ANNUAL REPORT TNK-BP HOLDING TNK-BP Holding // ANNUAL REPORT 2008 // contents

Message from the President and CEO 2-3 1 The TNK-BP HOLDING Group Key Performance Indicators 4-5 2 Key Events in 2008 6-7 3 Profile of the TNK-BP HOLDING Group 8-11 4 sTRATEgic Priorities 12-13 5 HEAlth, safety and environment 14-17 2008 Operating Results 6 2008 Economic Overview 18-33 operating Highlights Exploration and Production oilfield Services gas Business downstream 7 Personnel Development 34-35 8 social Investments 36-37 9 Risk Management and Internal Control 38-39 10 iNformation Policy 40-41 CORPORATE GOVERNANCE IN TNK-BP HOLDING 11 Principles of Corporate Governance 42-61 Board of Directors Managing Company – OJSC «TNK-BP Management» Corporate Secretary shareholders Equity financial Statements under Russian Accounting Standards dividends History information on Related Party Transactions

CONSOLIDATED FINANCIAL results 12 Consolidated Financial Statements with Report of Independent Auditors 62-95 Reference Information 96

This Annual Report contains information on OJSC TNK-BP Holding and its subsidiary/affiliate companies jointly referred to as «the Group» or «the TNK-BP Holding Group» or «TNK-BP Holding and it’s subsidiaries» in this Annual Report. Some sections of this Annual Report contain information on OJSC TNK-BP Holding as a single legal entity which is referred to as or «TNK-BP Holding» or «the Company».

The Annual Report of the OJSC TNK-BP Holding was preliminarily approved by the Board of Directors of the OJSC TNK-BP Holding (Minutes No.12 (150), dated 29 Мау, 2009). TNK-BP Holding // Message from the President and CEO TNK-BP Holding // ANNUAL REPORT 2008

was an extraordinary as compared to 2005 thanks to pipeline and upgraded the level of services offered at 2008 year for TNK-BP replacement and inhibition. the company’s retail network. Holding. The company delivered its best results ever since the start In 2008, TNK-BP invested in mature fields As a responsible business, we continued of operations. which remain the major source of our to work for the benefit of our shareholders hydrocarbon production and reserves and other stakeholders in the Russian We increased oil and gas production by replacement. The company also proceeded Federation. TNK-BP Holding paid 700 bln 2.6%, put on stream major new projects in with the development of priority greenfields RUR. in taxes, duties and excises to the state West and East Siberia, replaced 146% of our that will balance off the natural decline of budget. All the shareholders received an production with new reserves and improved the mature asset base and help to maintain interim dividend based on the distribution of the rate of associated gas utilization to production levels. 100% of the net income for the first half of benefit the environment in the regions of our 2008 calculated according to the Russian activities. Despite a worsening economic environment, accounting standards. We honoured all TNK-BP Holding was on schedule with our payment obligations to employees and These good results were achieved against greenfield projects, opening up new oil remain committed to do so in the future. the backdrop of an economic and financial provinces in Russia. In the middle of October crisis which the world entered in the second we launched commercial production at the At the end of last year the shareholders of half of 2008. The oil price dropped by more Verkhnechonskoye oil field in East Siberia. TNK-BP Holding approved the new Charter than 70% from July to December last year Preparation work was completed at the and voted for the new composition of the while the prices for goods and services in Uvat project in the south of the Tyumen Board of Directors. A reviewed system the oil industry and main taxation parameters region which allowed to start commercial of corporate governance reflects the took longer to adjust to the new economic production in the middle of February 2009. maturity of our company, gives it a new environment. The Kamennoye oil field in West Siberia degree of independence and installs safety ramped up production by almost 45% and is mechanisms to avoid deadlocked situations. The company was not distracted by the positioned for future growth. market volatility in the fourth quarter of last Testing times lie ahead of us in 2009. We year and delivered its targets on time and The sustainability of an oil company is must remember that oil business has a long within budget. achieved by its ability to consistently renew time horizon and we should not be deterred its reserve base. In 2008, TNK-BP Holding by current volatilities. In 2008, we continued to work towards had 10,252 billion barrels of oil equivalent of the strategic objective to operate without Total Proved Reserves applying the PRMS This year, the company will concentrate accidents or other health hazards to our (formerly SPE) criteria. This is the result on maintaining the necessary balance of employees. The company approved the of high professional expertise and skillful investing into immediate projects of today «Golden rules of safety in TNK-BP» for technology application of our team. and allocating funds for the projects which employees and contractors. We are proud will ensure our future growth. We will stay of the fact that lost time injury frequency and Accumulated experience helped the focused and committed to preserve our Dear shareholder, the rate of road accidents went down by company to identify technologies most competitive strength and fulfill obligations to 32% and 50% correspondingly as compared efficient for our diverse asset portfolio, our employees and shareholders. to the previous year. The company including 3D seismic, drilling, sidetracking, remediated about 500 hectares of legacy hydro fracturing and pump optimisation. pollution, built a unique system of floating booms to prevent damage to the Volga river We succeeded in finding new reserves both Tim Summers and achieved a 65% reduction in oil spills at our mature assets and new acreage with the exploration success rate exceeding 70%. Chairman of the Management Board of TNK-BP Management, The company pursued a programme of the managing company licence renewal, and in 2006-2008 extended of TNK-BP Holding 20 key licences for 25 years. We effectively decreased the idle well stock to 30% at the end of last year – above the official requirements.

TNK-BP Holding improved its operations across the whole value chain – from the well to the end consumer. We continued to modernize our refining portfolio to produce fuel to stringent European quality standards

2 3 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 1. The TNK-BP HOLDING Group Key Performance Indicators

The TNK-BP holding 1 Group Key Performance Indicators

0.20

Liquids production, 0.16 million tons 0.15 0.14 days Away From Work Cases Frequency 74 70.4 70.4 80 0.09 per 200,000 man-hours 0.10 60

40 0.05

20

0 2006 2007 2008 0

2006 2007 2008 Proved reserves 50 45,128 replacement rate, %

40 34,995 32,114 revenue, us gaaP,  297 $ million 300 30

179 200 156 146 20 129 100 82 10

0 0 2006 2007 2008

2006 2007 2008

by PRMS by SEC-LOF 4 3,724

Pipelines replaced, km

2006 816 3 3,266 2,234

2 capital expenditure, US GAAP, $ million 2007 858

1

2008 627 0 2006 2007 2008

0 200 400 600 800

4 5 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 2. Key Events in 2008

2009 Events September November Key Events 21.01.2009 03.09.2008 12.11.2008 New Charter of TNK-BP Holding, Oil absorption unit enabling extraction of The Group’s oilfield service companies approved by the Extraordinary General in 2008 condensate from associated petroleum were awarded ISO 9001, ISO 14001, Shareholders' Meeting on 22 December 2 gas launched at the Nizhnevartovsk and OHSAS18001 international 2008, was registered. Gas Processing Plant. certificates testifying that the 22.09.2008 Group’s oil field services comply with 29.01.2009 The TNK-BP Holding Group international standards with regard to The Managment Board of OJSC TNK- commenced production of TS-1 jet fuel the quality of operations, protection of BP Managment has been elected with with sulfur content of 30 ppm or less at environment, and occupational safety. members as follows: T.D.Summers CJSC Ryazan Oil Refining Company. The certificates were awarded on the (Chairman of the Managment Board), January April July 30.09.2008 basis of audits of the Group’s service G.B. Khan, V.F. Vekselberg, K.H. Sliger, TNK-BP Holding held an Extraordinary assets in key production centers in J.W. Muir. 14.01.2008 02.04.2008 17.07.2008 General Shareholders’ Meeting where Nizhnevartovsk (West Siberia) and TNK-BP Holding was awarded the first Results of the oil and gas reserves TNK-BP Holding Group, Transneft the shareholders approved dividends Buzuluk (Orenburg Region), carried 16.02.2009 place in the All-Russian Rating «Russian audit performed by the independent and Rosneft signed an agreement on of 47.9 billion rubles (RUR 2.94 per one out by Moody International, one of the The Group announced launch of Company of High Social Performance» firm of DeGolyer and MacNaughton oil swaps through 2015. Under this common and preference share) for the world’s leading certification companies. commercial oil production at Urnenskoe in the «Conservation of Resources and were released. According to the audit agreement, the Group will deliver up first 6 months of 2008. 19.11.2008 and Ust-Tegusskoe fields in the Uvat the Environment» nomination. results, the Group’s Total Proved to 13 million tons of Samotlor oil to the Popup safety boom system launched district of Tyumen Region. West-bound reserves amounted to 8.225 billion of oil East Siberia – Pacific Ocean pipeline at the Uvek oil depot. Popup booms oil transportation from the fields to the equivalent on a SEC life-of-field (LOF) per year. are designed to prevent damage to the point of transfer to Transneft’s pipeline basis as of 31 December 2007. The October environment in case of an emergency system is enabled by a 264-km pipeline February Total Proved reserves replacement ratio occurring in the vicinity of the Volgograd and a central oil gathering facility, built constituted 179% in 2007. 07.10.2008 Reservoir in the course of tanker filling by the Group. 21.02.2008 August CJSC Ryazan Oil Refining Company operations. A three-year strategic partnership commenced production of Euro-5 27.02.2009 agreement was signed between 01.08.2008 diesel fuel with sulfur content of 10 ppm Results of the oil and gas reserves audit TNK-BP Holding Group and the Omsk May Cooperation agreement signed with the or less. as of the end of 2008, conducted by Region Government. The parties Ryazan Region Government. The aim 15.10.2008 December the independent firm of DeGolyer and confirmed mutual interest towards the 21.05.2008 of this agreement is to assure active Commercial production launched at MacNaughton, were released. The development of subsoil geological A Memorandum launching a Master’s cooperation between the company the Verkhnechonskoe oil field; first 01.12.2008 Group’s reserves amounted to 8.112 research, field exploration and degree program signed within the and the Ryazan Region Government Verkhnechonsk oil was delivered to the Tim Summers was appointed Chief billion of oil equivalent as of 31 December hydrocarbons production. framework of cooperation with the designed to support the region’s custody transfer point for subsequent Executive Officer and Chairman of 2008 on a SEC life-of-field basis, and to Tyumen State Oil and Gas University sustainable social and economic transportation via the East Siberia – the Management Board of TNK-BP 10.252 billion of oil equivalent on a PRMS and the Royal Holloway, University of development, meet the region’s Pacific Ocean pipeline. Management. In this role, Tim Summers (former SPE) basis. London (RHUL). demand for petroleum products, and 24.10.2008 replaced Robert Dudley who had March implement various targeted social and Opening of the Center for training served as the Group’s CEO since 2003. 20.03.2009 economic programs. and development of professionals 22.12.2008 I.V. Cheremikin elected Chairman of 05.03.2008 in geology and oil and gas. With the TNK-BP Holding held an Extraordinary TNK-BP Holding Board of Directors. The Group and the Krasnoyarsk June TNK-BP Holding Group’s support, the General Shareholders’ Meeting. The Territory Administration signed an Royal Holloway, University of London shareholders approved the new Charter 14.04.2009 agreement on social and economic 26.06.2008 launched a Master’s degree program in of TNK-BP Holding and appointed the Jonathan Muir was appointed TNK-BP cooperation which provides for TNK-BP Holding held an Annual oil and gas geosciences at the Center. new Board of Directors. Chief Financial Officer. Didier Baudrand effective investment in the area of General Shareholders’ Meeting to 27.10.2008 appointed Executive Vice-President, subsoil use and comprehensive and approve the Company’s 2007 annual The Group won the Russian Corporate Downstream, and Executive Director of environmentally safe development of report and financial statements. The Donor 2008 Award in the «Support for TNK-BP. the region’s mineral base. shareholders approved dividend payout Learning and Discovering Potential of of 27.9 billion rubles (RUR 1.71 per one Young People» nomination. common and preference share).

6 7 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 3. Profile of the TNK-BP Holding group

Profile of the TNK-BP TNK-BP Holding Group is a leading Russian oil and gas company and is among the top ten privately-owned oil companies in the world in terms 3 Holding Group of crude oil production.

TNK-BP Holding Group was formed in 2004- Since 2003, the entities, which were later 2005 through a process of restructuring and merged into the Group, have commissioned accession of the heritage companies TNK, independent reserves audits from DeGolyer Sidanco, and ONACO, and their respective and MacNaughton. The recent audit showed subsidiaries. The group’s main assets are that as of 31 December 2008, total proved shown on the map on pages 10 and 11. reserves of the Group were 8.1 billion barrels of oil equivalent on a SEC (U.S. Securities TNK-BP Holding Group has a diversified and Exchange Commission) life-of-field basis upstream and downstream portfolio in and 10.3 billon barrels of oil equivalent on Russia. The Group’s upstream assets are a PRMS (formerly known as SPE, i.e. U.S. located in Western and Eastern Siberia and Society of Petroleum Engineers) basis. Total the Volga-Urals Region. In 2008, total liquids proved reserves replacement ratio in 2008 production was 70.4 million tons, while total was 82% on a SEC life-of-field basis. On a gas sales amounted to 11.3 billion cubic PRMS basis, TNK-BP’s total proved reserves meters. replacement ratio was 146%.

The Group owns four refineries with total refined volumes of 23.4 million tons in 2008 year, located in Ryazan (Central Federal District), Saratov (Volga Federal District), Nizhnevartovsk and Krasnoleninsk (Urals Federal District).

The Group operates a retail network of over 1,000 retail stations in Russia and is one of the key suppliers to the Moscow retail market.

8 9 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 3. Profile of the TNK-BP Holding group

Map of Core Assets of the TNK-BP Holding Group

Petrozavodsk St. Petersburg

Kaluga Moscow Tula Ryazan Krasnoleninsk Refinery Novy Urengoy Nizhny Novgorod Kursk ROSPAN RUSSKOYE Ryazan REFINERY

SAMOTLOR Nyagan Saratov Kamennoye Rostov-on-Don Ekaterinburg VerkhnechonskoYe Krasnodar NIZHNEVARTOVSK REFINERY

Saratov REFINERY UVAT Atrakhan orenburg Omsk Tomsk Krasnoyarsk

Novosibirsk

Greenfield Central Federal District Norhwestern Federal District Brownfield southern Federal District gas projects volga Federal District Urals Federal District refinery assets siberian Federal District far Eastern Federal District

10 11 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 4 Strategic Priorities

Strategic 4 Priorities Portfolio Management The TNK-BP Holding Group’s strategic goal is to become a world- Our portfolio is managed to facilitate class Russian oil and gas company. The key objective of the Group is accomplishment of our strategic goals and maximize the Group’s value. The Group may strengthening its leading position in the upstream and downstream acquire new assets to improve its value and segments of the Russian oil and gas industry. may divest non-core and tail assets.

Corporate Governance The Group maintains and improves its The core component of our We pursue the strategy of corporate governance system, which is strategy is to assure sustainable sustainable development along designed to protect shareholder interests, development through long- several priority business areas: enhance transparency and facilitate efficient term resource renewal and and timely management decisions through implementation of efficient world- Upstream streamlining of organizational structure, class technologies and high The Group seeks sustainable growth through improved financial reporting, and efficient corporate governance standards. maintaining and improving brownfield internal control. Our strategy is based on the development, commissioning new license Group’s unique competence in areas, and achieving strong exploration HSE the development and deployment results. The key target is to achieve a The Group continuously improves its of technology, which enables reserves replacement ratio of at least environmental and industrial safety standards production, refining, and 100% of annual production in barrels of oil designed to achieve greater transparency of marketing of competitive products equivalent to sustain the Group’s resource operations and environmental projects via and services both domestically and base as a long-term foundation for future the development and implementation of an internationally. operations. HSE reporting and internal control system.

Downstream Finance The Group’s key strategic objective in The Group pursues a balanced financial downstream is to maximize the value of strategy aimed at achieving business oil and gas produced and improve the growth objectives while maintaining a strong profitability of oil refining. The Group plans balance sheet, ensuring sufficient liquidity, to accomplish these tasks by upgrading oil and enhancing financial flexibility. refining facilities, continued development of new export sales channels, and through targeted expansion of the Group’s retail network.

Gas The Group seeks to develop its gas business and transform itself from an oil company into a major oil and gas group. To this end we are actively developing our significant equity gas assets, increasing gas production volumes, which are supplied to the domestic market in cooperation with other companies, and enhancing associated gas value through implementation of a gas utilization program.

12 13 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 5. Health, safety and Environment

Health, Safety Industrial safety, human health and environmental protection are in the focus of management processes at all TNK-BP Holding Group facilities. 5 and Environment

As a socially and environmentally responsible In 2008, TNK-BP Holding adopted the company, the TNK-BP Holding Group Golden Safety Rules. The Golden Rules strictly abides by the legal requirements should be observed by both Group and in this area and continuously improves its contractor personnel. internal standards driven by the world’s best practices. To prevent failures and accidents The Company pays much attention to and to minimize environmental impact, the the improvement of overall contractor TNK-BP Holding Group has implemented an management and transparency of integrated Health, Safety and Environment contractor reporting. Therefore, a Contractor (HSE) Management System. HSE Performance Scorecard has been developed and implemented. The Scorecard allows us to select contractors that meet our Occupational and requirements in terms of transportation and Industrial Safety occupational safety.

An integrated occupational and industrial Particular focus is placed on transportation safety program has been introduced across safety, which has been identified as one of all TNK-BP Holding Group subsidiaries and the high risk areas. A number of safe driving at contractor entities. This program includes initiatives have been introduced, including training for every member of the staff, vehicle passive safety standards and uniform provision of appropriate safety equipment criteria for qualification-based selection of for all staff, introduction of monitoring and transportation service providers. As a result, measurement systems, and leadership the traffic accident rate decreased by 50% in commitment to safe operations. 2008 compared to previous year.

To improve managerial and technical staff Our commitment to high safety standards competence in occupational and industrial enabled us to significantly improve safety matters, the Group has implemented our occupational and industrial safety the OLYMP training and knowledge control performance indicators in 2008. The Days system, which enables on-the job employee Away From Work Cases rate decreased by training and testing in statutory requirements 32% in 2008 compared to 2007. The number as well as corporate standards. of high potential incidents decreased by 29% in 2008.

14 15 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 5. Health, safety and Environment

Pipeline Integrity Management Health Care Environmental Protection The Pipeline Integrity Management program includes replacement of worn-out pipelines An enduring health care program has Environmentally, the TNK-BP Holding Group and anti-corrosion treatment. Over the been implemented at all TNK-BP Holding is focused on three key objectives: cleaning 2004-2008 period, $1 billion was allocated Group facilities. To date more than 40 of legacy pollution, utilization of associated on this program. In 2008, 627 km of worn- medical stations at industrial sites have gas, and pipeline integrity management. out pipelines were replaced and 9,080 km been re-equipped, more than 30 modern of pipelines were treated with corrosion ambulances procured, and around 4,000 Land Remediation inhibitors. It resulted in a 26% reduction in first-aid volunteers have been trained. The land remediation program has been the total number of spills in 2008 compared in place since 2005. As a result, more to 2007. The Company’s upstream assets have than 1,700 hectares of land have been launched a cardiovascular disease cleaned up and handed over to government Utilization of Associated Gas prevention program, which is designed authorities. Increasing associated gas utilization is an to mitigate risks of lethal cardiovascular important strategic area for the Group. conditions at work. Our efforts in the area of Our commitment to the quality and It allows to boost Russia’s gas supply to occupational safety management in the oil effectiveness of environment protection the domestic and international markets, and gas sector have won the Company the efforts caused us to revise our approach to reduce atmospheric emissions, and ensures Best Safe Workplace Innovation Award in the land remediation in 2008 and introduce the compliance with the Group’s license 2008 Health and Safety contest, held under following guiding principles: obligations. The Group’s production of the auspices of the Russian Ministry of Public associated petroleum gas (APG) grew by Health and Social Development. focus on effectiveness of action taken; 14.7% in 2008, reaching 9.728 billion cubic meters. In 2008, APG utilization rate across HSE Reporting use of natural self-repair mechanisms; TNK-BP Holding subsidiaries reached 80%. The TNK-BP Holding Group’s HSE reporting In the medium-term, the Company plans to systems continue to move towards a well-balanced use of capabilities offered continue improving the APG utilization rate. compliance with international standards. by the environmental services market. The Group is the only Russian oil and gas company that actively participates in the 2008 environmental activities resulted Oil and Gas Producers Association (OGP), in remediation of 497 hectares of land, and prepares reports according to OGP successful decommissioning of defunct standards. facilities in Ryazan and Saratov, completion of a pilot project to decommission retail sites and oil depots in the Kaluga Region, with 17 oil depots decommissioned and six retail sites dismantled.

In 2008, we completed a unique project at the Uvek oil depot, with construction of popup floating booms system designed to prevent environmental damage in case of a spillage adjacent to the Volgograd reservoir in the course of tanker filling operations.

