ANNUAL REPORT

2009

ANNUAL REPORT 2009 EFFICIENT RESOURCE MANAGEMENT AND OPTIMIZATION OF PRODUCTION PROCESSES MANAGEMENT SYSTEM ARE A RECIPE FOR SUCCESSFUL IMPLEMENTATION OF STRATEGIC INITIATIVES OF THE COMPANY AIMED OAO TATNEFT AT FURTHER www.tatneft.ru DEVELOPMENT Contents

About the company Corporate Representation of shareholders’ 1 Geography of Activity 40 management 110 and investors’ interests and Partnership ...... 2 3.1. Management System Joint Address to Shareholders, of the Company ...... 42 Corporate social liability Investors and Partners ...... 4 3.2. Management 116 Areas of Activity of TATNEFT Group ...... 42 and Strategic Initiatives ...... 6 3.3. Management Mechanisms ...... 48 Appendices Resource Saving ...... 8 3.4. Property Management ...... 51 118 7.1. Information Reference about The Company's Equity Structure 3.5. Financial Management ...... 53 the Members of the Board and Capitalization Management ...... 9 3.6. Logistics Management ...... 55 of Directors of OAO TATNEFT ...... 118 Distribution of Powers and 3.7. Management of Production 7.2. Information Reference about Responsibilities among the Board Efficiency ...... 57 the Members of the Management of Directors Members and of Board of OAO TATNEFT ...... 120 the Management Board Members ...... 18 3.8. Company Restructuring ...... 60 7.3. List of Main Issues Reviewed Structure of TATNEFT at the Meetings of the Board Business-Group ...... 24 3.9. Energy and Resource Saving ...... 61 of Directors in 2009 ...... 121 Main Indices of the Oil 7.4. Information about Compliance 3.10. Investment Activity ...... 63 Joint-Stock Company with the Corporate Behavior of FY 2009 ...... 25 3.11. Ecological Activity ...... 67 Norms in OAO TATNEFT in 2009 ...122 7.5. Main Corporate Production Financial Events of 2009 ...... 124 28 activity 70 results List of Abbreviations ...... 126 2.1. Geology and Oil and Gas 4.1. Financial Statements Forecast Comments ...... 127 Production Department ...... 28 Compiled in Accordance Annotation to the Report 2.2. Management of with Russian Accounting about Stable Development the Oil/Gas Refining Standards ...... 71 and Social Liability and Petrochemical 4.1. 1. Audit Opinion ...... 71 of OAO TATNEFT FY 2009 ...... 127 Complexes ...... 32 4.1.2. Financial Statements 2.3. Management of Sales of OAO TATNEFT FY 2009 ...... 74 and Deliveries of Oil and Gas 4.1.3. Important Aspects of and Oil/Gas Products ...... 35 the Accounting Policy and 2.4. Servicing Managemen ...... 38 Information Representation in 2.5. Industrial Safety ...... 40 Financial Statements for 2009 ...... 77 4.2. Consolidated Financial Statements for Years Ended December 31, 2008 and 2007 Prepared in Accordance with US GAAP ...... 79 4.2. 1. Audit Opinion ...... 79 4.2. 2. Consolidated Financial Statements for Years Ended December 31, 2009, 2008 and 2007 ...... 80 About the Company

OAO TATNEFT exercises its activity as a vertically integrated Group, which includes oil and gas production, oil and gas refining and petrochemical works, companies selling crude oil, gas, oil and gas products, as well as petrochemical products, and also a service structures complex. The main territory of the Company’s activity is the Russian Federation.

Mission of the Company is strengthening of the internationally recognized and financially stable status of the Company as one of the largest vertically integrated national producers of crude oil and gas, oil and petrochemical products maintaining high corporate social responsibility level.

In the framework of the development strategy the Company implements the process of restructuring aimed at increasing production management efficiency, ensuring costs transparency and optimization of labor, material and financial resources.

Key Figures

Net ‘09 50.9 Profit ‘08 34.3 RSBU ‘07 43.8 billion rubles 50.9 ‘06 35.7 +48.3%

Net ‘09 265.9 Assets ‘08 224.2 RSBU ‘07 203.6 billion rubles 265.9 ‘06 171.1 +18.6%

‘09 25.85 Oil Production ‘08 25.76 OAO TATNEFT ‘07 25.74 million tons 25.85 ‘06 25.41 +0.3% (for TATNEFT Group 26.106 mln. tons)

More details about the Group see at www.tatneft.ru 2 St. Petersburg 3

Arkhangelsk Naryan-Mar Geography of Activity OAO Intaneft Tver Filling and Partnership Stations in Russia

Moscow

Vladimir N. Novgorod Yoshkar-Ola 484 Cheboksary Kazan Ulyanovsk Yekaterinburg RUSSIA Samara Ufa

Volgograd Chelyabinsk

GREAT BRITAIN Krasnodar Orenburg Elista Stavropol Kemerovo GERMANY OOO Orenburg Drilling Company

UKRAINE OAO Prikaspiyskburneft KAZAKHSTANAK Partners of OAO TATNEFT*

UZBEKISTAN Supplies of Oil and Gas Products TURKMENISTAN SYRIA Crude Oil Gas Product Crude Oil CHINA Supplies Supplies Transportation Syrian Turkmenneft State Company Petroleum DevonOil SA OAO Kazanorgsintez OAO AK Transneft Company IRAN Wintel Petrochemicals OOO Raw Stock Resources-Bel MOROCCO Efremov-Kautschuk GmbH OAO Nizhnekamskneftekhim OOO Yunisoil OAO Efremov Synthetic LIBYA RIPI Rubber Plant OAO TAIF SAUDI Efremov-Kautschuk GmbH Tavit B.V ARABIA National OAO Naftan Oil Corporation

Zamil Group OMAN Tire Production Filling stations Holding Company Business Environment in Ukraine Supply Raw Material Sale of Equipment Supply of Tires TATNEFT is an internationally recognized and Technologies Company. The Company ranks No 6 in Russia by VIETNAM Chernigov the volume of oil production and competes with 136 PIRELLI OAO Efremov Synthetic OAO AVTOVAZ Rosneft, Lukoil, Surgutneftegaz, TNK-BP and Rubber Plant Sumy CONTINENTAL OAO KAMAZ Gazprom neft Companies. In the national fuel and OAO Nizhnekamskneftekhim energy complex the environment of TATNEFT is Kiev represented by Transneft and other companies. Development of Fields in the Territory of Republic of Tatarstan Poltava In the competitive refining segment the Company Kharkov develops its own facilities with concurrent expan- Khmelnitsky sion of oil, gas and petrochemical products sales Electric Power Crude Oil Production Vinnitsa Cherkassy markets. Supply GABON OAO Tatoilgaz ZAO Tatex The corporate network of filling stations is one of OAO Tatenergo Mineral-Rostoff- Texneft Incorporated (USA) Dnepropetrovsk Fields development the most dynamically developing in the territory Handel GMBH (Germany) of Russia and it occupies leading positions by Petrochemical works volumes and quality of sold oil products among other brands of filling stations. Crude oil refining In petrochemical production the tires produced Odessa by the Company compete at the markets of ANGOLA Supply of technologies, equipment and services Russia and CIS countries with other major tire Packer Production manufacturers. Retail sales network Smith Services (USA) Simferopol * in addition to shown on the map

OAO Tatneft Annual report 2009 www.tatneft.ru 4 5

R.N. Minnikhanov Sh.F. Takhautdinov President of the Republic of Tatarstan, General Director, Chairman of the Chairman of the Board of Directors Management Board of TATNEFT

Dear Shareholders, Investors and Partners! TATNEFT is the largest taxpayer of the Republic of Dear shareholders, thank you for the trust you put in Joint Address In 2009, the Joint-Stock Company TATNEFT success- Tatarstan. It provides a significant portion of the pro- us! The Management and employees of the Company in fully achieved its strategic objectives of increasing the ceeds in the national budget and actively participates in all their activities aim at achieving the set goals and they volume of profitable oil and gas production, expanding the social and economic development of the Republic. make every effort to implement them. We express our to Shareholders, the resource base and diversifying its production. 16 new The Company also leads in its added value indicators. Its confidence that 2010 will be the next stage of dynamic petroleum deposits were discovered in the territory of the creation is a priority for TATNEFT and it provides a decent development of the Company and the year of increasing Investors and Republic of Tatarstan and Russia, as well as abroad. The standard of living not only for the Company’s employees, its share capital as well as strengthening its financial sta- growth of reserves significantly exceeded annual oil pro- but also for the inhabitants of the region. bility and international status. Partners duction. The activity of TATNEFT in 2009 received a high In order to expand the resource potential in the appreciation of the state and public organizations. The Republic of Tatarstan development of extra-viscous oil Company won several top awards in the field of scientific reserves in Ashalchinskoye and Mordovo-Karmalskoye and technological developments, for its disclosure of cor- fields was continued. Operations in this direction are per- porate management practice, social responsibility and it formed with application of advanced technologies and occupied a top position in the financial and environmental global experience. ratings. During the past year the Company successfully In 2010, the work to maintain a stable and progressive completed the next stage of the construction project development of TATNEFT will continue. for a complex of refinery and petrochemical plants in Active work aimed at increasing volume of produced oil Nizhnekamsk. in the territories other than Tatarstan is also ahead. Construction of the unique for Russia Nizhnekamsk fac- Commissioning of the first stage of the startup com- tory of solid steel chord tires, was also continued during plex of the TANECO refinery and petrochemical plants is the past year. This technology enables to produce com- scheduled for the end of this year. petitive products with high consumer properties. It is planned to achieve the full capacity of the new fac- Formation of a block of oil service companies, united tory of the solid steel chord design tires. by a joint production cycle and uniform environmental The emphasis will be placed on energy efficiency, protection standards, creating healthy and safe working reduction of energy consumption in the major industrial conditions, protection of social and economic interests of processes and technologies, allowing decreasing the workers also continued in 2009. material consumption of the manufactured products. One of the key tasks is to implement resource-saving mea- TATNEFT completed the year 2009 with sures to further enhance efficient utilization of associated petroleum gas. good financial results and strengthened This year the dialogue with the federal authorities will its position in the oil industry of the country. continue on establishing special tax incentives for devel- opment and operation of new small-size fields and depos- The Company can boast of one of the best quality its of extra-viscous oil, as well as on discounting activities indices among the leading national oil companies. to increase oil recovery. 2010 is a significant year for TATNEFT. The Company TATNEFT has the lowest cost per ruble will celebrate the 60th anniversary of its foundation. Over these years a long and a tough way to the successful of commodity production index and and stable development has been covered. Much credit the highest value of sales revenue. for this should be given to several generations of oil- men, among whom there are many veterans of the Great Market capitalization of the Company is successfully Patriotic War. In the year of the 65-th anniversary of the recovering and is coming back to its historical maximum. Great Victory various events and activities will be dedi- The Company has traditionally paid special attention cated to honor the veterans. to social development programs and in the past financial We express our gratitude to all the employees of the year it successfully fulfilled all of its obligations. All social Company for their conscientious and hard work that pro- guarantees of the Collective Agreement and the employ- vided for effective operation and sustainable development ees well being level were retained. of the TATNEFT Joint-Stock Company in the past year.

OAO Tatneft Annual report 2009 www.tatneft.ru 6 7 Fields of Activity and Strategic Initiatives

Geology and Oil and Oil and Gas Petroleum Oil Service Sale of Crude Oil Science and Social Programs Oil field Gas Production Refining Chemistry and Petroleum Innovation Development Products FIELDS OF ACTIVITY

TATNEFT possesses a Annually the Company Priority challenge of the By the results of 2009 The management system of The amount of 25,594.6 Substantial competitive TATNEFT Company pursues greater part of licenses for oil increases the oil production Company is development of aggregate volume of the oil production servicing thousand tons of crude oil from advantage of TATNEFT is socially oriented policy exploration and production volume in spite of external oil refining facilities marketable goods produced has been qualitatively resources of OAO TATNEFT composed by intangible and substantially to the within the territory of the difficulties related with the be enterprises of the re-organized. A structure of was delivered to transportation assets. Which include unique development of national Republic of Tatarstan and global financial crisis petrochemical complex management companies has system. The aggregate sales technologies and know- programs supporting health, expands its resource base amounted to 19.4 billion been created by the areas of volume of petroleum products how in the area of oil field education, sports as well as through fields development in rubles. Sales revenues activity. through the retail filling stations development, oil and gas development of small and the other territories. amounted to 21.1 billion network of OAO TATNEFT production etc. mid-sized business rubles. exceeded 1.5 million tons.

Economic Effect resulting from introduction of innovation Amount of social payment proposals, inventions and useful made by OAO TATNEFT under Proved Crude Oil Reserves Gas Liquids Processing Tire Production Volume Labor Productivity Filling Stations models into production the Collective Labor Agreement as of Jan. 1, 2010 (million tons) Crude oil production (million tons) (thousand tons) (thousand pieces) (tons of oil per person) (pieces) (million rubles) (million rubles) 862.2 25.85 287.4 9,433 1,600 620 4,801 241.3

Expansion of resource base Stabilizing of profitable crude Increase of the production and sales of finished highly competitive Formation and implementation Ensuring high level of outside the Republic of oil and gas production from products resulting from development of the oil refining and of the innovation oriented the corporate social and Tatarstan and the Russian the developed licensed petrochemical enterprises engineering policy environmental responsibility Federation fields and development of new fields, including fields containing extra-viscous and hard-to-recover oil within the

STRATEGIC INITIATIVES STRATEGIC territory of the Republic of Tatarstan

28 28 32 33 60 37 52 116

Ensuring financial sustainability and economic stability Increase of the Authorized Capital value.

OAO Tatneft Annual report 2009 www.tatneft.ru 8 9

Rate of Depositary Receipts* Resource Saving Authorized Capital (US Dollars)

and Capitalization 140 128.25 120 Management 100 83.9 91 Efficient resource management and optimization of the production 80 66 processes management system are a recipe to successful 60 27.8 implementation of strategic initiatives aimed at further development 40 20 36 of the Company *1 DR=20 shares ‘04 ‘05 ‘06 ‘07 ‘08 ‘09

Securities Market Capitalization of OAO TATNEFT during the period of 1995-2009 ($ million) 62 detailed and Stock Market. The ordinary and preferred shares of OAO 14 TATNEFT are included into the quotation lists 12 9.978 of the following stock markets: 10 9.913

8 7.004 MANAGEMENT OAO RTS Stock Exchange: «A1» (ordinary 13.072 6 METHODS shares), “A2” (preferred shares); 3.922 3.105 4 3.094 2.397

ZAO MICEX Stock Exchange: “A” of the 1.678 1.133 0.98 0.817 0.178 0.784 2 0.174 first level (ordinary and preferred shares). Global depositary receipts of the Company are ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09

PLANNING included into the listing of the London Stock INCENTIVES MONITORING Exchange (ATAD symbol) and are traded in OAO TATNEFT Capitalization 3. Estimation of the capitalization manage- the Xetra trade system, which is a part of the Management System ment efficiency and distribution of the offi- Deutsche Borse AG Group. The Capitalization Management System cials' powers for provision of the capitaliza- For example, the cost of the ordinary shares is based on OAO TATNEFT Capitalization tion factors. INTRODUCTION OF NORMS of OAO TATNEFT amounted to $4.55. as of Management Concept scheduled till In the reported year, formation of the appro- December end of 2009. 2012, approved by the Board of Directors priate regulating documents was continued The market capitalization of the Company in 2007. The System includes formation on the ground of the approved Capitalization amounted to 300 billion rubles ($9.913 billion) and strengthening of internal corporate Management Concept and the accepted by the end of 2009, the growth to the level of mechanisms of the capitalization manage- international practice. The work was car- 2008 amounted to 153%. OAO TATNEFT stock ment, which are aimed at the provision of ried out with participation of the Board of trade volumes amounted to 65.9 billion rubles the Company indices taking into account Directors' Corporate Management, HR and at the MICEX Stock Exchange and over $30 the risks of the external factors (macro- Remuneration Committees. million at RTS. economic, industry branch, financial and 4. Formation of consolidated financial state- For the purpose of retention of the shares others). ments according to the US GAAP standards. liquidity level and increasing the capitalization The principal approach in the develop- In 2009 the Company started to the full rate growth the work on the improvement of ment of the OAO TATNEFT Capitalization extent publication of consolidated financial TATNEFT's corporate management system Management System is the analysis of the statements on a quarterly basis. SALES and TATNEFT's capitalization management domestic industry branch companies' activities 5. Information and analytical coverage of system was continued in the reported year. for capitalization management, and estima- the Company’s activity approved by the PETROCHEMISTRY The Register of TATNEFT shareholders tion of the interconnection of the capitalization Corporate Management and Information OIL REFINING contained over 52 thousand shareholders as level with the dynamics of the main indices of Disclosure Committees. of December 31, 2009. The largest Company production and economic activity. The Unified Information and Analytical PROCESSESPRODUCTION shareholders (nominees) among them are: OAO TATNEFT Capitalization Management Centre of TATNEFT Group has been estab-

EXPLORATION Open Joint-Stock Company Central System includes the following: lished and is functioning. Depositary of the Republic of Tatarstan 1. Program of increasing the efficiency 6. Development of the Corporate Internet (OAO CDRT): 33.6 % (the nominee), of production management and strengthen- Portal of TATNEFT Group. ING BANK (EURASIA) (Closed Joint-Stock ing of the financial and economic status of A qualitatively new integrated Company’s Company): 31.4% (the nominee). OAO TATNEFT for the period of 2008–2015. web site has been created and approved by 651,968,260 or 29.9% ordinary shares of The Program has been elaborated by a rel- the Information Disclosure Committee and the equity were deposited for conversion evant Protocol of the Company’s Economic by the Board of Directors of OAO TATNEFT. MATERIAL NATURAL LABOR into American Depositary Receipts (ADR) Summit and it is a basis for development of The web site has been operating in the full FER (the conversion ratio: 1DR : 20 shares was activities and individual fields of concern of scale mode in the Russian and English ver- changed to 1 DR : 6 shares in 2009). OAO TATNEFT for the period of 2008–2015. sions since May 2009. 2. Planning and analysis of the capitalization The work has been carried out for a number RESOURCES corporate factors. of the Company’s subsidiaries with regard to It is provided for by the Standard “System of adjustment and adaptation of the sub-por- scenario planning of financial and economic tals’ software platform taking into consider- activity of OAO TATNEFT for the period of ation informational, stylistic and processing three years” approved by the Management compatibility with the Internet Portal of the Board of OAO TATNEFT. Company.

OAO Tatneft Annual report 2009 www.tatneft.ru 10

Review of Activity Geology and Oil Fields Development

PROVED OIL RESERVES

million 862.2 tons OAO TATNEFT carries out prospecting and exploration not only in Tatarstan, but also in other regions: Republic of Kalmykia, Orenburg, Samara and Ulyanovsk regions, Nenets Autonomous Area. There are 13 subsidiaries and affiliated companies with the participation of OAO TATNEFT’s capital in the Russian Federation operating 31 licensed areas. Currently, the Company develops 82 oil fields in the Republic of Tatarstan and outside. According to Miller and Lents, an independent international consulting firm, proved reserves OAO TATNEFT exceeded 862 million tons of oil as of the beginning of 2010.

28 detailed 82 31 OIL FIELDS LICENCED AREAS

OAO Tatneft Annual report 2009 www.tatneft.ru 13

Review of Activity Production of Oil and Gas

CRUDE OIL PRODUCTION VOLUME OF TATNEFT GROUP

million 26.1tons Producing entities of the Joint Stock Company produced 25 million 85 thousand tons of crude oil during the reported year reaching the maximum level over the past 15 years period. 44.9% of the total crude oil production was accounted for by application of enhanced oil recovery methods in 2009. The aggregate volume of crude oil production for TATNEFT Group in 2009 amounted to 26 million 106 thousand tons of oil.

28 detailed

OIL PRODUCTION PROFILE (MILLION TONS)

‘09 25.85 ‘08 25.76 ‘07 255.74 ‘06 25.441

OAO Tatneft Annual report 2009 wwwwww.tatneft.ruww.tatneft.ru 14

Review of Activity Oil and Gas refining

PROCESSING OF HYDROCARBON RAW MATERIALS (ASSICIATED PETROLEUM GAS) IN THE AMOUNT OF

million 671.7 cub. m The priority area in oil and gas refining development is construction of OAO TANECO refinery and petrochemical plants complex in Nizhnekamsk. Maintenance of a stable technological mode of operation at gas processing facilities in 2009 allowed ensuring qualitative processing of hydrocarbon raw materials in the amount of 671.7 million cubic meters of associated gas and 287.4 thousand tons of gas liquids.

32 detailed

OAO Tatneft Annual report 2009 www.tatneft.ru 16

Review of Activity Oil and Petroleum Products Sale

TOTAL NUMBER OF FILLING STATIONS

620 facilities 25,594.6 thousand tons of oil from resources of OAO TATNEFT were treated and delivered to the transportation system 2009 witnessed ongoing implementation of OAO TATNEFT’s program of developing retail petroleum products sales. Total number of filling stations operating under the TATNEFT’s trademark in Russia and in Ukraine amounted to 620 units at the end of 2009. TATNEFT sold more than 1.5 million tons of petroleum products through the network of filling stations during the year of the report.

35 detailed

OAO Tatneft Annual report 2009 www.tatneft.ru 18 19 Distribution of powers and responsibilities among the board of directors members and members of the management board of OAO TATNEFT.

Management Service of the Oil and Complex Gas Production Management

IBRAGIMOV MUSLIMOV KHISAMOV ZINOVYEV SHCHELKOV Nail G. Renat Kh. Rais S. Vladimir N. Fedor L.

Board of Directors member, Board of Directors member. Board of Directors member. Management Board member. Management Board member. Management Board member. First Deputy Advisor to the President of the Republic Deputy General Director – Chief Geologist Deputy General Director for Major Deputy General Director for General Director for Production – Chief of Tatarstan on the issues of crude oil of OAO TATNEFT. Member of the Board Construction of OAO TATNEFT General Issues of OAO TATNEFT Engineer of OAO TATNEFT and oil/gas fields development of Directors’ Corporate Management Committee

TAZIYEV NURMUKHAMETOV RAKHMANOV Mirgaziyan Z. Rafail S. Rifkat M.

Board of Directors member. Management Board member. Management Board member. Head of Almetyevneft Oil and Head of Leninogorskneft Oil and Deputy General Director for Workover Gas Production Board Gas Production Board and Oil Recovery Enhancement of OAO TATNEFT of OAO TATNEFT of OAO TATNEFT

OAO Tatneft Annual report 2009 www.tatneft.ru 20 21 Distribution of powers and responsibilities among the board of directors members and members of the management board of OAO TATNEFT. (continue) Cooperation Management with the Governmental of Oil and Gas Refining Bodies and Coordination Corporate and Petrochemical of the Industry Branch Management Production Enterprises Activities

LAVUSHCHENKO GORODNIY MAGANOV GAIZATULLIN Vladimir P. Viktor I. Nail U. Radik R.

Board of Directors member, Management Management Board member. Deputy General Board of Directors member, Board of Directors member. Minister Board member. Deputy General Director of Director of OAO TATNEFT – Head of Property Management Board member. First Deputy of Finance of the Republic of Tatarstan. OAO TATNEFT for Economics. Chairman of Department. Chairman of the Board of Directors’ General Director – Head of Department Member of the Board of Directors’ the Board of Directors’ Information Disclosure Corporate Management Committee, for Sale of Oil and Petroleum Products Audit Committee Committee Vice Chairman of the Board of Directors’ of OAO TATNEFT Information Disclosure Committee

ERSHOV GARIFULLIN TIKHTUROV SHARAFEEV SABIROV Valeriy D. Iskandar G. Evgeniy A. Zagit F. Rinat K.

