt that annual growth in net sales until 2014 might be as high as 15 per cent but any growth beyond 2014 was expected to be quite modest. He estimated earnings before interest and taxes (EBIT) margins of around 5.2 per cent. The tax rate was assumed to be 25 per cent. The 2006 depreciation was expected to be around $4 million, growing steadily to around $8.5 million by 2014. Beyond 2009, annual capital expenditures were assumed to be around US$5 million. He assumed the annual change in working capital would be around five per cent of changes in net sales.

Wong’s final input to the DCF analysis was to estimate the appropriate cost of capital. With existing data he was able to estimate debt and equity weights as well as the cost of debt, but estimating the cost of equity was more of a challenge. He was able to obtain a Ukrainian research report (from the summer of 2005) that assumed a beta of 1.0 and an equity market premium of 7.5 per cent, which he presumed reflected a Ukrainian country risk premium above what one might expect in a U.S. context (i.e. probably in the five per cent range). He wanted to reflect on the appropriateness of these assumptions.

Page 7 9B07N008

The value of the Fund (and thus the returns to the unit holders) would be directly related to the performance of the companies the Fund invested in, so Wong knew he needed to perform a careful analysis of the situation.

Page 8 9B07N008

Exhibit 1

DOMESTOGAZ, CONSOLIDATED INCOME STATEMENT (as of December 31, 2005) (in thousands of Ukrainian hryvnia)

2005 2004 Revenues 1,944,616 1,283,605 Cost of Sales (1,830,841) (1,222,630) Gross profit 113,775 60,975

SG&A (45,848) (30,979) Other operating income (expenses) (5,060) 357 Profit from operations 62,867 30,353

Income from associates 1,507 3,307 Net financing loss (14,140) (5,708) Profit before income tax 50,234 27,952

Income tax (9,745) (5,704) Net profit 40,489 22,248

Attributable to: Equity holders of the parent 40,423 22,222 Minority interests 66 26

Source: Domestogaz Annual Report 2005.

Page 9 9B07N008

Exhibit 2

DOMESTOGAZ, CONSOLIDATED BALANCE SHEET (As of December 31, 2005) (in thousands of Ukrainian hryvnia)

ASSETS 2005 2004 Non-current assets Property, plant and equipment 405,818 239,895 Intangible assets 8,123 7,777 Investments 2,264 41,986 Deferred tax assets 10,330 7,085 Other non-current assets 284 125 426,819 296,868 Current assets Investments held for sale 33,430 – Inventories 72,042 30,210 Prepaid income tax – 1,107 Trade and other receivables 239,619 89,929 Prepayments & other current assets 38,868 44,570 Cash & cash equivalents 16,342 13,348 400,301 179,164 Total assets 827,120 476,032

LIABILITIES & SHAREHOLDERS' EQUITY Shareholders' equity Share capital 160,000 130,000 Additional paid-in capital 9,100 20,720 Land revaluation reserve 58,352 8,321 Retained earnings 85,338 44,371 312,790 203,412 Minority interests 560 494 Total shareholders equity 313,350 203,906

Non-current liabilities Loans and borrowings 155,657 125,327 Deferred tax liabilities 26,782 9,608 182,439 134,935 Current liabilities Loans and borrowings 176,434 20,049 Income tax payable 577 – Trade and other payables 154,161 113,092 Other current liabilities 159 4,050 331,331 137,191 Total liabilities & shareholders' equity 827,120 476,032

Source: Domestogaz Annual Report 2005.

Page 10 9B07N008

Exhibit 3

CONSUMPTION OF OIL AND NATURAL GAS IN UKRAINE, 1985–2004

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005. Note: mn tons refers to millions of tons oil equivalent; bcm refers to billions of cubic meters; lhs refers to left-hand side axis.

Page 11 9B07N008

Exhibit 4

MOTOR VEHICLE, GROSS DOMESTIC PRODUCT AND POPULATION DATA FOR SELECT EUROPEAN COUNTRIES

Country Motor Vehicles GDP Population (in millions of units) (in US$ billions) (in millions) Austria 4.335 253.126 8.09 Belgium 5.330 301.896 10.38 Czech Republic 5.012 89.715 10.20 Denmark 2.301 211.888 5.39 0.614 9.082 1.35 Finland 2.506 161.876 5.21 France 35.144 1,757.613 59.76 Germany 48.225 2,403.160 82.54 Great Britain 31.971 1,794.878 59.33 Greece 4.765 172.203 11.03 Ireland 1.681 153.719 3.99 Italia 37.682 1,468.314 57.65 0.765 11.073 2.32 Lithuania N/A 18.215 3.45 Netherlands 7.894 511.502 16.22 Poland 15.899 209.563 38.20 Portugal 5.140 147.899 10.44 Romania 3.700 56.951 21.74 Russia 24.700 432.856 143.43 Spain 23.048 838.652 41.10 Sweden 4.466 301.606 8.96 Turkey 7.720 297.130 67.80 Ukraine 6.989 65.041 47.30