16 17 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

The favorable price environment in the first The above-mentioned actions will generally half of the reporting year had a positive impact our financial results starting from 2008 impact on TNK-BP Holding Group financials 2009. in 2008 in general, though this was partly offset by higher taxes and costs. Despite a significant growth of capital Operating Results investment, Russian oil production volumes 6 The main taxation increases were seen decreased to 488.5 million tons in 2008 (by in export duty and Unified Production Tax 0.8% as compared to 2007 level). Production (UPT), which are linked to the Urals oil volumes in West Siberia continued to fall price. As a result, a substantial share of the for a second consecutive year despite increase in revenue generated by growing significant growth in new drilling. This decline oil prices was paid in taxes. Lifting and other reflected an increase in field depletion, costs also increased sharply, outpacing growth of base field watercut, and a decline the general rate of inflation in the economy, in average flow rate of new wells. which was 13.3% in 2008 according to the Ministry of Economic Development and Total volumes of oil refining in Russia Trade data. increased in 2008 by 3% to 236 million tons. This trend is explained by higher profitability TNK-BP Holding Group’s profitability was of product sales compared to crude exports, In 2008, the average Brent crude oil price impacted by the increases of pipeline tariffs, reflecting a more liberal taxation of exported 2008 Economic Overview increased by 34.4% over the previous year operating and capital expenses inflation and petroleum products compared to crude to $97/barrel, while the Urals (Med/NWE) ruble appreciation against US dollar in the exports. Global oil price is the most market increased by 36.8% to $95/barrel. first half of 2008. significant factor affecting According to the Central Dispatch Division perfoRmance of the TNK-BP Holding With the onset of the worldwide financial Oil production profitability in Russia turned data, in 2008 Russia’s gas production grew Group. crisis, oil price started to decline from July negative in the fourth quarter of 2008 due by 1.4% compared to the previous year 2008. Expectations of weak global demand to an unbalanced taxation system, poorly due to high demand both domestically and for energy, brought about by the global adapted to sharp price fluctuations on the in Europe through mid-2008. Domestic economic recession, drove Brent price down global oil market. However, several actions gas prices continue to rise in line with the to below $40/barrel at the end of 2008. were taken by the Russian Government to schedule set by the Russian government, support the oil industry: according to which target profitability for gas sales to industrial enterprises should The monitoring period and effective term of reach export profitability by 2011. This oil and oil products export duty rates were creates favorable conditions for the further modified. development of TNK-BP Holding Group’s gas business. Starting with 2009, the cutoff price is increased from $9/barrel to $15/barrel in UPT liability calculations as they apply to oil. A zero rate is applied to extremely viscous oil production and oil produced in «new provinces». A reduction factor reflecting fields’ depletion rate was introduced. 150 Profit tax rate was reduced from 24% to 20%. Brent and Urals price 120 in 2007-2008 New accelerated tax depreciation method 90 reducing useful life of fixed assets used in oil production and increasing depreciation 60 premium to 30% was introduced.

Excise tax rates for 2009 were left at 2008 30 levels.

0 $ / BB L

I.07 III.07 V.07 VII.07 IX.07 XI.07 I.08 III.08 V.08 VII.08 IX.08 XI.08

dATED Brent DOMESTIC PRICE (excl. VAT) URALS CIF

Source: Platts, Kortes, Company estimates

18 19 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

We can accomplish this by applying Operating Highlights Exploration advanced technologies to increase and Production production, maximize recovery of proved units of measurement 2006 2007 2008 2008/2007, % reserves, and develop probable reserves. By Performance and Strategy implementing advanced techniques, such Oil field development and liquids production Overview as water flood management, optimization of Producing well stock wells 13,813 15,335 15,443 1 New oil wells commissioned wells 345 396 425 7 In 2008, the TNK-BP Holding Group’s oil, use of electric submersible pumps (ESP), Liquids production million tons 74.0 70.4 70.4 - condensate and natural gas liquids (NGL) reactivation of idle wells, well re-injection, Average daily oil wells flow rate tons/day 13.5 13.7 12.9 -6 production remained at the previous year’s hydraulic fracturing, sidetracking, and drilling Production costs $/boe 2.55 3.59 4.80 34 level and amounted to 70.4 million tons (or horizontal and multilateral wells, we increase Gas sales 1.5 million barrels per day). production potential at mature fields. To Natural gas sales mmcm 2,767 1,502 2,504 67 develop new fields and enhance recovery at Associated gas sales mmcm 8,099 7,432 8,840 19 In 2009, the TNK-BP Holding Group’s mature assets in the medium to longer term,

Proved reserves (based on SEC LOF methodology) production is expected to remain broadly flat the TNK-BP Holding Group plans to apply and may grow thereafter as new Greenfield internationally tested recovery techniques, Total hydrocarbons mmboe 7,810 8,225 8,112 -1 Reserve replacement ratio % 129 179 82 -54 projects come on stream. including those used by BP.

Geological exploration The TNK-BP Holding Group is focused Exploration Number of exploration and appraisal wells wells 27 45 41 -9 on cost-effective production growth at its The TNK-BP Holding Group’s 2008 Drilling success rate % 63 60 78 23 Exploration and appraisal program $ million 204 247 251 2 mature asset base located largely in Western exploration program involved drilling of 69 Siberia. At the same time, the Group plans wells, including those carried over from Oil refining to expand exploration and production to 2007. Over that period, 41 wells were tested Crude oil refining capacity million tons 22.4 23.2 23.6 2 new reservoirs in existing areas, as well as with a success rate of 78%. Crude oil and other feedstock refining volume million tons 22.5 22.4 23.4 5 Refining capacity utilization rate % 93.5 97.3 97.5 0.2 completely new fields that will ensure long- term growth in the future. Throughout 2008, the Company completed Sales volumes of crude oil and petroleum products 950 sq. km of 3D seismic survey and 4,955 Crude oil exports other than CIS million tons 34.5 34.4 26.6 -23 At present, the Group is developing more km of 2D seismic survey. The seismic survey Crude oil exports to CIS million tons 7.9 7.5 7.1 -5 Crude oil domestic sales million tons 8.8 4.9 7.5 54 than ten major new projects, many of program was only partially completed (78% Petroleum products exports other than CIS million tons 14.2 14.5 16.6 14 which are located in remote regions with and 67% of planned 3D and 2D scopes, Petroleum products exports to CIS million tons 0.4 0.4 0.7 54 limited or no infrastructure. This requires respectively), due to warm winter and low Petroleum products domestic sales million tons 12.6 12.0 12.3 3 significant investments and application of contractor efficiency. Retail network (own and jobber sites) sites 1,017 1,025 1,067 4 new technology. Three projects are at more advanced stages: the Uvat group of fields and the Kamennoye field in West Siberia, and the Verkhnechonsky project in East Siberia.

In addition, the Group has a number of license blocks that are currently being explored through 3D seismic, wildcat exploration wells, and other exploration activities. The TNK-BP Holding Group successfully competes for new licenses through auctions and acquisitions.

Overall, the TNK-BP Holding Group’s strategy is to grow production and profitability in the long term, whilst assuring a reserves replacement ratio of at least 100% of the annual production on an oil equivalent basis.

20 21 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

Licenses The TNK-BP Holding Group accomplishes OJSC Nizhnevartovsk Oil As of 31 December 2008, the TNK-BP its license obligations in exploration and Production Enterprise OJSC TNK-Nyagan OJSC Vareganneftegaz Holding Group held 195 licenses. Despite oil and gas production at each field in the fact that there are no key licenses accordance with annual programs, which Share of the Group’s total production 7% 9% 4% volume in 2008 expiring before 2013, the Group has a are subject to approval by the Ministry of proactive license renewal management Natural Resources. We also comply with Licenses Licenses for development of Licenses for development of Licenses for development of 11 fields in Western Siberia. 3 fields in Western Siberia. 5 fields in Western Siberia. program which is launched closer to the requirements set out in our exploration license expiration. This program includes licenses, assuring that fields are developed Field characteristics The fields were discovered in The fields were discovered The fields were discovered 1971-1997 and commissioned in in 1962 and commissioned in in 1971-1996 and commissioned an analysis of the terms and conditions of and operated in accordance with design and 1985-2004. 1980. in 1976-1996. the current licenses to confirm the Group’s process documentation approved by the Average reservoir depth: Average reservoir depth: Average reservoir depth: compliance. As part of this program, 25-year Subsoil Use Management Agency’s Central 2,700 meters. from 1,300 to 2,800 meters. from 849 to 2,900 meters. extensions were obtained in 2006-2008 for Development Commission. Field parameters in 2008 20 key licenses for the Group’s production in Average water cut 84% 85% 85% South Urals and West Siberia, including key In 2008, the Group continued with Oil production 4.6 million tons 5.8 million tons 3.1 million tons Samotlor licenses. license acquisitions aimed at reserves 94,000 bpd 121,000 bpd 63,000 bpd replacement. Six new exploration licenses Operating production wells 982 2,121 655 526 710 238 were acquired at mature fields and in new Operating injection wells undeveloped areas. At the same time, eight inefficient license areas were returned to the unlicensed subsoil pool of the Russian Federation. Reserves This represents a 82% SEC LOF proved The TNK-BP Holding Group uses the two reserves replacement ratio in 2008. This main international reserves classifications high reserves replacement ratio was for external reserve reporting and internal achieved through drilling, well workovers and reserve management: improved waterflood management. Optimal Fields operated by TNK-BP Holding waterflood system management at Ryabchik, Group’s upstream subsidiaries U.S. Securities and Exchange Commission a shallow accumulation at the Samotlor (SEC) standards; oil field, sidetracking in existing wells, and OJSC Samotlorneftegaz OJSC Orenburgneft OJSC TNK-Nizhnevartovsk new drilling at Samotlor were important Share of the Group’s 32% 23% 12% U.S. Society of Petroleum Engineers (SPE) elements of successful Total Proved reserves total production in 2008 standards (in 2007, SPE criteria were replacement effort. Licenses License to develop a significant Licenses to develop 100 fields in Licenses to develop six fields in amended and reintroduced as Petroleum part of the Samotlor field in West- the Southern Urals region Western Siberia, including the Resources Management System – PRMS). The impact of low oil prices in late 2008 on ern Siberia northern part of the Samotlor field reserves replacement results was moderate, Field characteristics Samotlor was discovered in 1964; The fields were discovered begin- The fields were discovered in Within the SEC framework, reserves are as reserves replacement ratios reflect production began in 1969. ning in 1937; operation started 1965-1984 and commissioned in estimated using two methodologies: actual reserves additions through wider use Average reservoir depth: in 1939. 1969-1986. from 1,700 to 2,800 meters. Average reservoir depth: Average reservoir depth: of new technologies, enhanced activity of 2,800 meters. from 2,200 to 2,700 meters. reserves are calculated to the license period operations and efficient investment. Field parameters in 2008 (life-of-license basis); In the reporting year, the TNK-BP Holding Average water cut 94% 70% 87% Oil production 22.2 million tons 15.6 million tons 8.3 million tons reserves are calculated to the entire Group’s proved reserves growth was 456,000 bpd 321,000 bpd 170,000 bpd economic life of the field (SEC LOF basis). primarily delivered through drilling in new Operating production wells 6,379 1,875 1,881 areas and expansion of brownfields. Operating injection wells 2,444 881 659 For the purposes of reserves management, New fields include Verkhnechonskoye the Group uses the SEC LOF approach. in East Siberia, the Uvat group of fields (Urnenskoye, Ust-Tegusskoye, Taltsiyskoye, Since 2003, annual audits of the Group’s Severo-Tamarginskoye, Protozanovskoye, proved, probable and possible reserves Kasukhinskoye, Zapadno-Epaskoye), and have been performed by the independent the Kamennoye field in West Siberia and firm of DeGolyer and MacNaughton. the Sorochinsk-Nikolskoye field (field outline According to the latest assessment, as of expansion) in the Orenburg Region, as 31 December 2008 the Group’s aggregate well as several other new projects. These proved reserves were 8.112 billion barrels projects will become important sources of of oil equivalent on an SEC LOF basis and proved reserves growth in the future. 10.252 billion barrels of oil equivalent on a PRMS (former SPE) basis.

22 23 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

Production Technologies Within the ESP MTBF improvement initiative, project in the Group’s history in the future. The TBH Group’s Upstream and Technology TNK-BP Holding continuously engages In full field development, production may Oilfield Services streams perform various activities aimed in joint technical projects with the Gubkin reach approximately 7 million tons per at increasing proved reserves to achieve Oil and Gas University, aimed to develop year by 2014. TNK-BP Holding owns over OFS’s strategic goal is to become a leader of production targets. In the next five years the alternative well operation techniques. 60% of OJSC «Vercknechonskneftegas», the Russian market in terms of industrial and Group plans to convert about 3 billion barrels which holds the license to operate the environmental safety, operating efficiency, (30-40%) of its probable reserves to the Reservoir management involves applying Verkhnechonskoe oil field. costs and service quality. proved reserves category. a number of techniques aimed at reservoir pressure maintenance and maximizing oil Uvat project is located in West Siberia, in When the OFS Business Stream was The Group’s management believes that its recovery, including water flood optimization, the southern part of Tyumen Region, with established in 2003, the Company owned mature fields still have a significant potential sidetracking, and horizontal drilling using estimated reserves exceeding 1 billion over 80 service companies, each with its to increase both production and reserves. a downhole drilling control system. Water barrels. At present, the Group is actively own quality level, management and control A key to realizing this potential is the flood optimization is carried out on a field- implementing an exploration program, system. Over time, the Company has stan- application of advanced technologies, which by-field basis. Its components include building regional infrastructure, appraising dardized entity management approaches are implemented by a dedicated Technology reconfiguration of water flood patterns, reservoirs and preparing them for and has reorganized the service business. business stream within the Group. The conversion of existing development wells to commercial development. By the date of this As a result, the OFS Stream headcount was Technology business stream focuses on injectors, and in-field drilling. Gas re-injection report, a trunk pipeline construction project reduced from 42,000 to 7,000 employees. 3D seismic and drilling, sidetracking and is one of the most effective techniques to has been completed, and commercial There are currently ten companies in our well work, including hydraulic fracturing, maintain reservoir pressure, which is used production of approximately 10,000 tons per OFS portfolio: two drilling, one sidetracking, optimization of ESPs use, and reservoir alongside water flooding. This provides for day launched at the Eastern development two in well workovers, one in waterproofing, management. utilization of associated gas and reduction hub, with more drilling projects underway. and four asset management companies. of associated gas flaring. Sidetracking is an The Group demonstrates consistently important way of improving reservoir access Kamennoye field is located in the Tyumen The OFS restructuring program, which high operational drilling volumes; at the by tapping into otherwise uneconomic Region in West Siberia. Oil reserves in continued in 2008, is aimed at the following same time, the Group’s portfolio of drilling hydrocarbon reserves and is the primary excess of 2.2 billion barrels were discovered strategic objectives: projects is becoming ever more diverse means of boosting mature field yields. some time ago, but were considered and complicated as our current fields are unrecoverable. Application of advanced Focus on core activities, such as drilling, located in increasingly remote regions with New Projects technologies, such as 3D seismic reservoir sidetracking, and workover services. harsh weather conditions. Well designs are Development of new fields is a key modeling, drilling of horizontal wells, injection becoming more complicated, too: wells strategic priority in the TNK-BP Holding of treated water, and other in-place oil Upgrade the drilling rig fleet to enable higher are deeper, with greater step-outs. Rig Group activities. At present, the Group recovery factor enhancement techniques efficiency of drilling. management efficiency is increasing, and has been implementing a number of new led to a re-assessment of the field potential. becomes more focused on shorter well field development projects in Western and Currently, drilling and production are under Oilfield services are mainly provided to the construction cycles and security. Eastern Siberia. The Group intends to ensure way in the least complex sections. The TNK-BP Holding Group entities. In 2008, long-term reserves replacement through Group plans to reach plateau production our Company embarked on a project which In 2008, we continued studying the continuously updated exploration plans. in 2012. At the same time, it is planned to implied expansion of this business stream opportunities for the application of the continue exploration and pilot production to through sourcing of third-party orders. In coil tubing drilling (CTD) technology in At present, over ten major projects are being expand development of the most complex 2008, 331 wells were drilled, including 25 sidetracking. In addition, to mitigate drilling implemented. The following three projects reserves – low-productive Vikulov, Jurassic wells for third parties, 110 sidetracking risks and reduce damage to reservoirs, CTD are at the top of this list. and pre-Jurassic deposits. operations were completed for the Group’s could be combined with underbalanced companies. In addition, 766 workovers drilling. Verkhnechonskoe field is a new project and over 10,000 current workovers were located in the Katagansky District of the performed. The success achieved in large step-out Irkutsk Region in East Siberia. The field is drilling in 2008 proved the expediency East Siberia’s largest oil field, with estimated OFS Innovations of using borehole deviation control systems probable and possible reserves of about OFS is a test pad for the majority of the application at Samotlor. 1.4 billion barrels of oil according to SPE Group’s innovative decisions regarding standards. Development of the field has organizational capacity development in the Drilling of the first multilateral wells showed been long hampered by the absence drilling and sidetracking areas. positive results at Samotlor. Work will of transportation infrastructure, active continue through a combination of highly development of which started some time Over 30% of the total rig fleet has been efficient drilling with a detailed geology ago with the Resolution of the Russian upgraded with new triplex pumps, top drive analysis, which will allow us to assure world- Government to undertake construction systems. drilling mud cleaning equipment, class production levels at multilateral wells. of the East Siberia – Pacific Ocean new wrenches, and drill pipes. pipeline (ESPO). During 2008, the Group 2008 was characterized by a significant actively invested in drilling, oil treatment OFS supports its own INFORM web portal, expansion of well work operations. Our and transportation infrastructure of the which provides specialists with direct access range of well work technologies include Verkhnechonskoye field. Coordinated efforts to the drilling and well workover database. hydraulic fracturing, submersible equipment of OJSC «Vercknechonskneftegas» staff, optimization, Mean Time Between Failure vendors and contractors made it possible (MTBF) improvements, bottom-hole to commence production on 15 October acidizing, and well recompletions. These 2008, as soon as the ESPO pipeline was supporting technologies enable us to completed. We plan to expand on this enhance production at our mature fields. successful launch of the first Greenfield

24 25 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

Also, the Stream has implemented world- Associated gas utilization is an important CJSC «Rospan International» Refining class programs and systems to boost element of the Group’s development TNK-BP Holding owns 100% of Rospan, The TNK-BP Holding Group’s refineries operating efficiency, such as RISE&ROST strategy, as it helps reduce hazardous which produces gas and gas condensate produce high quality petroleum products professional enhancement programs, latent emissions into the atmosphere and ensures in the Yamalo-Nenets Autonomous District. in volumes and at quality levels to match downtime management program, preventive compliance with license obligations. Rospan is developing the deep gas reserves domestic and international demand. The action management program, QHSE (quality, of the Novo-Urengoiskoe and Vostochno- strategic goal of the Group’s refining health, safety and environment) passport. 2008 was another successful year for Urengoiskoe gas condensate fields. business is to improve profitability and LLC «Yugragazpererabotka», a joint increase refining volumes. All Group’s OFS entities have been awarded venture set up by TNK-BP Holding (49%) Rospan is currently supplying the gas and international certificates ISO 9001, ISO 14001 and OJSC «SIBUR Holding» (51%) condensate it produces to the Russian The Group owns and operates four and OHSAS 18001. in 2006 to process associated gas at market. In 2008, gas production and sales refineries1 with total effective capacity the Nizhnevartovsk and Belozerny gas totalled 2.5 billion cubic meters, exceeding exceeding 23.4 million tons per year in 2008. Subsequent to 31 December 2008, the processing plants. «Yugragazpererabotka» 2007 production levels by 67%. In 2008, these refineries processed 23 million Group entered into negotiations with processes associated gas produced in tons of crude (at a capacity utilization ratio of regard to a potential sale of its oil field the Nizhnevartovsk Region by the TNK- Capital investment in Rospan during 2008 over 97.5%). services business. The Company believes BP Holding Group and other oil and gas totalled $51 million (compared to $77 million that availability of an independent oil field companies. in 2007). Expansion of refining capabilities, petroleum services market in Russia will lead to improve product quality improvement and facility the quality and improve the standards of In the reporting year, we continued the upgrades were the key development oil field services delivered to Russian oil expansion of LLC «Yugragazpererabotka» Downstream priorities for the TNK-BP Holding Group’s companies. capabilities to process and transport gas refining stream in 2008. produced at our oil fields; the project was TNK-BP Holding Group’s downstream launched in 2007 with a view to achieve business has three principal areas of activity: In its refining business, the Group aims Gas Business maximum efficiency of associated gas Refining, Sales, Trading and Logistics, to enhance the volume and quality of its monetization and compliance with our Marketing and Supply. petroleum products to increase sales in One of the TNK-BP Holding Group’s current license obligations. In 2008, this facility the domestic and international markets. To strategic priorities is to develop its gas processed 6.9 billion cubic meters of achieve these goals, significant investments business by exploiting its associated gas associated gas produced at the Group’s oil have been made, particularly at the Ryazan resources and developing the gas fields of fields. Refinery, to upgrade assets and introduce CJSC «Rospan International». new refining technologies to enable refineries In the Orenburg Region in 2008, we carried to meet ever increasing Russian and In 2008, our gas business continued to on with the Orenburg Integrated Project, international standards and produce more develop, driven by increased natural gas which is being implemented to utilize high octane fuels. production and sales and utilization of associated gas from Pokrovskaya and associated gas. Bobrovskaya areas and Western and Eastern The overall refining depth and light products groups of fields. Additional gas compressor yield has increased over time, made possible Associated Gas stations and associated gas gathering through a major upgrade of the Ryazan TNK-BP Holding’s upstream subsidiaries pipelines were put on stream, which enabled Refinery (including installation of the VGO currently produce natural and associated us to utilize approximately 100 million cubic and alkylation units) as well as the installation gas in the core oil production areas of the meters of incremental gas volumes. of a visbreaker at the Saratov Refinery; Nizhnevartovsk Region in West Siberia and upgrade of the hydro treatment unit at the the Orenburg Region in the Volga-Urals Ryazan Refinery enabled us to launch low- basin. The Group sells almost all the gas it sulphur (Euro 5) diesel fuel production. produces, using a small portion to generate power for internal demand.