Management Board member. Management Board member. Management Board member. Management Board member. Board of Directors member. Head of Legal Department Head of Department for Bookkeeping Head of Finance Department Deputy General Director of OAO TATNEFT Assistant to the Prime-Minister of OAO TATNEFT. Member of the Board and Accounting – Chief Accountant of OAO TATNEFT. Member of the Board for Petrochemical Complex – Director of the Republic of Tatarstan on of Directors’ Corporate Management of OAO TATNEFT of Directors’ Information Disclosure of OAO Tatneft-Neftechim Management the issues of the petrochemical complex. Committee Committee Company Member of the Board of Directors’ HR and Remuneration Committee

OAO Tatneft Annual report 2009 www.tatneft.ru 22 23 Distribution of powers and responsibilities among the board of directors members and members of the management board of OAO TATNEFT.

Protection of Social the Shareholders’ Policy and Investors' Interests

MUKHAMADEEV KHAMAYEV WAYGOOD YUKHIMETS SOROKIN Rustam N. Azat K. David W. Aleksandr T. Valeriy Yu.

Management Board member. Board of Directors member. Board of Directors member. Management Board member. Board of Directors member. Deputy General Director Minister of Land and Property Director of Waygood Limited Company. Secretary of the OAO TATNEFT’s General Director of OAO TATNEFT for HR and Relations of the Republic of Tatarstan Chairman of the Board of Directors’ HR and Board of Directors. Member of of OAO Svyazinvestneftechim Social Development Remuneration Committee. Board of Directors’ the Board of Directors’ Information Audit Committee member Disclosure Committee

FELDMAN VOSKRESENSKAYA GOSH VOSKOBOINIKOV Semen A. Mariya L. Sushovan Vladlen A.

Management Board member. Board of Directors member. Board of Directors Member. Management Board member. Advisor to the General Director of Director of Brentcross Co. LTD. Managing Director of Head of Department for consolidated OAO TATNEFT. Director of the Almetyevsk Board of Directors’ Audit SGI Group Ltd. financial reporting of OAO TATNEFT. Branch of the National Non-Governmental Committee member Chairman of the Board Member of the Board of Directors’ Pension Fund of Directors’ Audit Committee. Information Disclosure Committee Member of the Board of Directors’ HR and remuneration Committee

OAO Tatneft Annual report 2009 www.tatneft.ru 24 Structure of TATNEFT Business-Group*

EXECUTIVE BODY

COMPLEX OF OIL REFINING OIL & GAS PRODUCTION BOARDS SERVICE COMPLEX AND CRUDE OIL & PETROLEUM ALMETYEVNEFT PRODUCTS SALE AZNAKAEVSKNEFT BAVLYNEFT CRUDE OIL & PETROLEUM JALILNEFT TATNEFTESNAB PRODUCTS SALE DEPARTMENT ELKHOVNEFT UPTZH DLYA PPD TATNEFTEGAZPERERABOTKA LENINOGORSKNEFT TGRU ADMINISTRATION NURLATNEFT BMZ ELKHOVO NPU (NGDU EN) PRIKAMNEFT LEASE RELATIONS ADMINISTRATION OAO TANEKO YAMASHNEFT OOO CHOP VITYAZ OOO TATNEFT-AZS-TZENTR SUBSIDIARY OIL PRODUCING OOO CHOP TATNEFT-OKHRANA OOO TATNEFT-AZS-ZAPAD COMPANIES AVTOTRANSPORTNOYE OOO TATNEFT-AZS-SIBIR' OOO TATNEFT-ABDULLINO PREDPRIYATIYE OOO TATNEFT-AZS-YUG OOO TATNEFT-SEVERNY OOO TATNEFT-AKTIV OOO TATNEFT-TRANS OOO TATNEFT-SAMARA OOO TATNEFT-URS IOOO TATBELNEFTEPRODUCT OAO ILEKNEFT OOO TORGOVO-TEKHNICHESKY OAO SAYMEN ZAO ABDULLINSKNEFTEGAZ DOM TATNEFT OOO KHARKOV-CAPITAL ZAO KALMTATNEFT ZAO PEREKRYVATEL OOO POLTAVA-CAPITAL OAO KALMNEFTEGAZ OAO TATNEFT-ALABUGA OOO PROCESSINGOVY TZENTR ZAO SEVERGEOLOGIYA OOO IPT IDEA- YUG- VOSTOK OOO TN-TZENTRORESURS ZAO SEVERGAZNEFTEPROM OOO LENINOGORSKOYE ZAO YAMBULOIL UPRAVLENIYE TAMPONAZHNYKH ZAO TATEX RABOT OOO REGION-NEFTEPROM OOO SHUNGUTOIL

PETROCHEMICAL SCIENTIFIC & TECHNICAL EXTERNAL SERVICE COMPLEX COMPLEX SUPPORT

OOO TATNEFT-NEFTEKHIM TATNIPINEFT R&D INSTITUTE MANAGEMENT COMPANIES MANAGEMENT COMPANY OOO NPTS NEFTEGAZOVYE BY SERVICE KINDS OAO NIZHNEKAMSKY TEKHNOLOGIYI (MECHANICAL, PIPES, MEKHANICHESKY ZAVOD CONSTRUCTION, TRANSPORTATION, OOO NPTS NEFTEGAZOVYE I WORKOVER AND OIL RECOVERY ZAO YARPOLYMERMASH-TATNEFT CHIMICHESKIYE TEKHNOLOGIYI ENHANCEMENT SERVICES, OAO NIZHNEKAMSKSHINA NIS OIL FIELD SERVICES FOR ELECTRICAL SUBMERSIBLE UNITS OOO NZSH TSMK ENGINEERING CENTER AND PUMPING UNITS, INFORMATION OAO NIZHNEKAMSK-TEKHUGLEROD TECHNOLOGIES SERVICE) OOO TATNEFT-NEFTEKHIMSNAB OOO TORGOVY DOM KAMA AND OTHERS BRANCHES AND REPRESENTATIVE OFFICES

REPRESENTATIVE OFFICE ENERGY COMPLEX IN MOSCOW REPRESENTATIVE OFFICE IN IRAQ OOO NIZHNEKAMSK THERMAL BRANCH OFFICE IN LIBYA POWER STATION OOO TN ENERGOSBYT

* Without taking into consideration US GAAP consolidation principles.

OAO Tatneft Annual report 2009 25 Main Indices of the Oil Joint-Stock Company by the Results of FY 2009 (OAO TATNEFT Standard for Stakeholders Informing)

NATIONAL INTERNATIONAL № MAIN INDICES MEASUREMENT UNITS MEASUREMENT UNITS*

I. INDICES OF THE COMPANY SHAREHOLDERS’ VALUE

1.1. Capitalization as of Dec. 31, 2009* RUR 299.8 billion USD 9.913 billion 1.2. Cost of ordinary shares RUR 137.59 USD 4.55 1.3. Dividends by the results of the Company's activity in 2008 RUR10.3 billion USD 350.3 million 1.4. Scheduled dividends by results of the Company's activity in 2009** RUR 15.3 billion USD 505.9 million 1.5. Total number of shares 2,326,199,200 Including: Ordinary 2,178,690,700 Preferred 147,508,500

Number of depositary receipts issued for shares of OAO TATNEFT 1.6. 108,661,376 (1DR:6 shares) as of Dec. 31,2009

II. INDICES OF THE COMPANY’S INDUSTRIAL STATUS

Oil and Gas Production Complex

Volume of proved oil reserves as of January 1, 2010 (according to Miller & Lents Ltd.) 2.1. 862.2 million tons 6,141.45 million barrels using the average oil price for 12 months of 2009***

2.2. Oil production volume 25.850 million tons 184.13 million barrels 2.2.1. Oil production by TATNEFT Group 26.106 million tons 185.95 million barrels 2.3. Average daily production 70,8 thousand tons 504,31 thousand barrels 2.4. Average oil production rate of the active production wells of OAO TATNEFT 4.0 t/day 28.49 bpd 2.5. Average oil production rate of the new wells of OAO TATNEFT 9.5 t/day 67.67 bpd 2.6. Volume of associated petroleum gas 756.4 million m3 2.7. Production of gas liquids 287.4 thousand tons 2.8. Operating wells stock 21,885 wells 2.9. Producing well stock 19,822 wells

Total penetration meterage for OAO TATNEFT, 2.10. 420.3 thousand meters including

2.11. production drilling 399.2 thousand meters 2.12. prospecting & exploratory drilling 21.05 thousand meters

Petrochemical Complex 2.13. Carbon black production volume 105.5 thousand tons 2.14. Commercial carbon black production volume of OAO Nizhnekamsktehuglerod **** RUR 19,405.8 million USD 611.2 million

www.tatneft.ru 26 27

Main Indices of the Oil Joint-Stock Company by the Results of FY 2009 (continue) Main Indices of the Oil Joint-Stock Company by the Results of FY 2009 (continue)

NATIONAL INTERNATIONAL NATIONAL INTERNATIONAL № MAIN INDICES MEASUREMENT UNITS MEASUREMENT UNITS* № MAIN INDICES MEASUREMENT UNITS MEASUREMENT UNITS*

Infrastructure Complex Taxes and Payments to the Budget 2.15. Total length of oil-gathering system pipelines 18,652 km 4.8. Taxes and payments to the budget from OAO TATNEFT, including: RUR 77,180.9 million USD 2,552.2 million. 2.16. Total length of field gas lines 2,014.7 km 2.17. Total length of water lines 18,725.7 km 4.9. Minerals extraction tax (MET) RUR 52,426.5 million USD 1,733.6 million 2.18. Total length of power lines 15,996 km 4.10 Income tax RUR 16,077.2 million USD 531.7 million 4.11. Added value share in the total volume of the OAO TATNEFT products output 69% Total number of filling stations, 2.19. 620 stations including: Balance Sheet Data as of Dec. 31, 2009 2.20. in Russia 484 stations Fixed assets and incomplete construction RUR 67,756 million USD 2,240.6 million 2.21. in Ukraine 136 stations Long-term financial investments RUR 47,543 million USD 1,572.2 million Use of Property Complex Circulating assets RUR 195,409 million USD 6,461.9 million 2.22. Number of real estate assets registered on the ownership right RUR 5.7 billion USD 188 million Capital and reserves RUR 265,479 million USD 8,779 million 2.23. Revenue from the property lease RUR 2,852.6 million USD 94.3 million Total liabilities RUR 49,548 million USD 1,638 million

Human Resources Indices V. FINANCIAL STABILITY INDICES 2.24. Average headcount of the employees of OAO TATNEFT 23.411 thousand people 5.1. Owner’s equity level 84.3% 2.25. Number of employees of the TATNEFT Group of companies Over 71 thousand persons 5.2. Net assets 265.9 RUR billon 8.8 USD billion 5.3. Current liquidity (ratio) 5.1 III. INDICES OF COMMERCIAL ACTIVITY

Oil and Gas Products Deliveries VI. INVESTMENT ACTIVITY INDICES 3.1 Oil export (far-abroad countries) 15,893.8 thousand tons 114.9 million barrels 6.1. Total investments amount of OAO TATNEFT RUR 104,323 million USD 3,450 million 3.2. Oil export (near-abroad countries) 1,404.0 thousand tons 10.2 million barrels 6.1.1 Investments into oil production in the territory of Tatarstan RUR 17,668 million USD 584 million 3.3. Supplies to the domestic market 8,435.8 thousand tons 61.0 million barrels drilling RUR 6,882 million USD 227.5 million 3.4 Gas products supply 185.8 thousand tons capital construction RUR 3,442 million USD 113.8 million equipment not included in the construction estimate-sheets RUR 2,491 million USD 82.3 million Oil and Gas Products Sale geological and technical activities RUR 4,715 million USD 155.9 million Total volume of oil products sales at the market of Russia and Ukraine 3.6. 1.694 million tons 553.9 million. gallons (including large scale wholesale) redemption of property, land, etc. RUR 138 million USD 4.5 million

3.7. Volume of oil products sales through the retail chain of TATNEFT filling stations 1.536 million tons 510.3 million. gallons 6.1.2. Investments into development of retail business RUR 647 million USD 21.39 million 3.8. Volume of gas products sales through the retail network of TATNEFT gas filling stations 99.5 thousand tons 6.1.3. Investments into non-production sphere RUR 511 million USD 16.89 million 6.2. Investments into oil production outside the Republic of Tatarstan RUR 2,327 million USD 76,95 million Petrochemical Complex Products Sale 6.3. Investments of the petrochemical complex works RUR 7,249 million USD 239.71 million Total tires delivered, 3.9. 11.3 million pcs. 6.4. Investments of the service and other works RUR 317 million USD 10.48 million including: 6.5. Investments into foreign contracts RUR 1,855 million USD 61.34 million 3.10. Export 2.0 million pcs. Investments into construction of the complex 3.11. Domestic market 9.3 million pcs. 6.6. RUR 73,749 million USD 2,438.7 million of oil refining and petrochemical plants

IV. FINANCIAL AND ECONOMIC EFFICIENCY INDICES * The USD exchange rate of the Russian Federation Central Bank as of Dec. 31, 2009 amounted to 30.24 rubles ** The Board of Directors of OAO TATNEFT made a decision to recommend to the General Meeting of the Shareholders to approve payment of dividends for FY 2009 in the amount of 656% for the preferred shares, and in the amount of 656 % for the ordinary shares nominal value Revenues *** 1 ton of oil makes 7.123 barrels with regard to oil supplies under clauses 3.1-3.4 the following conversion ratio is applied: 1 ton of oil makes 7.23 barrels Total sales revenue of OAO TATNEFT, (1 barrel equals 42 gallons) 4.1. RUR 226,536.7 million USD 7,135.2 million including: **** The average rate of 1 USD = RUR 31.7491 for 2009 was applied for i.i. 2.14, 4.1, 4.2, 4.3, 4.4, 4.5, 6.1 – 6.6.

4.2. Oil sales revenues RUR 191,603.6 million USD 6,034.9 million 4.3. Oil and gas products sales revenue (own products) RUR 8,263.7 million USD 260.3 million 4.4. Oil and gas products sales revenue (purchased products) RUR 1,520.0 million USD 47.9 million 4.5. Other products sales revenue RUR 25,149.4 million USD 792.1 million

Profit 4.6. Income before taxation gained by OAO TATNEFT RUR 67,864 million USD 2,244 million 4.7. Net profit of OAO TATNEFT RUR 50,873 million USD 1,682 million

OAO Tatneft Annual report 2009 www.tatneft.ru 28 29 Production activity

2.1. Geology and Oil and Gas Fields Development. Oil Fields in the Territory of the Republic of Tatarstan Production Department Oil and Gas Production At present OAO TATNEFT performs development of 82 Geological Prospecting Works fields in the Republic of Tatarstan and outside. At present OAO TATNEFT and its 13 subsidiary and The major share of the current oil production is dependent companies have been granted 113 licens- accounted for by six large fields: Romashkinskoye, 2 ees for prospecting and developing raw hydrocarbons Novo-Elkhovskoye, Bavlinskoye, Sabanchinskoye, deposits. Pervomaiskoye, Bondyuzhskoye with 60% of production Deep-hole drilling was started to 10 structural highs provided by the Romashkinskoye oil field. in the Republic of Tatarstan and 9 structures in Samara The highest level of oil production was achieved in 2009 region in 2009. during the period of the last 15 years. OAO TATNEFT oil Seismic prospecting crews of OOO TNG-Group pre- production increased by 0.3% versus 2008 and amounted pared 16 structures for deep drilling in the Republic of to 25.85 million tons. The Company’s above-the-plan pro- KazanКазаньКазань Tatarstan. duction amounted to 450.44 thousand tons of oil. НабережныеНNaberezhnyeабережные ChelnyЧелныЧелны The annual and continuous geological exploration works performed by OAO TATNEFT have ensured the Crude Oil Production by OAO TATNEFT increment of recoverable oil reserves for the last 8 years Group of Companies (mln. tons) in volumes compensating current oil production. The last year results ensured increment of reserve for TATNEFT COMPANY 2008 2009 Company in the amount of 62.1 million tons. 16 new fields OAO TATNEFT 25.766 25.850 were discovered, including 10 fields discovered in the Oil companies in the territory Republic of Tatarstan (with 6 of them containing extra- 0.294 0.256 Almetyevsk of the Russian Federation affiliated viscous oil), 3 fields in Samara region, 2 fields in Orenburg to OAO TATNEFT Region and 1 field in Syria. TATNEFT Group of companies 26.06 26.106 According to the assessment of Miller & Lents proved oil reserves amounted to 862.2 million tons as of the begin- ning of 2010 with probable and possible reserve amount- In aggregate, the production volume of TATNEFT Group ing to 274.1 million tons. in 2009 amounted to 26.106 million tons of oil (100.2% ver- As of today OAO TATNEFT invests into prospecting and sus the level of 2008). exploration of fields not only in Tatarstan, but also in the 261 new production wells were drilled and construction other regions: Republic of Kalmykia, Orenburg, Samara completed for OAO TATNEFT with putting into operation and Ulyanovsk Regions, and in the Nenetz Autonomous after drilling 234 wells with the production rate of 9.5 tons Area. There are 13 subsidiary and affiliated companies per day. with participation of TATNET’s capital operating in the terri- The average oil production rate of OAO TATNEFT wells in Oil Production at the Largest Fields tory of the Russian Federation having 31 licensed areas. 2008 amounted to 4.0 tons per day. in 2009 (thousand tons) Workover operations were performed at 1,984 wells. Incremental oil recovery resulting from workovers amount-

ed to 352.3 thousand tons of oil, accounting for 10% Romashkinskoye 15,210.8 increase versus 2008. The average increment of oil produc- Novo-Elkhovskoye 2,562.8 tion rate after workover in 2009 increased by 20% versus Bavlinskoye 1,058.8 the previous year and amounted to 3.1 tons per day. 20,084.3 other 9,575 current remedial jobs were performed during the Bondyuzhskoye 299.6 thousand tons year. A number of well repair jobs was reduced by 6.0% ver- Pervomaiskoye 365.2 sus 2008. The average daily well shut-down time in expec- Sabanchinskoye 587.2 tation of the well remedial operations was reduced by 16.6 % with regard to the active well stock.

OAO Tatneft Annual report 2009 www.tatneft.ru 30 31

Production activity

Geology and Oil and Gas Production Management

Structure of Oil and Gas Production Enterprises. Geography of Activity duction rates - construction of horizontal wells and down- Core Production Outside the Republic of Tatarstan OAO TATNEFT has hole splitters. rights for geological exploration and development of oil, In 2009 OAO TATNEFT drilled 17 slim hole wells (SHW) gas and condensate fields acquired at auctions or through and 13 of those wells were commissioned for oil produc- 1 purchasing a share of the oil companies' business in tion (oil production volume amounted to 9.863 thousand FIRST DEPUTY Samara and Orenburg Regions, the Nenetz Autonomous tons). The average production rate amounted to 6.7 tons GENERAL DIRECTOR FOR Area and the Republic of Kalmykia. In 2009 the Company per day. The total number of SHW drilled from the begin- PRODUCTION – CHIEF ENGINEER operated 19 oil fields with 45 wells in Samara Region and ning of the method implementation amounts to 85 slim 5 wells in Orenburg Region. wells. In Samara Region the earlier drilled well stock was com- pleted and new wells were drilled. Production rates of the Production new wells amounted to 11.9 tons per day. Application of enhanced oil recovery methods is a deter- Performance of the geological exploration program minative factor in oil production. was continued in the territory of contractual sites of Incremental oil production resulting from tertiary oil PRODUCTION POWER ENGINEERING INDUSTRIAL SAFETY TECHNOLOGICAL CONTROL IT DEPARTMENT OAO TATNEFT in Syria and Libya. recovery enhancement methods amounted to 5.17 million DEPARTMENT DEPARTMENT AND LABOR PROTECTION DEPARTMENT Four geological exploration wells were drilled in Syria. tons in 2009 (accounting for 100% to the level of 2008). DEPARTMENT Drilling of appraisal well “South Kishma-2” was started. The share of oil produced through application of those Commercial discovery of the South Kishma oil field was EOR methods in 2009 accounts for 20% of the total pro- announced in December 2009. duction. Two exploration wells were drilled in Area 82-4 in Libya In aggregate the production resulting from application of with commercial oil flows received. Drilling of the first the enhanced oil recovery methods accounted for 44.9% of 2 NGDU ALMETYEVNEFT NGDU JALILNEFT NGDU AZNAKAEVNEFT NGDU LENINOGORSKNEFT NGDU ELKHOVNEFT exploration well was started in Area 82-1. the total production volume in 2009.

Oil and Gas Production Efficiency Programs and Operations at Extra-Viscous Oil Fields Power Saving Technologies. Application Pilot operations to develop deposits of extra-viscous oil NGDU YAMASHNEFT NGDU BAVLYNEFT NGDU NURLATNEFT NGDU PRIKAMNEFT UPTZH DLYA PPD of Advanced Equipment and Technologies continued in 2009. Commercial projects of developing Fields Prospecting two deposits of extra-viscous oil of Sheshminsky horizon In addition to standard technologies (i.e. seismic survey) at Mordovo-Karmalskoye and Ashalchinskoye fields are the Company applies some new ones for oil fields pros- in the process of implementation. Design projects have BUGULMA MECHANICAL ENGINEERING CENTER pecting: been prepared for test operation of 19 deposits and PLANT prediction of oil-bearing intervals with application of the fields. “Neuroseism” artificial intelligence method; Site arrangements for application of thermal oil collection of hydrocarbon gases escaping from the soil production methods were performed at the deposit and assessment of hydrocarbon diffusion halation with of Mordovo-Karmalskoye field (the process flow- application of Gore Sorber module; sheet of pilot operations was approved by the Central 3 ZAO SEVERGEOLOGIYA* ZAO OAO KALMNEFTEGAZ OAO ILEKNEFT low-frequency seismic sounding (LSS); Development Commission). A test site for the in-situ SEVERGAZNEFTEPROM»* geological and geophysical technology for optimization combustion technology using horizontal wells was of selecting well drilling site locations; defined at the Southern and South-Western areas; while electromagnetic sounding (EMS); the test site for application of steam treatment was found

ZAO KALMTATNEFT OOO TATNEFT-SAMARA OOO TATNEFT-ABDULINO OOO TATNEFT - SEVERNIY ZAO NGDP software package 3D “Stratimegic” for processing seis- at the Northern Cupola. The production of extra viscous- ABDULINSKNEFTEGAZ mic survey results. oil deposit at Mordovo-Karmalskoye field amounted to 5.0 thousand tons of oil. Drilling Production of extra-viscous oil in the pilot area of the 34 new technologies were applied for drilling in 2009. Ashalchinskoye field amounted to 18.4 thousand tons in ZAO TATEX* OOO REGION-NEFTEPROM ZAO YAMBULOIL* OOO SHUNGUTOIL The most effective technologies in terms of the wells cas- 2009. Application of a steam cycling technology based ing quality are application of silicate tanks in the productive on three pairs of horizontal wells and one horizontal well formations interval; use of G-grade cement; application of allowed producing more than 38.1 thousand tons since collar cementing units; and for achievement of high oil pro- the beginning of the pilot operations.