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Exhibit 5

PRICE OF GASOLINE IN SELECT COUNTRIES (IN US$ PER GALLON)

Norway 6.66 Holland 6.55 Great Britain 6.17 Germany 5.98 Italy 5.94 France 5.68 Brazil 3.35 India 3.29 Mexico 3.21 South Africa 3.13 Ukraine 2.47 USA 2.26 Russia 2.05 China 1.78 Nigeria 1.48 Iran 0.47

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Page 12 9B07N008

Exhibit 6

KILOMETERS OF HARD-DENSITY ROAD PER 100 SQUARE KILOMETERS

Lithuania 88.3 Poland 80.0 Germany 64.8 Romania 33.1 Latvia 31.7 Ukraine 27.3 Turkey 8.1 Russia 4.4

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Exhibit 7

MARKET SHARE OF COMPETITORS IN UKRAINE’S RETAIL PETROLEUM INDUSTRY, 2004

Marketshare Volume Number Owns Ownership Regional Emphasis (tons) of Refinery Stations Assets Owned Ukranafta 14.7% 985,683 491 Y Ukraine1 Alpha-nafta 8.2% 547,464 283 Y Ukraine Lukoil 6.2% 413,472 177 Y Russia Kyiv, Odessa, Crimea Avias-Sentosa 5.8% 386,900 200 Y Ukraine Domestogaz 5.5% 370,000 160 N Ukraine West Continium 4.6% 310,250 170 Y Ukraine Ukrtatnafta 4.4% 296,380 140 Y Ukraine Alyans 3.8% 255,500 140 Y Russia -Ekoil 3.7% 246,375 125 Y Ukraine Hefest 2.0% 132,860 65 N Ukraine East TNK-BP 1.8% 120,998 512 Y Russia/GB UTN-East 1.8% 120,450 60 N Ukraine East Other 37.5% 2,513,670 3938 Total 100.0% 6,700,000 6,000

1 Ukrnafta was 51 per cent owned by the Ukrainian government. 2 TNK-BP also supplies oil products to a network of more than 1,200 independently owned “jobbers,” including the Alpha- Nafta network.

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Page 13 9B07N008

Exhibit 8

DOMESTOGAZ’S STORAGE FACILITIES AND GASOLINE STATIONS IN UKRAINE

Notes Gasoline station “DomGaz” Gasoline station Gasoline station “DomGaz”, to be launched June 2005

Petroleum storage facility (owned)

Petroleum storage facility (rented)

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Exhibit 9

OIL PRODUCTS SUPPLIERS TO DOMESTOGAZ, BY VOLUME, 2005

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Page 14 9B07N008

Exhibit 10

DOMESTOGAZ’S CAPITAL EXPENDITURE PLANS, BY STATION AND EXPENDITURE, 2006–2009

Capital Expenditures Region / Motorway Number of Stations (US$ 000) Kyiv—Odesa (highway) 4 4,509.40 Kyiv—Kharkiv (highway) 2 1,909.40 Lviv 29 18,529.60 Kyiv—Chop 3 3,371.30 Kyiv 5 3,999.80 Rivne 6 2,971.90 Zakarpattya 10 5,758.00 Kharkiv 5 3,617.20 Kyiv region 5 3,668.40 Zaporizhya 5 3,904.70 Poltava 8 5,110.70 Zhytomyr 6 3,921.20 Volyn 11 7,815.80 Kirovograd 7 4,063.20 Chernivtsi 3 1,950.00 Chernihiv 5 3,174.50 Khmelnitsky 14 7,720.80 Cherkasy 14 8,870.50 Ivano-Frankivsk 9 4,508.40 Vinnytsya 7 3,591.00 Ternopil 13 5,223.30 Total 171 108,189.10

Source: Domestogaz Domestic Bond Issue Investment Memorandum, June 30, 2005.

Exhibit 10

COMPARABLE FIRM KEY FINANCIAL INFORMATION AS OF DECEMBER 31, 2005

Financial Indicator Lukoil TNK-BP Revenue (US$ millions) 56,215 30,106 EBITDA (US$ millions) 10,703 7,570 Net Income (US$ millions) 6,443 4,002 Price/Earnings 5.3x 7.9x EV/EBITDA 3.5x 5.4x Price/Book Value of Equity 1.9x 3.3x Market Capital (US$ millions) 66,245 40,474 Return on equity (%) 28.3 69.3 Return on Assets (%) 21.1 37.5 EBIT margin (%) 16.5 21.4

Source: Deutsch UFG research reports for Lukoil andTNK-BP.