In 2008, equity gas sales amounted to 8.8 billion cubic meters, which represents a 19% growth as compared to 2007. Increased gas sales were primarily driven by LLC «Yugragazpererabotka» processing capacity expansion.

1The Lisichansk Refinery in Ukraine and 50% of OJSC “Yaroslavnefteorgsintez” (a joint venture with OJSC “Gazprom neft”) are part of the TNK-BP Group but not part of the TNK-BP Holding Group and as such they are left beyond the 26 scope of this Annual Report. 27 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

the TNK-BP Holding Group’s 2006 2007 2008 Summary of the TNK-BP Holding Group’s key refining indicators refinery activities in 2008 Refinery input, Million tons Ryazan Oil Refinery Company Saratov Oil Refinery Crude oil 21.9 22.0 23.0 Other feedstock 0.6 0.4 0.4 Share of the Group’s total refining 65% 28% Total refining volumes 22.5 22.4 23.4 volume in 2008 Effective capacity(1) 15.1 million tons 6.6 million tons Conversion ratio 67% 67% 68.3% Refining throughput(2) 14.9 million tons 6.6 million tons Light products output 56% 56% 55.7% Light products 54.9% 44.57%

Year of commissioning 1960 1933

Location advantages Located 200 km southeast of Moscow. Located near the Volga river and vital railroads.

2006 % 2007 % 2008 % Proximity to Moscow and connection to the export pipeline route provides a strong position on both domestic and export Type of Product, (thousand tons, except %) markets.

Gasoline 5,049 24 5,091 24 5,347 24.1 Product mix Light products (gasoline, diesel fuel, jet fuel and solvents). Gasoline, diesel fuel, VGO, fuel oil, and bitumen. Diesel fuel (gas oil) 6,551 31 6,415 30 6,609 29.7 Heavy products (fuel oil, bitumen, lubricants) and other Fuel oil (mazut) 6,199 29 6,193 29 6,513 29.3 petrochemicals. Jet fuel (kerosene) 1,007 5 974 5 996 4.5 Other products 2,414 11 2,546 12 2,761 12.4 Investment projects A comprehensive upgrading program was implemented in The new visbreaking unit was commissioned in July 2004. 2006 within the framework of which the following objectives Total output 21,220 100 21,219 100 22,226 100 were met: The diesel hydro treatment unit was upgraded in 2007 to supply diesel fuel with lower sulphur content for the export and The fluid catalytic cracking unit was upgraded. domestic markets.

The selective lubricant hydro treatment shop was revamped The Group is considering implementing further investment and converted to new technologies to use biodegradable and projects at Saratov Refinery to increase production and non-toxicsolutions. to make sure the refinery is ready to meet new product specifications to be established. A new vacuum gasoil hydro treatment unit together with a new alkylation unit and a related butane isomerization units were built.

New sulphuric acid production units and a hydrogen production unit were built, and the corresponding facilities upgraded.

Hydro treatment units upgrade undertaken in 2008 made it possible to produce diesel fuel with sulphur content of 50 ppm (Euro 5), thereby meeting new European export specifications.

Nizhnevartovskoe Krasnoleninskiy Neftepererabatyvayuschee Obedinenie Neftepererabatyvayuschiy Zavod

Share of the group’s total refining 6% 1% volume in 2008 Effective capacity (1) 1.4 million tons 0.15 million tons Refining throughput (2) 1.34 million tons 0.145 million tons Year of commissioning 1998 1998 Location advantages Located in Western Siberia in close proximity to the Group’s Located in Khanty-Mansi Autonomous Region at the 39th kilo- upstream assets. meter of the federal Nyagan – Khanty-Mansiysk motorway.

Product mix Produces light fractions such as straight-run gasoline, gasoil and kerosene. A by-product is stabilised oil which is returned to the oil pipeline system.

Investment projects The aim of investment is to increase the refinery’s operational safety, to sustain its existing capacity and implement targeted busi- ness improvements.

1 Maximum technical capacity in terms of input (without overhauls). 2 Utilization rates in terms of input.

28 29 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

Sales, trading and Logistics The Group delivers a variety of different Marketing The Group’s retail network covers 20 Russian The Group manages the entire cycle of the grades of petroleum products through the In 2008, the TNK-BP Holding Group regions in the North-Western, Central, Volga, supply of crude oil and petroleum products product pipeline network operated by the continued to pursue its growth strategy on Southern and Urals Federal Districts, with 61 to international and domestic markets. state-owned company Transnefteproduct to the Russian oil products market. In 2008, oil depots and more than 1,000 retail sites. It also manages the supply of crude oil to such regular consumers as Sheremetyevo domestic petroleum product sales totalled its refineries and petroleum products to its and Domodedovo airports. In 2008, the 12.3 million ton; in particular, aggregate retail Product sales via own network grew by marketing subsidiaries. Eight different types Group commenced deliveries of 10 ppm sales reached 7.5 million tons. Retail sales 51.3% in 2008 compared to 2007, reaching of crude oil and over 40 different types diesel fuel to Primorsk via a new pipeline, grew by 10.3% from 2007. 3.17 million tons. of refined products are optimized across thus accessing a new sales channel. numerous sales channels in six different The Group employs a wide range of geographical zones reaching over 250 Over 500,000 rail cars are used each year to distribution channels to sell its products to different consumers. transport the remaining volumes of refined retail and wholesale consumers. Practically products, including specialized cars that are all gasoline and about 36% of diesel fuel In 2008, crude sales amounted to 41.2 used for gas and high-pressure products. produced by Group’s refineries in Russia million tons, of which 81.7% was exported are sold by its regional subsidiaries either (including to CIS countries) and 18.3% through retail networks (including jobbers, sold domestically. Petroleum product sales which are third-party companies who sell reached 29.6 million tons in 2008, including our fuel and carry our brand provided exports of 17.3 million tones (in particular, to they comply with our quality requirements CIS countries). for products and services), or by small wholesale channels directly from oil depots. The logistics and transportation All other Group petroleum products are sold optimization process involves almost all directly to large wholesale customers. types of transportation, including river transportation, where the Group applies the highest standards in the industry and uses only internationally certified vessels for river operations. Ninety percent of produced crude oil is transported to over 50 different destinations via the Russian national crude oil pipeline network operated by Transneft. Export pipeline capacity is limited pro-rated to the company’s share in total Russian crude oil production. In 2008, the Group actively pursued East-bound crude delivery routes (such as Kyrgyzstan, Kazakhstan, 1000 the TNK-BP Holding Group’s retail network China), and assured first deliveries of oil 208 produced by OJSC Verkhnechonskneftegaz, 404 800 a joint venture between TNK-BP Holding 171 Group and Rosneft. 600 125

400

496 688 200

0

2007 2008

TNK own sites TNK jobbers sites Other jobber sites

30 31 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6. 2008 Operating Results

The Group is one of the key suppliers to By the end of 2008, 13 retail sites were In the retail business, the Group plans The Group believes that strict compliance the Moscow retail market as well as other opened in St. Petersburg, with further to focus its investment activities on the with quality standards for goods and services markets, and aims to strengthen its position. network expansion plans in place. development of own retail sites located in is a key factor in successful development In 2008, the TNK-BP Holding Group started the Moscow and the Moscow Region. The of the retail business. Therefore, the Group to expand its retail network to St. Petersburg. Group’s strategy in the Moscow Region implements a comprehensive quality control includes expansion of the customer base system, which includes: product sampling by promoting the high quality of products during railway shipment, fuel testing in and service, expanding and optimizing independent laboratories, a strict fuel the Group’s retail network, and increasing acceptance procedure at retail sites, regular 15% income from sales of fuel and consumer and spot checks of fuel delivered by tank goods. trucks, a four-tier filtering system at retail 13% 5% sites, a quality issues hotline, and fuel quality Product retail sales Beyond Moscow and the Moscow Region, control in mobile laboratories. 3% by regional subsidiaries 4% of the TNK-BP Holding the Group will continue to work on expanding Group in 2008 its retail network and improving its market The Group also aspires to enhance its 6% share. We can achieve this by expanding business in the area of direct supply to major cooperation with jobbers in the regions and wholesale customers. In particular, 2008 2% increasing our presence in regional markets. accomplishments include: commencement 24% The jobbers who carry our brand only sell of jet fuel sales via a dedicated channel, 8% products purchased exclusively from the launch of a ship fuel sales program at 5% Group’s refineries. bunker markets in Russia`s North-West and South; through its efficient pricing policy and 5% 10% In 2008, we continued rebranding of the implementation of a winter storage program TNK retail sites to optimize their market the Group became one of the leaders in positioning. Rebranding involved changing bitumen sales in European Russia. Moscow region the sites’ exterior by adding an orange Ryazannefteproduct color, installing advanced equipment, Tulanefteproduct and expanding the range of products and Kaluganefteproduct services offered at convenience stores Kursknefteproduct and cafes. As of the end of the reporting Karelianefteproduct period, over 330 TNK sites have undergone yARoslavl region renovation. At the same time, a broad sT. Petersburg advertising campaign was undertaken to sARATovnefteproduct improve the TNK brand image, with a focus TNK-South (Rostov) on promoting defensive driving and safe, zAPsibnefteproduct responsible behavior on the road. Urals Oil Company In 2008, the Group launched its TNK- branded non-freezing screen wash fluid.

32 33 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6.7. СОЦИАЛЬНЫЕPersonnel Deve ИНВЕСТИЦИИlopment

Remuneration The group’s system of employee incentives is Personnel based on assessing individual performance and overall Group performance, and further factors in the general rates of pay in the 7 Development industry. Wage levels in the labor market in Russian regions and across the industry as a whole are constantly reviewed by the Group in order to ensure that employee remuneration continues to be competitive and will attract new highly qualified professionals. Seeking to receive reliable labor market information, the Group initiates salary and compensation surveys in its The group is pursuing a staff development strategy aimed at maintaining regions of operations. and development the existing organizational capability focusing on disciplines critical to the business. In 2008, TNK-BP Holding and all its Social support subsidiaries employed approximately 63,000 people. The Group provides employees with a comprehensive set of social benefits, the extent and design of which are benchmarked against the competition to ensure a competitive package. The benefits currently include:

Training and development The following leadership development Participation in an employee-contributed The Group offers its employees a wide programs are in place: private pension program, in place since range of opportunities for career growth January 2008. The program is expected to and professional development. Its training «Three Horizons» for young specialists; bring about a significant increase in the non- system brings together corporate programs governmental pension amount. Under this new for developing and enhancing technical and «Perspective» for entry-level managers; program, 7,500 Company employees signed functional skills, leadership development participation contracts with TNK-Vladimir programs, and programs for the introduction Several other programs («Asset Managers», Private Pension Fund in 2008; of new business processes. The Group has «New Height», «ASSET») for mid-level created more than 250 internal corporate managers. Private medical insurance (voluntary medical training programs. insurance); The Group is working closely with leading A number of targeted professional training Russian universities and professional schools Health resort treatment; programs in the key areas of Group operations to develop the next generation of professionals have been established and are developing: with the knowledge and skills required for the Other social benefits, guarantees and modern oil and gas industry. compensations in accordance with a collective Three-year «Young Drillers» program; agreement. The following projects were implemented in «Current and Capital Well Workover 2008, within the University Partnering Program: Supervisors» program; second TNK-BP Grants Contest for Russian Oil «Refining Project Teams» program; and Gas Universities.

«Power Engineers» program; Royal Holloway University of London launched a Master’s degree program in Oil and Gas «Environment Protection» program; Geosciences on the basis of the Geology and Oil & Gas Professional Training and «Integrity Management» program; Enhancement Center of the Tyumen State Oil and Gas University. Corporate program of individual technical expertise and skills development. the «Blue Collar Training System Improvement at TNK-BP Regional Training Centers».

34 35 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6.8. СОЦИАЛЬНЫЕSocial Invest mИНВЕСТИЦИИents

Social Social responsibility lies at the foundation of any sustainable development strategy. The TNK-BP Holding Group recognizes that a successful business should rely on cooperation with all stakeholders Investments and support sustainable social and economic development of the 8 society.

The TNK-BP Holding Group seeks to Support for education and opening up young be a responsible corporate citizen of people’s potential. Russia, making a noticeable contribution to improvement of the country’s Preservation of Russia’s cultural and historic competitiveness, facilitating social and heritage. economic development of the regions where is operates and being a reliable partner for Implementation of public environmental government and public organizations in programs. generating a stable and favorable social environment. The companies of the TNK-BP Holding Group sign cooperation agreements with local To this end, the Group implements extensive administrations in the regions of operation on multi-target external and internal social an annual basis and sign similar agreements investment programs. with various municipal administrations in these regions. In 2008, the Group spent approximately $95 million on external social programs on a Within the framework of these agreements, federal and regional levels and about $76.5 various targeted programs were implemented million – on social programs targeted at staff. at the regional level, aimed at settlement of both general, acute social problems (in External social investments are implemented particular, expansion and improvement of in the form of funding socially significant social infrastructural institutions, construction infrastructure in the regions of the TNK-BP of roads, etc.) and dealing with other issues Holding Group’s operations, supporting specific to each region (e.g. aid to ethnic social facilities and institutions, and long-term communities of indigenous people). programs and projects assuring progressive development and social wellbeing of these The TNK-BP Holding Group’s partners in the regions. implementation of social and charity programs are nonprofit organizations and charity In 2008, the funds allocated by the Group for foundations whose high level of performance Russia-wide programs were implemented in under the programs is confirmed by extensive five key areas: feedback from the end beneficiaries.

Support for vulnerable social groups. Information on social programs targeted at the Company’s employees is contained in the Bringing up a healthy new generation. Personnel development section of this report.

Group Social Investment Governance Principles

The Group’s social investments shall correlate with its business scope and development strategy.

The Group shall implement programs that are congruent with its corporate policy, standards and procedures, and that make it possible to achieve a tangible and measurable social effect.

The Group shall assure transparency and public reporting in implementing its social investments.

The Group shall use its social investments in strict compliance with applicable laws and shall not allow their use for political purposes.

36 37 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 6.9. СОЦИАЛЬНЫЕRisk Managem ИНВЕСТИЦИИent and Internal Control

Internal audit The EWRM implementation exercise focused During 2008, we continued improving TNK- on building a risk management culture Risk Management BP Holding Group’s internal audit function through: core capabilities, level of competence and effectiveness. In the reporting year, the understanding of the nature of risks, and and Internal Control Internal Audit function focused its efforts on financial and reputational consequences of 9 internal control procedures embedded in key their occurrence; processes, and also developed a multi-year audit program based on the Audit Universe identification of factors which may trigger of business processes and risks. This effort occurrence of a particular risk; The internal control system The Internal Control team supports a is critical for the support of the internal TNK-BP Holding Group’s internal control permanently functioning system of advice control sustainability program, initiated development and implementation of and internal audit system underpins on internal control matters and best within the ICP project framework. The results appropriate risk management and/or the preparation of the Group’s financial practices. Training is provided to business of complementing the Internal Control mitigation action; statements and business operations owners, accountants, internal auditors and function with internal audit reviews brings and reliability of the financial statements managment. significant improvements in the financial and regular reporting on risk changes and risk produced by Group entities. The internal managment reporting quality. management and mitigation action status. control system has been developed in A system of independent back offices has accordance with the methodology of the been established at TNK-BP Holding Group Enterprise-Wide Risk The corporate risk portfolio is updated Committee of Sponsoring Organizations entities to ensure efficiency of the contracting Management System regularly to reflect changes in the business of Tredway Commission (the COSO processes. Back office personnel are trained Implementation of the Enterprise-Wide Risk environment and is reviewed by the Framework). in independent control and monitoring so Management System (EWRM) enhances Policies and Compliance Committee as that they perform these functions in the internal control efficiency and quality of a comprehensive quarterly corporate risk For all of its key business processes the contracting activities at the regional and business decisions through systematic status report. Review and management of Group ensures that processes are aligned Corporate Center levels. Starting from 2007, review and mitigation of major business risks. operational risks is the responsibility of the with the internal control framework, and back offices have been complemented by a The risk management system has become Operations Committee, whereas review and that appropriate controls are tested and comprehensive credit control function which an integral element of TNK-BP Holding management of any risks associated with documented. comprises the Corporate Credit Committee Group’s corporate governance, five-year and investment programs is the responsibility of and Stream Commissions. Based on a annual planning processes and performance the Corporate Investment Committee. In 2008, TNK-BP Holding Group completed a uniform methodology, the Commissions assessments. comprehensive internal control improvement grant and monitor implementation of credit A desired outcome is defined for each project (ICP), taking advice from limits depending on counterparty credit The risk management system’s regulatory corporate risk which is to be accomplished internationally recognized consulting firms. standing. This effort further extends onto the and methodological framework includes the through the implementation of appropriate The ICP project helped identify deficiencies monitoring and control of accounts payable. Enterprise-Wide Risk Management System risk management action plans. The in our internal control system and remediate Reports describing compliance with the Standard approved in January 2006, and status of plan delivery is monitored on a them. ICP team also focused on computer contracting procedures and credit risks are the Procedure for Enterprise-Wide Risk quarterly basis as part of Stream / Function controls, regarding it an important area of submitted to the Top Executives on a regular Management adopted in July 2007. These Performance Reviews which are an internal control system's integrity. basis. documents were developed in course of element of the Group’s wider performance extensive discussions with risk owners, key management system. Increased cooperation Internal Control Department is responsible executives and representatives of all Streams among risk owners aims to assure accurate for monitoring compliance with the internal and Functions with a view to formulate and evaluation of risk significance, development control procedures. The team performs explain a uniform Group-wide approach of risk response strategies and coordination risk-based analyses of key business and methodologies employed in the risk of action taken by various units to respond to processes and control across the Group identification, management and mitigation specific risks. on an annual basis. During 2007-2008, the activities, and in risk status reporting. team implemented a sustainability plan which was aimed to ensure regular updates and assessments of the internal control system and related processes with a view to ascertain their operating efficiency. Fast-response internal control teams were also established within Business Streams to support the functioning of regular self- assessment, internal control system testing and risk review processes.

In 2007-2008, we analyzed over 90 business processes in 9 of the Group’s regions of presence. This effort, undertaken jointly with process owners, included formalization of processes and identification of key existing controls.

38 39 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 10. Information Policy

Information The TNK-BP Holding Group’s information policy is designed to ensure easy and unrestricted access to the information concerning the Group’s 10 Policy operations for shareholders and other interested parties.

In its information policy, the TNK-BP Holding The TNK-BP Holding Group employs a Group adheres to the following underlying variety of information disclosure channels; principles: in particular, it provides information and materials in response to shareholders’ regular and timely communication of the inquiries, discloses information in the Group information as required by law; Russian and international media, discloses information on its corporate web-site, accessibility of such information to publishes press releases, presents shareholders and other interested parties; information at conferences and other public events, and responds to written inquiries by reliability and completeness of such interested parties. information; TNK-BP Holding provides shareholders with right balance between the Group’s all material information on each General transparency and commercial interests; Shareholders’ Meeting agenda item during preparation for and holding of such proper protection of information that meetings, and is stiving to do so before the constitutes commercial or corporate secret; deadlines envisages by law. control over the use of insider information. Every year, the TNK-BP Holding Group The TNK-BP Holding Group ensures timely publishes its Annual Report to shareholders and accurate disclosure of information on all which describes key areas of the Group’s material matters of its operations, complying operating and financial activities, and with statutory requirements applicable in the provides an economic analysis of the Russian Federation, and disclosing additional reporting year’s results. information on a voluntary basis. The website, www.tnk-bp.ru, is an important source of information about the TNK-BP Holding Group and an effective communication tool. The website is used to promptly publish the Group’s news, disclose details of the TNK-BP Holding Group governance bodies, shareholding structure, statements of material facts, annual reports of TNK-BP Holding and subsidiaries, Charters and internal documents, annual financial statements, information on affiliated persons, and regularly updated information on key operating and financial indicators.