EXECUTIVE STAFF STRUCTURAL DIVISIONS OF TATNEFT GROUP * affiliated companies 1 OAO TATNEFT 2 OAO TATNEFT 3 COMPANIES

OAO Tatneft Annual report 2009 www.tatneft.ru 32 33

Production activity

Management of the Oil/Gas Refining and Petrochemical Complexes

2.2. Management of the Oil/Gas Refining Yield of Oil Products increasing gas purifying and drying quality, increase of Main Technical and Economic Indices and Petrochemical Complexes at the Elkhovo Oil Refinery the gas pipeline life period and essential reduction of the of the OAO TATNEFT Petrochemical sulphur dioxide emission to the atmosphere. Complex Companies General management of the oil/gas refining and petro- PRODUCT 2008 2009 The works on stripping hydrogen sulfide from oil were According to the results of 2009 the volume of com- chemical production is performed by the Department of Regular-92 Petrol 25.3 39.83 started at the facilities of NGDU Almetyevneft and NGDU modity output produced by the petrochemical complex Oil and Petroleum Products Sales. Yamashneft. plants amounted to 19.4 billion rubles, which is 22.7% Normal-80 Petrol Priority areas in the oil/gas refining and petrochemical 43.6 30.5 GFU-300 was modernized, which enabled increase lower than the level of 2008. The sales revenues in 2009 segments of the Company's activity are increasing prod- Diesel fuel 104.7 99.0 of the facility stock loading and growth of the products decreased by 9.6% and amounted to 21.1 billion rubles. ucts output as well as sales volume of highly competitive Furnace fuel 5.6 3.9 output. The gross income amounted to 1.5 billion rubles. The finished products. average number of employees was 11.7 thousand per- Sulfur 0.698 0.366 Petrochemical Production sons. Oil and Gas Refining Petrochemical business activities of the Company inte- The activity of tire business in 2009 was performed OAO TATNEFT own oil refining was carried out at the which is the main component of tire manufacturing, grate the group of enterprises united by common share- on a give-and-take basis. oil refinery of NGDU Elkhovneft in 2009 with a high level is made at the Minnibaevo Gas Processing Plant of holders, uniform development strategy and plans coordi- of the plant production capacities loading. Tatneftegazpererabotka Administration. nation. Management of the petrochemical complex is pro- OAO Nizhnekamskshina In June 2009 the Elkhovo refining plant started pro- Tatneftegazpererabotka Administration proceeded with vided by the TATNEFT-Neftekhim Management Company. The volume of tire production in natural units amounted duction of diesel fuel with sulfur content .05% and improving the process flow sheet and improving safety of to 9.4 million pieces in 2009. declared for compliance with the Technical Regulations the oilfield gas lines. The petrochemical complex includes: Requirements. In 2009 the gas processing facilities worked in the OAO Nizhnekamskshina OAO Nizhnekamsktekhuglerod At present modernization of production capacities of stable technological mode, which enabled high-quality OOO Tatneft - Neftekhimsnab The amount of 105.5 thousand tons of carbon black was the plant is on the way to provide for yielding oil prod- processing of hydrocarbon stock in the volume of 671.7 OOO Kama Trade House produced in 2009. ucts (petrol, diesel fuel) which meet the requirements of mln. cubic meters of associated petroleum gas and 287.4 OAO Nizhnekamsktekhuglerod Euro-3, 4 and 5 standards. thousand tons of gas liquids. OAO Nizhnekamsk Mechanical Plant OOO Kama Trade House Processing of the associated petroleum gas, In 2009 the work on improvement of the process flow ZAO Yarpolymermash - Tatneft The volume of tire sales by the Kama Trade House in the which is a link in the chain of receiving caoutchouc, chart of the Minnibaevo sulphur removal unit aimed at OOO Kama Scientific and Technical Center reported period (taking into account the storage program) OOO Nizhnekamsk Solid Steel Cord Tire amounted to about 10.1 million tires, which amounted to Finished Products Output of Tatneftegazpererabotka Administration in 2008 and 2009 Production Plant 18.3 billion rubles. The share of commodities sold to the near-abroad and PRODUCT MEASUREMENT UNIT 2008 2009 far-abroad countries in the total volume of sales amounts to 24% (in value terms). The tires of Nizhnekamsk manu- Stripped gas mln. cubic meters 368.6 365.37 facture are delivered to OAO KamAZ, OAO AvtoVAZ, Liquid products, total thousand tons 554.1 562.65 OOO GAZ Group, OAO Nefaz, OAO Iveko-UralAZ, ZAO ZAZ, etc. Liquefied gas, including: thousand tons 346.3 351.47

Propane thousand tons 197.4 199.95 DESCRIPTION 2008 2009 Isobutane thousand tons 39.4 40.28 Tire production, total, thousand pieces 11,877.1 9,432.8 Normal butane thousand tons 109.5 111.24 Carbon black production volume, thousand tons 108.9 105.5 Isopentane thousand tons 4.5 6.60 Commodity output*, million rubles 25,088.7 19,405.8 Sum of pentanes thousand tons 63.0 41.74 Sales revenue*, million rubles 23,332.4 21,087.5 Stable natural gasoline thousand tons 138.3 162.85 * These indices are given in aggregate for the petrochemical complex, except commercial activity of OOO TD KAMA and OOO TN-NEFTEKHIMSNAB, Self-produced liquid gases thousand tons 1.9 0.00 activity of OAO NIZHNEKAMSKSHINA in terms of its rendering services of give-and-take stock processing.

Ethane thousand tons 95.6 91.81

Sulfur thousand tons 3.6 3.95

Nitrogen thousand cubic meters 1,692.7 2085.21

Oxygen thousand cubic meters 126.12 135.04

OAO Tatneft Annual report 2009 www.tatneft.ru 34 35

Production activity

Management of the Oil/Gas Refining and Petrochemical Complexes

Cooperation Scheme between the Companies Main Kinds of Products Yielded (new products) in 2009 OOO Tatneft - Neftekhimsnab of the OAO TATNEFT Petrochemical Complex The volume of commodity output of OOO Tatneft- Neftekhimsnab amounted to 16.8 billion rubles in 2009. № TIRE SIZE/MODEL MAIN APPLICATION (VEHICLE MODEL)

LIGHT TRUCK TIRES ZAO Yarpolymermash - Tatneft By the results of 2009 the volume of produced commodity 1. 215/75R16C HK-131 output amounted to 344.1 million rubles. Fiat Ducato OOO TATNEFT-NEFTEKHIM MANAGEMENT COMPANY 2. 205/75R16C HK-520 OAO Nizhnekamsk Mechanical Plant PASSENGER CAR TYRES The volume of commodity output produced by VAZ, Hyundai Getz, Chevrolet Lanos, Fiat Nizhnekamsk mechanical plant amounted to 231 million 3. 175/65R14 HK-129 Grande Punto, Peugeot 206, Ford Fiesta rubles in 2009.

Nissan Almera, Citroen Berlingo, Fiat Doblo, 4. 175/70R14 HK-129 OAO NIZHNEKAMSKTEK- ZAO YARPOLYMERMASH- Fiat Albea, Opel Combo, Hyundai Accent 2.3. Management of Sales and Deliveries HUGLEROD TATNEFT of Oil and Gas and Oil/Gas Products Fiat Stilo, Ford Focus, Citroen C4, 5. 195/65R15 HK-519 1 4 Citroen C5, Peugeot 307, Peugeot 406, Structure and Volumes of Oil and Gas Sales 2 Volkswagen Golf, Volkswagen Bora, OAO TATNEFT treated and delivered 25,594.6 thousand Volkswagen Passat, Renault Laguna, SERVICE COMPANIES OOO TATNEFT- 5 6 tons of resources to the transportation system in 2009 OAO NIZHNEKAMSK Lancia Y, Opel Zafira, Mercedes B class, NEFTEKHIMSNAB MECHANICAL PLANT (TRANSPORT, SOCIAL PERSONAL 6. 195/65R15 KAMA EURO-236 Mercedes C class, Mercedes E class, and totally 25,795.0 thousand tons were delivered to con- SERVICES, CATERING, GENERAL Skoda Octavia, Volvo S60 sumers taking into account balances, which was 1,308.4 CONSTRUCTION WORKS) 3 7 thousand tons or 5.3% more, than during a similar period Hyundai Matrix, Seat Ibiza, Volkswagen of 2008. 7. 195/55R15 KAMA EURO-236 Polo, Chery Fora, Chevrolet Lacetti, OAO NIZHNEKAMSKSHINA 8 OOO NTC KAMA Rover 45, Ford Fiesta In addition to the own resources the Company sold 1,574.3 thousand tons of oil produced by independent Toyota Yaris, Opel Meriva, Chryler Neon, oil companies through the Oil and Oil Products Sale Citroen C2, Dodge Neon, Mercedes-Benz 8. 185/60R15 KAMA EURO-236 Department of OAO TATNEFT: OOO NZSH CMK (ALL Vaneo, Renault Modus, Suzuki Ignis, Suzuki Swift TIRES STEEL TIRES) – THE PLANT ARTICLE THOUSAND TONS IS IN THE PROCESS OF CONSTRUCTION VAZ, Chery Amulet, Chevrolet Aveo, Export commission, far and near abroad 1,047.4 Chevrolet Lanos, Daewoo Nexia, 9. 185/60R14 HK-129 Volkswagen Golf, Volkswagen Polo, Skoda Domestic market 526.9 OOO KAMA TRADE HOUSE Fabia, Renault Clio, Lancia Y, Fiat Punto, Skoda Fabia In 2009 marketing of light oil and gas condensate pro- Toyota Corolla, Mazda 3, Opel Astra, duced by ZAO Tatneft-Samara, OOO Tatneft-Severniy and Toyota Avensis, Hyundai Elantra, Ford Mondeo, Ford C-Max, Alfa Romeo 147, Alfa OAO Ilekneft outside the Republic of Tatarstan under the Romeo 156, Alfa Romeo GT, Audi A3, Audi conditions of the undeveloped infrastructure in the men- A4, Audi A6, BMW 1-series, BMW 3-series, 10. 205/55R16 HK-129 tioned production areas was continued. Citroen C4, Peugeot 307, Peugeot 406, 1. CARBON BLACK Outside the Republic of Tatarstan the resources of oil SERVISES Volkswagen Golf, Volkswagen Passat, 2. STOCK, INVENTORY STOCK (ANTHRACENE FRACTION, PYROLYSIS RESIN) Renault Laguna, Volvo C30, Volvo S40, producing companies with participation of OAO TATNEFT Fiat Bravo, Mercedes C class, Mercedes B were sold in the amount of 41.7 thousand tons, including 3. STOCK, MATERIALS AND INVENTORY STOCK class, Mercedes CLK, Kia Ceed STOCK, MATERIALS 30.3 thousand tons produced in Orenburg Region and 4. SPECIAL RIGGING, EQUIPMENT Ford Focus, Citroen C4 Picasso, Peugeot 11.4 thousand tons produced in Samara Region. 5. STOCK (ROLLED METAL) 806, Peugeot 607, Rover 75, Renault Crude oil deliveries at the domestic market were basi- 6. ENGINEERING PRODUCTS (SPARE PARTS) 11. 205/65R15 HK-129 Espace, Volvo S80, Saab 5, Saab 9, BMW cally distributed to OAO TAIF-NK Refinery and to Moscow 5 series, Mercedes E class, Kia Carens, Refinery. 7. CAPITAL REPAIR Hyundai Sonata 8. DEVELOPMENT OF NEW TIRES Alfa Romeo 156, Audi A4, Audi A6, 12. 205/60R15 HK-519 Peugeot 406, Mercedes C class

13. 185/70R14 HK-519 Renault Logan, Opel Astra

OAO Tatneft Annual report 2009 www.tatneft.ru 36 37

Production activity

Management of Sales and Deliveries of Oil and Gas and Oil/Gas Products

The purchases of oil products for provision of the retail Major Directions of OAO TATNEFT Resources Delivery Regions of TATNEFT's Regions of TATNEFT's network of OAO TATNEFT in the Republic of Tatarstan and (thousand tons): Retail Sales Network in Ukraine Retail Sales Network in Russia other areas of Russia were done at the Moscow, Ufa and Samara Refineries and the Refinery of OAO TAIF-NK and DESCRIPTION 2008 2009 Chernigov St. Petersburg at other plants as well as the own products were supplied Export, far abroad 14, 641.4 15,893,8 Arkhangelsk from the Elkhovo Refinery of NGDU Elkhovneft. Sumy Naryan-Mar Export, near abroad 1,560.4 1,404.1 Kiev Sale of Gas Products Tver Oil refining plants in Russia: 8,232.1 8,435.8 Poltava 676.3 mln. cubic meters of associated petroleum gas and Kharkov Cherkassy 287.4 thousand tons of gas liquids from crude oil treatment including: Khmelnitsky installations were received by gas processing facilities of Moscow Refinery OAO TAIF-NK 6,294.6 6,150.4 Vinnitsa the Tatneftegazopererabotka Administration during the Vladimir Dnepropetrovsk N. Novgorod reported period. OAO Moscow Refinery 1,789.7 1,836.6 The following products were obtained from the associ- Yoshkar-Ola ated petroleum gas in 2009 364.8 mln. Cubic meters of dry OAO NORSI 82.9 76.8 Cheboksary Kazan gas and 91.8 thousand tons of ethane. OAO SLAVNEFT-YANOS — 301.5 Ulyanovsk Besides, processing of the Company’s hydrocar- Odessa Ekaterinburg Samara Ufa bon gas stock was performed at the capacities of OAO OAO Saratov Refinery — 46.2 Nizhnekamskneftekhim. The volume of stock supply via the Volgograd Chelyabinsk Other deliveries 64.9 24.3 product line during the reported period amounted to 59.2 Orenburg Simferopol Krasnodar Elista thousand tons. Stavropol Kemerovo The following volumes of gas products were shipped in Total volumes of oil delivery including the resources of independent 2009 to provide the petrochemical plants in the Republic of oil companies and outside entities (thousand tons): Tatarstan with stock resources and to secure the optimal loading of their production capacities: DESCRIPTION 2008 2009 Filling Stations Filling Stations in Ukraine in Russia OAO TAIF-NK Refinery 6,981.1 6,473.2 136 484 Isobutane 34.7 OAO Moscow Refinery 1,805.2 1,836.6 Pentanes 41.9 The aim of the strategy is achievement of qualitative 1. Regional Development Novoshakhtinsk Refinery — 10.4 growth of the planned figures and expansion of the cli- OOO Tatneft-AZS-Yug, which controlled 18 filling stations Stable natural gasoline 12.3 OAO Saratov Refinery 175.3 68.7 ents’ base. (including 11 acquired on lease basis) as of Dec. 31, 2009, Gas liquids 5.0 The format of TATNEFT's filling stations envisages sale supported small-scale wholesale and retail sale of oil of all kinds of petrol and diesel fuels, wide range of addi- products in three regions of the Southern Federal Area: Ethane 91.9 Retail business tional services and programs for oil products purchase via Krasnodar Area, Stavropol Area, Volgograd Region. The retail network of TATNEFT filling stations is one of the the non-cash payment system using fuel cards. OOO Tatneft-AZS-Sibir, which controlled 5 filling The volume of liquefied hydrocarbon gas supplied to the most rapidly developing in the territory of Russia. At pres- TATNEFT adheres to the high standards of fuel qual- stations as of Dec. 31, 2009, supported retail sale in population of the Russian Federation and the Republic of ent the Company implements the Development Strategy ity and services quality with their affordability for a wide Kemerovo Region, as well as small-scale wholesale in Tatarstan in 2009 amounted to 285.0 thousand tons (26.2 for retail network of filling stations till the year 2011. This range of consumers providing for the main competitive Krasnoyarsk Area, Kemerovo Region and in the Republic thousand tons in 2008). Strategy provides for purchase and construction of new advantage at the retail oil products market. of Khakassia. filling complexes, including those in new areas (Siberia 620 filling stations were operating under the TATNEFT and Southern Federal Regions), as well as upgrading and brand as of Dec. 31, 2009 with 484 filling stations operat- rebranding of the existing active filling stations. ing in the territory of the Russian Federation and 136 filling A Protocol of Activities to promote cooperation between stations operating in the territory of Ukraine. the Government of the Republic of Belarus and the The total volume of oil products sale at the markets of Governments of the Republic of Tatarstan and the Russian Russia and Ukraine amounted to 1,536 thousand tons dur- Federation for 2009-2010 was signed in January 2009. A ing 2009. new venture IOOO Tatbelnefteprodukt with participation of The volume of gas sales amounted to 100 thousand OAO TATNEFT was established on March 11, 2009, intend- tons in 2009. ed to develop a network of petrol filling stations in Belarus.

OAO Tatneft Annual report 2009 www.tatneft.ru 38 39

Production activity

Servicing Management

2. Marketing Support 2.4. Servicing Management of 16.4 tons per day. 58 side tracking jobs with drilling lat- General Construction Works The activities aimed at strengthening the image of the eral and lateral horizontal wellbores were completed, as Management of construction capacities for erec- retail sale network, attraction of new clients, as well as Organization of Servicing well as 17 wells of small diameter were drilled. tion of oil pipelines and water lines, technical piping of increasing loyalty of the existing ones and promotion Formation of the external services complex was continued Transition to drilling of wells by individual cost estimates pipelines, capital repair of the tank farm and general of the brand were performed. The automated system during the reported year in the framework of the main allowed saving 286 million rubles of investment funds in construction works at all facilities of OAO TATNEFT of managing the clients' complaints and proposals was phase of restructuring by withdrawing non-core and sup- 2009. were done by Glavneftegazstroyservice Management introduced. porting activities from the Company’ structure including: To perform well construction works the Company adopt- Company. Pilot operation of the retail sale network site (sub portal mechanical service; ed a supervisory control Standard defining the procedure Commissioning of the fixed assets stock amounted to of the TATNEFT Group corporate site) was started in 2009. energy service; of planning, management and evaluation of the work being 5,255.9 million rubles in 2009, including industrial assets pipeline service; performed. construction (3,923.8 million rubles) and non-industrial 3. Ensuring Quality of Products and Services construction service; Application of the Standard in 2009 resulted in reducing construction (1,332.1 million rubles). at the Filling Stations transport service; the costs of OAO TATNEFT for well construction by The Company's entities performed capital repair works The Company organized and provided a multistage well workover and EOR service; 462.8 million rubles. of the fixed assets for the total amount of 2,453.6 million control system of quality and preservation of petroleum oil field service of ESP and other pumping units; rubles. In aggregate 627 km of field pipelines were products using modern equipment, advanced technolo- information technology service. Repair and Preventive Maintenance erected and replaced in 2009, including 320 km of oil gies and technical means. of Oil Field Equipment pipelines, 242 km of water lines and 65km of gas and The first stage of control is the control exercised when Transition to external (contract) oil servicing fundamentally The volume of oil production rehabilitated due to work- product lines. accepting the oil products at the oil tank farms of the changed the organization of the production management. overs amounted to 352.3 thousand tons in 2009 with the Company. The work by the new pattern "customer/contractor", and average daily well production rate growth coming to 3.5 Commissioning of Fixed Assets The second stage of control is determining presence arrangement of specialized monitoring of works perfor- tons per day making 35% versus 2008 and due to the oil of bottom water and solids with taking and saving arbitra- mance by supervisors and work administrators provided in recovery enhancement methods application coming to COMMISSIONING OF INDUSTRIAL MEASURE tion sample at the moment of accepting oil at the filling general for the parties’ responsibility growth and improve- 3.1 tons per day. At present the workover is one of the № CONSTRUCTION FACILITIES UNITS 2008 2009 station prior to discharging the fuel into the storage tank ment of quantitative and qualitative indicators of the work. most economically attractive projects among the geologi- 1. Wells, total, including pcs 468 431 of the filling station. cal engineering activities. The third stage of control is performed by a special Construction of Wells and Geological Exploration Hydraulic fracturing operations were performed at production pcs 269 280 group of quality control at a mobile laboratory. Facilities 113 wells. The average daily well production rate growth injection pcs 199 151 In 2009 drilling of production and exploratory wells amounted to 3.7 tons per day. 2. km 526 329 Priorities of the Company’s activity designed to ensure within the Republic of Tatarstan was performed by The average mean time between failures of TATNEFT’s Field pipelines, total, including: safety of products and services with regard to the health OOO Tatburneft Management Company uniting five wells increased by 11.4% versus 2008 and reached 1011 of consumers are: Drilling Administrations and other subdivisions. days. Our Company is the first among the major oil com- oil pipelines km 314 168 selling of high-quality fuels; 431 wells were drilled and construction completed during panies in Russia having exceeded the maximum level of reducing hydrocarbon vapor emissions; the reported year, including 280 production wells, which 1,000 days by this index. water lines km 203 122 reducing disposal of oil-contaminated wastewater; accounted for production of 423 thousand tons of oil during gas pipelines km 8 39 reducing the quantity of oil containing wastes; the first year of operation. Geophysical Service and Field Studies preventing and elimination of possible emergency The average production rate of new wells put into opera- Performance of field geophysical and hydrodynamic power lines km 135.6 115 spills of petroleum products and related environmental tion after drilling in 2009 compared with 2008 increased by works as well as shooting and explosive works connected pollution. 8% and amounted to 9.5 tons per day. with search, exploration, preparation for development Execution of Capital Construction Commercial drilling speed increased by 3% compared and operation of oil and gas fields for OAO TATNEFT was and Repair of Fixed Assets with 2008 and the time required for commissioning new carried out by TNG-Group Management Company. wells after drilling and completion was significantly reduced Implementing the TATNEFT policy for development of CAPITAL CONST- CAPITAL № DESCRIPTION RUCTION, KM REPAIR, KM TOTAL, KM accounting for 16% decrease versus 2008. new territories, TNG-Group performs geophysical works 43 wells with the average production rate of 11.4 tons per and renders specialized services both in Russia and out- 1. Oil pipelines 168 152 320 day were drilled in 2009 with application of advanced tech- side, including countries of Asia, Africa, Middle East, and in 2. Water lines 122 120 242 nologies for drilling horizontal wells. the oil-bearing areas of CIS countries, such as Uzbekistan The Company implemented technologies of drilling and Kazakhstan. 3. Gas and product pipelines 39 26 65 nine downhole splitters with the average production rate TOTAL: 329 298 627

OAO Tatneft Annual report 2009 www.tatneft.ru 40 41

Production activity

Industrial Safety

Labor protection expenses dynamics, A dedicated program was fulfilled for major repairs Occupational Safety and Labor Protection 2.5. Industrial Safety including those per one employee of the tank farms with repairing of 34 tanks: 21 pieces The TATNEFT work on the occupational safety and labor MONEY SPENT FOR LABOR MONEY SPENT FOR LABOR PROTECTION of RVS-5,000, 9 pieces of RVS–2,000, 3 pieces of The industrial and ecological safety activities and the protection, on prevention of occupational injuries and YEAR PROTECTION (MILLION RUBLES) PER 1 EMPLOYEE (RUBLES) RVS–1,000, 1 piece of RVS–400 with sacrificial protection activities on the labor protection in OAO TATNEFT are occupational diseases is carried out in compliance with implemented at 77 tanks. performed according to ISO 14001:2004 international the corporate regulations and standards. 2005 276.1 5,990 Works on field development outside the Republic ecological safety standard and the standard of industrial The main instrument is the Provision on organization 2006 313.7 7,394 of Tatarstan were performed in 2009. The works were safety and health OHSAS 18001:2007 under the inte- and implementation of production controls to comply with performed in three companies: OOO Tatneft Samara, grated management system of industrial safety, labor and industrial safety requirements in all structural divisions 2007 298.7 7,513 OOO Tatneft Severny and OAO Ilekneft. environmental protection. and subsidiaries of the Company, as well as the Program 2008 212.3 8,012 The principal mission of the Company in 2009 was con- The integrated management system of industrial safety, of OAO TATNEFT in the area of industrial safety and labor struction of the external infrastructure of the Nizhnekamsk labor and environmental protection was audited and protection to prevent injuries, reduce the risk of accidents 2009 200.5 8,566 complex of refinery and petrochemical plants financed re-certified in September 2009 and received new certifi- and unscheduled losses for 2010-2012. The Program aims from the funds of the Russian Federation Investment Fund. cates. to preserve life and health, as well as to improve working In addition the following works were also performed: Since 2008 the scope of certification in addition to conditions of the employees, reduce accident rate, signifi- In 2009 the works were carried out in full volume to oil pipeline NPS Kaleykino – Nizhnekamsk refinery: production, treatment, transportation, oil transshipment, cant workplace hazards, improve the safety of the equip- ensure radiation safety at the facilities of OAO TATNEFT. 18 km were laid, works were completed within 5 months petroleum products, natural gas and associated gas and ment operation and improve the facilities’ fire protection According to the audits performed by GosAtomNadzor, instead of 14 months of the scheduled construction gas and condensate, also includes engineering design status. Rospotrebnadzor and the Environmental Prosecutor's term; and development, production, sales, repair and mainte- For the purpose of establishing unified requirements to Office the radiation situation at the production facilities of reconstruction of the Nizhnekamsk-Almetyevsk-Kstovo nance of chemical, petrochemical, oil and gas production, the components of the integrated management system of TATNEFT are in compliance with requirements to provide oil products line: 184 km. oilfield and refinery equipment, pipelines etc. industrial, fire, electric power, radiation safety and labor for radiation safety. protection the Company continued in 2009 elaboration of Transportation relevant industrial safety standards. The approved provi- Reconstruction of OAO TATNEFT's transportation complex Labor protection expenses dynamics, sions and standards apply to all structural divisions and Labor Protection Committee of OAO TATNEFT was continued in 2009. including those per one employee they are recommended to all subsidiary companies and The Committee's activities are aim at maintaining safety The listed quantity of vehicle pieces in the structural enterprises of the TATNEFT Group. and prevention of injuries and accidents in OAO TATNEFT divisions of OAO TATNEFT and its subsidiary and affili- ‘09 As a result of purposeful organizational and technical as well as structural divisions and subsidiaries of the ated companies, which are part of the service complex, ‘08 preventive work no cases of open flows or oil and gas Company. The Committee oversees certification of work amounted to ¬¬10,429 vehicles as of Dec. 31, 2009, ‘07 shows were recorded in reporting year. places and provision of safety clothes, footwear and including 746 vehicles in the structural divisions, 426 vehi- For the purpose of improving the work on creation personal protective equipment for the workers. ‘06 cles in subsidiary companies and 9,257 vehicles in service of safe and healthy conditions in the production pur- enterprises. ‘05 suant with the Labor Code of the Russian Federation The transport fleet utilization rate amounted to 0.582 5000 6000 7000 8000 9000 and Recommendations on Planning OSH activities the in 2009. divisions of the Companies annually conclude OSH Consumption of fuel and lubricants for transport vehi- Agreements, which are annexed to the Collective Labor cles operation was reduced by 13.8% during the reported Labor Protection Expenses Dynamics Agreement of OAO TATNEFT. year versus 2008 with the total amount of fuel consumed Including per Person Expenses for transport operation accounting for 93.7 thousand tons.

‘09 7 ‘07 9 ‘05 23 ‘03 27 ‘01 30

OAO Tatneft Annual report 2009 www.tatneft.ru 42 43 Corporate management

3.1. Management System of the Company As a part of the corporate management improvement transparency and delivery of information on the devel- Valeriy D. Ershov — Head of Legal Department and corporate restructuring, the Company has formed an opment strategy and current activity to all concerned of OAO TATNEFT. Management Bodies institute of Management Companies with breakdown by parties; The Company management is exercised in compliance segments of activities. The Company has also implement- personal liability of members of the Board of Directors Rustam M. Khisamov — Head of securities section of with the effective legislation, the Articles of Association ed uniform corporate standards and defined priorities of and executive authorities, and their accountability to the the Property Department of OAO TATNEFT, Candidate of and the Corporate Management Code of OAO TATNEFT. investment policy on a strategic basis. Company and the shareholders; Economic Sciences. 3 The corporate management system has been steadily observance of conventional business ethics standards; improved since the Company was transformed into an continuous improvement of the corporate management Valisiy A. Mozgovoy — Assistant of General Director of 3.2.Management of TATNEFT Group Open Joint-Stock Society. In pursuance of advanced system on the basis of the best world and national OAO TATNEFT on corporate finances. principles of the national and international practice, the OAO TATNEFT is a parent company of TATNEFT Group.* practice. Company has been forming the management bodies, The Group status, its management forms and relations Main Activity Areas of the Corporate Management ensuring maximal efficiency and transparency of results between the participants of the Group are regulated by The key document in the area of the Company’s Corporate Committee in 2009: in all its activities taking into consideration the interests of the Provision on TATNEFT Group approved by the Board Management is the Corporate Management Code. The lat- 1. Preparation and reconciliation procedure of the the shareholders and other concerned parties. At present of Directors of OAO TATNEFT. est version of the Code was adopted by the resolution of Articles and internal corporate documents for approval the structure of the corporate management corresponds Management of subsidiary and affiliated companies is the Board of Directors of OAO TATNEFT in 2006. by the Shareholders' Meeting. to the status of an international public company. performed by: The Code contains major principles of the corporate 2. Preparation and coordination of implementing the Plan The Supreme management body is the General Executive management bodies and structural divisions behavior aimed at observance of rights and lawful inter- of working with shareholders and investors for 2009- Meeting of the Company's Shareholders, delegating gen- within their competence; ests of the shareholders and the program liabilities to the 2012. eral management of the Company's activities to the Board Management Companies of the Group through con- concerned persons, who are participants of the corporate 3. Participation in formation of the Capitalization of Directors of OAO TATNEFT. clusion of contracts between these companies and relations. Management System in OAO TATNEFT for the period The main competence of the Board of Directors is other economic entities of the Group for assignment till 2012. approval of strategic objectives, as well as industrial and of the Executive Directorate functions to Management Corporate Management Committee 4. Assistance in the activity of the Unified Information and financial development plans of the Company. The Board Companies. The Corporate Management Committee is authorized Analytical Center of TATNEFT Group. of Directors of OAO TATNEFT consists of 15 persons, to render assistance to the Board of Directors of OAO 5. Cooperation in the work of the Unified Integrated including three independent directors. The management of TATNEFT Group is based on the uni- TATNEFT in improving the Corporate Management system Internet-Portal of TATNEFT Group. There are four committees operating under the Board form mission and single development strategy with obser- and mechanisms in the Company providing for interaction 6. Preparation of recommendations for approval by the of Directors: Audit Committee, Information Disclosure vance of fair interests of all the Group participants. of the concerned parties on the corporate issues. Board of Directors of the personal composition of the Committee, Corporate Management Committee, HR and Uniform corporate standards providing for transparency committees while defining members of the Board of Remuneration Committee. Members of the Committees of industrial and financial activity are applied to TATNEFT Members of the Corporate Management Committee Directors’ Committees. are approved by the Board of Directors on an annual Group. in 2009 7. Preparation and approval by the Board of Directors of basis. OAO TATNEFT of changes and amendments into the The Company management is exercised by General Principles of Corporate Management Chairman: “Provision on the Information Disclosure Committee” Director, who is an official Chief Executive Officer. The Corporate Management of the Company is imple- Viktor I. Gorodniy — member of the Management and into the “HR and remuneration Committee”. The Management Board headed by General Director is mented in strict compliance with the requirements of Board of OAO TATNEFT, Deputy General Director, a collegial Executive Body of the Company. In 2009 the legislation and recommendations of the Corporate Head of Property Department of OAO TATNEFT, The Committee cooperates with other Committees of the Management Board consisted of 17 persons. Management Code. Doctor of Economics. Board of Directors, executive bodies of the Company, General Director and the Management Board are governmental, public organizations operating in the rel- accountable to the Board of Directors and to the General Major principles of the Corporate Management: Members of the Committee: evant field, as well as other agencies of the Corporate Meeting of the Shareholders. protection of legal interests and rights of the share- Rais S. Khisamov — member of the Board of Directors Management. The powers within activities and liabilities areas are dis- holders; and the Management Board of OAO TATNEFT, Deputy tributed between the members of the Board of Directors equal attitude to all shareholders; General Director – Chief Geologist of OAO TATNEFT, and the Management Board including Deputies of mutual trust and respect to all concerned parties; Doctor of Geological and Mineralogical Sciences. General Director. transparency in making corporate decisions; Everyday Company's activity is maintained by the Rinat K. Sabirov — member of the Board of Directors Executive Directorate and executive services (administra- of OAO TATNEFT, Assistant of the Prime Minister of the * Composition and indices of financial and economic activity of tions, departments), structural divisions, and by autho- TATNEFT Group are reflected in the consolidated accounting Republic of Tatarstan on oil/gas and petrochemical com- rized representatives in managing bodies of subsidiary statements prepared in accordance with US GAAP principles plex in the Cabinet of Ministers, Candidate of Chemical and affiliated companies. (see Section 4) Sciences.

OAO Tatneft Annual report 2009 www.tatneft.ru 44 45

Corporate management

Management of TATNEFT Group

Corporate Management Standards of Corporate Management The system of the corporate standards includes Committee Interaction Plan There is an operating system of uniform corporate 19 directions totally covering all components of the standards applied in the Company for ensuring business Company's activities; the system applies to the parent processes efficiency, minimization of all corporate risks company with its structural divisions, as well as to its and transparency of the its activity. subsidiaries and affiliated companies. The Register of the corporate management standards included 104 standards as of December 31, 2009.

ORGANIZATION FOR LAWS DEVELOPMENT OF REGULATORY ACTS Main New Standards (Regulations) of Corporate Management CORPORATE MANAGEMENT ORDERS of TATNEFT Group Approved in 2009 STOCK EXCHANGE RULES DEPARTMENT PROVIDING FOR NAME OF THE CORPORATE MANAGEMENT STANDARD STANDARD EXECUTION

Provision on investment activity with regard to TATNEFT’s projects in the Russian Federation Investments Department outside the Republic of Tatarstan

Standard on centralized deliveries of goods and assets by Tatneftesnab Administration Procurement Department COORDINATION RECOMMENDATIONS to the structural divisions and subsidiary companies of OAO TATNEFT

Provision on TATNEFT’s Trademark and procedure of its application Property Department

Corporate and social responsibility Economics Department SHAREHOLDERS CORPORATE MANAGEMENT STAKE HOLDERS COMMITTEE

Standard for Scenario Planning A rapid decline in oil prices started in October 2008 of the Company's Financial and Economic against the background of the global financial crisis. Activity for a Three Year Period Quotations fell by more than $ 30 per barrel within one Scenario planning system of the financial and month and the decline continued. economic activity of OAO TATNEFT for a three In connection with this the forecast of financial and years period (SKU No. 77). economic activities of OAO TATNEFT for 2009 was COORDINATION COORDINATION RECOMMENDATIONS In accordance with the Standard “System of scenario revised to reflect new parameters adopted by the planning of OAO TATNEFT’s financial and economic activ- Russian Federation Government for the formation of ity for a three years period” the forecast for financial and the national budget with the price of the Urals oil grade economic activity of OAO TATNEFT for the period 2009- equaling $ 41 per barrel and the US dollar exchange rate INFORMATION AND HR AND REMUNERATION BOARD OF DIRECTORS ANALYTICAL CENTER COMMITTEE 2011 on the basis of macroeconomic indicators set up making 35.1 rubles. INFORMATION DISCLOSURE by the Economics Ministry of the Russian Federation was The need for sources of funds for realization of produc- COMMITTEE compiled in 2008: tion and investment programs exceeded the income cal- AUDIT COMMITTEE 2009: price of Urals 97 $/bar., US Dollar exchange culated in accordance with these terms. INTERNAL AUDIT rate 23.9 RUR; With regard to this for the purpose of compensating the DEPARTMENT MANAGEMENT BOARD 2010: price of Urals 74 $/bar., US Dollar exchange source deficit Scenario plan No.2 of the Standard came CORPORATE CONTROL EXECUTIVE DIRECTORATE rate 26.2 RUR; into effect envisaging sequestering (cutting) of the costs DEPARTMENT 2011: piece of Urals 72 $/bar., US Dollar exchange in the order from the lowest priority to highest one: rate 27.5 RUR. 1. Curtailing of the investment program by 10.7 billion rubles, including: At the time of the forecast formation the actual oil quota- reduction of investment projects outside the Russian tions were kept at more than $100 per barrel reaching a Federation and the Republic of Tatarstan by 4 billion peak of more than $ 140 per barrel. Thus, the baseline rubles; taken for the calculation of forecast indicators is a con- reduction of the capital construction funds in the social servative (pessimistic) option, which corresponds to the area by 1.7 billion rubles; basic principle of forming a three-year period forecast.

OAO Tatneft Annual report 2009 www.tatneft.ru 46 47

Corporate Principles of Forming Basic Forecast management of Financial and Economic Activity

Management of BASIC FORECAST OF FINANCIAL TATNEFT Group AND ECONOMIC ACTIVITY

1 CONSERVATIVE APPROACH TO MINIMIZATION OF OPERATING MINIMIZATION OF EXPENSES SELECTION OF MACROECONOMIC COSTS FROM PROFIT PARAMETERS AND PRODUCT reduction of the capital construction funds for specified Risk Management PRICES facilities and acquisition of equipment by 1.8 billion The Company applies an integrated system of risk man- rubles; agement based on: reduction of the well drilling and completion in the analysis and evaluation of possible factors, which can territory of the Republic of Tatarstan by 3.2 billion rubles; essentially impact indicators of industrial and financial/ 2. Curtailing the operation costs by 4.1 billion rubles, economic activity of OAO TATNEFT, its structural divi- including: sions and companies of the Group, and provide direct or 2 DEVELOPMENT OF ENERGY AND OPTIMIZATION OF INVESTMENT FORMATION OF OPTIMIZATION OF SOCIAL reduction of expenses for service maintenance indirect impact on current activity and strategic plans of RESOURCE SAVING PROGRAMS PROGRAM EXPENSE SAVING FUND AND PROGRAM by 0.5 billion rubles; the Company; INTERNAL RECURRENT FUND reduction of expenses for capital repair of fixed assets provision of observance of the uniform corporate stan- by 1.1 billion rubles; dards regulating main processes of industrial and finan- reduction of expenses for performance of geological cial/economic activity of OAO TATNEFT, its structural engineering activities by 1.1 billion rubles; divisions and companies of the Group. reduction of payroll expenses by 1.4 billion rubles. Both external and internal risk factors are considered in 1 PRINCIPLES OF BASIC FORECAST FORMATION Implementation of these measures during 2009 made the analysis of risks. The external risk factors include: mar- MEASURES PROVIDING FOR THE PRINCIPLES OF BASIC FORECAST FORMATION it possible to maintain financial stability of the Company ket, industry branch, social/economic, political, financial, 2 and ensured implementation of the planned production business and other conditions of the Company's activities figures. and activities of its subsidiary and affiliated companies. The oil market stabilized in the middle of the reported The internal corporate factors are: management, indus- Computational Power Video Monitoring year and the quotes started to grow slowly. Evaluation trial, personnel, social, ecological and others. The purpose of developing the information processing 43 new video monitoring systems at 43 drilling rigs were of the expected financial and economic indicators for In general the corporate system of risk management is and storing center is to optimize computational resources added to the already existing ones in the Company with 2009 made with consideration of this factor allowed tak- aimed at taking effective steps to minimize risks, to cor- and ensure trouble-free operation of all corporate infor- provision for storing the video data in the data stor- ing a decision on a partial recovery of the sequestered rect business planning, investment activity and social mation systems of the main and auxiliary production of age system (DSS). The technology was introduced for expenses. policy of the Company. OAO TATNEFT. transmission of the video data from the drilling rig to the Thus, Scenario plan No.1 came into effect, providing In 2009, the activities of expanding computational DSS via the broadband wireless access (BWA) system. for allocation of additional resources to the programs with IT Management infrastructure was aimed at balancing the costs of main- Transmission of the video data in the areas of BWA cover- highest priority: High level of IT development is one of the competitive taining and developing the IT infrastructure in line with age, including the Ashalchinskoye and other fields, was 300 million rubles for restoring the volume of geological advantages of TATNEFT. It is conditioned by implementa- real business needs and ensuring its efficient infrastruc- arranged in the automatic mode, while in the areas not engineering activities for wells workover; tion of the Company's strategic objective of formation and ture solutions in the field of information technology. covered by BWA the video data were periodically trans- 1 billion rubles for drilling of wells to maintain the level implementation of the innovative engineering policy. Under the project "Development of the OAO TATNEFT’s ferred to hard disk in accordance with the rules of supervi- of oil production in coming years. Data Center” in 2009 the work was carried out in two sory follow-up of the well construction process. Telecommunications directions: development of the OAO TATNEFT’s Data Application of the scenario planning principles allowed to Telecommunication system is based on the branched Center and regional data centers equipment and mod- System of Satellite Monitoring respond quickly to the rapidly changing situation in the oil circular-type structure of fiber-optic and radio-relay com- ernization to ensure compliance of the equipment of In 2009 the number of transport vehicles controlled by the market and to balance revenues and expenditures of the munication lines. the regional server stations with the uniform standard system increased by 10.8% to 5,785 pieces. Automated Company. At the end of 2009 the length of the fiber-optic commu- requirements. work places of the satellite monitoring system were set Activities implemented during 2009, will be reflected nication lines was 1,291 km., transmission lines - 949 km., up for 487 specialists in 40 structural and subsidiary divi- in compiling the next triennial plan. The level of specific radio relay lines - 763 km., local communication lines – Information Security sions. The average reduction of the vehicles mileage in expenses, such as the ones for geological engineering 10,560 km., telemetry system lines – 1,027 km. As a result of around-the-clock monitoring and arranged the reporting year for TATNEFT Group reduced by 25.1% activities, as well as the payroll expenses will be restored. Control System of the telecommunications infrastruc- interaction to ensure corporate information resources in comparison with 2006 and made 126 km. The number Optimization work will continue with regard to the expens- ture provides for a flexible adjustment of the integrated security there was not a single virus epidemics registered of exceeding speed rate dropped down. es intended for a number of other areas. This ensures the management environment and configuring some of its during the year, while over 12 million spam letters were Expansion of the monitoring system operation was also principle of a "rolling three-year plan" implementation. parameters. blocked. designed to ensure reliable control of fuel consumption and registering the time period of the surface equipment operation.

OAO Tatneft Annual report 2009 www.tatneft.ru 48 49

Corporate management

Management Mechanisms

Main Directions in SAP Corporate System of Electronic Structure of Staff Working Structure of OAO TATNEFT manpower The Integrated Management System SAP provides for Documents Circulation “Delo” in OAO TATNEFT by main business segments, (%) planning, accounting, control and analysis of all types of The work on establishing an integrated management sys- The average headcount of staff working in OAO TATNEFT corporate resources (material, financial, human), based tem was started in 2009 and the technology of documents amounted to 23,411 persons as of the end of 2009. Oil and gas Science and 58% 4% on multiversion modeling of the Company’s development. electronic signing was improved. 58% and 17% of the total number of workers are production research The corporate system of documents workflow automa- involved in the main activity: oil and gas production and oil Oil service 17% Social area 7% The following systems were put into commercial operation tion “Delo” covers 110 entities of TATNEFT Group (taking servicing, respectively. 9% of the personnel are engaged Oil and gas 9% during the year of the report: into account withdrawal of the oil services to outsourc- in oil and gas processing and 4% of the personnel are 23,411 refining Sale of oil and oil Basic production and investment management of a ing) allows to exclude paperwork documents circulation engaged in the areas of management and business sup- Total number 1% of employees products number of oil and gas production divisions; and the time required for electronic documents delivery, port and science/research. 1% of the total headcount is Management and 4% Economic Planning of the budget allocation for the as well as to improve transparency of the documents engaged in sales and the social sphere accounts for 7% business support Managerial staff of OAO TATNEFT and others. movement and the administrative discipline. The system of employees. includes over 2,800 computerized working places with the The multi-level automated information system established storage capacity of more than 3 million documents. Headcount of Staff Working Information about the structure in the Company's interconnects all processes, such as in TATNEFT Group of OAO TATNEFT’s employees income for 2009 production and processing as well as transportation of oil Structure of manpower is distributed between the main Based on multivariate modeling of the Company’s segments of Company’s business: oil and gas produc- DESCRIPTION VALUE 3.3. Management Mechanisms development the integrated system provides timely taking tion, oil service, oil and gas refining, petroleum chemistry, Structure of OAO TATNEFT’s employees 100% management decisions based on the most reliable, timely HR Management sale of oil and oil products, and it also includes business income for 2009 information and includes the following systems: The Company employs an integrated system of HR man- management and support complexes, science, as well as Salary share including: 89.7% “ARMITS” Corporate Information System agement aimed at maintenance of high professional science/research and social areas. permanent part 47.3% The “ARMITS” corporate information system is provided level of workers and specialists working in all areas of the The total number of employees of TATNEFT Group (of for automation of the oil production process man- Company activities, including maximally effective attrac- companies consolidated in reports according to US GAAP variable part 42.4% agement, operative monitoring of field development, tion of human resources, increase of qualification level standards) amounted to over 71 thousand persons in 2009. Share of social payments 10.3 increase of efficiency of industrial management and of the personnel on a continuous basis, strengthening of Change of the total number of staff and their quantity reduction of production costs. general motivation of the Company's personnel and pro- by the main segments is connected with the Company’s During the reporting year, CIS "ARMITS" was employed vision of adequate living standards for each employee. development in general and with the restructuring pro- Principles of HR Management to create a unified information field of interaction The personnel management policy of OAO TATNEFT gram aimed at increasing the management efficiency in The personnel management policy of the Company is a between the Company and the service businesses. In aims at maintaining the status of the best employer in the respect of industrial activity and manpower. set of principles and approaches applied in the manage- connection with transition to a service relationship the regional market for workers with the skills and motivation In aggregate, taking into account the outside service ment of human resources, finds consistent reflection in Company needed effective tools for organizing and to generate the maximum benefit for the Company. complex, the Company provides for about100 thousand the corporate management standards in the field of HR monitoring the production process. At the same time All provisions of the personnel management policy are working places. management. new software packages were implemented: “Application uniform and binding for the Company and other compa- The following standards are in force in OAO TATNEFT: System”, “Equipment” subsystem and “Service nies of TATNEFT Group, as well as for each of its employ- Structure of the Personnel Income Standard of managing the corporate culture in Maintenance”. Due to formation of the key efficiency ees. The main income gained by the staff is formed by the sal- OAO TATNEFT. indicators a number of problems, including "Creation ary and employment benefits. The salary includes a rated Standard of the personnel certification in OAO Tatneft. of the unified TATNEFT’s performance monitoring data- (permanent) part according to the uniform wage rate Standard of the staff employment and transfer to another base" and "Monitoring of Performance Indicators” was schedule, and a bonus (variable) part. The employment position in OAO TATNEFT. solved; benefits provide workers with an appropriate volume of Standard of the personnel dismissal in OAO TATNEFT. “TATNEFT-Neftedobycha” Corporate Information medical and other social guarantees. Standard of working with the personnel reserve in System; Social payments accounted for 10% in the structure of OAO TATNEFT. Geoinformation System (GIS); the personnel’s aggregate income in 2009. Standard of rewarding the employees of OAO TATNEFT. Drilling Automated Control System; Geological and Hydrodynamic Simulation System; Engineering Design Automation System; The Company has unique conditions for training and Basic Production Automation and others. development of all categories staff. During the reporting year Tatneft continued improvement of the system of continuous professional education, including training and skill upgrading of workers, specialists, middle level managers and senior managerial staff.