40 41 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 11. Corporate Governance in tnk-bp holding

The number of the Management Board With the exception of I.V. members was reduced to six, which Board of Directors Cheremikin, none of the Board Corporate Governance now include: TNK-BP Group CEO; chief members holds any shares in TNK- operating officer, chief financial officer and Pursuant to the requirements of the Federal BP Holding. I.V. Cheremikin holds executive directors. Law On Joint-Stock Companies and TNK-BP 0.0000000184% of TNK-BP Holding in tnk-bp holding Holding Charter, the Board of Directors is common stock. 11 All appropriate changes were elected by the Annual General Shareholders’ implemented in the Restated Charter Meeting to serve for one year. None of the Board members is of TNK-BP Holding, approved by the related to any person serving on Extraordinary General Shareholders’ The Company Board terms of reference TNK-BP Holding management Corporate Governance Meeting on December 22, 2008, and in the provided in the Restated Charter differ bodies and/or financial and Principles of corporate Improvement Restated Charter of TNK-BP Management, significantly from those applied earlier. business control bodies. governance In 2008, significant changes were made approved by the sole shareholder’s Firstly, the Restated Charter introduces the to TNK-BP Holding corporate governance resolution on December 22, 2008. concept of Key Subsidiaries, i.e. companies, Board members were not paid any The strategy pursued by TNK-BP Holding system, which signify the Company’s which hold the most significant assets of key compensation in 2008. highlights the importance of continuous transition to a new level of development. The next steps in the implementation of the importance to all Group business processes. corporate governance improvement in new corporate governance system in TNK- Consequently, the TNK-BP Holding Board’s building a world-class Russian company. Changes in 2008 affected the principles BP Holding will be: powers in respect of Key Subsidiary underlying appointments of the TNK-BP activities are different from those in respect TNK-BP Holding views corporate Holding Board of Directors and Board to align the Company’s internal documents, of other Company subsidiaries. Secondly, governance as an important driver for membership. To improve the quality, which regulate the proceedings of its the Restated Charter provides for a higher improving its performance and attractiveness efficiency and balance of the Board governance bodies, with the recent changes transaction value threshold triggering the to investors, strengthening its business decisions, the Board now comprises in the corporate governance system; requirement for the TNK-BP Holding Board reputation, increasing the Company value, four representatives from each of the endorsement: now set to over US$100 and acting to the benefit of its shareholders. Company’s main shareholders (i.e. BP to align the managing company’s system of million. Thirdly, the Company Charter and AAR (Alfa Group/Access Industries/ internal documents with the recent changes; contains a list of TNK-BP Holding internal Principles underlying the system of corporate Renova) Consortium) and one independent documents, which are subject to the Board’s governance at TNK-BP Holding are: director. The Board member elected as an to align the managing company’s system approval. Furthermore, the Restated Charter independent director must qualify under of Corporate Committees and respective sets out in more detail the Board’s role in Recognition and protection of all the independence criteria provided in the regulations, and executive job descriptions, the protection of Company and subsidiaries’ shareholders’ interests and rights. Russian Code of Corporate Conduct. with the recent system changes; assets.

Accountability of management to TNK-BP In the reporting year, changes were made to keep the Board members and Company The current Board line-up was elected at Holding’s shareholders and the board of to the TNK-BP Holding Board terms of personnel informed of the new corporate the Extraordinary General Shareholders’ Directors. reference. Appropriate changes are reflected governance system. Meeting of TNK-BP Holding on December in the Restated Charter of TNK-BP Holding. 22, 2008. The Board of Directors comprises Timely and reliable disclosure of one independent director and four information concerning all aspects of the Furthermore, some changes were made representatives from each of the two main TNK-BP Holding’s activities related to its in 2008 to the corporate governance Company shareholders. David R. Lasfargue performance, risks, and financial condition. practices of OJSC TNK-BP Management, the was elected as the independent director. BP managing company of TNK-BP Holding. is represented on the Board by P. Kitson, Recognition by TNK-BP Holding of the rights G. Warnsby, S. Sloan, and P. Charow. AAR and interests of other interested parties The Board of Directors was eliminated representatives on the Board of Directors are besides shareholders and observance of from TNK-BP Management’s system of A. Akimenko, P. Nazarian, I. Cheremikin, and their rights based on principles of fair and governance bodies; the Management A. Savchenko. responsible relations. Board’s terms of reference were revised. New authorities of the Management Board TNK-BP Holding in its activities follows the include approval and implementation of standards of corporate governance set out changes to TNK-BP Holding business plan, in the Russian Corporate Code of Conduct preliminary approval of and changes to the approved by the Russian Federal Service for Company’s staff numbers, approval of TNK- Financial Markets. BP Management’s Codes and Corporate Standards, establishment and dissolution of TNK-BP Management and TNK-BP Holding Corporate Committees, and a number of other functions (see «Managing Company – OJSC TNK-BP Management»).

This section contains information on OJSC TNK-BP Holding as a standalone legal entity (referred to in this An- nual Report as “TNK-BP Holding” or “the Company”) only and does not refer to the TNK-BP Holding Group at large (i.e. OJSC TNK-BP Holding with subsidiary/affiliate companies).

42 43 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 11. Corporate Governance in tnk-bp holding

Cheremikin, igor Vladimirovich Akimenko, anatoly Dmitrievich Chairman of the Board of Directors since 2009 Non-executive director Non-executive director Board member since 2008 Board member since 2008

Born in 1955. Born in 1972. Graduated from the Geography Department Graduated from the Military Academy of of Lomonosov’s Moscow State University Economics, Finance and Law with a diploma with a diploma in Economic Geography, in Law. and from Lomonosov’s MSU Department of Economics with a diploma in Economic Director, Legal Issues, of Renova Cybernetics. Candidate of Geographic Management AG Branch since 2008. Science (1987). Responsibilities include legal support of businesses, general counseling and Since 2001, Vice-President, New Projects, at corporate procedures within Renova Group Access Industries. In 2002 – 2007, Managing of Companies. Partner and member of Supervisory Council at «Bogatyr Trans» (Kazakhstan). In 1994 through 2001, occupied various In 2005 – 2007, member of Svyazinvest positions with the Ministry of Foreign Affairs Board of Directors. Since 2007, member for the Russian Federation. In 2001 – 2003, of Comstar OTS Board of Directors. Since worked for TNK Group of Companies in 2009, Chairman of the Supervisory Council various managerial roles. In 2003-2004, he and Managing Partner of Mega Page. was Director, Legal Department, of Renova Consulting Services Limited Representative Office. In 2005-2008, Director, Legal, of Renova Management AG.

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Kitson, Paul Lindsey Lasfargue, david Rodolphe Non-executive director Independent director Board member since 2008 Board member since 2008

Born in 1960. Born in 1971. Graduated from the University of Liverpool Graduated from the University of Lyons III with a degree in Russian Language with «Magistere de juriste d’affaires», L.L.M. and Literature. Qualified as a Chartered in Business and Taxation Law («DJCE»). Management Accountant and as a Post Graduate Degree in business law Corporate Treasurer. («DESS»), Post Graduate Degree («DEA») in history of law and public institutions in 1995. Joined BP in 1987. Currently works with BP Member of the Paris Bar since 1994. as project manager, financial manager. Since 2001, has been head of Gide Loyrette In 1998, was advisor to Vice-President, Nouel Vostok in Russia. Partner of Gide Finance at Sidanco. From 2001 to 2004, Loyrette Nouel since January 2006. was First Vice-President of Lukarco BV, BP’s joint venture with LUKoil. Since 2004, has been a representative of BP for the TNK-BP joint venture. Other experience includes Corporate Finance, Banking Relations, Mergers and Acquisitions, and Treasury Operations.

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Nazarian, Pavel Viktorovich Savchenko, alexey Vladimirovich Non-executive director Non-executive director Board member since 2008 Board member since 2008

Born in 1972. Born in 1971. Graduated from the Bauman’s Moscow Graduated from the Department of State Technical University, holder of Masters Chemistry of Lomonosov’s Moscow State in Engineering, specializing in «optical University with a diploma in Petroleum instruments and systems»; from Moscow and Organic Catalysis Chemistry. In 2003 International Marketing and Management received his MBA degree at IMD Business Academy holder of Masters of Economics, School in Switzerland. with honors; «Senior Executive» and «Mergers & Acquisition» programs at From 1997 to 2005 was Principal, London Business School and «Corporate Project director and consultant at Restructuring», «Mergers & Acquisitions», The Boston Consulting Group (BCG). «Financial Instruments & Markets» and In 2006, was Partner at RosExpert Executive «Valuation» programs at Harvard Business Search (RosExpert). From 2006 to 2008 School. was Director, Strategy and Organizational Since 2002 has been Director of Development, Administrative Director at RDI Headquarters of Alfa Finance Holdings S.A. Group (LLC RDI Group). Since 2008, has (Luxembourg) and Secretary of its Board of been Director, Strategic Planning at CTF Directors. Managing director of the entire Consultancy Limited. international chain of its subsidiaries outside CIS, supervising international compliance, administration, shareholders structure and relationship with local authorities. Member of the Boards of Directors of Alfa Bank (Kazakhstan) and Alfa Asset Management Group (Russia). Chairman of the Board of Directors of Alfa Capital Holdings (Cyprus) Limited. Member of Supervisory Boards of Alfa Bank (Ukraine), Alfa Bank (Belarus) and Amsterdam Trade Bank (Netherlands). Member of Advisory Board of Great Circle Fund (USA).

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Sloan, richard Scott Warnsby, grant Darren Non-executive director Non-executive director Board member since 2008 Board member since 2008

Born in 1964. Born in 1973. Graduated from Colgate University Graduated from Keele University (UK) with (Hamilton, New York, USA) with a B.A. degrees in Law and Management Science; in Economics, and from the University of later, became a barrister. Qualified as a Chicago with an M.B.A. chartered accountant. Appointed CFO of BP Russia in 2009. Since 2008 holds the position of BP Russia Senior Legal Advisor. Prior to this he held Formerly, a management consultant at various positions in BP and other multi- PriceWaterhouseCoopers. Before 2000, national organisations. In 2006 served as held a variety of roles with BP. From 2000- Legal Manager in the Castrol Lubricants 2003, Director BP Mergers and Acquisitions business. In 2007 to 2008, worked in JSC focused on Asia, Russia, Kazakhstan «TNK-BP Management» Legal Support and South America. From 2003-2005 Department. Commercial Manager for BP’s North American Exploration organization. From 2005-2009 was Chief Financial Officer of BP North Africa overseeing, among other things, Algerian and Libyan investments; also, board member of In Salah Gas Service Limited, a company involved with the marketing of Algerian gas into the European marketplace, and a director of the Medgaz pipeline project.

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Composition of the Board of Directors of CJSC «Promkataliz» Board of Directors With the exception of R.M. elected at the Annual General Shareholders’ and Chairman of CJSC «IRCOL» Board of Bezrukov, none of the Board Meeting on 15 June 2007, re-elected at the Directors; he is member of the latter's Board members holds any shares in TNK- Annual General Shareholders’ Meeting on since 2008. In 2007-2008, he also was BP Holding. R.M. Bezrukov holds June 26, 2008 and active until December member of OJSC «Ural Oil Company» and 0.0000000184% of TNK-BP Holding 22, 2008: I.V. Maidannik (Board Chairman), «Zapsibnefteprodukt» Boards of Directors. common stock. S. Truman, R.M. Bezrukov, K. Sliger, P. Henshaw, R. Herbert, B.P. Kondrashov, A.A. Bezrukov, roman Mikhailovich None of the Board members is Gorshkov, P. Smith. Member of the Board of Directors related to any person serving on in 2006 through 2008. TNK-BP Holding management MaidanniK, igor Vladimirovich bodies and/or financial and Chairman of the Board of Directors Born in 1969. business control bodies. in 2005 through 2008. In 1993 graduated from the International Law Board members were not paid any Born in 1965. Department of MGIMO. compensation in 2008. Charow, Peter Anthony Non-executive director In 1987 graduated from Moscow State Since 2004 holds the position of OJSC TNK- Board member since 2008 University with a degree in jurisprudence. BP Management Vice President, Mergers and Acquisitions Legal Support. Director of Since 2003 holds the position of OJSC TNK- JSC «TNK-BP Management» International Born in 1954. BP Management Executive Vice President, Legal Department from 2003 until 2004. Graduated from Swarthmore College with Legal, and member of the Management Head of the JSC «Tyumen Oil Company» a degree in Political Science; holds M.A. Board of OJSC TNK-BP Management. In Corporate Law Department from 1998 until degrees in Political Science from Columbia 2003, Maidannik was the head of the OJSC 2003. Member of the Board of Directors of University and Harriman Institute. Took TNK Management» Legal unit and member JSC «Tyumen Oil Company» from 2004 until a course as a Fullbright Scholar at the of the OJSC «Tyumen Oil Company» 2005. Leningrad State University. He also holds Management Board. From 2003 until 2005, an Executive MBA from the Tuck School of Maidannik was member of OJSC «Tyumen Sliger, Kris Business of Dartmouth College (USA). Oil Company» Board of Directors, and Member of the Board of Directors from 2002 until 2003 he was on the OJSC in 2005 through 2008. Since 2008, he has been BP Vice- Orenburgneft Board of Directors. President for Russia and Kazakhstan, with Born in 1961. responsibility for strategy, risk management Truman, steve and strategic communications for BP's Member of the Board of Directors Graduated cum laude from Chicago Russian business. From 2002-2005 was in 2007 through 2008. High School (Illinois) with an MBA in President of BP Russia. In 1994-1997 he Economics, Finance and International founded and led the American Chamber of Born in 1948. Business. Graduated cum laude from Texas Commerce in Russia. University (Austin, Texas) with a Bachelor of In 1973 graduated from the University of Science diploma in Petroleum Production Since 2007, Mr. Charow is an independent British Columbia (Vancouver, Canada), Engineering. director on the Board of Magnitogorsk Bachelor of Law. Iron and Steel Works. He also is Deputy Since 2003 holds the position of OJSC TNK- Chairman of the Mariinsky Theater In 2007-2008, he was OJSC TNK-BP BP Management Executive Vice President, Charitable Trust in London. Management Vice-President, International Strategy and New Business Development; Law. In 2005 to 2007, Manager, Gas member of the Management Board of OJSC Business Legal Support Department, OJSC TNK-BP Management since 2004. Prior to TNK-BP Management. Prior to this, he held joining TNK-BP Management, he held a a variety of positions in BP and has a wide variety of management positions in BP and international experience. In particular, in has an extensive background in the energy 2001 to 2003 he served as BP’s Regional industry. From 2000 until 2003 he was BP’s Legal Issues Counsel in China; in 2003 to Vice President for Planning, Strategy and 2005, as BP’s Senior Counsel in Kazakhstan. Portfolio Investment. K. Sliger also served as the Vice President of the Gulf of Mexico Shelf Since 2007 Member of the Board of Business Unit. Directors of JSC «Chernogorneft», OJSC TNK-Nizhnevartovsk, «Nizhnevartovskoe Member of OJSC «Severnoeneftegaz» Neftepererabatyvayuschee Obedinenie» Board of Directors since 2008. Member LLC, JSC «TD «TNK» MiP», JSC «TNK- of JSC «Orenbourggeologia» Board of Stolitsa», OJSC Saratovnefteproduсt, OJSC Directors in 2004-2007. Member of the «Nizhnevartovskneftegaz», JSC «Yugraneft Boards of Directors of JSC «Tyumen Oil Corporation», OJSC «Uvatneft», JSC Company» and JSC «SIDANCO» in the «Tulanefteprodukt», «Kurskoblnefteproduct» period from 2003 until 2005. From 2003 until LLC, CJSC «South Region», «CJSC 2004, Kris Sliger was a member of OJSC SYRACUSE». In 2007-2008, he was member TNK-BP Management Board of Directors.

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Henshaw, Peter Kondrashov, Boris Petrovich Gorshkov, aLexander Alexeevich Members of the Board of Directors elected Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors by Annual General Shareholders’ Meeting in 2005 through 2008. in 2005 through 2008. in 2005 through 2008. on June 15, 2007 and active until June 26, 2008: I. V. Maidannik (Board Chairman), Born in 1952. Born in 1957. Born in 1946. R. M. Bezrukov, R. Herbert, A. A. Gorshkov, B. P. Kondrashov, S. Truman, P. Smith, In 1974 graduated from Melbourne In 1978 graduated from Sverdlovsk Law Graduated from Kolomna State Institute K. Sliger, P. Henshaw. University, Bachelor of Law. Institute with a degree in Legal Science. and the Financial Academy under the RF Doctor of Legal Sciences, Professor, State Government on completing a special course From 2003 held the position of OJSC Justice Counselor of the First Degree, in Banking. Distinguished employee of TNK-BP Management Vice President, Retired Police Major General. Awarded Russian culture. Communications and Public Affairs. Prior Defender of Free Russia and Outstanding to joining TNK-BP Management, he served Service Medals of the Second and Third Since 2003 holds the position of Vice as the Director of External Relations at BP Degree, «Distinguished Employee of the President, Russian Government Relations, Trading, Moscow, from 2000 until 2003. Ministry of Internal Affairs» lapel badge. at OJSC TNK-BP Management. Served as acting head of OJSC TNK-BP Management Member of the Board of Directors of OJSC Since 2003 holds the position of OJSC Support Services in 2003. From 2002 TNK-BP Management since 2004. Member TNK-BP Management Executive Vice until 2003: Project Manager, Geology and of the Board of Directors of JSC «Media- President, Security, and is a member of Oil and Gas Production, JSC «Tyumen Holding «Western Siberia» since 2006. Since the Management Board of OJSC TNK-BP Oil Company»; from 2001 through 2002 2008, he has also been Board member Management since 2003. Head of OJSC Director, Government Relations Department, of LLC «TNK-BP Businesservice», OJSC TNK-BP Management Security in 2003, JSC «Tyumen Oil Company». «Nizhnevartovskneft», OJSC «Belozerneft», member of the Management Board of OJSC OJSC «Samotlorneft», OJSC «Priobneft». TNK-BP Management from 2002 until 2003. Member of the JSC «SIDANCO» Board of Head of the Security Function, First Vice Directors from 2004 until 2005, Chairman of Herbert, richard President and Member of the Management the OJSC «Uvatneft» Board of Directors and Member of the Board of Directors Board of JSC «Tyumen Oil Company», For member of the JSC «Radonezh Petroleum» in 2006 through 2008. more than 19 years, B. Kondrashov worked Board of Directors from 2003 until 2006. in law enforcement agencies and ultimately Born in 1958. held the post of Deputy Minister of Justice, Paul Smith Chief Bailiff of the Russian Federation. From Member of the Board of Directors Graduated from Bristol University (UK) with 1990 to 1993, he was elected People`s in 2007 through 2008. a Bachelor of Science degree in Geology. Deputy of the Russian Federation and Member of the London Geological Society a member of the Supreme Soviet of the Born in 1971. and the American Association of Petroleum Russian Federation, as well as Deputy Geologists (AAPG). Chairman of the Law and Order and Crime Graduated with first class honors from Herriot Countering Parliamentary Committee. Watt University in Edinburgh (Scotland) In 2006-2008 he held the position of JSC with a Bachelor’s degree in Business «TNK-BP Management» Executive Vice Member of the Board of Directors of Organization and the Chartered Institute of President, Technology. JSC «TNK-BP JSC «Tyumen Oil Company» and JSC Marketing (UK) in Marketing. Management» Vice President, Exploration, «SIDANCO» from 2003 until 2004. in the period from 2003 until 2006. Prior to Since 2007 holds the position of BU Vostok joining «TNK-BP Management», he held a Leader, OJSC TNK-BP Management. Prior to variety of management positions in BP and joining OJSC TNK-BP Management, he held has an extensive background in the energy a variety of management positions in BP’s industry. In particular, he served as the operational and commercial units and has an Head of the Wytch Farm production unit, BP, extensive international background. In 2004- Aberdeen, from 2001 until 2003. 2007 held the position of Chief Manager of the North Sea PU, BP, Aberdeen, Scotland; Chairman of the Boards of Directors of in 2002-2004: Commercial Director, BP, OJSC «Uvatneft», OJSC «Suzun», OJSC Trinidad and Tobago. From 2001 to 2002: «Russko-Rechenskoye», «Tagulskoe» Chief Manager of BP Upstream projects, LLC, JSC «Gubernatorial Resources Trinidad and Tobago. Company» from 2006 until 2007; in 2004- 2005, Board member of LLC «TNK-Uvat», In 2007-2009, Board of Directors Board Chairman of LLC «TNK-Uvat» and member at OJSC Saratov Oil Refinery, OJSC «Payakha» in 2005-2007. Also, JSC «TNK-Yugra», Board member Chairman of the Boards of Directors of OJSC of OJSC «Severnoeneftegaz» since Varyoganneftegaz and OJSC Orenburgneft 2008. In 2007, Board member of JSC in 2004-2008. In 2004-2007, Board member «Orenbourggeologia». of JSC «Orenbourggeologia». Member of the Board of Directors of JSC «Tyumen Oil Company» from 2003 until 2005.