OAO Tatneft Annual report 2009 www.tatneft.ru 50 51

Interaction of HR and Remuneration Committee

INFORMATION DISCLOSURE AUDIT COMMITTEE COMMITTEE

COORDINATION COORDINATION

SHAREHOLDERS HR AND REMUNERATION STAKE Main Activity Areas of the HR and Remuneration Registration of Real Estate Assets PARTNERS COMMITTEE HOLDERS Committee in 2009: In 2009 OAO TATNEFT had 422 units of the real estate 1. Preparation of recommendations for remuneration of property registered with a balance sheet cost of 5.7 billion the Company's personnel according to the results of rubles. 2008. 2. Formation of proposals on the system of training Property Sale and skills upgrading of OAO TATNEFT workers and During 2009 structural divisions sold (including deals on specialists. installment basis for 3-5 years) non-demanded assets for COORDINATION RECOMMENDATION 3. Consideration of the work results performed in accor- the amount of 6.29 billion rubles. dance with the Corporate Code of OAO TATNEFT Sale of little-used and non-used property provides (Section “Disciplinary and Financial Liability for Violation additional cash flow, reduction of expenses for mainte- in the Field of Finance”). nance of the property complex. CORPORATE MANAGEMENT BOARD OF DIRECTORS COMMITTEE The Committee operates in close cooperation with Lease of Property other committees of the Board of Directors: Audit In 2009 the sum of rent payments for leased property Committee, Information Disclosure Committee, Corporate amounted to 2.8 billion rubles (3.2 billion rubles in 2008). Management Committee, as well as with the executive Concentration of property on the balance-sheets of bodies of the Company: Management Board, Executive the Property Lease Department and OOO TATNET-Aktiv EXECUTIVE BODIES Directorate, Internal Audit Department, Corporate Control resulted in the increase of the property use efficiency, Department and others. as well as the efficiency of the leased property control, reduction of accounts receivable, and growth of rent payments. 3.4. Property Management The Company operates a uniform corporate center for Intangible Assets the property management. and Intellectual Property Training workers for OAO TATNEFT is carried out by a Members of the HR and Remuneration Committee in 2009: The basis of the center is formed by the Property Effective management of the intellectual property Non-Governmental Educational Institution: Tatneft Training Department pursuing consolidated policy of effective objects in Tatneft is one of the activities providing for Centre and its eight branches located in the south-eastern Chairman of the Committee: use of the property, providing transparency and control improvement of the Company’s economic and financial part of the Republic of Tatarstan. David William Waygood, member of the Board of of fixed assets and other property objects. The center performance indicators. In 2009, training in the Tatneft Training Centre was Directors of OAO TATNEFT, Independent Director, consists of the Lease Relations Department (internal cor- The Company has developed and approved corporate arranged by 268 occupations and areas, which made Director of Waygood Ltd. porate unit) and OOO TATNEFT-Aktiv (external corporate standards for dealing with intangible assets and ensuring 33 more positions, than in 2008. The Center possesses center). their legal protection for the purpose of centralizing cor- a modern logistics base and possesses rich experience Members of the Committee: During the period of its operation the uniform corpo- porate accounting and improving utilization of intangible in training the workforce. Sushovan Gosh, member of the Board of Directors of rate center worked out a standard policy of lease rela- assets. The Company considers funds spent for training of per- OAO TATNEFT, independent director, Managing Director tions, depreciation and disposal of sources on behalf of sonnel as an investment into a "human capital", which will of SGI Group LTD Company. the Company in general. provide a competitive advantage and sustainable develop- During 2009, based on the unified corporate policy Classification of intellectual property objects by activity types ment in the future. Rinat K. Sabirov, member of the Board of Directors and standards of the property management in the pro- 12,263 employees of the Company received vocational of OAO TATNEFT, Assistant of Prime Minister of the cess of restructuring the Company sold non-used and Oil and gas production 20% IT 1% training and skills upgrading in 2009, of which 7,633 were Republic of Tatarstan on the oil/gas/petrochemical little-used property available in the Company (industrial Formation pressure Power 1% workers, 4,630 - managers and specialists. The amount of complex in the Cabinet of Ministers, Phd, Chemical. bases, real estate assets, non-liquids), leased the prop- maintenance 5% Mechanics 3% 61.1 million rubles was spent for that purpose. erty, transferred the social objects and related infra- Corrosion control and environment 2% Geology 4% structure free of charge, performed state registration of protection Fields 1,441 15% HR and Remuneration Committee ownership rights for real estate assets of the Joint-Stock Oil and gas development Total number of 5% intellectual property treatment Well drilling 13% The HR and Remuneration Committee was estab- Company. objects lished in 2004 to assist the Board of Directors in creating Wells workover 29% conditions to attract highly skilled professionals to the EOR 2% management of the Company and providing necessary incentives for their efficient work.

OAO Tatneft Annual report 2009 www.tatneft.ru 52 53

Corporate management

Property Management

The Company maintains on a permanent basis a single Management of TATNEFT Corporate Brand 3.5. Finances Management The need to respond rapidly to macroeconomic devel- register of intangible assets for effective usage of intellec- The Company pays special attention to the intangible opments during the reporting year caused to improve tual property. assets and innovative technologies treating them together, Corporate Policy the methodological base of financial management, The number of intellectual property objects was 1,441 as the basic platform for further growth of the corporate of Financial Management including introduction of changes into the Regulations units as of January 01, 2010, of which a large proportion brand. Priorities of the corporate policy in the area of financial and standards including the Procedure for determining accounted for technological assets applied in production Following the international application OAO TATNEFT management are financing of industrial, investment and the pre-payment amounts for supply of tangible assets, activities, including: 876 inventions and 490 utility mod- completed registration of the new trademark in the coun- social activities of the Company and effective use of finan- works performance and rendering of services; and the els. 219 applications were submitted during the reporting tries of the Madrid Agreement for the purpose of raising cial resources. Regulations on the budget process organization of the year for granting patents for inventions and utility model the profile of the Company and its image abroad, which OAO TATNEFT cooperates with major international companies, who are subsoil users outside the Republic of certificates. 10,204 innovations, 162 inventions and 88 util- will further strengthen the position of OAO Tatneft in investors, such as: BNP Paribas, Dresdner Bank AG, Tatarstan; and Regulation on handling TATNEFT's opera- ity models were implemented in the production process. attracting investments to reach global position in the pro- Credit Suisse, Chase Manhattan Bank, Berliner Bank AG, tions with promissory notes issued by OAO TATNEFT. All together the economic effect resulting from the use vision of services for oil production in the world. Societe Generale, Credit Agricole Indosuez, BHF-BANK "Regulation on implementation of TATNEFT’s operations of rationalization proposals, inventions and utility models TATNEFT trade mark is a single corporate brand of the AG, Sberbank, Zenit Bank Group. Positive history of against obtaining bank guarantees" was put into effect. amounted to 4,801.1 million rubles in 2009. TATNEFT Group, registered and legally protected in the cooperation with creditors allows the Company to attract Changes were also introduced into “Disciplinary and The timing inventory of useful inventions and utility mod- territory of the Russian Federation, in CIS countries and in financing for its projects, when necessary. Financial Liability for Violation in the Field of Finance” els on the balance of structural divisions of OAO TATNEFT some European states. In the reported period OAO TATNEFT allocated its tem- Section of the Corporate Code of OAO TATNEFT. was carried out during the year for the purpose of optimiza- According to the international rating by Interbrand porarily free funds at the financial market. Such alloca- tion, reduction of costs in production and effective man- Zinzmeyer & LLix “TATNEFT” brand was in the top list of tions resulted in the proceeds from deposits and other Budget Planning System agement of intangible assets. Revision of estimated useful the most expensive Russian brands in 2008, which con- allocations in the amount of 2,649.78 million rubles. Distribution of Budget by CCA life and depreciation rates of intangible assets is related firms high business standing of the Company. The balanced Company's budget scheduled for the (Centers of Control and Accountability) to the period length of receiving future economic benefits The Company applies proper standards for the purpose year 2009 was executed. All obligations for payment of Budget funds of the Company are planned and distributed and improving profitability of OAO TATNEFT operations in of provision of uniform principles for trademark usage. works and services, for delivered products, payment of between 13 Control and Accountability Centers. Each general. taxes and money due to the non-budgetary funds were CCA is guided by a Deputy General Director or Head Being a high-tech company, OAO TATNEFT offers its sci- fulfilled by OAO TATNEFT in full and on a timely basis. In of Department for respective activity, which provides entific and industrial developments to outside companies 2009 the Company’s activity was exercised in the condi- operative financial management and responsibility for on a reimbursable basis, and also contributes intangible tions of essential instability expressed in the terms of rapid purposeful and effective use of funds. assets into the authorized capital of new businesses bring- fall of prices for oil and the change of the national cur- ing additional revenue to the Company’s budget. rency exchange rate. In 2009, OAO TATNEFT concluded licensing agreements OAO TATNEFT and the banking syndicate headed by Distribution of Costs by Centers of Control with its subsidiaries and management companies for the WestLB, Unicredit and RBS signed a credit agreement and Accountability in 2009 (%) use of inventions and utility models in the total amount of worth U.S. $ 1.5 billion to finance the construction of the more then 15 million rubles. complex of refinery and petrochemical plants in the city CCA No. 1 35% CCA No. 8 1% of Nizhnekamsk. In 2009 the Company financed the con- CCA No. 2 3% CCA No. 9 4% struction of an oil pipeline and product line pipeline for CCA No. 3 20% CCA No. 10 1% the TANECO complex being erected. The Company bor- CCA No. 4 16% CCA No. 11 3% rowed funds amounting to 720 million U.S. dollars as of 13 CCA No. 5 6% CCA No. 12 5% December 31, 2009. CCA CCA No. 6 2% CCA No. 13 1% Under the circumstances of the cash deficit activities CCA No. 7 3% were carried out to optimize settlements with coun- teragents. In view of reducing distractions from the Company’s turnover and accelerating settlements with permanent counterparties reciprocal obligations were redeemed through the Mutual Claims Set-Off Center. The settlements turnover through the Center amounted to more than 4.6 billion rubles in 2009. More than 210 com- panies are the participants of the Center.

OAO Tatneft Annual report 2009 www.tatneft.ru 54 55

In 2009 Company expenses were distributed between the following CCA as follows:

CENTER OF CONTROL № AND ACCOUNTABILITY ADMINISTRATOR AREAS OF PAYOUT 2008, % 2009, %

N.U. Maganov, First Deputy URNiN (Oil and Business expenses, related to sale of oil, oil products, gas General Director, Head of 1. Oil Products Sales products, and petrochemical products; funding of investment 39 35 URNiN (Oil and Oil Products Department) program for development of selling infrastructure Sales Department)

V.P. Lavushchenko, Service of Deputy General Expenses for salary; travel allowance; expenses for introduction 2. Deputy General Director 43 Director for Economics of SAP R/3 and other information systems; expenses from profit for Economics

Repayment of credits and interests on credits, granting of loans, retirement of own bills, commissions of banks, expenses for Tender Work E.A. Tikhturov, investment activity (in terms of financing construction and 3.6. Logistics Management 3. Financial Department 10 20 Mechanisms of pre-Tender procedures and tender Head of Financial Department revamping of the petrochemical complex, foreign projects and projects outside the Republic of Tatarstan), payments for services Mechanisms of Logistics Management selection of suppliers were improving in 2009. of monopolists in the power sector and other services New approaches to pre-tender procedures allowed Optimization of Logistics attracting wider range of potential suppliers. In the Management of production logistics is based on the reported periods lots were placed as electronic on-line I.G. Garifullin, Head of Accounting & Reporting 4. Accounting and Reporting Tax payments 27 16 principles of transparency and maximum efficiency. The bids at the website of the State Purchases Agency in the Department Department processes of centralization and further development of Republic of Tatarstan. These reduction auctions turned consignment warehouse network, implementation of the out to be an effective tool for reduction of the starting Expenses for the main production (in terms of capital repair of “E-market” project, as well as optimization and automation price for holding a consequent tender. other fixed assets and services of production nature); financing of centralized export processes were continued in 2009. V.G. Fadeev, Head of of production and exploration drilling, other production payments 5. Production Department 46 Public Electronic Bidding Production Department (in terms of communication services, software, rational proposals Consignment Provision The mechanism of public electronic bidding was and inventions, participation in exhibitions, etc.); research and development; ecological payments Uninterrupted supply of materials and machinery for the launched, which enabled to improve delivery of materials Company and service enterprises is provided through to the construction site of the refinery and petrochemical consignment warehouses. works complex in Nizhnekamsk. V.N. Zinovyev, Deputy Expenses for capital construction of production and non-production Capital Construction There are 59 consignment warehouses working at 6. General Director for Major facilities, capital repair, liquidation of facilities, landfill operations for 22 Department Construction temporary access roads present. The sales volume of commodities and materials Centralized Delivery via the consignment warehouses amounted to 1,516 mil- In 2009 the share of the centralized delivery of commodi- lion rubles in 2009. Reduction was caused by the drop of ties and materials accounted for 12 billion rubles. F.L. Shchelkov, Deputy Service of Material Purchase of materials and equipment; payment for transport services, 7. General Director for General 43 commodities and materials consumption in contracting The share of centralized delivery in the total volume of Support and Logistics maintenance of roads and roadsides Issues companies. shipped goods amounted to 76.4%. The cost of commodities stored by Tatneftesnab Reduction of the transport expense share for central- R.S. Khisamov, Chief Geophysical services and hydrodynamic survey of wells, and remaining the property of the consignor until the ized goods delivery amounted to 16% in 2009. 8. Service of Chief Geologist Geologist-Deputy General topographic and geodetic works, scientific and technical services, 11 moment the commodity is allocated to the structural Director and exploration works division amounted to 170 million rubles in the reporting Trade/Technical House of OAO TATNEFT year, which allowed to avoid spending current assets for Products manufactured for external consumers are V.I. Gorodniy, Deputy General Expenses for property matters, lease payments, securities formation and storage of the own reserves for the same sold by the Company via the Trade/Technical house of 9. Property Department Director, Head of Property servicing, participation in other organizations: contributions 54 amount. TATNEFT. The sales volume of products amounted to Department to authorized capitals of third companies, purchase of shares 1,295 million rubles in 2009. E-Market The main share in the structure of sold products is rep- Service of Deputy General R.N. Mukhamadeev, Deputy E-market is a principal solution in the area of logistics resented by various purpose pipes of 613 km total length Expenses for social area issues and HR, expenses for mass media, 10. Director for HR and Social General Director for HR and 11 image of the Company, advertisement management of the Company. It is a tool for implementa- for the amount of 582 million rubles (799 million rubles Development Social Development tion of corporate technological policy in the area of pur- in 2008). chases organization within financing allocated budgets The excessive inventory stock was sold for the amount Reserve of General Sh.F. Takhautdinov, General Distributed between other Centers of Control and Accountability and according to the delivery schedule. of 62.8 million rubles (79.2 million rubles in 2008). 11 . 13 Director Director acc. to the results of actual application of budget funds Over 65 thousand orders (items) from structural divi- sions of the Company, from subsidiaries and affiliated Managers of Structural enterprises were registered via E-market in 2009. 12. Structural Divisions Decentralized expenses for current activity of structural divisions 1 5 Divisions

Service of Deputy General R.M. Rakhmanov, Deputy Expenses for well workover and oil recovery enhancement, 13. Director for Well Workover General Director for Well 11 and production services during well workover and EOR Workover and EOR

100 100

OAO Tatneft Annual report 2009 www.tatneft.ru 56 57

Corporate management

Logistics Management

Participants of the Company’s 3.7. Management of Production Logistics Process Efficiency

Program of Increasing Production Management Efficiency and Strengthening OAO TATNEFT Financial and Economic Status for the Period of 2008-2015 STRUCTURAL DIVISIONS SUBSIDIARIES AND TRANSPORT COMPANIES JOINT VENTURES AND AFFILIATED COMPANIES PROVIDING SERVICES INDEPENDENT OIL Implementation of the “Program of increasing production This Program is a successor of the previous consecu- COMPANIES management efficiency and strengthening OAO TATNEFT tively implemented programs aimed at ensuring of stable financial and economic status for the period of 2008- long-term development of the Company. 2015” was continued in 2009. The Program consists of 12 sections.

Main results of the Program for the Reported Period: MANAGEMENT OF LOGISTICS 1. Solving a task of the oil production increase of and reserves stock growth TATNEFTESNAB ADMINISTRATION was achieved through performance of the following activities TRADE/TECHNICAL HOUSE OF OAO TATNEFT MEASURES RESULTS OF FY 2009 OOO TATNEFT-NEFTEKHIMSNAB Volume of produced oil in OAO TATNEFT amounted to 25,85 million tons in 2009 Retention of the oil production level accounting for an increase in the amount of 84.3 thousand versus the level of 2008. achieved Incremental recoverable oil and condensate reserves in the Republic of Tatarstan amounted to 44.4 million tons.

Retention of annual drilling volumes Volume of production and exploration drilling amounted to 420.3 thousand meters. OTHER AND OUTSIDE ELECTRONIC TRADE SITE COMPLEX AND OIL OOO TATNEFT-NEFTEKHIM CONSUMERS REFINERY IN NIZHNEKAMSK MANAGEMENT COMPANY Volumes of oil production from deposits outside the Republic of Tatarstan amounted to 256 thousand tons in 2009. Geological survey and field development 16 new fields were discovered. The increment of reserves for TATNEFT Company in new territories outside the Republic of amounted to 62 million tons. Tatarstan On the whole consolidated oil production volume, including production in Samara and Orenburg Regions amounted to 26.1 million tons.

18.4 thousand tons of extra-viscous oil was produced from three pairs of wells at the Production of extra-viscous oil Ashalchinskoye field in 2009 with average production rate of one well up to 30 tons per day. 38.1 thousand tons of oil was produced from the beginning of the pilot field development operations.

Expansion of resource potential outside the Russian Federation (Geological One new field was discovered in Syria, 4 exploratory wells were drilled, and a gush of oil exploration, development of hydrocarbon was received with the rate of 150 cubic meters per day. Drilling of an appraisal well was fields in new territories outside the completed. 2 exploratory wells were drilled in Libya. Russian Federation)

Tatneftesnab Administration Purchases of equipment were made without exceeding As of December 31, 2009 Tatneftesnab Administration the amounts of allocated limits and sources. 2,540 million 2. Implementation of the Complex Program to Further Increase reached the scheduled level of rated current assets with rubles was spent for purchasing the equipment not includ- of Petroleum Associated Gas Utilization actual value of the inventory stock amounting to 1,030 mil- ed in the estimate sheets of construction works. Structural MEASURES RESULTS OF FY 2009 lion rubles, i.e. 18.3% decrease versus the level of 2008. divisions were provided with materials for repair and oper- Totally Tatneftesnab Administration concluded over 5 ating needs for the total amount of 2,200 million rubles. Engineering design of petroleum Volume of petroleum associated gas in the reported period amounted to 756.5 million associated gas collection and utilization thousand contracts and specifications for the amount of Sales of commodities and materials to service enter- cubic meters with the gas utilization factor of 93.6%. facilities 15 billion rubles. prises for fulfillment of OAO TATNEFT’s orders in the Operative work on fulfillment of contractual condi- reported period amounted to 5,430 million rubles (6,148 works were continued for reconstruction of the Minnibaevo Gas Refinery for the purpose tions was done during 2009; Tatneftesnab Administration million rubles in 2008). Reconstruction of the Minnibaevo Gas of increasing the ethane production; Refinery for the purpose of increasing the oil heating furnaces using associated gas as fuel at UPS “Basrtryk” and at Novo– submitted 317 claims to counter agents for their non- . ethane production to 140 thousand tons Suksinsky UPSVN of NGDU of Prikamneft; fulfillment of contractual obligations for the total sum of per year. 5 gas engine generator plants were launched in NGDU Yamashneft with total output 1.4 billion rubles. capacity of 1,040 kWt

OAO Tatneft Annual report 2009 www.tatneft.ru 58 59

3. Development and Application of New Techniques 7. Improvement of the Management Structure and Organization and Technologies in Drilling and Oil Production MEASURES RESULTS OF FY 2009 MEASURES RESULTS OF FY 2009 The following structural divisions of OAO TATNEFT were withdrawn and transformed into 43 horizontal wells with an average production rate of 11.4 tons per day and 9 downhole independent entities: Security Department of OAO TATNEFT was transformed into “Tatneft-Okhrana” Private splitters with an average production rate of 16.4 tons per day were drilled in 2009. The institute of Management Company, Drilling of horizontal wells, downhole 58 side tracking jobs with drilling of laterals and horizontal wellbores were performed. Companies was established splitters, side tracking jobs with drilling of 17 slim hole wells with the drilling cost over 30% less than the cost of conventional wells were production automation shops of NGDUs (Oil&Gas Production Boards), as well as laterals and horizontal wellbores, drilling put into operation. TatASUneft and TatAISneft Administrations were transformed into Tatintek Management of slim hole wells The average oil production rate of the new wells put into operation after drilling amounted to Company. 9.5 tons per day demonstrating 8% increase versus 2008. Improvement of the accepted work arran- Economic effect from implementation of the accepted work arrangement system and the The well construction cycle was reduced by 16% and the penetration rate increased by 3%. gement system for wells workover and works supervisors’ activity amounted to 182.8 million rubles. EOR under the external service conditions. The wells MTBF increased by 104 days versus 2008 and reached 1,011 days. The well stock equipped with chain drives included 1,115 units by the end of 2009. 159 units were put into operation for dual well production. Totally 564 wells were equipped 8. Strategy of Managing Vertical Integration and Development of Oil Refining with dual completion and production systems. and OAO TATNEFT’s Filling Stations Network Additional oil production from the beginning of duel completion units operation amounted Implementation of sucker-rod pumps to 1 million 132 thousand tons, while average increase of the production rate per one well chain drives and implementation of the MEASURES RESULTS OF FY 2009 amounted to 3.7 tons per day. system of dual completion and production Dual completion and production technology was implemented at 32 injection wells in the of two and more layers, implementation Main process equipment, i.e. vacuum distillation unit CDU/ VDU-7 was erected in 2009 reported period, and at 134 wells from the beginning of implementation. Accumulated of M1-X packers, etc. and construction of the internal infrastructure facilities is at the stage of completion. volume of oil production as a result of dual completion implementation amounted Construction of the refinery and Construction of 118 km oil pipelines connecting Transneft System and OAO TANEKO, to 204.6 thousand tons. petrochemical plants complex as well as construction of 184 km product line Nizhnekamsk-Almetyevsk-Kstovo was 2,006 wells were equipped with M1-X packers with 374 packers installed in 2009. completed. Hydrofracking operations were performed at 113 wells with the average daily production Over 6 thousand persons were engaged in the construction. rate increment amounting to 3.7 tons per day.

A number of TATNEFT’s filling stations increased from 602 in 2008 to 620 in 2009. The Development of the filling stations network 4. Introduction of Information Technologies volume of sales of oil and gas products amounted to 1.5 thousand tons.

MEASURES RESULTS OF FY 2009 9. Petrochemical Complex Development Program The integrated systems for management of HR, investments and the property complex Improvement of the integrated control of the Company on the basis of SAP/R3 products were completed and transferred for system on the basis of SAP/R3 products MEASURES RESULTS OF FY 2009 commercial operation in 2009. 5.8 thousand motor transport vehicles were equipped and connected to the system of Launching production Construction of the solid steel cord tires factory was completed in 2009 jointly satellite navigation. Implementation of the navigation system on the motor transport of solid steel cord tires with the German Continental Company. Development of the motor transport provided for reducing the number of groundless machinery orders and reducing the navigation system average daily machinery run by 25% and reducing fuel consumption down to 22%. Implementation of the investment project “Upgrading of the carbon black production at 121 units of PPU were equipped with control system of the surface equipment fuel OAO Nizhnekamsktechuglerod” allowed to increase the production volume of the carbon consumption. black by to 113.4 thousand tons. Specific consumption of raw materials and energy were Upgrading of the carbon Installation of automation equipment reduced. The information portal “Project management at the Ashalchinskoye extra-viscous oil field” black production at extra-viscous oil wells of the “Hermele” work stations were put into operation at ZAO Yarpolymermash and production was put into operation. Ashalchinskoye field of solid steel cord tire press-forms was started. 2 solid steel cord tire press-forms were manufactured in 2009.

5. Resources Saving Program

MEASURES RESULTS OF FY 2009 10. Capitalization Increase and Strengthening of the Trademark

Fulfillment of the “Energy saving program” in 2009 allowed saving 353 thousand tons of “Energy saving” programs” MEASURES RESULTS OF FY 2009 reference fuel. The Company capitalization amounted to USD 9.9 billion as of the end of 2009. Economic effect resulting from implementation of the hourly planning system and the Capitalization increase Optimization of the electricity payment OAO TATNEFT was named a winner all at once in three nominations of the 11th All-Russia system of energy consumption calculation under the new conditions of retail market and strengthening of the trademark expenses resulting from switchover to Contest for the “Best Annual Report”. amounted to 642.7 million rubles in 2009 (without taking into account reduction of the hourly planning and other measures power consumption).