54 55 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 11. Corporate Governance in tnk-bp holding

Corporate Committees at TNK-BP Operations Committee reference. In particular, its new authorities Management The Operations Committee is established Managing Company – include: To resolve specific corporate governance to review all aspects of operations and OJSC TNK-BP Management and project management issues, there measure ongoing performance compared to approval of amendments to of the Company’s are seven Corporate Committees within the annual business plan. On a day-to-day basis, TNK-BP Holding is Business Plan; TNK-BP Management, which cover all managed by its managing company, OJSC aspects of TNK-BP Holding activities, Main functions of the Committee: TNK-BP Management, which was granted preliminary approval/change of the including operations, finance, compliance with the authority to be the sole executive Company’s staff numbers; with corporate standards, human resources to review current cross-stream and cross- body of TNK-BP Holding based on the and information technologies. The benefits function issues in relation to business resolution of the sole shareholder dated approval of TNK-BP Management’s of these Committees are in quick response plan development and implementation, February 28, 2005. Codes and Corporate Standards, and any to business needs, detailed review and efficiency assurance, long-term operating documents concerning the grading system; promptness of appropriate decisions. Brief performance, cross-stream and cross- TNK-BP Holding’s core executives are a team description of the seven Committees is function optimization; of professional managers with experience establishment/dissolution of TNK-BP provided below. in different countries. Within TNK-BP Management’s Committees; to monitor and ensure successful Management, there is the Management Board Policies and Compliance implementation of major projects and and seven Corporate Committees to ensure resolving as to whether TNK-BP Holding Committee operating strategy. accomplishment of the Company’s objectives. should enter into transactions with shares The Policies and Compliance Committee (with the exception of matters reserved for the is established in order to supervise risk Investment Committee Executive bodies of TNK-BP Management General Shareholders’ Meeting); management processes, formulate ethical The Investment Committee is established to are authorized to make decisions on all behavior requirements, manage conflicts of review and support all new investments and matters of day-to-day TNK-BP Holding approval of nominations to management and interest, coordinate the establishment of a to monitor the progress of large investments. management, with the exception of those control bodies of all subsidiaries and affiliates; comprehensive system of internal normative reserved for TNK-BP Holding General agreement of voting positions at General documents. Main functions of the Committee: Shareholders’ Meeting and the Board of Shareholders’ Meetings of TNK-BP Holding Directors. and TNK-BP Management subsidiaries and Main functions of the Committee: to review and support all proposals affiliates; concerning new large investments; The changes made in 2008 to the practices to ensure proper functioning of the of corporate governance in TNK-BP Hold- agreement of constitutive documents of enterprise-wide risk management system to monitor implementation of large ing affected terms of reference of TNK-BP TNK-BP Holding and TNK-BP Management (EWRM) and the internal control system; investment projects; Management’s Management Board terms of subsidiaries and affiliates. to coordinate adoption and implementation to assure contracting process efficiency.

TNK-BP Management’s Management Board line-up elected on April 14, 2009 of internal documents; Internal Finance Committee Summers, Timothy David Management Board Chairman (since December 1, 2008) to review internal normative documents on The Internal Finance Committee is Vekselberg, Viktor Feliksovich Executive Director business ethics as well as main business established to approve and implement the Khan, German Borisovich Executive Director processes. internal financing strategy and key principles Baudrand, Didier Patrick Executive Vice-President, Downstream, and Executive Director Muir, Jonathan William Chief Financial Officer and to review financial transactions to ensure HR Committee consistency with financial strategy. TNK-BP Management’s Management Board line-up elected on January 29, 2009 The HR Committee is established to ensure consistent implementation and control of the Main functions of the Committee: Summers, Timothy David Management Board Chairman (since December 1, 2008) Vekselberg, Viktor Feliksovich Executive Director human resources strategy. Khan, German Borisovich Executive Director to determine strategy and key principles of Sliger, Kris Martyn Executive Director Main functions of the Committee: internal financing; Muir, Jonathan William Acting Chief Financial Officer

TNK-BP Management’s Management Board-2008 development and implementation support of to approve internal financing and joint staff policy in the area of human resources; venture financing matters, in particular, Dudley, Robert Management Board Chairman (until November 30, 2008) review and endorse financial, legal, and tax Vekselberg, Viktor Feliksovich Executive Director, Gas Business Development control over the consistent implementation of aspects of transactions, endorsement of Khan, German Borisovich Executive Director HR programs; liquidation proposals (CLIP). Summers, Timothy David Chief Operating Officer, Management Board Chairman (since December 1, 2008) MaidanniK, Igor Vladimirovich Executive Vice-President, Legal Considine, Anthony Executive Vice-President, Downstream (until 15 November, 2008) development of appropriate Credit Committee Sliger, Kris Martyn Executive Vice-President, Strategy and New Business Development recommendations and monitoring of cultural The Credit Committee is established in order Brezitsky, Sergey Vladimirovich Executive Vice-President, Upstream integration processes. to manage credit risks. Osipov, Mikhail Leonovich Executive Vice-President, Oilfield Services Kondrashov, Boris Petrovich Executive Vice-President, Security Wright, Walter Arthur Thomas Executive Vice-President, Planning and Performance Management (until 1 December, 2008) Main functions of the Committee: Herbert, Richard Executive Vice-President, Technology (until 9 December, 2008) Bennett, Simon Executive Vice-President, Support Services, Management Board member (until November 30, 2008) to set, review and approve counterparty Owen, James Chief Financial Officer, Management Board member (until December 7, 2008) Tyomkin, Anatoly Arkadyevich Management Board member (since December 1, 2008) credit limits; Muir, Jonathan William Acting Chief Financial Officer, Management Board member (since December 8, 2008) to analyze effective credit utilization, accounts receivable and bad debts.

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IT Committee The Corporate Secretary and the Corporate Percentage of ordinary shares share in charter capital Major shareholders The IT Committee is established to Secretary Department personnel exercising of TNK-BP Holding coordinate Information Technology their rights and performing their duties Novy Investments Ltd 91.3% 89.7% (as of 31 December 2008) strategy with the overall business strategy always act in the best interests of the Minority shareholders 3.3% 5.1% and priorities, as well as to supervise Company and its shareholders. TNK-BP Holding subsidiaries 5.4% 5.2% implementation of the major IT projects, CJSC “SIDANCO-Investments”, control IT performance along major CJSC “SIDANCO-Securities”, directions and assure its link to all streams Shareholders’ equity CJSC “Sidanko-Neftepererabotka”, and functions. JSC “Sborsare Management” The charter capital of TNK-BP Holding is Main functions of the Committee: 16,296,807,136 rubles, and is divided into 15,846,807,136 common shares each with Share Market to control efficiency of information face value of 1 ruble each, and 450,000,000 Since December 2005, TNK-BP Holding Dividends History technologies; preference shares each with face value of shares have been included in RTS Board 1 ruble each. (ticker: TNBPP for preference shares, and TNK-BP Holding’s practice of dividend to manage the main IT projects. TNBP for common shares). RTS Board is an pay-out is based on the principle of fair TNK-BP Holding is authorized to issue information system for indicative quotation distribution of earnings among shareholders, additionally 43,650,000,000 common shares of securities not listed on the RTS Stock with due account for investment and other Corporate Secretary each with face value of 1 ruble each, and Exchange. cash requirements of the business. 1,350,000,000 preference shares each with To assure that the TNK-BP Holding and face value of 1 ruble. Decision to pay out the dividends on TNK-BP TNK-BP Management bodies, and the TNK- Financial statements Holding shares are made by the General BP Management’s Committees and officers As of December 31, 2008, there were under Russian Shareholders’ Meeting based on the Board adhere to high standards of corporate 14,663 parties entered in TNK-BP Holding accounting standards of Directors recommendations. governance, the Corporate Secretary shareholders register, including 17 nominee Department has been established within the holders. As required by Russian legislation, TNK- The dividends level is determined based Managing Company TNK-BP Management. BP Holding prepares quarterly financial on the Company’s net income as per its The department leader performs the statements in accordance with Russian unconsolidated financial statements in functions of the Company Corporate Accounting Standards (RAS). The Statutory accordance with the Russian Accounting Secretary and acts as the secretary to the Accounts for 2008 are presented for Standards (RAS) as of the end of the TNK-BP Holding Board of Directors. approval at the Annual Shareholders Meeting relevant reporting period. and included in the materials for the meeting. The main functions of the Company All dividends declared by TNK-BP Holding Corporate Secretary are to: While the Statutory accounts present the are paid in cash only by bank transfer to the financial position and results of the Company account of each shareholder or its designee. make necessary arrangements for, and on a standalone legal entity basis, the support holding of the Company Board of reported statutory earnings represents a Dividends are paid within the time frames Directors meetings in accordance with legal ceiling for any dividends pay-outs under the prescribed by the Charter. Pursuant to the requirements, the Company Charter and the Russian legislation. Statutory net income for TNK-BP Holding Charter, dividends for the Board of Directors Regulations of TNK-BP 2008 amounted to 83 billion rubles (49 billion full financial year, the first six months and the Holding; rubles for 2007). first nine months of the financial year are to be paid within six months after the resolution participate in arranging and holding of the to pay dividends is passed by the General General Meeting in accordance with legal Shareholders’ Meeting. requirements, the Company Charter and the General Shareholders' Meeting Regulations TNK-BP Holding discloses information about of the Company; its dividend payments to its shareholders, potential investors and other interested assist members of the Company Board parties by publishing information on the TNK- of Directors in their performance of the BP Holding website and in the mass media. functions assigned to them; Starting from 2006, TNK-BP Holding has ensure that the Company interacts with its paid out almost 100% of its RAS-based net shareholders, that any shareholder inquiries income in dividends. are properly acted upon, and that action is taken to avert and settle any corporate conflicts;

ensure storage of corporate documents and disclosure of the Company information;

other functions as provided for in the internal documents of the Company.

58 59 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 11. Corporate Governance in tnk-bp holding

All related-party transactions of TNK-BP TNK-BP Holding Dividend Payout Report* Information on related Holding may be divided into the following party transactions* groups (in terms of transaction subject Total dividends Dividends Total paid as of 01 Apr matter): per share, dividends, Dividend payment completion 2009, TNK-BP Holding is a vertically integrated Period rubles million rubles deadline million rubles oil and gas company. This means that purchases of oil and petroleum products throughout its entire operating cycle, i.e. from subsidiaries; sale of oil and petroleum 2005 dividends(1) from oil and gas field exploration and products to subsidiaries; on ordinary shares 8.06 127,726 31.12.2006 development, through transportation on preference shares 8.06 3,626 31.12.2006 and refining and further to sales to end oil refining at the Group’s refineries; Total 131,352 131,332 consumers, TNK-BP Holding is in continuous legal relations with its subsidiaries and services agreements between TNK-BP First 9 months of 2006 dividends(2) affiliates, which specialize in particular Holding and its subsidiaries;

on ordinary shares 5.95 94,288 15.05.2007 phases of operations in this cycle. Such on preference shares 5.95 2,678 15.05.2007 relations are regulated via various contracts TNK-BP Holding funding of subsidiaries

Total 96,966 96,925 which, in accordance with applicable (by means of short and long term loans, law, are recognized to be related party by increasing charter capital, or through transactions. Such transactions are subject contributing to property); (3) 2006 dividends to a special approval procedure prescribed on ordinary shares 1.37 21,710 15.12.2007 by the law. supply chain managment for subsidiaries (for on preference shares 1.37 616 15.12.2007 centralization of purchasing activities); Total 22,326 22,322 centralized services provided by third parties First 6 months of 2007 dividends(4) to subsidiaries (agency agreements between TNK-BP Holding and its subsidiaries for on ordinary shares 1.33 21,076 28.03.2008 on preference shares 1.33 598 28.03.2008 services by a single contractor);

Total 21,674 21,667 intra-group transfer of long-term financial investments (transfer of stocks and 2007 dividends(5) participation shares in subsidiaries to on ordinary shares 1.71 27,098 26.12.2008 optimize the TNK-BP Holding Group’s on preference shares 1.71 770 26.12.2008 corporate structure and settlement Total 27,868 27,855 procedure using securities);

license agreements with subsidiaries for First 6 months of 2008 dividends(6) trademark use rights; on ordinary shares 2.94 46,590 30.03.2009 on preference shares 2.94 1,323 30.03.2009 guarantee agreements by TNK-BP Holding Total 47,913 47,890 to third parties on subsidiaries’ obligations;

* Total declared and paid dividends include amounts related to TNK-BP Holding subsidiaries which own share in the Company’s charter capital. Detailed information about these subsidiaries is presented in the section Shareholders’ Equity. miscellaneous contracts where parties to 1 Decision made at the AGM on June 28, 2006. the contracts are TNK-BP Holding and its 2 Decision made at the EGM on November 15, 2006. subsidiaries. 3 Decision made at the AGM on June 15, 2007. The amount of 2006 dividends approved by the AGM on June 15, 2007 does not include dividends for 9 months of 2006 approved by the EGM on November 15, 2006. 4 Decision made at the EGM on September 28, 2007. The majority of these agreements are 5 Decision made at the AGM on June 26, 2008. executed by TNK-BP Holding within the 6 Decision made at the EGM on September 30, 2008. normal course of business. At TNK-BP Holding there are detailed procedures pursuant to which various structural subdivisions and committees control compliance of all related party transactions performed with the law and market terms.

* Detailed information about all related parties transactions approved by the TNK-BP Holding Board of Directors in 2008 is enclosed in the AGM material pack. No major transactions were made in the reporting year.

60 61 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

Consolidated Financial

results ZAO PricewaterhouseCoopers Audit 12 Kosmodamianskaya Nab. 52, Bld. 5 1,5054 Moscow Russia Telephone +7 (495) 967,6000 Facsimile +7 (495) 967,6001 www.pwc.ru

REPORT OF INDEPENDENT AUDITORS Consolidated Financial Statements as of and for To the Board of Directors and Shareholders of OAO TNK-BP Holding: the years ended 31 December 2008 and 31 December 2007 In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in shareholders’ equity present fairly, in all material respects, the financial position of OAO TNK-BP Holding and its subsidiaries at 31 December 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Moscow, Russian Federation 17 April 2009

62 63 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

RRConsolidated Balance Sheets RRConsolidated Statements of Income (expressed in millions of US Dollars, except as indicated) (expressed in millions of US Dollars)

Note 31 December 2008 31 December 2007 Year ended Year ended Note 31 December 2008 31 December 2007 Assets Revenues Cash and cash equivalents 5 917 635 Restricted cash 5 - 5 Sales and other operating revenues 15 45,128 34,995 Trade and other receivables, net 7 12,408 11,093 Inventories 8 628 1,103 Total revenues 45,128 34,995 Other current assets 188 202 Costs and other deductions

Total current assets 14,141 13,038 Export duties 13,528 9,256 Taxes other than income tax 14 10,884 7,560 Long-term investments 11 20 Operating expenses 5,032 3,713 Property, plant and equipment, net 9 16,022 13,901 Transportation expenses 2,614 2,239 Other long-term assets 1,005 945 Selling, general and administrative expenses 1,735 1,542 Total assets 31,179 27,904 Depreciation, depletion and amortization 1,452 1,341 Cost of purchased products 1,605 1,874 Liabilities and Shareholders’ Equity Loss on disposals and impairment of assets 160 88 Short-term debt and current portion of long-term debt 10 620 277 Exploration expenses 57 127 Trade accounts and notes payable 6,663 5,331 Total costs and other deductions 37,067 27,740 Other accounts payable and accrued expenses 11 491 741 Taxes payable 14 526 1,251 Other income and expenses Dividends payable 654 840 Earnings from equity investments 8 4 Total current liabilities 8,954 8,440 Gain on disposals of subsidiaries 60 105 Interest income and net other income 137 182 Long-term debt 10 1,184 1,582 Exchange gain, net 209 8 Asset retirement obligations 9 341 335 Interest expense (152) (167) Deferred income tax liabilities 13 561 927 Other long-term liabilities 319 327 Total other income and expenses 262 132 Income before income taxes 8,323 7,387 Total liabilities 11,359 11,611 and minority interest Commitments and contingencies 17 - - Income taxes Minority interest 817 708 Current tax expense 13 2,073 1,789 Common stock (authorized and issued – 15,847 million 12 550 550 Deferred tax benefit 13 (246) (336) shares, RUR 1.00 par value) Total income tax expense 1,827 1,453 Preferred stock (authorized and issued – 450 million 12 16 16 shares, RUR 1.00 par value) Treasury stock, at cost 12 (239) (239) Income before minority interest 6,496 5,934 Additional paid-in capital 4,933 4,933 Retained earnings 13,791 10,325 Minority interest 112 202 Accumulated other comprehensive loss (48) - Net income 6,384 5,732 Total shareholders’ equity 19,003 15,585 Net income per share of common stock 12 0.42 0.38 Total liabilities and shareholders’ equity 31,179 27,904 (US Dollars)

The accompanying notes are an integral part of these consolidated financial statements The accompanying notes are an integral part of these consolidated financial statements

64 65 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

RRConsolidated Statements of Cash Flows RRConsolidated Statements of Changes in Shareholders’ Equity (expressed in millions of US Dollars) (expressed in millions of US Dollars, except as indicated)

Year ended Year ended Year ended 31 December 2008 Year ended 31 December 2007 Note 31 December 2008 31 December 2007 Shareholders’ Comprehensive Shareholders’ Comprehensive Note equity income equity income Cash flows from operating activities

Net income 6,384 5,732 Common stock Adjustments to reconcile net income to net cash pro- vided by operating activities: Balance at 1 January 550 550 Depreciation, depletion and amortization 1,452 1,341 Balance at 31 December 550 550 Deferred income tax benefit (246) (336) Minority interest 112 202 Loss on disposals and impairment of assets 160 88 Preferred stock Gain on disposals of subsidiaries (60) (105) Balance at 1 January 16 16 Earnings from equity investments less dividends (4) (4) Balance at 31 December 16 16 received Non-cash provisions 163 (150) Dry hole expenses 8 16 Exchange loss/(gain) from investing and financing (492) 79 Treasury stock activities Balance at 1 January (239) (239) Other non-cash adjustments, net (10) 17 Balance at 31 December (239) (239) Changes in operational working capital, excluding cash and cash equivalents: Restricted cash 5 1 Additional paid-in capital Trade and other receivables, net (1,545) (2,935) Balance at 1 January 4,933 4,933 Inventories 448 (433) Balance at 31 December 4,933 4,933 Accounts and notes payable and accrued expenses 986 2,217 Taxes payable (721) (258) Other (39) 14 Retained earnings Net cash provided by operating activities 6,601 5,486 Balance at 1 January 10,325 6,228 Investing activities Net income 6,384 6,384 5,732 5,732 Dividends 12 (2,918) - (1,635) - Capital expenditures (3,724) (3,266) Balance at 31 December 13,791 10,325 Grants used for capital expenditures (622) (566) Grants received 673 486 Purchase of intangible assets (50) (55) Proceeds from disposals of property, plant and equip- 18 53 Accumulated other ment comprehensive loss Acquisitions of subsidiaries and joint ventures 4 - (739) Currency translation adjustment Proceeds from sales of subsidiaries and joint ventures 61 160 Balance at 1 January - - Promissory notes repaid 167 - Change during the year (48) (48) - - Loans issued (161) (138) Balance at 31 December (48) 15,585 Loans repaid 75 450

Net cash used for investing activities (3,563) (3,615) Total comprehensive income for the year 6,336 5,732 Financing activities Total Shareholders’ equity at 31 December 19,003 15,585 Proceeds from issuance of long-term debt 825 1,245 Cost associated with issuance of debt (6) - Repayment of long-term debt (964) (819) Proceeds from issuance of short-term debt 703 294 Repayment of short-term debt (426) (415) 31 December 2008 31 December 2007 Dividends paid to minorities (4) - (millions of shares) (millions of shares) Dividends paid to shareholders (2,856) (2,420) Number of Ordinary shares issued Net cash used for financing activities (2,728) (2,115) At 1 January 15,847 15,847 Effect of exchange rate changes on cash and cash (28) 52 At 31 December 15,847 15,847 equivalents Number of Preferred shares issued Net change in cash and cash equivalents 282 (192) At 1 January 450 450 Cash and cash equivalents at beginning of period 635 827 At 31 December 450 450 Cash and cash equivalents at end of period 917 635 Number of Treasury shares issued

At 1 January (850) (850) At 31 December (850) (850)

The accompanying notes are an integral part of these consolidated financial statements The accompanying notes are an integral part of these consolidated financial statements

66 67 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

Note 1: Organization Note 2: Basis of Presentation

OAO TNK-BP Holding (‘TBH’ or ‘the Company’) is a subsidiary of TNK-BP Limited (‘TNK-BP’), The consolidated financial statements of the Group are prepared in accordance with a British Virgin Islands company. TNK-BP was formed effective 29 August 2003 by the Alfa accounting principles generally accepted in the United States of America (‘US GAAP’). Group, the Access-Renova Group (jointly ‘AAR’) and BP, to hold their respective interests in their Russian and Ukrainian oil and gas assets. AAR contributed its 100 percent interest in TNK The Company and its subsidiaries maintain their accounting records in accordance with the Industrial Holdings Limited which held a 100 percent interest in TNK-BP International Limited, Regulations on Accounting and Reporting in the Russian Federation. The accompanying which in turn owned a 96.1 percent interest in OAO Tyumen Oil Company (‘TNK’) and a 100 consolidated financial statements have been prepared from these accounting records and percent interest in Sborsare Management Limited, which in turn effectively held a 68 percent adjusted as necessary in order to comply with US GAAP. interest in OAO Sidanco (‘Sidanco’) for its 50.0 percent interest in TNK-BP. BP contributed its 29.6 percent interest in Sidanco, 33.4 percent interest in OAO Rusia Petroleum (‘Rusia In preparing the consolidated financial statements in conformity with US GAAP, management Petroleum’) and 75.0 percent interest in BP Moscow Retail (‘BP Retail Assets’), for its 50.0 makes estimates and assumptions that affect the reported amounts of assets and liabilities, percent interest in TNK-BP. BP also made a balancing payment directly to AAR in cash and BP revenues and expenses and the disclosure of contingent assets and liabilities. Actual results shares, payable over three years. could differ from such estimates.

In 2005, TNK-BP completed a number of steps under its corporate restructuring program. RR eporting and functional currency Pursuant to the program, in December 2005 TBH, a newly created holding company, The Company has determined that the United States (‘US’) dollar is the reporting currency for accessioned TNK, Sidanco and OAO ONAKO (‘ONAKO’), key holding companies of TNK- the purposes of financial reporting under US GAAP. BP in Russia. As part of this accession, TBH issued shares to the minority interest holders in these entities. Furthermore, most of the minority shareholders in 14 key subsidiaries of TNK-BP For the majority of subsidiaries of the Group, the functional currency is the US dollar as a in Russia were consolidated within TBH through a voluntary share exchange program also significant portion of the Group’s business is conducted in US dollars; management uses completed in December 2005. the US dollar to manage the Group’s financial risks and exposures, and to measure its performance. As a result of these accessions and the above described share exchange, minority shareholders received approximately 5% of the shares in TBH. All purchases of minority The local currency of all subsidiaries of the Group is the Russian Rouble (‘RUR’). For the interests have been treated as acquisitions and accounted for using the purchase method of purposes of financial reporting under US GAAP, transactions and balances have been accounting. remeasured into the functional currency of the subsidiary, which, in the majority of cases, is the US dollar. In accordance with the relevant provisions of The Company and its subsidiaries (jointly referred to as ‘the Group’) conduct exploration and Statement of Financial Accounting Standards (‘SFAS’) No. 52, Foreign Currency Translation, development activities and produce oil and gas in the Russian Federation, operate petroleum monetary assets and liabilities are remeasured at closing exchange rates and non-monetary refineries and market oil and petroleum products in the Russian Federation. items are remeasured at historic exchange rates and adjusted for any impairment. The consolidated statements of income and of cash flows have been remeasured at the average TNK-BP’s assets held outside of TBH include its equity interest in OAO NGK Slavneft, interests exchange rates during the period. Exchange differences resulting from the use of these in OAO Rusia Petroleum, OAO East Siberian Gas Company, the BP Retail Assets and its exchange rates have been included in the determination of net income and are included in net Ukrainian businesses referred to above. exchange gains and losses in the accompanying consolidated statements of income.

The functional currency of certain subsidiaries, such as oil field services companies (‘OFS’), is the Russian Rouble as the primary economic environment of these entities is the local market.

As of 31 December 2008 and 2007, exchange rates were 29.38 and 24.55 Russian Roubles to the US dollar, respectively. Average exchange rates for 2008 and 2007 were 24.86 and 25.58 Russian Roubles to the US dollar, respectively.

Any remeasurement of Russian Rouble amounts to US dollars should not be construed as a representation that such Russian Rouble amounts have been, could be, or will in the future be converted into US dollars at the exchange rate shown or at any other exchange rate.

RRComparative amounts Certain changes have been made to the prior period presentation to conform with current year presentation. These changes have no effect on shareholders’ equity or net income.

68 69 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

RRCapital grants Note 3: Summary of Significant Accounting Policies The Group recognizes capital grants from local governments when there is a reasonable assurance that the Group will comply with the conditions attached and that the grant will be RRPrinciples of consolidation received. The capital grants are accounted for as a reduction of the cost of the asset for which The consolidated financial statements include the operations of all entities in which the Group the grant is received. directly or indirectly owns or controls more than 50 percent of the voting stock and variable interest entities in which the Group is the primary beneficiary. Joint ventures and investments RRAsset retirement obligations in which the Group has voting ownership interests between 20 and 50 percent and where the The Group incurs retirement obligations for its upstream assets. The fair values of these Group exerts significant influence are accounted for using the equity method. Investments in obligations are recorded as liabilities on a discounted basis, which is typically at the time other companies are accounted for at cost and adjusted for estimated impairment. the assets are installed. The costs associated with these liabilities are capitalized as part of the related assets and depleted as the reserves are produced. Over time, the liabilities are RRCash equivalents accreted for the change in present value. Asset retirement obligations are not recorded for Cash equivalents include all liquid securities with original maturities of three months or less downstream facilities, because such potential obligations cannot be measured since it is not when acquired. possible to estimate the settlement dates.

RRAccounts receivable RREnvironmental liabilities Accounts receivable are presented at net realizable value and include value-added and excise Liabilities for environmental remediation are recorded when it is probable that obligations have taxes. been incurred and the amounts can be reasonably estimated. Environmental remediation liabilities are not discounted for the time value of future expected payments. Environmental RRInventories expenditures that have future benefit are capitalized. Inventories are valued at the lower of cost, using the average method, or net realisable value. Costs include applicable purchase costs and production costs. RRDerivative instruments The Group recognizes all derivatives as either assets or liabilities in the balance sheet and RRProperty, PLant and equipment measures those instruments at fair value. The accounting for changes in fair value depends on The Group follows the successful efforts method of accounting for its oil and gas properties its intended use and designation and could entail recording the gain or loss through earnings whereby property acquisitions, successful exploratory wells, all development costs (including of the current period or as part of other comprehensive income and subsequently reclassifying development dry holes), and support equipment and facilities are capitalized. Under this into earnings when the gain or loss is realized. method, costs are accumulated with certain exploratory expenditures and exploratory dry holes being expensed as incurred. The Group carries exploratory well costs as an asset when RRPension and post-employment benefits the well has found a sufficient quantity of reserves to justify its completion as a producing The Group’s mandatory contributions to the governmental pension plan are expensed when well and where the Group is making sufficient progress assessing the reserves and the incurred. Discretionary pensions and other post-employment benefits are not material. economic and operating viability of the project. Exploratory well costs not meeting these criteria are charged to expense. Production costs, overheads, and all exploration costs other RR evenue recognition than exploratory drilling are charged to expense as incurred. Acquisition costs of unproved Revenues from the production and sale of crude oil and petroleum products are recognized properties are evaluated periodically and any impairment assessed is charged to expense. when title has transferred and collectibility is reasonably assured. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another Proved oil and gas properties and other long-lived assets are assessed for possible impairment are combined, considered as a single arrangement and netted against each other on the in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived consolidated statements of income. When the Group companies act as an agent for purchases Assets, which requires long-lived assets with recorded values that are not expected to be and sales of inventory, they are also reported on a net basis. recovered through future cash flows to be written down to current fair value. Fair value is generally determined by estimating discounted future net cash flows to be generated by the RRIncome taxes assets. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets Depreciation, depletion and amortization of capitalized costs of proved oil and gas properties and liabilities and their respective tax bases, in accordance with SFAS No. 109, Accounting and equipment is calculated using the unit-of-production method for each field based upon for Income Taxes. Deferred income tax assets and liabilities are measured using enacted tax proved reserves for property acquisitions and proved developed reserves for exploration and rates in the years in which these temporary differences are expected to reverse. Included development costs. In both cases the proved reserves data used is estimated on a ‘life of field’ in this calculation are deferred income taxes for unremitted earnings of equity affiliates and basis as management believes it will continue to be successful in the renewal of its oil and gas subsidiaries on basis differences between the relevant parent company financial statement licences. carrying amounts and the respective tax basis of its investments in subsidiaries and equity affiliates. Management periodically assesses possible methods of remitting the earnings to the Property, plant and equipment which is not associated with exploration and production parent and adjusts the liability to the amount calculated at enacted rates corresponding to the activities are carried at cost less accumulated depreciation. Depreciation of these assets is expected method of distribution. Valuation allowances are provided for deferred income tax calculated on a straight-line basis as follows: assets when management believes it is more likely than not that the assets will not be realized.

Buildings and constructions 5 - 33 years The Group applies the provisions of Financial Accounting Standards Board (‘FASB’) Interpretation Machinery and equipment 5 - 15 years No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an interpretation of SFAS No. 109, and prescribes a comprehensive model for recognizing, measuring, presenting and Maintenance and repairs and minor renewals are expensed as incurred. Major renewals and disclosing in the financial statements uncertain tax positions that the Company has taken or improvements which extend the useful lives of the assets are capitalized. expects to take in its income tax returns. Income tax penalties expense and payable are included in Taxes other than income tax expense in the consolidated statements of income and Taxes payable in the consolidated balance sheets, respectively. Income tax interest expense and payable are included in Interest expense in the consolidated statements of income and Other accounts payable in the consolidated balance sheets, respectively.

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notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

RRComprehensive income In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting The Group’s comprehensive income consists of net income and other comprehensive income Principles. This Statement is intended to improve financial reporting by identifying a consistent represented by currency translation adjustments related to those subsidiaries, which functional framework, or hierarchy, for selecting accounting principles to be used in preparing financial currency is different from the reporting currency of the Group. statements that are presented in conformity with US GAAP. The Statement is not yet effective pending regulatory approval in the United States of America. The Group does not expect this RRAccounting changes Statement to have a material impact on the preparation of its consolidated financial statements. In September 2006, SFAS No. 157, Fair Value Measurements, was issued and became effective for the Group on 1 January 2008 for items that are recognized at fair value in the In April 2008, the FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, financial statements on a recurring basis. For the recognition, measurement and disclosure was issued and becomes effective for the Group on 1 January 2009. The FSP amends SFAS of other nonfinancial assets and liabilities the Statement becomes effective for the Group on No. 142, Goodwill and Other Intangible Assets, to improve the consistency between the useful 1 January 2009. The Statement defines fair value, establishes a framework for measuring fair life of a recognized intangible asset under SFAS No. 142 and the period of expected cash value and expands disclosures about fair value measurements. The adoption of this Statement flows used to measure the fair value of the asset under SFAS No. 141, Business Combinations, for the items that are recognized at fair value in the financial statements on a recurring basis and other accounting standards. The guidance for determining the useful life of a recognized had no material effect on the Group’s results of operations, financial position or liquidity. intangible asset is to be applied prospectively.

In February 2007, SFAS No. 159, The Fair Value Option for Financial Assets and Financial In November 2008, FASB Emerging Issues Task Force (‘EITF’) No. 08-6, Equity Method Liabilities including an amendment of SFAS No. 115, was issued and became effective for the Investment Accounting Considerations, was issued and becomes effective for the Group on Group on 1 January 2008. This Statement permits entities to choose to measure many financial 1 January 2009. This EITF clarifies certain issues raised by SFAS No. 141 and SFAS No. 160 instruments and certain other items at fair value. Upon adoption of this Statement, the Group in relation to equity method accounted investments, including impairment considerations. The did not change its accounting policy for the measurement of financial instruments. Group is currently evaluating the impact of this EITF.

In October 2008, FASB Staff Position (‘FSP’) No. FAS 157-3, Determining the Fair value of In November 2008, FASB EITF No. 08-7, Accounting for Defensive Intangible Assets, was a Financial Asset When the Market for That Asset Is Not Active, was issued and becomes issued and becomes effective for the Group on 1 January 2009. This EITF clarifies how to effective for the group upon issuance. The FSP clarifies the application of SFAS No. 157 and account for defensive intangible assets subsequent to initial measurement. This Issue applies illustrates key considerations in determining the fair value for a financial asset when the market to acquired intangible assets in situations in which an entity does not intend to actively use the for that asset is not active. The adoption of this FSP had no material effect on the Group’s asset but intends to hold the asset to prevent others from obtaining access to the asset, except results of operations, financial position or liquidity. for intangible assets that are used in research and development activities. The Group does not expect this EITF to have a material impact on its consolidated financial statements. RR ecent accounting standards In December 2007, SFAS No. 141(R), Business Combinations, was issued and becomes In December 2008, FSP No. FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities about effective for the Group on 1 January 2009. This Statement provides guidance for recognition Transfers of Financial Assets and Interests in Variable Interest Entities, was issued. This Position and measurement in the financial statements of the identifiable assets acquired, the liabilities requires public entities to provide additional disclosures about transfers of financial assets assumed and noncontrolling interest in the acquiree. The statement similarly provides guidance and involvement with variable interest entities. The Group does not expect this FSP to have a for accounting for goodwill acquired in a business combination or a gain arising from a bargain material impact on the preparation of its consolidated statements. purchase. The Group is currently evaluating the impact of this Statement. In February 2009, the FASB voted to issue FSP FAS 141 (R)-a, Accounting for Assets Acquired In December 2007, SFAS No. 160, Noncontrolling Interests in Consolidated Financial and Liabilities Assumed in a Business Combination That Arise From Contingencies, which Statements including an amendment of ARB No. 51, was issued and becomes effective for the will amend the provisions related to the initial recognition and measurement, subsequent Group on 1 January 2009. This Statement provides new standards to govern the accounting measurement and disclosure of assets and liabilities arising from contingencies in a business and reporting for noncontrolling (minority) interests in partially owned consolidated subsidiaries combination under SFAS 141 (R). This FSP would require for acquired contingencies, and for the loss of control of subsidiaries. The Statement establishes that a noncontrolling to recognize such contingencies at fair value on the acquisition date if fair value can be interest in a subsidiary is an ownership interest in the consolidated entity that should be reasonably estimated during the allocation period. This FSP is expected to be issued in the reported as equity in the consolidated financial statements. The Group is currently evaluating near term, effective for the first annual reporting period beginning on or after 1 January 2009. the impact of this Statement. The Group does not expect this FSP to have a material impact on its consolidated financial statements. In March 2008, SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, was issued and becomes effective for the Group on 1 January 2009. This Statement requires enhanced disclosures about how and why an activity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Group does not expect this Statement to have a material impact on the preparation of its consolidated financial statements.

72 73 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

Note 4: Acquisitions of Subsidiaries Note 6: Financial and Derivative Instruments and Minority Shareholders Interests RRFair values In January 2007, the Group completed the acquisition of the 50 percent of the share capital of The estimated fair values of financial instruments are determined with reference to various OOO JV Vanyoganneft (‘Vanyoganneft’) not previously held by the Group for USD 485 million in market information and other valuation methodologies as considered appropriate. In the cash. This acquisition has been accounted for using the purchase method. The consideration absence of quoted market values, considerable judgement is required in interpreting market paid was assigned as follows: data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts that the Group could realize or settle in a market transaction. Certain of these Oil and gas unproved properties 451 Oil and gas proved properties and equipment 143 financial instruments are with major financial institutions and expose the Group to market and Other assets 50 credit risk. The creditworthiness of these institutions is routinely reviewed and full performance Long-term deferred income tax liability (117) is anticipated. The Group is also exposed to credit risk in the event of non-payment by Other liabilities (42) counterparties. The creditworthiness of customers and other counterparties is continually Total consideration paid 485 reviewed. The methods and assumptions used to estimate fair value of each class of financial instrument are presented below. Effective 18 January 2007, the Group consolidated its interests in Vanyoganneft and no longer used the equity method of accounting. From 18 January 2007 through 31 December 2007 RRCash and cash equivalents, accounts receivable and accounts payable net income of Vanyoganneft included in the consolidated Statement of Income of the Group The carrying amounts of these items are a reasonable approximation of their fair value. amounted to USD 78 million. RRShort-term debt In August 2007, the Group announced its plans regarding the compulsory buy-out of shares Loan arrangements have both fixed and variable interest rates that reflect the currently from minority shareholders in five subsidiary companies in which the Group holds more than available terms for similar debt. The carrying value of this debt is a reasonable approximation 95 percent of the voting shares. The five subsidiary companies are OAO ‘Orenburgneft’, of its fair value. OAO ‘Orenburggeologia’, OAO ‘Ryazannefteproduct’, OAO ‘Kaluganefteproduct’, OAO ‘Novosibirskneftegaz’. In October 2007, the Group received all the shares from the minority RRLong-term debt shareholders of these subsidiaries. The consideration for the purchase of these shares Loans under bank arrangements and significant loans from related parties have variable amounted to USD 175 million. interest rates that reflect currently available terms and conditions for similar debt. The carrying value of the debt to banks and to related parties is a reasonable approximation of its fair value.

Note 5: Cash and Cash Equivalents RRDerivative instruments and Supplemental Cash Flow Information The strategy of the Group is to obtain competitive prices for its hydrocarbons and allow operating results to reflect market price movements dictated by supply and demand. The As of 31 December 2007, restricted cash included cash deposits used to secure bank debt Group seeks, however, to minimize the distorting effects of individual markets where, for and open letters of credit. example, it has to negotiate fixed prices within a narrow trading window. To mitigate the price risks of these markets, the Group employs short-term price swaps. As of 31 December 2008 and 2007, cash balances included accounts denominated in Russian Roubles of USD 114 million and USD 499 million, respectively. Derivatives are included at fair value in Other current assets or Other accounts payable and accrued expenses. As of 31 December 2008 Other current assets included USD 11 During the years ended 31 December 2008 and 31 December 2007, cash payments for million related to the fair value of derivatives. The Group reported a net loss related to these interest totalled USD 16 million and USD 124 million, respectively, payments for income derivatives of USD 2 million for 2008. Fair values are calculated by the Group based on quoted tax excluding withholding tax on intragroup dividends totalled USD 2,374 million and market prices for hydrocarbons futures. No derivative instruments were entered into in 2007. USD 1,566 million, respectively, and payments for withholding tax on intragroup dividends totalled USD 8 million and USD 15 million, respectively. For the derivative instruments entered into in 2008, the Company did not apply hedge accounting under the provisions of SFAS No. 133. Gains and losses related to changes in the fair value of derivatives were recognised in the consolidated statements of income within Interest income and net other income. The Group maintains a system of controls that includes the authorization, reporting and monitoring of derivative activity. The limited derivative activities of the Group pose no material credit or market risks to its operations, financial condition or liquidity.