Implementation Corrosion protected tubing was installed in 672 wells in 2009. Protection of the active 11. Investment Business Projects of corrosion-resistant tubing injection well stock handling waste water amounts to 76.9%. MEASURES RESULTS OF FY 2009 Length reduction of the Length of the oil collection pipe system was reduced by 126 km or by 0.7% compared to Implementation of the project “Production of glass fibre and products on its basis in the oilfield pipelines system 2008. Implementation territory of SEZ Alabuga” was continued. Construction of the administrative office building of projects in SEZ Alabuga and production premises was completed. 6. Ecological Policy

MEASURES RESULTS OF FY 2009 12. Social Development Program

Air protection Emissions of harmful (polluting) substances into the air are within the admissible limits. MEASURES RESULTS OF FY 2009

The program of non-governmental The number of employees at OAO TATNEFT and in the subsidiary companies involved in Casing string cathode protection was applied in 1,169 wells accounting for 341 wells pension coverage for employees the program of non-governmental pension coverage exceeded 45 thousand persons. increase versus 2008. Protection and rational use of land and 516 km of corrosion protected pipes were manufactured, 10.4 thousand m2 of the vertical water resources, conservation of mineral tanks internal surface were protected with application of paint and varnish. resources Construction of residential housing under the mortgage crediting system for the The volume of water intake for production needs was reduced by 2% versus 2008. Program of mortgage crediting Company’s employees was continued. The Company built 1,039 apartments with total Discharge of waste water into the surface water bodies was reduced two fold. area of 69.4 thousand sq. meters in 2009.

OAO Tatneft Annual report 2009 www.tatneft.ru 60 61

Corporate management

Company Restructuring

3.8. Company Restructuring Structure of OAO TATNEFT’s 3.9. Energy and Resource Saving Electric power Production Complex Personnel Distribution A completing stage of OAO TATNEFT restructuring in the OAO TATNEFT attaches particular importance to saving of FER Savings framework of improvement of the management structure 2008 resources, including the issues of energy conservation. (tons of reference and organization was started in the beginning of 2009. OAO TATNEFT 39.6% In accordance with the laws of the Russian Federation fuel) for the Period Withdrawal of non-core activities from the composition of Service and the Republic of Tatarstan, the Company devel- the Company aimed at increasing the cost transparency Management 60.4% oped and approved the "Program of Energy Efficient of 10 Years Companies and production management efficiency, as well as at Economy”, which aims at reducing consumption of fuel 2008 2009 2009 optimization of labor, material and financial recourses was and energy resources (FER) for the entire technological Saving 184,754 5% OAO TATNEFT 35.6% continued. chain of oil production. One of the objects of this pro- Consumption 3,856,892 Service Fuel Restructuring of the security activity was completed Management 64.4% gram is energy saving in 2010-2020. Companies and energy resources during the year by withdrawing the Security Department, The program covers the period from 2000 to 2010. The Boiler and furnace fuel which was reformed into a subsidiary company. This program aims to achieve cost saving in the amount of at restructuring pursued the aim of establishing a highly least 34.8% of the energy resources relative to the base- efficient security company, which activity would ensure As a result of the performed restructuring, labor pro- line consumption in 1999, the objective of the program maximum safety conditions of production facilities and the ductivity of TATNEFT increased by 7.5% from 1,488.3 tons is reducing consumption of fuel and energy resources Company’s assets from illegal encroachments. of oil per person in 2008 to 1,599.7 tons of oil per person along the entire technological chain of oil production. In accordance with the “Program of reorganizing the in 2009. During the reported year, reduction of energy IT service of OAO TATNEFT” the Information Technology In general, restructuring of our Company resulted in resource consumption was 33.4% relative to the Saving Services of the Company were withdrawn to the exter- establishment of a complex of industrial enterprises united Company’s consumption in 1999. 1,298,119 30% Consumption 3,013,522 nal service in 2009. A Management Company was by a common production cycle, a common platform and For the purpose of implementing the Program of established with its subsidiaries on different directions: area of activity, as well as by shared strategic objectives. Energy Efficient Economy there was worked out a Saving 1,756,872 19% Fuel and lubricants automation, metrology, communications, IT services, The Company is a central link of the complex and this methodology for collection, summarizing, analysis Consumption 7,547,867 development and operation of software. The strategic aim ensures the production development accompanying the and evaluation of the developed energy saving mea- of the reorganization was creation of the highly efficient, process of oil production. sures, included into the Company's standard "Resource competitive business-structure of the All-Russia level with Saving" (STO TN 040-2009), which was enacted in concurrent full satisfaction of the Company’s needs in the April 2009. field of the information technology. Development and approval of the specific consump- The ongoing activities for the Company restructuring tion rates of energy resources by the type of resources during 2009 resulted in changing a number of production and oil production processes is one of the main stages Saving 273,998 29% facilities of OAO Tatneft. Proportion of the Company in the of the Program. Consumption 680,454 total production decreased from 39.6% to 35.6% due to The task of saving resources is annually set for each withdrawal of service and non-core activities (Figure 1). oil and gas production division, based on distribution The number of personnel in the external oil service block of the planned target for OAO Tatneft taking into consid- amounted to 40.6 thousand persons in 2009. eration the previous years achievements to reduce spe- Reduction Energy Resources Consumption by OAO TATNEFT cific consumption of fuel and energy resources needed with Respect to Consumption in 1999 (%) to produce marketable products. 3.5 6.8 8.6 About 1.7 million tons of reference fuel, accounting for 5 6.4 10 13.0 19% of the resources consumed, were saved as a result 6.9 8.8 16.3 15 19.8 of the activities under the Energy Efficient Economy 14.5 22.8 20 Program during 10 years. 25.8 25 22.3 28.8 The activities performed allowed to reduce specific 25.4 31.8 30 power consumption per 1 ton of oil produced by 2.8% 27.1 28.5 34.8 35 31 versus 1999 with reducing the specific energy consump- 33.4 40 tion for production of 1 ton of liquid by 7.6%. The most significant result of the work in the field of ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10

energy saving was the fact that with the growth of oil Plan production and water cut the energy resource consump- Actual tion is steadily declining. .

OAO Tatneft Annual report 2009 www.tatneft.ru 62 63

Corporate management

Energy and Resource Saving

Distribution by the type of energy resources is as follows: Resource Saving Program of OAO TATNEFT Components of the system are as follows*: 3.10. Investment Activity electric power saving amounted to more than for 2010 -2020 1. Main business-processes, describing the entire vertical 185 thousand tons of reference fuel, A promising resource saving program being implemented integration of TATNEFT Production Group. They include: Management of Investment Projects boiler and furnace fuel saving was 1.3 million tons by the Company at present is a qualitatively new stage of 1.1. Exploration; Investment activity of the Company is exercised according of reference fuel, the Program of Energy Efficient Economy. 1.2. Production; to the development strategy of TATNEFT Group. Priorities fuel and lubricants saving was about 274 thousand tons The resource saving program of OAO TATNEFT is being 1.3. Oil refining; of the Company’s corporate investment policy are ensur- of reference fuel. formed for the first time ever. The program covers 1.4. Petroleum chemistry; ing of investments efficiency and increase of profitability in the period from 2010 till 2020 and is a stage-by-stage plan 1.5. Sales; each area of activities. The most effective forms of energy saving are: of implementation of measures for rational exploitation 1.6. Other. Improvement of the oil field development system, and economical usage of resources, which includes the During the year, the work continued on improving the sys- Improvement of the oil production technology, goals of resource conservation, i.e. the planned figures 2. The following basic resources are considered as objects tem of planning and monitoring of investments: Improvement of the formation pressure maintenance to be achieved through implementation of measures for of saving, and they are included into OAO TATNEFT stan- A procedure of formation and allocation of investment system, resource conservation, including timing of implement- dard STO 040-2009: sources for drilling and capital construction based on Improvement the oil treatment system. ing the measures, implementation volumes and persons 2.1 fuel and energy resources, including electricity, boiler available designing estimates was introduced. responsibility for performance. and furnace fuel and others; A preparatory stage for transition from 2010 to individual Saving of fuel and lubricants was achieved through The program’s objectives are harmonized with the goals 2.2 material resources; estimates in exploration drilling, side tracking and drill- streamlined fuel and lubricants rationing mechanism, of the "State program of energy saving and energy effi- 2.3 natural resources; ing of horizontal wellbores, slim holes, as well as in accounting and control of their use. The main activities ciency increase for the period until 2020”. The program is 2.4 labor resources. exploration drilling outside the Republic of Tatarstan was in this area are: based on understanding of each element of the system, completed. optimization of transport, built with the aim of saving and thrifty use of resources in 3. Application of interrelated resource saving manage- The Company improved the procedure for evaluating the introduction of auto-route navigation systems. production activities. ment methods is required for the purpose of implementing effectiveness of investment projects on geological engi- The priority among the resource saving activities is the program, and, specifically: neering activities using additional efficiency criteria. The main source of financing for energy efficiency given to the activities resulting in quick pay-off and the standardization (labor, materials, transport); in OAO TATNEFT is the Company’s own funds. lowest costs. planning (short-term, long-term); Main Fields of Investment Activity in 2009 monitoring, control; Implementation of this program since 2006 resulted in There are two levels of production business processes incentives (economic, material). No. DESCRIPTION MLN. RUBLES total resource saving in the amount of more than 5 billion defined in the resource saving program: 1 Investments into oil production in the territory of Tatarstan 17,668 rubles in monetary terms. The labor saving carried out in System of Providing for Resource Saving OAO TATNEFT since 2006 amounted to more than 5 mil- Level 1: main production processes of TATNEFT Business Group Drilling 6,882 lion man-hours. Level 2: supporting processes The program implementation will ensure: Capital construction 3,442 This is ensured by increasing labor productivity, opti- 1. reduction in the absolute consumption of energy mizing management processes and improving production The main production processes include: resources by at least 7.4% in the first stage (2015) and by Equipment not included in construction estimate-sheets 2,491 organization. It is worth noting that a significant effect Exploration – Production – Oil Refining – Petrochemistry 13.5% in the second stage (2020) with respect to 2007 Geological engineering activities 4,715 in labor saving was achieved as a result of restructuring – Sales. level. OAO TATNEFT’s divisions. The determinant activity for the Company is crude oil 2. own production of electricity by 2020 in the amount of Redemption of property, land, etc. 138 production. up to 10% of the total electric power consumption in 2020. 2 Investments into oil production outside the Republic of Tatarstan 2,327 3. Compensation for the increased costs resulting from: Investments into construction of oil refining and petrochemical The second level of business processes includes busi- growth of rates for energy resources, 3 73,749 plants complex in Nizhnekamsk ness support processes (production service enterprises). increase of wages. 4 Investments of petroleum chemical complex enterprises 7,249 Compensatory measures are envisaged through reduc- tion of the absolute fuel and energy resources consump- 5 Investments into development of retail business 647 tion, reduction of other operating costs, as well as devel- 7 Investments of service and other enterprises 317 opment of own generating capacities. 8 Financing of foreign projects* 1,855

9 Investments into development of social area 511

Total for the Company 104,323

* Libya — USD 43.8 million, Syria — USD 14.6 million with the exchange rate of 1 USD = 31.7 rubles * Demonstrable representation of process management and resources used interaction system is given at page 8.

OAO Tatneft Annual report 2009 www.tatneft.ru 64 65

Investment Projects Management System

DETERMINATION OF NEEDS IN PLANNING OF INVESTMENT BUDGET FORMATION INVESTMENTS PROGRAMS

The Company completed preparation for transition and Application of new technologies in drilling and high formation of an investment program for development quality selection of wells in comparison with the previous of facilities with profitability assessment of wells and year resulted in increase of flow rates after drilling by 8% fields. coming up to 9.5 tons per day. The Company optimized control of investments spend- The effect of introducing individual well budgets in drill- ANALYSIS OF THE OPERATIVE PLANNING PLANNING OF THE NEED IN FINANCIAL PLANNING INVESTMENTS PLAN OF PROJECTS MATERIAL AND TECHNICAL ing on the TANECO project. The Company introduced ing in calculation of the cost of production wells totaled FULFILLMENT RESOURCES an examination system of estimates and calculations 286 million rubles in 2009. The work was continued to elaboration by the services of OAO TATNEFT. Purchase develop the estimate standards for exploratory drill- of equipment and materials was done through the ing, slim-hole drilling, sidetracking operations, drilling of electronic trading system. horizontal wellbores and drilling of wells in Samara and The Company completed the stage of pilot operation Orenburg Regions. of the system "Investment Management" on the basis 2.3 billion rubles were invested to perform geological of SAP R/3 software in the oil and gas production divi- exploration works and well drilling operations as part of sions of the Company. expanding the resource base and increasing oil produc- The Company continued the work on harmonization tion volumes outside the Republic of Tatarstan. IMPLEMENTATION PROVIDING EQUIPMENT AND OF PROJECTS MATERIALS FOR FACILITIES and standardization of the feasibility study economic Pilot operations were continued at Ashalchinskoye calculations aimed at increasing reliability and quality extra-viscous oil field. 825 million rubles of investment of the feasibility study and management decisions. money were spent in the current year for implementation The Company prepared regulatory and design docu- of the development project. mentation for registration of quotas for reducing green- In 2009, the work was continued on implementing the house gases emissions under the Kyoto Protocol. project to change the process flow diagram of collection, Proposals were prepared to stimulate application of transportation of oil and organization of a separate treat- innovative and nano technologies. ment and recording the oil from the worked out deposits of the oil production structural divisions. This allowed the The total volume of investments of TATNEFT Group of Company to obtain the benefits of the mineral extraction ACTUAL FULFILLMENT OF OPERATING ACCOUNTING FINANCIAL ACCOUNTING companies in 2009 amounted to 104,323 million rubles. tax in the amount of about 7 billion rubles, of which 1.8 INVESTMENTS PLAN OF PROJECTS billion rubles were invested in drilling, capital construc- Investment Portfolio Structure tion, equipment and performance of additional geological According to the investment strategy of the Company: engineering activities. 70.7% of investments were directed to the construction The Company continues to implement projects in the of the oil refinery and petrochemical plants complex in external territories, including the areas outside the Russian Nizhnekamsk; Federation. Geological exploration operations were contin- 20.9% of investments were directed to support and ued in Libya, where two exploration wells were drilled. expand production capacities in the oil fields of the Republic of Tatarstan and outside, including foreign COMMISSIONING ACCOUNTING projects; Investment Portfolio Structure, OF FACILITIES OF CAPITAL INVESTMENTS 6.9% of investments were directed to development of 2009 (%) the petrochemical complex, including 6.4% to the con- struction of the solid steel cord tire factory; 1.5% of investments were directed to other projects. Oil refinery and Foreign projects 1.8% petrochemical 70.7% plants complex Retail business Investment Projects Production in 0.6% “Oil Production Program” the territory of 16.9% Non-productive 104,323 Tatarstan activity 0.5% In 2009 the planned volume of additional oil production Petroleum million rubles 6.9% in total by all areas of the investment activity in the terri- Chemistry Oil service 0.3% tory of the Republic of Tatarstan was overfulfilled. Actual Production out of territory of 2.2% efficiency of investments amounted to 152.7 tons/million Tatarstan rubles.

OAO Tatneft Annual report 2009 www.tatneft.ru 66 67

Corporate management

Investment Activity

A commercial discovery of South Kishma oil field with various fields of industry. Construction of the industrial 3.11. Ecological Activity Indices of Ecological Safety recoverable reserves of 4.82 million tons was announced and administrative buildings was completed during the and Environmental Impact in Syria. The work was started on establishment of the Al year of the report and contracts for equipment supply Environmental activity of the Company is performed Air protection Bu Kamal Petroleum Joint Company, which will develop were concluded. Erection works as well as equipment in accordance with the Federal law "On Environmental The Company implements the program for optimization the field. start-up operations were on the way in the glass fiber pro- Protection" and the activities meet all environmental stan- and reconstruction of the oil and gas collecting systems. cessing shop, while concurrently the construction/erec- dards and regulations taking into account the norms of inter- 41.8 km of gas lines were replaced in 2009, diagnostics “Construction of the Complex of Oil Refining and tion works were performed at the site of the glass fiber national documents of the federal as well as of the regional were performed on 455 km of gas lines, product lines and Petrochemical Plants in Nizhnekamsk” production shop. levels. The Company passed certification of management process pipelines, and electrochemical soil corrosion Financing in the amount of 73.7 billion rubles was made The amount of over 1.8 billion rubles was financed on systems ensuring environmental safety, health and industrial protection was provided for 22.6 km of gas and product in 2009 under participation in the construction of the this project. safety in accordance with the requirements of international pipelines. Complex of oil refining and petrochemical plants in ISO 14001:2004 and OHSAS 18001:2007 standards. At the moment there are 43 hydrocarbon vapor recov- Nizhnekamsk. In aggregate financing in the amount of “Implementation of the Kyoto Protocol Provisions for Certification is performed in accordance with the OAO ery units (VRU) operating at the facilities of the Company. 126 billion rubles was provided from the beginning of the Reduction of Greenhouse Gas Emissions” Tatneft policy of industrial, occupational and environmen- The volume of hydrocarbon vapors recovered by VRUs at project implementation. In the framework of implementing the Kyoto Protocol tal safety and in the framework of the special prolonged OAO TATNEFT tank farms in 2009 amounted to 62 thou- Utilization of the invested capital amounts accounted to reduce greenhouse gas emissions, OAO TATNEFT Environmental Program of OAO Tatneft, designed for the sand tons. for 46.5 billion rubles in the current year, while the amount initiated a pilot project. This project pursues the objec- period from 2000 to 2015. In total, the Company's gross emissions of polluting utilized from the beginning of the project implementation tive of replacing the mains electricity and fossil fuels by The program envisages further reduction of the techno- matters into the air during the last 20 years were reduced made 77 billion rubles. associated petroleum gas (APG), obtained from TATNEFT logical equipment failure rate and exclusion of the produc- by 3.2 times. The Company outlined subsequent perspectives of the Company oil wells in the Republic of Tatarstan. Furnaces tion activities negative impact on the environment. As part For the purpose of rational use of natural resources project implementation: this is deep crude oil refining for heating oil and power generating stations will be of this program the Company provides for performance of the Company developed and approved a special pro- through construction of a hydro-cracking complex with installed in the framework of the project. complex organizational and technical measures, including gram of OAO TATNEFT for utilization of associated production of motor oils and increase of the crude oil Electricity to be generated from the APG will satisfy the introduction of a broad industrial environmental control in petroleum gas at the Company’s facilities for the period throughput capacity to 14 million tons per year. Company’s own demand in electricity and will replace the area of the Company’s divisions operation and training of 2009-2013. The program envisages increasing of the electricity from the national grid, generated from other of the environmental services employees. associated petroleum gas utilization (APG) to the level “Development of Petrochemical Complex” fossil fuels. New furnaces will work on APG, thereby The Company’s environmental safety and nature pres- of 95 %. At present TATNEFT effectively utilizes about Implementation of the large scale investment projects in reducing consumption of natural gas and power from the ervation activity is carried out within the framework of the 756.5 million cubic meters of APG per year accounting the petrochemical complex was continued. network. There are plans to construct new pipelines to uniform integrated "Policy of OAO TATNEFT in the area of for about 94 % of the total volume of gas produced by Total investments into the Company’s petrochemical transport APG to the Minnibayevo gas refinery. Refined industrial, occupational and environmental safety". the Company. complex amounted to 7,249 million rubles. APG replace other types of fossil fuels in the market. Estimated total reduction of APG emissions will amount Volumes of Hydrocarbon Vapors Recovered from the Beginning “Organization of Solid Steel Cord Tires Production” to about 28,981 tons of CO2 equivalent (tCO2 eq.) annu- of Vapor Recovery Units Introduction in OAO TATNEFT The factory manufacturing 1.2 solid steel cord tires per ally and 115,925 tons of CO2 eq. in the first commitment year was launched in December 2009. The amount of period of 2008 - 2012. 45 (pcs.) 1,600 13.6 billion rubles was utilized from the beginning of the Thus, this project will significantly reduce carbon diox- 40 1,400 construction, while the amount of 6.4 billion rubles was ide emissions, which, respectively, would have occurred 35 1,200 30 spent during the year of the report. as a result of combustion of fossil fuels by the end users 1,000 25 and as a result of generating the electricity consumed by 800 20 “Retail Business Development” the end-users. 600 647 million rubles were invested in the reported period 15 10 400 for implementation of the Retail Business Development Investment Committee 5 (thousand tons) 200 Strategy of OAO TATNEFT for the period of 2007-2011. 29 Performance of the investment activity management of facilities were commissioned including 27 petrol filling sta- the Company is ensured by the Investment Committee. ‘91‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 tions. Activity of the Committee is headed by General Director of OAO TATNEFT. Number of vapor recovery units “Production of Glass Fiber and Glass Fiber The overall organization and coordination of the Recovered hydrocarbons Based Products” Investment Committee activity is arranged by the Investment Implementation of the project with 74.5 million Euro invest- Department. ment amount started in 2008 with an expected payback The Committee considered 57 investment projects during period of 6.5 years. The project implies organization of the reporting year and 49 of them were approved for imple- production jointly with Preiss-Daimler Company of high- mentation. quality glass fiber and glass fiber products to be used in

OAO Tatneft Annual report 2009 www.tatneft.ru 68 69

Corporate management

Ecological Activity

In order to reduce emissions from moving sources Protection and Rational Use of Land Resources Main Indices of the Company’s Activities for Ecological Safety and Reduction of Environmental Impact gas cylinder equipment was mounted in the reported The major task in land resources protection is optimiza- period at 315 vehicles of motor transport operating in tion of oil-field facilities location, and prevention of the soil MEASURE OAO TATNEFT. The total number of vehicles re-equipped fertility disturbance. No. DESCRIPTION UNIT 2009 and operating with gas fuel is 1,546 pieces today. The Company spent over 1,088 million rubles in 2009 1 Gross emission of harmful substances into the air thousand tons 8.73 Air control in settlements located in the area of the for protection and rational use of lands, including 67 mil- Company's activity is maintained according to the lion rubles for reclamation of soils disturbed by economic 2 Associated petroleum gas utilization % 94 approved schedule. No excessive concentration was activity. This allowed continuing positive tendency towards 3 Fresh water intake for own needs million cub. m 30.86 detected in 114 settlements in 2009. steady reduction of disturbed agricultural lands as a result thousand The total amount of 542 million rubles was spent for air of emergency situations. 4 Ecological damage from failures 0 protection during the reported year. rubles Industrial Wastes Disposal Putting into operation recirculating thousand 5 21.9 Protection and Rational Use The Company works continuously on reduction and utili- water supply system cub. m per year of Water Resources zation of wastes formed as a result of technological pro- In 2009 for the purpose of stable and trouble-free operation cesses of oil production by their processing, recycling and thousand 6 Ecological payments 80,617 of oil-field facilities and in order to increase their industrial neutralization. rubles and ecological safety the Company produced 206 km of Expenses for environmental protection from negative Investments into the main capital, thousand 7 134,494 metal/plastic and 310 km of polymer coated pipes, 5,864 impact of production and consumption wastes in 2009 used for environmental protection purposes rubles tons of corrosion inhibitors, including 5,116 tons for cover- amounted to more than 1,021 million rubles. ing own needs, cathode protection equipment was pro- The total investments of OAO TATNEFT into ecologi- thousand 8 Current environmental protection expenses 3,179,579 vided for casing strings in 1,169 wells, while the sacrificial cal safety and environmental protection activities from rubles protection was provided for 549 km of oil and water lines, all financing sources in 2009 amounted to 3, 929 million Costs of major repairs of fixed production assets thousand rubles. 9 614,473 2,174 km of pipelines were tested. with regard to environment protection rubles The system of waste water drainage was erected at 266 Inspections performed by the state supervisory bod- production facilities of the oil and gas producing divisions, ies of federal and local levels confirmed observance of the system of recycling industrial waste drains was put into legislative ecological requirements and norms by the operation at the Tumutuk water treatment facility. The works Company. performed resulted in more than 2 fold reduction. The volume of water used for the needs of OAO TATNEFT Integrated Management System (IMS) in 2009 amounted to 31.8 million cubic meters, with the of industrial, occupational and environmental safety share of the fresh water amounting to 30.9 million cubic meters. 600 fixed oil-trapping facilities, slick bars and bio-ponds are maintained in the operable condition in order to prevent RESULTS ANALYSES AND CONTINUAL IMPROVEMENT POLICY OF OAO TATNEFT IN UPGRADING OF THE IMS THE AREA OF INDUSTRIAL, surface pollution of the water bodies with oil. OCCUPATIONAL AND As a result of measures taken for protection of water ENVIRONMENTAL SAFETY bodies, concentration of chlorides and oil products in the main rivers of the Company's area of operation does not exceed standard MAC levels. INTERNAL AUDITS AND ORGANIZATION OF ACTIVITY PLANNING OF ACTIVITIES There are over 500 springs used by population as pota- ACTIVITY CORRECTION AND IMPLEMENTATION OF PROGRAMS (MEASURES) ble water sources, which were cleaned, capped and archi- tecturally improved in the territory of the Company's activity. Over 2,298 million rubles were spent for protection and rational use of water resources in 2009.

OAO Tatneft Annual report 2009 www.tatneft.ru 70 71 Financial 4.1. Financial Statements Compiled in Accordance with Russian Accounting Standards results 4.1.1. Audit Opinion

AUDIT OPINION OF ACCOUNTING (FINANCIAL) STATEMENTS for the period from January 01 till December 31, 2009

AUDIT OPINION of accounting (fi nancial) statements of OAO TATNEFT named after V.D. Shashin on the results of activities performed from January 1 till December 31, 2009

The audit of accounting (fi nancial) statements of OAO TATNEFT named after V.D. Shashin (hereinafter referred to as the Company) for the period of January 1 – December 31, 2009 was carried out by the ENERGY CONSULTING/Audit CJSC pursuant to Contract No. 121-08-09/EKA -278/110 dated August 20, 2009 concluded on the ground of a decision made by the General Meeting of the Company’s Shareholders on 4 the approval of ZAO ENERGY CONSULTING/Audit as an offi cial auditor (Minutes No. 16 dated June 26, 2009).

Brief Information about the Auditor

ZAO ENERGY CONSULTING/Audit was registered on December 14, 2004, which was recorded in the Uniform State Register of Legal Entities under basic state registration number 1047717034640 (certifi cate issued by the Inspectorate of the Russian Federation Ministry of Taxes and Charges No. 17 in the North-Eastern administrative district of Moscow, Series 77 No. 003847928).

Location: 7, Pavlovskaya St., Moscow, Russia, Postal address: 7, Pavlovskaya St., Moscow 115093, Russia Phone: 7 (495) 980 90 81 Phone/fax: 7 (495) 980 90 82 E-mail: [email protected] Web: www.ec-group.ru

General Director – Tatyana G. Rumyantseva

ZAO ENERGY CONSULTING/Audit is a full member of SRO NG Partnership "Institute of Professional Auditors of Russia (IPAR)” and it is included into the Register of auditors and audit organizations of the mentioned self- regulatory organization of auditors on Dec. 4, 2009 under basic registration number 10202014620.

ZAO ENERGY CONSULTING/Audit has license GT No. 0011874 (reg. No. 12483 dated July 9, 2008) for performance of works, which imply using state classifi ed information, issued by the Administration of the Federal Security Service in Moscow and Moscow Area, valid till November 29, 2012.

The audit of the Joint Stock Company was performed under the supervision of Elena P. Krupnova, Audit Practice Director.

2 OAO Tatneft named after V.D. Shashin

OAO Tatneft Annual report 2009 www.tatneft.ru 72 73

AUDIT OPINION OF ACCOUNTING (FINANCIAL) STATEMENTS AUDIT OPINION OF ACCOUNTING (FINANCIAL) STATEMENTS for the period from January 01 till December 31, 2009 for the period from January 01 till December 31, 2009

Summary of the Entity Audited 2. We performed the audit in compliance with the requirements of Federal Law No. 307-FZ dated Dec. 30, 2008 “On Auditing Activity” and the federal auditing activity rules (standards). Full name of the Company: Open Joint-Stock Company TATNEFT named after V.D. Shashin. The audit was planned and performed in such a way as to receive reasonable certainty that there were no Short name of the Company: OAO TATNEFT named after V.D. Shashin. essential misrepresentations in the accounting (fi nancial) statements of the Company.

The Company was founded pursuant to Decree of the President of the Republic of Tatarstan “On measures for The audit was performed on a test basis, and included the test-based study of proofs confi rming the numerical transformation of state enterprises, companies and unions into joint-stock companies” as of September 26, 1992, indices of accounting (fi nancial) statements and its disclosure of the information about the fi nancial/economic No. UP-466, and the Law of the Republic of Tatarstan “On transformation of state and communal property in activity, assessment of the observance of accounting principles and rules used in the execution of accounting the Republic of Tatarstan (on denationalization and privatization)”, which was recorded in the Uniform State (fi nancial) statements, consideration of the main estimated fi gures received by the Company's management, and Register of legal entities on July 18, 2002 under basic state registration number 1021601623702. the assessment of the accounting (fi nancial) statements presentation.

Location of the Company: 75, Lenin St, Almetyevsk, 423450, Republic of Tatarstan, Russian Federation. We believe that the performed audit gives essential grounds to express our opinion on the authenticity of these accounting (fi nancial statements) in all material aspects. 1. We have carried out the audit of the attached accounting (fi nancial) statements of the Company for the period of January 1 - December 31, 2009 inclusive, consisting of the following documents: 3. In our opinion, the accounting (fi nancial) statements of OAO TATNEFT named after V.D. Shashin authenticly refl ect the fi nancial position of OAO TATNEFT named after V.D. Shashin in all material aspects as of December • Accounting Balance Sheet (form No. 1) – 2 sheets; 31, 2009, and the results of its fi nancial-economic activity for the period of January 1 – December 31, 2009 • Profi t and Loss Statement (form No. 2) – 2 sheets; inclusive, according to the requirements of the legislation of the Russian Federation regarding execution of • Statement of Changes in Equity (form No. 3) – 3 sheets; accounting (fi nancial) statements. • Funds Flow Statement (form No. 4) – 2 sheets; March 31, 2010 • Annex to the accounting balance sheet (form No. 5) – 6 sheets; • Explanatory note – 52 sheets.

These accounting (fi nancial) statements were executed by the Executive Body of the Company in compliance with basic principles and methods for execution of accounting (fi nancial) statements, established by Federal Law No. 129-FZ dated Nov. 21, 1996 “On Accounting” (in the version with subsequent amendments and supplements), accounting provisions, Order of the Russian Federation Ministry of Finance No. 67n dated July 22, 2003 “On forms of companies’ accounting statements” (in the version with subsequent amendments and supplements),as well as other regulatory acts of the Russian Federation, which regulate the procedure for execution of accounting (fi nancial) statements.

The liability for execution and submission of these accounting (fi nancial) statements is imposed on Shafagat F. Takhautdinov, General Director of the Company.

Our duty as an auditor is to express our opinion on the authenticity of the submitted accounting (fi nancial) statements in all material aspects on the basis of the audit having been performed.

The purpose of the audit was not to express an opinion on the full compliance of the Company’s activity with the legislation of the Russian Federation and the estimation of the Company's management business conduct effi ciency. Our opinion cannot be considered by the user of the statements as the expression of confi dence in the continuity of the Company’s activity in future.

2. We performed the audit in compliance with the requirements of Federal Law No. 307-FZ dated Dec. 30, 2008 “On Auditing Activity” and the federal auditing activity rules (standards).

3 OAO Tatneft named after V.D. Shashin 4 OAO Tatneft named after V.D. Shashin

OAO Tatneft Annual report 2009 www.tatneft.ru 74 75

Financial results

Financial Statements of OAO TATNEFT FY 2009

4.1.2. Financial Statements of OAO TATNEFT FY 2009

Balance Sheet of OAO TATNEFT (thousand rur) Balance Sheet of OAO TATNEFT (thousand rur)

AS OF THE BEGINNING AS OF THE END AS OF THE BEGINNING AS OF THE END CODE OF THE YEAR OF THE YEAR CODE OF THE YEAR OF THE YEAR

ASSETS LIABILITIES

I. CAPITAL ASSETS III. CAPITAL AND RESERVES

Intangible assets 110 27,156 25,300 Authorized capital 410 2,326,199 2,326,199 Fixed assets 120 61,511,753 62,886,209 Shares repurchased 411 – – Non-completed construction 130 4,661,844 4,869,999 Additional fund 420 19,905,131 14,436,860 Long-term financial investments 140 46,155,562 47,543,388 Reserve fund 430 1,352,759 2,601,928 Other non-current assets 150 1,871,627 4,293,007 reserves formed acc. to legislation 431 116,310 116,310 TOTAL for section I 190 114,227,942 119,617,903 reserves formed acc. to Foundation Documents 432 1,236,449 2,485,618 Undistributed profits of the report year (uncovered loss) 470 201,284,263 246,113,573 II. CURRENT ASSETS TOTAL for section III 490 224,868,352 265,478,560

Inventories 210 17,476,415 14,407,285 IV. LONG-TERM LIABILITIES feedstock, materials and other similar valuables 211 927,225 581,973 Loans and borrowings 510 417,095 9,443,608 rearers and fatteners 212 13,510 14,739 Deferred tax liabilities 515 4,155,400 5,050,212 WIP inventory expenses 213 94,563 133,442 Other long-term liabilities 520 41,005 10,582 finished products and goods for resale 214 7,947,569 6,486,967 TOTAL for section IV 590 4,613,500 14,504,402 goods shipped 215 72,951 87,113

deferred expenses 216 8,420,597 7,103,051 V. SHORT-TERM LIABILITIES

other reserves and expenses 217 – – Loans and borrowings 610 – 12,892,564 Input value added tax 220 4,196,443 3,686,408 Credit indebtedness 620 11,947,316 21,092,685 Receivables suppliers and contractors 621 5,532,555 7,510,415 230 16,255,166 17,267,025 (payments for which are expected later than 12 months after the report date) Debt to personnel of the company 622 349,077 271,189 buyers and consumers 231 658,061 623,851 Debt to the state extra-budgetary funds 623 53,605 42,064 Receivables 240 37,678,911 56,936,661 Taxes and dues payable 624 3,419,269 8,138,888 (payments for which are expected within 12 months after the report date) other creditors 625 2,592,810 5,130,129 buyers and consumers 241 15,449,370 30,559,823 Dividends payable 630 88,985 102,023 Short-term financial investments 250 47,393,701 93,366,372 Deferred revenues 640 16,586 419,878 Monetary funds 260 4,936,799 9,560,197 Reserves for costs to be incurred 650 633,051 536,878 Other current assets 270 2,413 185,139 Other short-term liabilities 660 – – TOTAL for section II 290 127,939,848 195,409,087 TOTAL for section V 690 12,685,938 35,044,028 BALANCE 300 242,167,790 315,026,990 BALANCE 700 242,167,790 315,026,990

OAO Tatneft Annual report 2009 www.tatneft.ru 76 77

Information on valuables included in off-balance sheet accounts (thousand rur) AS OF THE BEGINNING AS OF THE END INDICATOR NAME CODE OF THE YEAR OF THE YEAR

Leased fixed assets 910 5,157,354 6,761,843 including leasing 911 1,875,207 1,161,356 Material assets under custody 920 161,901 241,896 Goods accepted for commission 930 935,443 1,772,928, Bad debt write-off 940 3,234,645 2,107,174 Securing obligations and payments obtained 950 14,605,510 17,191,628 Securing obligations and payments issued 960 52,708,688 83,957,386 Housing stock depreciation 970 23,222 26,968 Depreciation of external improvement and other similar objects 980 16,287 33,022 Intangible assets obtained for use 990 455,824 728,813 4.1.3. Important Aspects of the Accounting Uncompleted Construction The expenses for construction and assembly works, purchase of buildings, Fixed assets transferred to operating management 995 2,672,671 2,639,193 Policy and Information Representation in Financial Statements for 2009 installations, equipment and other material assets of long use, other capital works and expenses are accounted in the structure of uncompleted Profit and loss statement fy 2009 (thousand rur) Main Approaches to Preparation of Annual construction. Costs of capital construction assets before commissioning are Financial Statements FOR SIMILAR reflected in this line and after this the assets are transferred to the fixed FOR THE PERIOD OF THE Accounting statements were executed in compliance with accounting and assets category. INDICATOR NAME CODE REPORTED PERIOD PREVIOUS YEAR reporting rules in force in the Russian Federation, in particular Federal Law No. 129-FZ of Nov. 21, 1996 “On Accounting” and Provision on Accounting Intangible Assets and Reporting in the Russian Federation approved by order of the Russian INCOMES AND EXPENSES FOR ORDINARY ACTIVITIES Acc. to PBU 14/2007 “Accounting of intangible assets” intangible assets are Federation Ministry of Finance No.34n dated July 29, 1998, as well as other Revenue (net) from sales of goods, products, works, services accepted for accounting with their actual (original) cost defined as of the day 010 226,536,712 218,693,911 regulatory acts of the Russian Federation, which regulate the procedure for (minus value added tax, excise tax, and other similar compulsory payments) of their acceptance for accounting. The actual (original) cost of intangible execution of accounting and reporting in the Russian Federation. assets purchased at a charge is defined as the amount of actual purchase Production Cost of sold goods, products, works, services 020 (132,839,070) (148,563,743) expenses in the monetary or any other form or the value of the credit Gross profit 029 93,697,642 70,130,168 Assets and Liabilities Expressed in Foreign Currency indebtedness paid or charged by the Company at acquisition, creation of Selling expenses 030 (16,242,480) (12,388,074) The exchange rate difference is reflected in accounting and financial asset and making arrangements for the asset usage except the value added statements in the reported period containing the date of payment and the Management expenses 040 – – tax and other refundable taxes (except cases provided by legislation of the period financial statements were executed for. Russian Federation). Profit (loss) from sales (lines (010-020-030-040)) 050 77,455,162 57,742,094 The exchange rate difference is credited to financial results of the The actual (original) cost of intangible assets is redeemed by charging Company as it is included into the accounting like other receipts and depreciation using the straight-line method according to the norms OTHER INCOMES AND EXPENDITURES expenses. determined on the ground of the established period of their service life. Interests receivable 060 4,571,829 5,450,255 Depreciation is not charged for intangible assets with indefinite period of usable service life. Interest payable 070 (1,889,691) (8,298) Fixed Assets Land plots, buildings, installations, machinery, equipment, transport means Profits from participation in other organizations 080 408,776 409,282 and other facilities with the life time over 12 months and with the cost Financial Investments Other incomes 090 293,529,908 329,233,520 exceeding 20,000 rubles are reflected in the fixed assets item. Financial investments are accepted for accounting with their original cost. Other expenses 100 (306,211,882) (343,024,716) The Company annually performs re-assessment of the similar fixed asset When purchasing financial investments at a charge, the original cost is groups. As of January 1, 2009 the Company re-assessed buildings (industrial made up by actual expenses for their acquisition, excluding VAT and other Profit (loss) before taxation 140 67,864,102 49,802,137 buildings), installations (pipelines, oil pipelines and waterlines), machinery refundable taxes (except cases provided for by the legislation of the Russian Deferred tax assets 141 – – and equipment (power machines and equipment, sucker rod pumping Federation about taxes and charges). Deferred tax liabilities 142 (894,813) (1,063,380) units, rods, tubing) by direct re-calculation on the ground of the document Financial investments defining the current market cost are reflected in supported market prices. The results of such re-assessment were taken into the statements by the end of the reporting year by the current market cost Current tax on profits 150 (16,050,023) (12,150,740) consideration in the accounting balance-sheet as of the beginning of 2009. through their assessment adjustment for the previous reporting date. This Fines, penalties, extra charges for taxes 160 (45,803) (66,353) Assets with regard to which the conditions are fulfilled at their acceptance adjustment is done on a monthly basis. Net profit (loss) of the reported year 190 50,873,463 36,521,664 as fixed assets and with the cost not exceeding 20,000 rubles per unit are Financial investments which do not define the current market cost are reflected in accounting as of the reporting date after deduction of the amount Constant tax liabilities (assets) 200 (3,370,826) (3,718,312) reflected in the accounting and recording as material and industrial stock. Acc. to pp. 7, 8 of PBU 6/01 “Accounting of fixed assets”, the fixed assets of the reserve formed for their depreciation. Basic earnings (loss) per share, RUR 201 22,91 16,46 are accepted to accounting with their original cost. The original cost of fixed Diluted earnings (loss) per share, RUR 202 22,91 16,46 assets purchased at a charge is the amount of actual Company expenditure Expenses for Scientific/Research, Experimental/Design on purchasing, construction and production, excluding the value added and Engineering Works tax and other refundable taxes (except cases provided by legislation of the Interpretation of individual profits and losses (thousand rur) Expenses for scientific/research, experimental/design and engineering works Russian Federation). are accounted in the amount of actual expenses incurred during performance FOR SIMILAR PERIOD OF THE FOR THE REPORTED PERIOD PREVIOUS YEAR of these works. Depreciation charges are made by the straight-line method. Write-off of the expenses for each performed scientific/research, INDICATOR NAME CODE PROFIT LOSS PROFIT LOSS Depreciation is not charged for land plots and natural management facilities. experimental/design and engineering work is done by the straight-line Expenses for repair of objects of fixed assets are accepted on the ground method within one year of useful life of scientific/research, experimental/ Fees, penalties and forfeits accepted or for which exaction judgments 210 64,982 58,759 119,445 58,385 of actual expenses and shall be referred to the reported period in which they design work results. (arbitration court) are received incurred. Profit (loss) of previous years 220 66,513 154,797 317,952 947,519 Compensation of losses, incurred due to non fulfillment 230 2,617 2,653 390 or improper fulfillment of obligations Exchange differences for operations in foreign currency 240 11,710,824 11,181,285 10,259,017 3,668,202 Deductions to assessed reserves 250 x 14,624,172 x 14,305,898 Writing-off of debit and credit indebtedness 260 17,430 111,930 21,341 982,916 with expired limitation period

OAO Tatneft Annual report 2009 www.tatneft.ru 78 79

4.2. Consolidated Financial Statements for Years Ended December 31, 2008 and 2007 Prepared in Accordance with US GAAP

4.2.1. Audit Opinion

Tangible Inventory stock Reserves for Future Expenses and Payments Tangible inventory stock is accounted in the amount of actual expenses for The Company creates a reserve for payment of year-end bonuses for the pur- its purchase after deduction of the value added tax and other refundable pose of uniform adding of future expenses to operating costs of the reporting taxes (except cases provided for by the legislation of the Russian Federation). period. Stock retirement is assessed by the average cost method. Recognition of Revenues from Goods Sales Incomplete Production, Finished Products, Goods and Sales Expenses Proceeds from the sale of goods, products and service rendering (work Finished products are reflected in the balance-sheet by the full actual pro- execution) is recognized when products are shipped to the buyers (services duction cost (including management expenses). are rendered to the customer). In shipment of oil, oil products and gas products assessment is carried out Revenues are reflected in the accounts net of the value added tax, excises by the average cost method for each kind of products. and similar compulsory payments. According to contracts for sale of hydrocarbons payment documents are Shipped Goods handed over to the buyers no later than 15 days after shipment, with the price The accounting article “goods shipped” reflects shipped products the title for of raw materials to be determined by calculation on the basis of market quo- which was not transferred to buyers. tations or it is fixed in the contract as agreed between the parties.

Deferred Expenses Expenses Expenses incurred by the Company in the reporting year but related to the Management expenses are written off for production in full on a monthly future reporting periods (advance paid rent and insurance payments, etc.) are basis. Distribution of management expenses is carried out in proportion to reflected as deferred expenses. These expenses are written off to the cost actual remuneration expenses for the main production workers. of production, general business expenses, etc., uniformly within the periods they are related to. Borrowings and Credits The principal debt amount against the loan (credit) received from the lender Indebtedness of Buyers and Customers is reflected in the accounting report as loan payable in accordance with the Indebtedness of buyers and customers is determined on the ground of prices terms of the loan agreement (credit agreement) in the amount stipulated in established by contracts concluded between the Company and buyers the agreement. (customers) taking into account all discounts (extra charges) applied by the Company. Indebtedness unrealistic to be recovered is written off from the Property Assessment balance as it is proved to be so. According to i.1 of article 11 of Federal Law No. 129-FZ assessment of prop- Indebtedness of buyers and customers not paid within the time limits stipu- erty and liabilities is reflected in accounting and financial statements in terms lated in contracts and not secured with respective guarantees is shown after of money: deduction of accrued reserves for bad debts. These reserves constitute con- for property acquired against payment is done through summing-up actu- servative assessment carried out by the Company with regard to the part of ally incurred expenses for its acquisition; debts which is likely not to be paid. The reserve is created for each bad debt for property received free of charge - by its market cost as of the date of on the ground of the results of accounts receivable inventory. The amount of the books entering;. reserve is determined by accounts receivable aging method. for property manufactured by the Company itself - by its actual production cost. Authorized and Additional Capital Authorized capital is reflected in the amount of face value of ordinary and pre- Accrual of depreciation of fixed assets and intangible assets is carried out ferred shares purchased by shareholders. regardless of the Company's economic activity results in the reported period. Additional capital of the Company includes the sum of full appreciation of fixed assets objects as a result of re-assessment. The amount of full appre- Accounting of Profit Tax Calculations ciation upon the retirement of the object of fixed assets is transferred from During execution of financial statements, accounting balance-sheet reflects additional capital to undistributed profits of the Company. balanced (folded) sums of deferred tax asset and deferred tax liability.