74 75 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

During the year ended 31 December 2008 the Group recognized impairment of oil and gas Note 7: Trade and Other Receivables, net assets in the amount of USD 134 million recorded in the Loss on disposals and impairment of assets in the consolidated statement of income, including USD 49 million related to unproved 31 December 2008 31 December 2007 properties. During the year ended 31 December 2007, no impairment was recognized in Trade accounts and notes receivable 10,028 7,364 respect of oil and gas assets. (net of allowance for doubtful accounts of USD 14 million and USD 28 million as of 31 December 2008 and 2007, The Group’s oil and gas fields are situated on land belonging to government authorities. The respectively) Advances issued 1,149 1,295 Group obtains licenses from such authorities and pays exploration and production taxes (net of allowance for doubtful accounts of USD 5 million to explore and produce oil and gas from these fields. These licenses may be extended and USD 4 million as of 31 December 2008 and 2007, provided the Group is in compliance with the license terms and approval is obtained from the respectively) appropriate regulatory authorities. Management expects to extend such licenses for properties Recoverable value-added tax 844 1,982 Taxes receivable 272 160 expected to have production subsequent to their license expiry dates. Other accounts and notes receivables 115 292 (net of allowance for doubtful accounts of USD 6 million The following tables provide details of the changes in the balance of capitalized exploratory and USD 8 million as of 31 December 2008 and 2007, respectively) well costs pending the determination of proved reserves as well as an aging summary of those Total trade and other receivables, net 12,408 11,093 costs. Balance as of 31 December 2006 52 Included in Trade accounts and notes receivable are amounts due from TNK-BP controlled Additions to capitalized exploratory well costs pending the determination of proved reserves 73 companies of USD 9,776 million and USD 6,786 million as of 31 December 2008 and 2007, Additions to capitalized exploratory well costs pending the determination of proved reserves respectively – see note 16. recognized on the acquisition of subsidiaries 12 Reclassifications to wells, facilities, and equipment based on the determination of proved reserves (33) Capitalized exploratory well costs charged to expense (15) Advances issued mainly relate to prepayments to customs and prepayments for transportation services. Balance as of 31 December 2007 89 Additions to capitalized exploratory well costs pending the determination of proved reserves 88 Recoverable value-added tax balances mainly relate to crude oil and petroleum products Reclassifications to wells, facilities, and equipment based on the determination of proved reserves (55) Capitalized exploratory well costs charged to expense (14) export sale activities. As of 31 December 2008 and 31 December 2007, USD 55 million and USD 181 million of export value-added tax, respectively, is not expected to be received within Balance as of 31 December 2008 108 twelve months and has therefore been included in Other long-term assets. The following table provides an aging of capitalized exploratory well costs based on the date the drilling was completed: Note 8: Inventories 31 December 2008 31 December 2007 Capitalized exploratory well costs that have been capitalized for a period of one year or less 80 59 31 December 2008 31 December 2007 Capitalized exploratory well costs that have been capitalized for a period greater than one year 28 30 Crude oil and petroleum products 367 689 Materials and supplies 261 414 Number of projects that have exploratory well costs that have been capitalized for a period greater than one year 5 6 Total inventories 628 1,103

Exploratory well costs that have been capitalized for a period of greater than one year since the completion of drilling consist of costs in the amount of USD 28 million incurred in 2004- 2007 in relation to the projects described below, including the Rospan project (USD 9 million), Note 9: Property, Plant and Equipment the Orenburg project (USD 6 million). For each of these projects exploratory wells have also and Asset Retirement Obligations been drilled in the proceeding 12 months and further exploration drilling is planned in the next year. Accumulated Net book Cost DD&A value

Oil and gas, including: 14,805 (4,080) 10,725 Unproved properties 1,077 - 1,077 Refining, marketing and distribution 1,879 (583) 1,296 Oil field services 629 (438) 191 Other 244 (69) 175 Assets under construction, including: 1,514 - 1,514 Capitalized exploratory well costs pending the determination of proved reserves 89 - 89

Balance as of 31 December 2007 19,071 (5,170) 13,901

Oil and gas, including: 16,917 (4,829) 12,088 Unproved properties 1,019 - 1,019 Refining, marketing and distribution 2,158 (765) 1,393 Oil field services 529 (306) 223 Other 281 (85) 196 Assets under construction, including: 2,122 - 2,122 Capitalized exploratory well costs pending the determination of proved reserves 108 - 108

Balance as of 31 December 2008 22,007 (5,985) 16,022

76 77 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

The following table provides details of the projects: Short-term debt as of 31 December 2008 was provided by international and Russian banks for funding of working capital and consisted both of secured and unsecured facilities. The Cost as of weighted average interest rate in short-term borrowings outstanding as of 31 December 2008 31 December and 31 December 2007 is 11.01% and 5.36% respectively. Projects 2008 Comment

Orenburg 44 The project covers exploration and development activities in the Orenburg RRSecured loans project region. These activities are being carried out in areas adjoining large developed In December 2008, the Group obtained a short-term credit line with credit limit of USD 400 and producing areas. A 100% success rate of exploration drilling has been million. The loan matures in one year and is to be repaid in four equal installments starting achieved over the last two years, with the associated reserves additions being brought into development in less than one year. The Group plans to continue from September 2009. The credit line is secured by mortgage of office property, pledge of exploration drilling in those areas of the Orenburg region where high drilling suc- land lease rights and pledge of rights under an oil products delivery contract. The loan amount cess rate could be achieved or where it is possible to promptly bring reserves outstanding as of 31 December 2008 was USD 400 million. into development. Rospan project 26 The Rospan project refers to the large gas and condensate field in the Yamalo- Long-term debt is as follows: Nenets Autonomous District. While the reserves already developed cover many years of production at current levels, there is potential for a significant increase 31 December 2008 31 December 2007 in gas output in the event that the restrictions over access to the gas pipeline infrastructure are removed. An optimisation of the flows and infrastructure of Long-term debt received from third parties: Rospan and other Group’s subsidiaries in the area is also expected to generate significant synergies. For these reasons as well as for license compliance, work Pre-export finance, US dollar denominated — to explore and appraise the currently unproved areas is underway. variable interest debt (Libor plus 2.85 percent) 150 - Russian Rouble denominated loans 212 146 Nizhnevartovsk 8 Exploration drilling in Nizhnevartovsk is part of the program for increasing Long-term debt received from TNK-BP brownfields production. Within this program, prospecting and exploration is carried out on controlled companies: adjacent areas which are characterized by much higher flow rates compared to the rates of producing wells in the main fields. The vicinity of these new areas to US dollar denominated loans - 907 Russian Rouble denominated loans 897 537 the existing fields (Samotlor, Bakhilovskoye, Verkhne-Kolikyeganskoye) enables Less: current portion of long-term debt received the existing infrastructure to be used and to efficiently bring into development from third parties (30) - new deposits within a short timeframe. Less: current portion of long-term debt received Other fields 30 Exploration and appraisal work is being carried out on potential commercial from TNK-BP controlled companies (45) (8) hydrocarbon quantities; assessments have been completed in a number of Total long-term debt 1,184 1,582 cases; certain development options have been identified and are either under evaluation or in the process of execution. Total costs RRPre-export collateralized finance capitalized 108 In December 2008, the Group entered into an agreement for up to USD 750 million loan facility with a consortium of international banks. The facility matures in November 2011 and bears Asset retirement obligations are as follows: interest at LIBOR plus 2.85 percent. The loan is to be repaid in ten equal installments starting Balance as of 31 December 2006 231 from August 2009. The facility is secured by assignment of crude oil export contracts. In 2008, the loan was drawn for USD 150 million, this amount was outstanding as of 31 December 2008. Accretion expense 15 Liabilities of acquired subsidiaries 8 R Liabilities incurred in the current period 24 R ussian rouble denominated long-term debt received from third parties Liabilities settled in the current period (26) Long-term debt received from third parties is represented by seven RUR denominated facilities Change in estimated costs and timing 83 with total amount of Russian Roubles 6.3 billion (USD 0.2 billion) and RUR 3.5 billion (USD Balance as of 31 December 2007 335 0.1 billion) outstanding as of 31 December 2008 and 31 December 2007, respectively. These facilities bear interest at the refinancing rate of the Russian Central Bank (13 percent and Accretion expense 20 10 percent as of 31 December 2008 and 31 December 2007, respectively) and mature in Liabilities incurred in the current period 23 Liabilities settled in the current period (22) December 2011 through September 2013, with interest payable at maturity. Change in estimated costs and timing (15) RRLong-term debt received from TNK-BP controlled companies Balance as of 31 December 2008 341 Apart from long-term debt received from third parties, the Group has obtained loans from Russian and offshore TNK-BP controlled companies which are not part of the Group. The total amount of these liabilities as of 31 December 2008 and 31 December 2007 was USD 0.9 billion and USD 1.4 billion, respectively. Note 10: Debt

Short-term debt and the current portion of long-term debt is as follows: 31 December 2008 31 December 2007

Obligations to banks, US dollar denominated Unsecured loans with composite variable interest 50 210 Unsecured loans with fixed interest 95 - Secured loans with fixed interest 400 - Current portion of long-term debt received from third parties 30 - Other short-term debt - 59 Current portion of long-term debt received from TNK-BP controlled entities 45 8

Total short-term debt and the current portion of long-term debt 620 277

78 79 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

The RUR denominated loans received from TNK-BP controlled companies are mainly RREarnings per share represented by a number of facilities received by a subsidiary of the Group with a total amount The calculation of earnings per share for the reporting period was as follows: of RUR 19.2 billion (USD 0.7 billion) and RUR 12.2 billion (USD 0.5 billion) outstanding as of 31 December 2008 and 31 December 2007, respectively. These facilities bear interest at the Year ended Year ended refinancing rate of the Russian Central Bank with interest payable at the maturity of the loans 31 December 2008 31 December 2007

with the final maturity in September 2013. Net income 6,384 5,732 Deduct dividends declared on preferred stock (85) (48)

The major part of USD denominated debt received from TNK-BP controlled companies Net income available to common shareholders 6,299 5,684 outstanding as of 31 December 2007 was represented by loans obtained by TBH with a total Weighted average number of common shares, millions amount of USD 0.8 billion with maturity in March 2012. These loans bore composite variable of shares 15,847 15,847 interest of LIBOR plus 0.7 percent and were repaid ahead of schedule in 2008. Deduct weighted average number of treasury shares, millions of shares (850) (850)

Aggregate maturities of long-term debt outstanding as of 31 December 2008 are as follows: Weighted average number of outstanding common shares, Millions of shares 14,997 14,997 31 December 2008 Earnings per share 0.42 0.38

Debt payable to third parties As of 31 December 2008 and 2007, the Company had no securities which would have a 2010 60 2011 102 dilutive effect on net income per share of common stock. 2012 87 2013 85 Note 13: Income taxes Debt payable to TNK-BP controlled companies 2010 42 2011 116 The Group is not subject to corporate income tax on a consolidated basis, rather Group 2012 230 entities are assessed for corporate income taxes on an individual basis. For the years ended 2013 462 31 December 2008 and 31 December 2007 the statutory corporate income tax rate in the Total long-term debt 1,184 Russian Federation is 24 percent. The Group calculates deferred income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. For an entity using the US dollar as a functional currency, SFAS No. 109 requires deferred income taxes to be computed on non- current assets in local currencies (Russian Roubles in the Group’s case) by comparing the Note 11: Other Accounts Payable and Accrued Expenses historical book and tax basis in local currency after the respective depreciation but before any indexing for either book or tax purposes. The local currency deferred income tax is then 31 December 2008 31 December 2007 remeasured into US dollars using the prevailing year-end exchange rate.

Salaries payable and other related costs 195 192 Advances from customers 179 389 Deferred income tax reflects the impact of temporary differences between the carrying Interest accrued 9 19 values of assets and liabilities recognized for financial reporting purposes and such amounts Other 108 141 recognized for statutory tax purposes. Total other accounts payable and accrued expenses 491 741 The total of deferred tax liabilities and the total of deferred tax assets as of 31 December 2008 amounted to USD 644 million and USD 327 million, respectively. In November 2008, a new As of 31 December 2008 and 31 December 2007, interest accrued includes income tax statutory corporate income tax rate applicable in the Russian Federation of 20% was enacted interest payable of USD 6 million and 3 million, respectively – see Note 13. effective 1 January 2009. Accordingly, deferred tax liabilities and assets of the Group as of 31 December 2008 were calculated using the new rate. The total of deferred tax liabilities and As of 31 December 2008 and 31 December 2007, the Group had long-term interest accrued the total of deferred tax assets as of 31 December 2007 amounted to USD 1,056 million and amounting to USD 123 million and USD 54 million, respectively, which was included in Other USD 378 million, respectively. long-term liabilities. Deferred income taxes are included in the consolidated balance sheet as follows:

Note 12: Shareholders’ Equity 31 December 2008 31 December 2007

The share capital of the Company comprises 15,847 million authorized and issued ordinary Assets shares of RUR 1 par value and 450 million authorized, issued and outstanding non-cumulative Other current assets 104 105 Other long-term assets 140 147 preferred shares of RUR 1 par value. Liabilities The treasury stock of the Company comprises 850 million ordinary shares, which are held at cost. Taxes payable - 3 The treasury stock was acquired in the course of TNK-BP’s corporate restructuring program. Deferred income tax liability –non-current 561 927 Net deferred income tax liabilities 317 678 Profits available for distribution to shareholders in respect of any reporting period are determined by reference to the statutory financial statements of the Company and its subsidiaries prepared in accordance with the law of the Russian Federation and denominated in Russian Roubles.

During the years ended 31 December 2008 and 31 December 2007 the Group declared dividends of USD 2,918 million and USD 1,635 million, respectively.

80 81 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

The following table sets out the tax effects of each type of temporary differences which give RRUncertain tax positions rise to deferred income tax assets and liabilities: The Group adopted the provisions of FIN 48 on 1 January 2007. The implementation of FIN 48 did not result in a change in the liability for unrecognized tax benefits as of 1 January 2007. 31 December 2008 31 December 2007 A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the Long-term liabilities 104 114 years ending 31 December 2008 and 31 December 2007 is as follows: Operating loss carry forward 68 42 Balance as of 31 December 2006 42 Accounts payable 67 98 Property, plant and equipment 25 29 Additions for tax positions of prior years 15 Inventories 15 8 Reductions for tax positions of prior years (22) Other 48 87 Exchange loss 2

Deferred income tax assets 327 378 Balance as of 31 December 2007 37

Property, plant and equipment 628 1,011 Settlements (27) Inventories 9 33 Additions for tax positions of prior years 8 Other 7 12 Reductions for tax positions of prior years (7) Exchange gain (1) Deferred income tax liability 644 1,056 Balance as of 31 December 2008 10 Net deferred income tax liability 317 678

In 2004, the Group entered into an agreement with the Tyumen regional authorities which As of 31 December 2008 and as of 31 December 2007, the amount of the unrecognized tax granted certain subsidiaries of the Group a tax concession by way of a four percent relief to benefit which, if recognized in the future, would favorably impact the effective tax rate is USD the statutory corporate income tax rate subject to certain subsidiaries of the Group making 10 million and USD 37 million, respectively. qualified capital investments in the region. In 2006, the Group entered into a similar agreement with the Orenburg regional authorities. For the years ended 31 December 2008 and 31 During the year ended 31 December 2008, the Group recognized a charge of USD 15 million December 2007, the Group’s income tax expense in the accompanying financial statements related to income tax interest and a net credit of USD 17 million related to income tax penalties includes a tax benefit relating to these tax concessions of USD 359 million and USD 286 which are included in Interest expense and Taxes other than income tax, respectively, in million, respectively. the consolidated statement of income. As of 31 December 2008, the Group had recorded USD 6 million for income tax interest payable and USD 4 million for income tax penalties In addition, during the year ended 31 December 2007, the Group recognized a tax benefit payable which are included in Other accounts payable and Taxes payable, respectively, in the related to the reversal of tax accruals of USD 170 million resulting from the enactment of consolidated balance sheet. legislation in the Russian Federation which, provided certain conditions are met, eliminated the requirement to withhold taxes on the payment of intragroup dividends within the Russian During the year ended 31 December 2007, the Group recognized a gain of USD 1 million Federation. These benefits are offset by certain non-deductible expenses and accrual of related to income tax interest and a net credit of USD 49 million related to income tax penalties withholding tax on earnings to be distributed to the Group foreign holding companies. The which are included in Interest expense and Taxes other than income tax, respectively, in effective tax rate of the Group approximated 22 percent and 20 percent for the years ended the consolidated statement of income. As of 31 December 2007, the Group had recorded 31 December 2008 and 31 December 2007, respectively. USD 3 million for income tax interest payable and USD 3 million for income tax penalties payable which are included in Other accounts payable and accrued expenses and Taxes Year ended Year ended payable, respectively, in the consolidated balance sheet. 31 December 2008 31 December 2007

Income before income taxes 8,323 7,387 The tax returns of the Russian subsidiary companies in respect of the years ended 31 December 2008, 2007 and 2006 remain subject to examination by the Russian Tax Authorities. Notional income tax at Russian statutory rate 1,998 1,773 Increase (reduction) in income tax due to: Based on management’s interpretation of current legislation, there are no uncertain tax Domestic tax rate differences (359) (286) positions which are reasonably possible to change significantly during the next twelve months Unremitted earnings of subsidiaries and equity affiliates although, as discussed in Note 17, such legislation is subject to varying interpretations by the and withholding tax on intragroup dividends 17 (170) tax authorities. Foreign exchange differences 190 (30) Russian income tax rate change effective 1 January 2009 (62) - Other permanent differences 43 166

Total income taxes expense 1,827 1,453

82 83 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

Note 14: Taxes other than income tax and taxes payable Note 15: Revenues

Taxes other than income tax expense for the years ended 31 December 2008 Revenues for the years ended 31 December 2008 and 31 December 2007 comprise and 31 December 2007 comprises the following: the following: Year ended Year ended Year ended Year ended 31 December 2008 31 December 2007 31 December 2008 31 December 2007 Crude oil – export (Europe and CIS) 21,685 19,674 Unified production tax 9,583 6,493 Crude oil – domestic 2,302 1,354 Excise taxes 877 799 Property tax 180 129 Petroleum products – export (Europe and CIS) 10,847 6,990 Pension fund and other social taxes 150 148 Petroleum products – domestic 8,984 6,190 Non- recoverable VAT expense 67 26 Other revenues 1,310 787 Tax penalties and interest (6) (64) Other taxes 33 29 Sales and other operating revenues 45,128 34,995

Total taxes other than income tax 10,884 7,560

RRUnified production tax The rate for the tax is adjusted depending on the market price of Urals blend and the Russian Note 16: Related Party Transactions Rouble/US dollar exchange rate. Average tax rates for 2008 and 2007 were USD 18.70 per barrel and USD 13.30 per barrel, respectively. The Group has the following balances in the ordinary course of business with affiliates of Alfa Group, a major shareholder: RRTax penalties and interest In November 2007, resulting from a successful appeal the Group recognized a gain amounting As of As of to USD 57 million in respect of income tax penalties related to 2001 tax matters. These 31 December 2008 31 December 2007 penalties had been provided for and paid in 2005 – see Note 17. Cash and cash equivalents held at Alfa Bank 55 53 Trade and other receivables, net 8 4 Insurance expenses 12.3 8.2 In December 2008, resulting from a successful appeal the Group recognized a gain amounting to USD 16 million in respect of income tax penalties related to 2001 tax matters. These penalties had been provided for and paid in 2006 – see Note 17. The Group has the following transactions and balances in the ordinary course of business with OAO NGK Slavneft and its subsidiaries: Current and long-term taxes payable as of 31 December 2008 and 2007 are as follows: As of and for the As of and for the year ended year ended 31 December 2008 31 December 2007 31 December 2008 31 December 2007 Unified production tax 248 731 Value-added tax 102 159 Trade and other receivables, net 25 20 Excise taxes 55 87 Trade and other accounts payable 45 35 Pension fund and other social taxes 36 34 Loans received - 59 Property tax 33 31 Sales of crude oil export 266 156 Tax penalties and interest 21 13 Volumes (millions of tons) 0.6 0.4 Income taxes 18 180 Current deferred income tax liability - 3 Sales of refined products 92 258 Other taxes 14 14 Volumes (millions of tons) 0.1 0.5

Total taxes payable 527 1,252 Crude oil refining fee 234 193 Less: long-term taxes payable (1) (1) Volumes (millions of tons) 6.8 6.3 Current taxes payable 526 1,251

84 85 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

The transactions and balances with TNK-BP controlled companies are as follows: Note 17: Commitments and Contingencies As of and for As of and for the year ended the year ended 31 December 2008 31 December 2007 RREconomic and operating environment in the Russian Federation Trade receivables, net 9,776 6,786 Whilst there have been improvements in economic trends in the Russian Federation, the Advances issued and other accounts receivable, net 59 36 Short-term and long-term interest receivable 12 42 country continues to display certain characteristics of emerging market. These characteristics Short-term and long-term portion of loans issued 151 110 include, but are not limited to, the existence of a currency that is, in practice, not convertible Trade accounts payable 5,330 4,183 in most countries and relatively high inflation. Furthermore, the tax, currency, and customs Other accounts payable 12 25 Dividends payable 567 792 legislation within these countries is subject to varying interpretations and changes which can Other long-term liabilities 98 169 occur frequently. Loans received 894 1,445 Sales of crude oil export 18,891 17,267 R Volumes (millions of tons) 28.2 33.0 RVolatility in financial and commodity markets Sales of petroleum products 10,317 6,610 The Group has been closely monitoring the ongoing crisis in financial and credit markets Volumes (millions of tons) 15.6 13.2 and the general contraction of worldwide economic activity. The crisis in financial and credit Other sales 128 84 markets has resulted in, among other things, a lower level of capital market funding, lower Purchases of crude oil 631 1,106 Volumes (millions of tons) 2.2 4.7 liquidity levels across the international and Russian banking sector, and higher interbank Other purchases: lending rates. Such circumstances could affect the ability of the Group to obtain new Management fees 846 869 borrowings and re-finance its existing borrowings at terms and conditions similar to those Consulting services - 18 Crude oil refining fee 40 - applied to earlier transactions. Volumes (millions of tons) 1.0 - Acquisition of additional interest in subsidiary - 42 In addition, the Group’s results are impacted by the demand and prices of crude oil. Other purchases 48 14 During 2008, the worldwide demand for crude oil decreased significantly resulting in an unprecedented decline in crude oil prices since mid-year 2008. The spot price for Brent crude The transactions and balances with other related parties are as follows: oil, a benchmark crude, started 2008 at USD 97 per barrel and peaked at $144 in early July. As of and for As of and for At the end of the year, the Brent price had fallen to USD 36 per barrel. This decline in crude the year ended the year ended prices in combination with the lag effect of applying Russian export duties based on recent 31 December 2008 31 December 2007 as opposed to prevailing crude prices negatively impacted the Group’s operating results and Loans issued 25 13 financial condition in the fourth quarter of 2008. Accounts payable 15 10 Sales of natural gas 122 - Volumes (billions of cubic meters) 2.8 - Management is taking these developments and the ongoing volatility in financial and Crude oil refining fee 9 - commodity markets into account in the conduct of daily operations and for business planning Volumes (millions of tons) 0.2 - and believes that it is taking all the necessary measures to support the sustainability and Gas processing fee 103 57 Volumes (billions of cubic meters) 3.4 1.8 growth of the Group’s business in the current circumstances.

RRGas production and marketing activities As of 31 December 2008 and 31 December 2007, the Group’s capitalized costs related to its gas subsidiaries amounted to USD 665 million and USD 652 million, respectively.

Russian independent gas producers are currently only able to access the domestic gas transmission system upon agreement with Gazprom, Russia’s gas monopoly which owns and operates the system. Currently, the Group does not have long-term access to this system.

RRTaxation Russian tax and customs legislation is subject to varying interpretations and changes which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activities of the Group may be challenged by the relevant regional and federal authorities. Recent developments suggest that the authorities are becoming more active in seeking to enforce, through the Russian court system, interpretations of tax legislation which may be selective for particular taxpayers and different to the authorities’ previous interpretations or practices. Different and selective interpretations of tax regulations by various government authorities and inconsistent enforcement create further uncertainties in the taxation environment in the Russian Federation.

Tax declarations, together with related documentation, are subject to review and investigation by a number of authorities, each of which may impose fines, penalties and interest charges. Fiscal periods remain open to review by the authorities for the three calendar years preceding the year of review (one year in the case of customs). Under certain circumstances reviews may cover longer periods. In addition, in some instances new tax regulations have taken retroactive effect. Additional taxes, penalties and interest which may be material to the financial position of the taxpayers may be assessed in the Russian Federation as a result of such reviews.

86 87 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

RRTax audits RRLegal contingencies During 2004 and 2005 the Russian tax authorities performed tax audits on certain of the The Group is a named defendant in a number of lawsuits as well as a named party in numerous Group’s subsidiaries relating to their 2001-2003 activities. other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management In December 2004, the Russian tax authorities issued a decision challenging, among other believes that any resulting liabilities will not have a materially adverse effect on the financial things, the use of profit tax concessions claimed by TNK with respect to the reinvestment of position or the operating results of the Group. profits in fixed production assets in 2001 and made a claim for USD 143 million (RUR 4 billion) including fines and penalty interest. This amount was paid in December 2006. In December In February 2002, Norex Petroleum Limited filed a lawsuit against TNK and certain other 2008, the Group won an appeal related to income tax penalties and recognized a gain defendants in the United States District Court for the Southern District of New York over the amounting to USD 16 million. ownership of a company, which was owned by an affiliate of the Alfa Group and the Access- Renova Group. In 2002, this company was acquired by TNK. In February 2004, the case was The Russian tax authorities performed a repeat tax audit on TNK’s 2001 activities and in April dismissed based on jurisdiction and venue. In July 2005, the Court of Appeals reversed the 2005 presented TNK with a tax act totaling approximately USD 578 million (RUR 16 billion) decision of the District Court and returned the case to the lower court where in September which, among other things, challenged the use of reduced tax rate economic zones. Following 2007 the case was dismissed. In October 2007, Norex Petroleum Limited petitioned the Court objections presented by the Group, the tax act amount was reduced and the Russian tax of Appeals for reconsideration of this decision. In February 2009 a Court of Appeal hearing authorities issued a final decision in the amount of USD 247 million (RUR 7 billion) including took place, however a decision remains outstanding. Management continues to believe that penalty interest and fines. This amount was paid in August 2005. In November 2007, the Group the resolution of the matter will not have a material adverse impact on the financial position of won an appeal related to income tax penalties and recognized a gain amounting to USD 57 the Group. million. On 18 April 2008, a minority shareholder in the Company filed a suit in the Tyumen Arbitration Pursuant to tax audits conducted in 2006 and 2007, the Russian tax authorities have presented Court against TNK-BP Management (‘TBM’) and BP Exploration Services, a subsidiary of BP, tax acts and decisions in the amount of USD 228 million (RUR 6.7 billion) relating to 2003, alleging that an agreement between BP and TBM to provide services by BP specialists to 2004 and 2005 in respect of income tax and other taxes of Group subsidiaries. The Group is TBM (the ‘Services Agreement’) was invalid. The suit petitioned the Court to rule the Services currently appealing these decisions either with higher tax authorities or in the courts. As of 31 Agreement null and void. Pursuant to the claimant’s application, on 30 April 2008 the Tyumen December 2008, the Group received favorable court rulings in respect of USD 63 million of the Arbitration Court issued an injunction suspending all activities under the Services Agreement. above amount. The Group believes that it has made adequate provision for the outcome of the On 23 July 2008, the Tyumen Arbitration Court ruled the Services Agreement null and void. matters raised by the tax authorities. Subsequently, following the filing of an appeal by TNK-BP, the minority shareholder withdrew its claim and the case was discontinued in its entirety with all previous court rulings being Pursuant to tax audits conducted in 2008, the Russian tax authorities have presented tax annulled. acts in the amount of USD 96 million (RUR 2.8 billion) relating to 2006 and 2007 in respect of income tax and other taxes of a number of Group subsidiaries. The Group believes that it has In September 2008, the Russian Federal Antimonopoly Service (‘FAS’) issued a decision made adequate provision for the outcome of the matters raised by the tax authorities. whereby it found TNK-BP Holding in violation of the Russian antimonopoly legislation in respect of jet fuel and gasoline pricing on the wholesale markets. In November 2008, the FAS issued As of 31 December 2008 and 31 December 2007, the Group has recorded a liability in the a fine in the amount of USD 44 million (RUR 1.1 billion) against TNK-BP Holding. The Group amount of USD 45 million (RUR 1.3 billion) and USD 41 million (RUR 1 billion), respectively, believes that it has meritorious grounds to appeal the decision of the FAS and related fines and related to the matters discussed above. such appeal was filed in January 2009. In addition, the FAS has publicly stated that it intends to conduct further investigations of industry practices with regard to refined products pricing. RROilfield and gasfield licenses The Group is subject to periodic reviews of its activities by government authorities with respect RROther matters to the requirements of its licenses. Where appropriate, management of the Group liaises with In 2008, a number of differences arose between BP and AAR, the shareholders of TNK-BP. government authorities to agree on remedial actions and resolve any findings resulting from These included disputes with regard to the provision of services by BP specialists to the Group, these reviews. Failure to comply with the terms of a license could result in fines, penalties or the employment of non-Russian nationals by the Group and the board of director nomination license limitation, suspension or revocation. process for certain subsidiaries of TNK-BP including TNK-BP Holding.

RREnvironmental liabilities Following the Memorandum of Understanding entered into by the shareholders of TNK-BP in Environmental regulation in the Russian Federation is evolving as is the enforcement posture of September 2008, a revised shareholder Agreement was signed in January 2009. The revised government authorities. The Group periodically evaluates its obligations under environmental Agreement includes, among other matters, changes to the composition and authority of the regulations. As obligations are determined, they are recognized immediately. Potential TNK-BP Board of Directors as well as to the charters of significant TNK-BP subsidiaries and liabilities, which may arise as a result of changes in existing regulations, civil litigation or provisions regarding the appointment of executives of the Group. Also in January 2009, a legislation, cannot be estimated but could be material. new Board of Directors of TNK-BP was appointed, which, in line with the revised Agreement, consists of four representatives from each of the two shareholder groups and three The Group’s estimated environmental liability was USD 228 million and USD 161 million as of independent directors. 31 December 2008 and 31 December 2007, respectively. The estimates used by management include uncertainties about a number of factors including the extent of necessary remediation, the technology to be used for remediation and the standards that will constitute an acceptable remediation. As additional information becomes available, management will continue to adjust its estimated provision to an appropriate level. The Group’s environmental obligations could range up to USD 375 million.

88 89 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements notes to the consolidated finansial statements (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

As of 31 December Exploration Refining, Note 18: Segment information 2008 and for the year and Marketing and Oil Field ended 31 December 2008 Production Distribution Services Other Elimination Total

Presented below is information about the Group’s operations for years ended 31 December Revenues 2008 and 31 December 2007 in accordance with SFAS No.131, Disclosures about Segments Third parties 813 44,230 62 - - 45,105 Intersegment 19,107 28 551 - (19,686) - of an Enterprise and Related Information. Segment revenues 19,920 44,258 613 - (19,686) 45,105 The Group has three operating segments – exploration and production (‘E&P’); refining, Revenues not allocated marketing, and distribution (‘RM&D’); and oil field services. Management assesses the to segments 23 performance of these operating segments on a regular basis. The E&P segment explores Consolidated revenues 45,128 for, develops and produces crude oil and gas. The RD&M segment processes crude oil into EBITDA 5,429 5,128 158 (390) (376) 9,949 refined products and also purchases, sells and transports crude oil and refined petroleum Segment assets 15,459 5,353 322 213 (280) 21,067 products. The oil field services segment provides support and maintenance to oil and gas Balances with TNK-BP exploration and production facilities. controlled companies 10,112

Сonsolidated assets 31,179 The Other segment primarily includes corporate activities. In addition, the Other segment includes gains on disposals of subsidiaries and earnings from equity investments. Capital expenditures 3,481 407 123 14 (63) 3,962

The operations of the Group as summarized in the segment data provided below are carried out within the Russian Federation, which is considered as a single geographical segment by EBITDA for the year ended 31 December 2008 is reconciled to income before income taxes the Group. and minority interest as follows: EBITDA 9,949 External revenues are assigned to the country of operation from which the revenues are Depreciation, depletion and amortization (1,452) derived, the Russian Federation. The Group’s major customers, as defined by 10 percent of Exchange gain / (loss), net 209 total Group’s external revenues, are TNK-BP controlled companies. The Group’s assets are Loss on disposals and impairment of assets (160) located in the Russian Federation. Interest expense (152) Interest income and net other income 137 Non-recoverable VAT (67) Commencing 1 January 2008, certain changes to segment measures reported to management Other differences (141)

were introduced with the following effects for segment reporting: Income before income taxes and minority interest 8,323

hhThe Group discloses EBITDA by segment as a measure of profit. In prior periods, E&P segment revenues were presented based on actual realized prices before the deduction of export duties and transportation costs. Project related costs incurred hhAll crude oil sales in the E&P segment are presented as intersegment revenues. on corporate level were included in the Other segment. Intersegment loans and receivables were included in segment assets. Balances with TNK-BP controlled companies were allocated hhE&P segment revenues are presented using notional intersegment prices which are set at the to individual segments. Trade accounts receivable and export value-added tax receivable lowest netback available depending on type of crude and distribution channel. relating to sales of E&P entities were presented in E&P segment assets. Further, segment information was prepared based on actual results. hhProjects related costs incurred on corporate level are allocated to individual segments. As of 31 December 2007 Refining, hhAll trade accounts receivable and export value-added tax receivable are presented as RM&D and for the year Exploration Marketing and Oil Field assets. ended 31 December 2007 and Production Distribution Services Other Elimination Consolidated

Revenues hhAccounts receivable from and loans issued to Group subsidiaries are not allocated to individual Third parties 19,433 15,470 38 54 - 34,995 segments. Intersegment 6,111 294 559 74 (7,038) -

Segment revenues 25,544 15,764 597 128 (7,038) 34,995 hhSegment assets are presented net of intersegment loans as the latter are considered to be managed by the corporate treasury function. Depreciation, Depletion and Amortization (1,032) (163) (133) (13) - (1,341) Earnings from equity hhSegment information is prepared using forecasted factors. Other differences included in the investments 4 - - - - 4 reconciliation in the table below represent differences between estimated and actual results. Interest expense (67) (156) - (5) 61 (167) Income before income taxes and minority interest 5,252 2,967 (72) (613) (147) 7,387 Segment assets 23,629 12,925 455 1,950 (11,055) 27,904 Capital expenditures 3,036 280 121 - (37) 3,400

90 91 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

notes to the consolidated finansial statements Supplemental information on Oil and Gas Exploration (expressed in US Dollars, tabular amounts in millions) and Production Activities (Unaudited) (expressed in US Dollars, tabular amounts in millions)

Note 19: Subsequent Events Supplemental information on Oil and Gas Exploration and Production Activities (Unaudited) On 29 January 2009, the Group obtained a loan of USD 500 million repayable in July 2011. This section provides unaudited supplemental information on oil and gas exploration and Also, subsequent to 31 December 2008, the Group entered into negotiations with regard to a production activities in accordance with SFAS No. 69, Disclosures About Oil and Gas potential sale of its oil field services business. Discrete financial information with regard to the Producing Activities, in six separate sections: OFS business is provided in Note 18. i. Capitalized costs relating to oil and gas producing activities ii. Costs incurred in oil and gas property acquisition, exploration and development activities iii. Results of operations for oil and gas producing activities iv. Reserve quantity information v. Standardized measure of discounted future net cash flows vi. Principal sources of changes in the standardized measure of discounted future net cash flows

I. Capitalized Costs Relating to Oil and Gas Producing Activities

31 December 2008 31 December 2007

Oil and gas properties and equipment, 16,917 14,805 including unproved oil and gas properties 1,019 1,077 Oil field services properties and equipment 529 629 Assets under construction related to oil and gas properties 1,920 1,347 Accumulated depreciation, depletion, and amortization (5,135) (4,518) Net capitalized costs for consolidated subsidiaries 14,231 12,263

II. Costs Incurred in Oil and Gas Property Acquisition, exploration and Development Activities

Year ended Year ended 31 December 2008 31 December 2007

Consolidated subsidiaries Acquisition of properties - proved - 143 Acquisition of properties - unproved 14 615 Exploration costs capitalized 186 113 Exploration costs expensed 57 127 Development costs 3,218 2,705 Total costs incurred in consolidated subsidiaries 3,475 3,703

The total costs incurred in consolidated subsidiaries for the year ended 31 December 2007 include costs associated with the acquisition of Vanyoganneft – see Note 4.

92 93 TNK-BP Holding // ANNUAL REPORT 2008 TNK-BP Holding // 12. CONSOLIDATED FINANCIAL results

Supplemental information on Oil and Gas Exploration Supplemental information on Oil and Gas Exploration and Production Activities (Unaudited) and Production Activities (Unaudited) (expressed in US Dollars, tabular amounts in millions) (expressed in US Dollars, tabular amounts in millions)

Year ended Year ended III. Results of Operations for Oil and Gas Producing Activities Natural Gas, Billions cubic feet 31 December 2008 31 December 2007 The Group’s results of operations for oil and gas producing activities are presented below. In accordance with SFAS No. 69, transfers to Group companies are based on market prices. Consolidated subsidiaries Income taxes are based on statutory rates. The results of operations exclude corporate Net proved reserves as of beginning of year 2,140 1,762 Revisions of previous estimates 2,126 674 overhead and interest costs. Purchase of hydrocarbons in place - 17 Production (400) (313) Year ended Year ended 31 December 2008 31 December 2007 Net proved reserves of consolidated 3,866 2,140 subsidiaries as of end of year Consolidated subsidiaries Proved developed reserves as of end of year 2,754 2,140 Revenue Sales 24,718 21,473 Transfers 7,487 5,228 Export duties and transportation expenses (12,015) (9,056) V. Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is calculated in accordance with Total revenues 20,190 17,645 SFAS 69, which requires measurement of future net cash flows by applying year-end prices Production costs (excluding production taxes) 3,823 2,852 and costs and an annual discount factor of ten percent to year-end quantities of estimated net Exploration expenses 57 129 Depreciation, depletion and amortization 1,210 1,164 proved reserves using a standardized formula. The calculation requires extensive judgment Taxes other than income taxes 9,668 6,739 in estimating the timing of future production of reserves. Moreover, probable and possible Related income taxes 1,119 1,369 reserves, which may become proved in the future, are excluded from the calculation. As Total results of operations a result, future cash flows calculated under SFAS 69 are not necessarily indicative of the of consolidated subsidiaries 4,313 5,392 Company’s future cash flows, nor the fair value of its oil and gas reserves; other assumptions of equal validity could give rise to materially different results. IV. Reserve Quantity Information 31 December 2008 31 December 2007 The following information presents the quantities of proved oil and gas reserves and changes thereto as at and for the years ended 31 December 2008 and 31 December 2007. The Consolidated subsidiaries definitions used are in accordance with United States Securities and Exchange Commission Future cash inflows 131,097 320,020 Future production and development costs (111,369) (234,373) (‘SEC’) regulations. Future income tax expenses (4,200) (20,712)

Future net cash flows 15,528 64, 935 Proved reserves are defined as the estimated quantities of oil and gas which geological and Discount for estimated timing of cash flows (10% p.a.) (7,987) (35,747) engineering data demonstrate with reasonable certainty to be recoverable in future years from Standardized measure of discounted future 7,541 29,188 known reservoirs under existing economic conditions (i.e. prices and costs as of the date net cash flows of consolidated subsidiaries the estimate is made). Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are inherently imprecise, require the application of Future dismantlement, abandonment and rehabilitation costs are included as a part of future judgment and are subject to change over time as additional information becomes available. production and development costs.

Proved developed reserves are those reserves which are expected to be recovered through VI. Principal Sources of Changes in the Standardized Measure existing wells with existing equipment and operating methods. of Discounted Future Net Cash Flows

All of the Group’s and its equity affiliate’s proved reserves are located in the Russian Year ended Year ended Federation. Management has included within proved reserves significant reserves quantities 31 December 2008 31 December 2007 which the Group expects to produce after the expiry dates of certain of its current production Consolidated subsidiaries licenses. Management believes these licenses may be extended provided the Group is in Standardized measure of discounted future net cash flows as compliance with the license terms and approval is obtained from the appropriate regulatory of the beginning of year 29,188 19,819 Sales and transfers of oil and gas produced, authority; management intends to extend such licenses for properties expected to have net of production costs (6,595) (7,856) production subsequent to their license expiry dates. The Group has already extended a Net changes in prices and production costs, including number of these licenses and to date there have been no unsuccessful license renewal production taxes (33,177) 16,810 Extensions and discoveries, less related costs 347 2,299 applications. Development costs incurred during the year 2,224 1,547 Changes in estimated future development costs 2,793 (3,987) Estimated net proved oil and gas reserves and changes thereto for the years ended Revisions of previous quantity estimates 1,026 1,619 Net changes due to purchases and sales of minerals 31 December 2008 and 31 December 2007 are shown in the tables set out below. in place (15) 288 Accretion of discount 3,924 2,550 Crude oiL, gas condensate and natural gas Year ended Year ended Net change in income taxes 7,826 (3,901) liquids, Millions of barrels 31 December 2008 31 December 2007 Standardized measure of discounted future net cash flows of consolidated subsidiaries Consolidated subsidiaries as of the end of year 7,541 29,188 Net proved reserves as of beginning of year 7,855 7,440 Revisions of previous estimates (85) 505 Purchase of hydrocarbons in place - 72 Extensions and discoveries 214 416 Production (532) (530) Sales of hydrocarbons in place (6) (48)

Net proved reserves of consolidated 7,446 7,855 subsidiaries as of end of year Net proved developed reserves 4,697 5,105 of consolidated subsidiaries as of end of year

94 95 TNK-BP Holding // ANNUAL REPORT 2008

Reference Information

Company OJSC TNK-BP Holding

contact details Address 60, Oktyabrskaya str., Uvat Village, Uvat District, Tyumen Oblast, 626170, Russian Federation Рostal address 60, Oktyabrskaya str., Uvat Village, Uvat District, Tyumen Oblast, 626170, Russian Federation Telephone/fax +7 495 777 7707/777 7708 Web www.tnk-bp.ru

The Management Organization OJSC TNK-BP Management

contact details Address 1, Arbat str., Moscow, 119019 Рostal address 1, Arbat str., Moscow, 119019 Telephone/fax + 7 495 777 7707/777 7708 Web www.tnk-bp.ru Corporate secretary + 7 495 787 9621 Russian media + 7 495 363 2757 International media + 7 495 363 2580 Shareholders and analysts + 7 495 787 9630

Registrar JSC ‘IRCOL’

contact details Address 3/4, bldg.1, Boyarskiy per., Moscow, 107078 Рostal address P.O. Box 70, Moscow, 107078 Telephone/fax + 7 495 208 1515/208 3434 E-mail [email protected] Web www.ircol.ru License Number 10-000-1-00250 Date of issue 09.08.2002 Duration unlimited Issuing authority FCSM Russia

Auditor ZAO ‘PricewaterhouseCoopers Audit’

contact details Address 52, bldg. 5, Kosmodamianskaya nab., Moscow, 113054, Russian Federation Рostal address 52, bldg. 5, Kosmodamianskaya nab., Moscow, 113054, Russian Federation Telephone/fax +7 495 967 6000/967 6001

License Number Е 000376 Date of issue 20.05.2002 Duration 20.05.2012 Issuing authority RF Ministry of Finance

Auditor (subsidiary companies) LLC ‘FinEkspertiza’

contact details Address 69, bldg. 1, Prospect Mira, Moscow, 129110, Russian Federation Рostal address P.O. Box 179, 129110, Russian Federation Telephone/fax + 7 495 775 2200/775 2201 License Number Е 002588 Date of issue 06.11.2002 Duration 06.11.2012 Issuing authority RF Ministry of Finance

96 ANNUAL REPORT TNK-BP HOLDING