OAO Tatneft Annual report 2009 www.tatneft.ru 80 81

4.2.2. Consolidated Financial Statements Consolidated Statements of Operations and Comprehensive Income for Years Ended December 31, 2009, 2008 and 2007 (in millions of Russian Roubles)

Consolidated Balance Sheets (in millions of Russian Roubles) YEAR ENDED YEAR ENDED YEAR ENDED NOTE DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 NOTES AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Sales and other operating revenues 16 380,648 444,332 356,276

ASSETS COSTS AND OTHER DEDUCTIONS Cash and cash equivalents 12,841 13,418 13,010 Operating 59,334 65,961 59,623 Restricted cash 12,071 7,704 3,996 Purchased oil and refined products 38,243 58,919 43,297 Accounts 4 43,807 22,848 44,193 Exploration 3,540 3,770 1,577 receivable, net Due from related parties 17 16,485 17,605 19,732 Transportation 14,325 11,556 8,431 Short-term investments 5 10,614 9,743 12,977 Selling, general and administrative 26,710 36,571 22,349 Current portion of loans receivable 8 3,185 5,842 3,796 Depreciation, depletion and amortization 16 11,917 10,139 10,379 Loss on disposals of property, plant and equipment, 1,284 1,684 5,253 Inventories 6 11,684 14,121 10,923 investments and impairments Prepaid expenses and other current assets 7 25,227 25,339 17,968 Taxes other than income taxes 14 153,797 217,271 146,299 Total current assets 135,914 116,620 126,595 Maintenance of social infrastructure and transfer of social assets 10 2,789 4,258 2,340 Long-term loans and notes receivable, net 8 2,320 4,036 4,842 Total costs and other deductions 311,939 410,129 299,548 Due from related parties 17 8,524 5,431 6,546 Long-term investments 5 14,596 17,666 32,310 OTHER INCOME (EXPENSES) Property, plant and equipment, net 10 322,475 241,569 193,747 Earnings (losses) from equity investments 5 510 (9,556) 5,789 Other long-term assets 9 11,913 7,658 6,179 Foreign exchange loss (920) (6,135) (2,623) Total assets 495,742 392,980 370,219 Interest income 4,216 3,753 2,779 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest expense, net of amounts capitalized (626) (580) (60)

Short-term debt and current portion of long-term debt 11 71,228 5,790 4,332 Other income/(expenses), net 2,637 (3,531) (4) Trade accounts payable 13,410 9,416 5,647 Total other income/(expenses) 5,817 (16,049) 5,881 Due to related parties 17 1,503 781 1,387 Income before income taxes and non-controlling interest 74,526 18,154 62,609 Other accounts payable and accrued liabilities 12 14,262 9,999 16,820 INCOME TAXES Capital lease obligations 10 170 465 575 Current income tax expense (17,527) (16,043) (18,895) Taxes payable 14 10,321 5,592 9,667 Deferred income tax (expense)/benefit (29) 6,701 641 Total current liabilities 110,894 32,043 38,428 Total income tax expense 14 (17,556) (9,342) (18,254) Long-term debt, net of current portion 11 16,588 44,813 9,182 Net income 56,970 8,812 44,355 Other long-term liabilities 2,423 1,735 2,134 Less: net income attributable to non-controlling interest (2,598) (399) (1,076) Asset retirement obligations, 10 38,927 35,263 31,937 net of current portion Net income attributable to Group shareholders 54,372 8,413 43,279 Deferred tax liability 14 13,388 14,143 19,738 Foreign currency translation adjustments 143 683 (143) Capital lease obligations, net of current portion 10 15 124 242 Actuarial gain on employee benefit plans 531 525 — Total liabilities 182,235 128,121 101,661 Unrealized holding gains on available-for-sale securities, net of tax 486 — — Comprehensive income 55,532 9,621 43,136 SHAREHOLDERS’ EQUITY Basic and diluted net income per share (RR) 15 Preferred shares (authorized and issued at December 31, 2009, Common 24,25 3,79 19,50 2008 and 2007 – 147,508,500 shares; nominal value at December 31, 15 148 148 148 2009, 2008 and 2007 – RR1.00) Preferred 24,15 3,53 19,27 Common shares (authorized and issued at December 31, 2009, 2008 Weighted average shares outstanding (millions of shares) 15 and 2007 – 2,178,690,700 shares; nominal value at December 31, 2008 15 2,179 2,179 2,179 and 2007 – RR1.00) Common 2,095 2,076 2,073 Additional paid-in capital 95,735 96,171 95,274 Preferred 148 148 148 Accumulated other comprehensive income (loss) 1,907 747 (461) Retained earnings 209,275 164,991 169,721 Less: Common shares held in treasury, at cost (66,985,000 shares, 100,089,000 shares and 101,057,000 shares at December 31, 2009, 2008 (3,721) (3,960) (2,802) and 2007, respectively) Total Group shareholders’ equity 305,523 260,276 264,059 Non-controlling interest 7,984 4,583 4,499 Total shareholders’ equity 313,507 264,859 268,558 Total liabilities and shareholders’ equity 495,742 392,980 370,219

OAO Tatneft Annual report 2009 www.tatneft.ru 82 83

Consolidated Statements of Cash Flows (in millions of Russian Roubles) Consolidated Statements of Shareholders' Equity (in millions of Russian Roubles)

2009 2008 2007 YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007

SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT OPERATING ACTIVITIES

Net income 56,970 8,812 44,355 PREFERRED SHARES: Adjustments: Balance at January 1 and December 31 147,509 148 147,509 148 147,509 148 (shares in thousands) Depreciation, depletion and amortization 11,917 10,139 10,379 Deferred income tax benefit/(expense) 29 (6,701) (641) COMMON SHARES: Loss on disposals of property, plant and equipment, investments and impairments 1,284 1,684 5,253 Balance at January 1 and December 31 2,178,691 2,179 2,178,691 2,179 2,178,691 2,179 (shares in thousands) Transfer of social assets 324 1,413 10 Effects of foreign exchange 12 8,075 (37) TREASURY SHARES, AT COST:

Equity (loss)/earnings net of dividends received (153) 9,964 (5,128) Balance at January 1 100,089 (3,960) 101,057 (2,802) 111,299 (2,786) Acquisitions 19,126 (2,504) 9,096 (1,525) 4,115 (331) Change of allowance for doubtful accounts (2,887) 12,496 — Disposals (52,230) 2,743 (10,064) 367 (14,357) 315 Accretion of asset retirement obligation 3,537 3,204 2,899 Balance at December 31 66,985 (3,721) 100,089 (3,960) 101,057 (2,802) Change in fair value of trading securities (1,835) 2,330 1,065 (shares in thousands) Other (879) 2,187 199 ADDITIONAL PAID-IN CAPITAL Changes in operational working capital, excluding cash: Accounts receivable (18,500) 11,720 (18,845) Balance at January 1 96,171 95,274 95,337 Inventories 2,391 (671) 35 Treasury share transactions (256) 897 (63) Prepaid expenses and other current assets 642 (10,398) 1,916 Acquisitions of subsidiaries (180) — — Trading securities 2,406 635 1,788 Balance at December 31 95,735 96,171 95,274 Related parties 669 (38) 836 ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) Trade accounts payable 2,559 3,421 (318) Balance at January 1 747 (461) (318) Other accounts payable and accrued liabilities 3,321 (6,077) 3,104 Actuarial gain on employee benefit plans 531 525 - Taxes payable 4,985 (4,042) 2,210 Foreign currency translation adjustments 143 683 (143) Notes payable (173) 18 193 Unrealized holding gains on available-for-sale securities, 486—— Other non-current assets (16) (319) (1,240) net of tax Net cash provided by operating activities 66,603 47,852 48,033 Balance at December 31 1,907 747 (461)

INVESTING ACTIVITIES RETAINED EARNINGS

Additions to property, plant and equipment (89,254) (60,441) (33,649) Balance at January 1 164,991 169,721 137,143 Proceeds from disposals of property, plant and equipment 545 1,030 4,531 Net income 54,372 8,413 43,279 Proceeds from disposal of investments 186 (180) 9,431 Dividends (10,088) (13,143) (10,701) Purchase of investments (368) (900) (2,742) Balance at December 31 209,275 164,991 169,721 Certificates of deposit 554 4,180 (11,351) NON-CONTROLLING INTEREST Loans and notes receivable 1,376 (1,716) (3,333) Balance at January 1 4,583 4,499 3,174 Change in restricted cash (4,367) (3,708) (2,511) Net income 2,598 399 1,076 Net cash used in investing activities (91,328) (61,735) (39,624) Dividends (190) (163) (148) FINANCING ACTIVITIES Change in Group structure 993 (152) 397

Proceeds from issuance of debt 52,881 47,100 18,454 Balance at December 31 7,984 4,583 4,499 Repayment of debt (18,160) (17,351) (9,171) Total shareholders' equity at December 31 313,507 264,859 268,558 Repayment of capital lease obligations (408) (719) (1,100) Dividends paid to shareholders (10,075) (13,115) (10,667) Dividends paid to non-controlling shareholders (190) (163) (148) Purchase of treasury shares (58) (1,525) (269) Proceeds from sale of treasury shares 58 64 270 Proceeds from issuance of shares by subsidiaries 100 — 363

Net cash provided by (used in) financing activities 24,148 14,291 (2,268)

Net change in cash and cash equivalents (577) 408 6,141 Cash and cash equivalents at beginning of period 13,418 13,010 6,869 Cash and cash equivalents at end of period 12,841 13,418 13,010

OAO Tatneft Annual report 2009 www.tatneft.ru 84 85

For operations of subsidiaries located outside of the Russian Federation, Securities classified as trading are bought and held principally for the Notes to Consolidated that primarily use US Dollars as the functional currency, adjustments resulting purpose of selling them in the near term. Trading securities are carried at fair from translating foreign functional currency assets and liabilities into Russian value on the consolidated balance sheet. In determining fair value, trading Roubles are recorded in a separate component of shareholders’ equity securities are valued at the last trade price if quoted on an exchange or, if Financial Statements entitled accumulated other comprehensive income or loss. Gains or losses traded over-the-counter, at the last bid price. Unrealized and realized gains resulting from transactions in other than the functional currency are reflected and losses on trading securities are included in other income of the consoli- in net income. dated statements of operations and comprehensive income. The official rate of exchange, as published by the Central Bank of Russia Securities are classified as available-for-sale when, in management’s judg- (“CBR”), of the Russian Rouble (“RR”) to the US Dollar (“US $”) at December ment, they may be sold in response to or in anticipation of changes in market 31, 2009, 2008 and 2007 was RR 30.24, RR 29.38 and RR 24.55 to US Dollar, conditions. Available-for-sale securities are carried at estimated fair values respectively. Average rate of exchange for the years ended December 31, on the consolidated balance sheet. Unrealized gains and losses on available- 2009, 2008 and 2007 were RR 31.72, RR 24.86 and RR 25.58 per US Dollar, for-sale securities are reported net as increases or decreases to accumulate respectively. other comprehensive income. The specific identification method is used to determine realized gains and losses on available-for-sale securities. Principles of consolidation and long-term investments If the decline in fair value of an investment below the accounting basis is The accompanying consolidated financial statements include the opera- other-than-temporary, the carrying value of the securities is reduced and a Note 1: equipment; (2) foreign currency translation; (3) deferred income taxes; (4) tions of all majority-owned, controlled subsidiaries and VIEs, where the loss in the amount of any such decline is recorded. No such reductions have Organization valuation allowances for unrecoverable assets; (5) capital leases; (6) share Group is the primary beneficiary. In 2006 the Company determined that, been required during the past three years. base payment; (7) accounting for oil and gas properties; (8) recognition and despite a 40% direct ownership interest, OAO TANECO (“TANECO”) was Long-term investments not designated as available-for-sale or trading OAO Tatneft (the “Company”) and its subsidiaries (jointly referred to as “the disclosure of guarantees, contingencies and commitments; (9) account- a variable interest entity and that the Group was its primary beneficiary. At securities are recorded at cost because they are not traded on any market Group”) are engaged in crude oil exploration, development and production ing for asset retirement obligation; (10) pensions and other post retirement December 31, 2009, Group’s direct ownership interest in TANECO is 91%. and it is not practicable to determine their fair value. principally in the Republic of Tatarstan (“Tatarstan”), a republic within the benefits; (11) business combinations and goodwill; and (12) consolidation Accordingly, the financial position, results of operation and cash flows of Russian Federation. The Group also engages in refining and marketing of and accounting for subsidiaries, equity investees and variable interest enti- TANECO have been included in the consolidated financial statements as of Accounts receivable. crude oil and refined products as well as production and marketing of petro- ties (“VIEs”). and for the years ended December 31, 2009, 2008 and 2007. Joint ventures Trade accounts receivable are stated at their transaction amounts net of allow- chemicals (see Note 16). and affiliates in which the Group has significant influence but not control ances for doubtful accounts. Allowances are recorded against trade receiv- The Company was incorporated as an open joint stock company effec- Use of estimates in the preparation are accounted for using the equity method. Intercompany transactions and ables whose recovery or collection has been identified as doubtful. Estimates tive January 1, 1994 (the “privatization date”) pursuant to the approval of the of financial statements. accounts are eliminated on consolidation. Other long-term investments are of allowances require the exercise of judgment and the use of assumptions. State Property Management Committee of the Republic of Tatarstan (the The preparation of financial statements in conformity with US GAAP requires carried at cost and adjusted for estimated impairment. The Group reviews “Government”). All assets and liabilities previously managed by the pro- management to make estimates and assumptions that affect the reported equity method investments for impairment on an annual basis, and records Loans receivable. duction association Tatneft, Bugulminsky Mechanical Plant, Menzelinsky amounts of assets, liabilities, revenues and expenses, and the disclosures of impairment when circumstances indicate that an other-than-temporary Loans originated by the Group by providing money directly to the borrower Exploratory Drilling Department and Bavlinsky Drilling Department were trans- contingent assets and liabilities. While management uses its best estimates decline in value has occurred. The amount of the impairment is based are carried at amortized cost less allowance for loan impairment. Loans are ferred to the Company at their book value at the privatization date in accor- and judgments, actual results could differ from those estimates and assump- on quoted market prices, where available, or other valuation techniques, recognized when cash is advanced to borrowers. dance with Decree No. 1403 on Privatization and Restructuring of Enterprises tions used. Among the estimates made by the management are: assets valu- including discounted cash flows. Equity investments and investments in and Corporations into Joint-Stock Companies. Such transfers were consid- ation allowances, depreciable lives, oil and gas reserves, pensions, asset other companies are included in “Long-term investments” in the consoli- Oil and gas exploration and development cost. ered transfers between entities under common control at the privatization retirement costs and income taxes. dated balance sheet. Oil and gas exploration and production activities are accounted for using the date, and were recorded at book value. Effective from the interim period ended 30 September 2009, the Group successful efforts method whereby costs of acquiring unproved and proved As of December 31, 2009, 2008 and 2007 OAO Svyazinvestneftekhim, adopted the Financial Accounting Standards Board (FASB) Accounting Note 3: oil and gas property as well as costs of drilling and equipping productive wells, a company wholly owned by the government of Tatarstan, together with its Standards Codification (ASC). The ASC was established as the sole source Summary of Significant including development dry holes, and related production facilities are capital- subsidiary, hold approximately 36% of the Company’s voting stock. These of US GAAP and superseded existing accounting and reporting guidance ized. Exploration expenses, including geological and geophysical expenses shares were contributed to Svyazinvestneftekhim by the Ministry of Land issued by the FASB, Emerging Issues Task Force and other sources. The Accounting Policies and the costs of carrying and retaining undeveloped properties, are expensed and Property Relations of Tatarstan in 2003. Tatarstan also holds a “Golden ASC did not change US GAAP. All references to accounting standards in Cash equivalents. as incurred. The costs of exploratory wells that find oil and gas reserves are Share”, a special governmental right, in the Company (see Note 15). The these consolidated financial statements were changed to corresponding Cash equivalents are highly liquid short-term investments that are readily capitalized pending determination of whether proved reserves have been exercise of its powers under the Golden Share enables the Tatarstan gov- ASC references. convertible into known amounts of cash and have original maturities within found. If proved reserves are not found exploratory well costs are expensed. ernment to appoint one representative to the Board of Directors and one Effective 1 January 2009, the Group adopted the authoritative guidance of three months from their date of purchase. In an area requiring a major capital expenditure before production can begin, representative to the Revision Committee of the Company as well as to veto ASC 810, Consolidation, as it relates to non-controlling interests. This guid- At December 31, 2009, 2008 and 2007, cash and cash equivalents of the exploratory well remains capitalized if sufficient reserves are discovered to certain major decisions, including those relating to changes in the share capi- ance changed the accounting and reporting standards for minority interests, Group, include US Dollar denominated amounts of RR 2,722 million (US $90 justify its completion as a production well, and additional exploration drilling is tal, amendments to the Charter, liquidation or reorganization of the Company which were re-characterized as non-controlling interests and classified as a million), RR 1,136 million (US $39 million) and RR 2,954 million (US $120 mil- underway or firmly planned. The Group does not capitalize the costs of other and “major” and “interested party” transactions as defined under Russian law. component of equity. In accordance with this guidance, the Group changed lion), respectively. exploratory wells for more than one year unless proved reserves are found. The Golden Share currently has an indefinite term. The Tatarstan government, retrospectively the presentation of existing minority interests in these consoli- including through OAO Svyazinvestneftekhim, also controls or exercises dated financial statements. Restricted cash. Impairment of long-lived assets significant influence over a number of the Company’s suppliers and contrac- Restricted cash represents cash deposited under letter of credit arrange- Long-lived assets, including proved oil and gas properties at a field level, are tors, such as the electricity producer OAO Tatenergo and the petrochemicals Foreign currency transactions and translation. ments, which are restricted under various contractual agreements. Letters assessed for possible impairment in accordance with ASC 360, Property, company OAO Nizhnekamskneftekhim. Management has determined the functional currency of the Group, except for of credit are used to pay contractors for materials, equipment and services Plant and Equipment. Property, plant and equipment used in operations are subsidiaries located outside of the Russian Federation, is the Russian Rouble provided. assessed for impairment whenever events or changes in circumstances indi- Note 2: because the majority of its revenues, costs, property and equipment pur- cate that the carrying amounts may not be recovered. If the carrying amounts chased, debt and trade liabilities are either priced, incurred, payable or oth- Inventories. are not expected to be recovered by undiscounted pretax future cash flows, the Basis of Presentation erwise measured in Russian Roubles. Accordingly, transactions and balances Inventories of crude oil, refined oil products, materials and supplies, and fin- assets are impaired and an impairment loss is recorded in the periods in which The entities of the Group maintain their accounting records and pre- not already measured in Russian Roubles (primarily US Dollars) have been ished goods are valued at the lower of cost or net realizable value. The Group the determination of impairment is made. The amount of impairment is deter- pare their statutory financial statements principally in accordance with re-measured into Russian Roubles in accordance with the relevant provisions uses the weighted-average-cost method. Costs include both direct and indi- mined based on the estimated fair value of the assets determined by discount- the Regulations on Accounting and Reporting of the Russian Federation of ASC 830 Foreign Currency matters. rect expenditures incurred in bringing an item or product to its existing condi- ing anticipated future net cash flows or based on quoted market prices in active (“RAR”). The accompanying financial statements have been prepared Under ASC 830, revenues, costs, capital and non-monetary assets and tion and location. markets, if available. In the case of oil and gas fields, the net present value of from these accounting records and adjusted as necessary to comply with liabilities are translated at historical exchange rates prevailing on the transac- future cash flows is based on management’s best estimate of future prices, accounting principles generally accepted in the United States of America tion dates. Monetary assets and liabilities are translated at exchange rates Investments. which is determined with reference to recent historical prices and published (“US GAAP”). The principal differences between RAR and US GAAP relate prevailing on the balance sheet date. Exchange gains and losses arising from Debt and equity securities are classified into one of three categories: trading, forward prices, applied to projected production volumes of individual fields to: (1) valuation (including indexation for the effect of hyperinflation in the re-measurement of monetary assets and liabilities that are not denominated available-for-sale, or held-to-maturity and consist of certificates of deposit as and discounted at a rate commensurate with the risks involved. The projected Russian Federation through 2002) and depreciation of property, plant and in Russian Roubles are credited or charged to operations. well as debt and equity securities classified as available-for-sale or trading. production volumes represent reserves, including risk-adjusted probable and

OAO Tatneft Annual report 2009 www.tatneft.ru 86 87 possible reserves, expected to be produced based on a stipulated amount of Measurements of asset retirement obligations include, as a component years of service. In accordance with the provisions of collective agreements expense recognized in the consolidated statements of operations and com- capital expenditures. The production volumes, prices and timing of production of expected costs, an estimate of the price that a third party would demand, concluded on an annual basis between the Company or its subsidiaries and prehensive income for the years ended December 31, 2009, 2008 and 2007 are consistent with internal projections and other externally reported informa- and could expect to receive, for bearing the uncertainties and unforesee- their employees, the Group is obligated to pay certain post-employment ben- was RR 1,173 million, RR 1,290 million and RR 1,263 million, respectively. tion. The price and cost outlook assumptions used in impairment reviews differ able circumstances inherent in the obligations, sometimes referred to as a efits, the amounts of which are generally based on salary grade and years of from the assumptions used in the Standardized Measure of Discounted Future market-risk premium. To date, the oil and gas industry has few examples of service at the time of retirement. There are no contribution requirements for Income taxes. Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities. In that credit-worthy third parties who are willing to assume this type of risk, for a these benefits, which are paid by the Group directly to employees. The Group’s Deferred income tax assets and liabilities are recognized for future tax disclosure, ASC 932, Extractive Industry – Oil and Gas requires the use of the determinable price, on major oil and gas production facilities and pipelines. mandatory contributions to the governmental pension scheme are expensed consequences attributable to differences between the financial statement arithmetic average of the previous month’s sales prices and costs at the bal- Therefore, because determining such a market-risk premium would be an when incurred. carrying amounts of existing assets and liabilities and their respective tax ance sheet date, with no projection of future changes in those assumptions. arbitrary process, it has been excluded from the Company’s estimates. bases, except for deferred taxes on income considered to be permanently Individual assets are grouped for impairment purposes at the lowest level for The Group capitalizes the associated asset retirement costs as part of the Revenue recognition. reinvested in foreign subsidiaries. Deferred tax assets and liabilities are which there are identifiable cash flows that are largely independent of the cash carrying amount of the long-lived assets. Over time the liability is increased Revenues from the production and sale of crude oil, petroleum and petro- measured using enacted tax rates in the periods in which these temporary flows of other groups of assets - generally on a field-by-field basis for explora- for the change in its present value, and the capitalized cost in properties, chemical products and all other products are recognized when deliveries of differences are expected to reverse. Valuation allowances are provided for tion and production assets, at an entire complex level for refining assets or at a plant and equipment is depreciated on a units-of-production basis over the products to final customers are made, title passes to the customer, collection is deferred income tax assets when management believes that it is more likely site level for service stations. Long-lived assets committed by management for useful life of the related assets. reasonably assured and sales price to final customers is fixed or determinable. than not those such assets will not be realized. disposal within one year, and meet the other criteria for held for sale pursuant Revenues include excise on petroleum products sales and duties on export The Group applies the authoritative guidance of ASC 740, Income taxes, to ASC 360, are accounted for at the lower of amortized cost or fair value, less Property dispositions. sale of crude oil and petroleum products of RR 97,169 million, RR 136,541 mil- which prescribe a comprehensive model for recognizing, measuring, present- cost to sell. Costs of unproved oil and gas properties are evaluated periodically When complete units of depreciable property are retired or sold, the asset lion and RR 85,327 million at December 31, 2009, 2008 and 2007, respectively. ing and disclosing in the financial statements uncertain tax positions that the and any impairment assessed is charged to expense. cost and related accumulated depreciation are eliminated, with any gain or All revenues are shown net of VAT. Company or its subsidiaries have taken or expect to take in their income tax loss reflected in the consolidated statements of operations and comprehen- Other operating revenues in the consolidated statements of operations and returns. Income tax penalties expense and income tax penalties payable are Depreciation, depletion and amortization. sive income. When less than complete units of depreciable property are dis- comprehensive income include sales of non-petroleum refined products, pet- included in Taxes other than income tax in the consolidated statements of The Group calculates depletion expense for acquisition costs of proved prop- posed of or retired, the difference between asset cost and sales proceeds, if rochemicals and other products and services. income and Taxes payable in the consolidated balance sheets, respectively. erties using the units-of-production method over proved oil and gas reserves. any, is charged or credited to accumulated depreciation. Income tax interest expense and payable are included in Interest expense Depreciation and depletion expense for oil and gas production equipment Shipping and handling costs. in the consolidated statements of income and other accounts payable and and wells and other development costs is calculated using the units-of-pro- Capital leases. Shipping and handling costs are included in Transportation expenses caption in accrued expenses in the consolidated balance sheets, respectively. duction method for each field over proved developed oil and gas reserves. Capital leases, which transfer to the Group substantially all the risks and the consolidated statements of operations and comprehensive income. Depreciation of all other plant and equipment is determined on the straight- benefits incidental to ownership of the leased item, are capitalized at the Non-controlling interest. line method based on estimated useful lives which are as follows: inception of the lease at the fair value of the leased property or, if lower, at the Non-monetary transactions. Non-controlling interest represents the non-controlling shareholders’ pro- present value of the minimum lease payments. Lease payments are appor- In accordance with US GAAP, exchanges of non-monetary assets are recorded portionate share of the equity of the Group’s subsidiaries. This has been YEARS tioned between the interest charges and reduction of the lease liability so as based on the fair values of the assets (or services) involved which is the same calculated based upon the non-controlling interest ownership percentage to achieve a constant rate of interest on the remaining balance of the liabili- basis as that used in monetary transactions. Thus, the cost of a non-monetary of these subsidiaries. Buildings and constructions 25–33 ties. Interest charges are charged directly to the consolidated statements of asset acquired in exchange for another non-monetary asset is the fair value operations and comprehensive income. Machinery and equipment 5–15 of the asset surrendered to obtain it, and a gain or loss is recognized on the Net income per share. Capitalized leased assets are depreciated over the shorter of the estimated exchange if the carrying amount of the asset surrendered differs from its fair Basic income per share is calculated using the two class method of com- useful life of the asset or the lease term unless the leased assets are capital- value. The fair value of the asset received is used to measure the cost if it is puting income per share. Under this method, net income is reduced by the Maintenance and repair. ized by virtue of the terms of the lease agreement granting the Group with more clearly evident than the fair value of the asset surrendered. amount of dividends declared in the current period for each class of shares, Maintenance and repairs, which are not significant improvements, are ownership rights over the leased assets by the end of the lease term or con- Stock-based compensation. The Company has a share-based compensa- and the remaining income is allocated to common and preferred shares to expensed when incurred. taining a bargain purchase option. In this case, capitalized assets are depre- tion plan (the “Plan”) for senior management and directors of the Company. the extent that each class may share in income if all income for the period had ciated over the estimated useful life of the asset regardless of the lease term. Under the provisions of the Plan, share-based bonus awards (“Awards”) are been distributed. Diluted income per share reflects the potential dilution aris- Capitalized interest. Depreciation of assets held under capital leases is included in depreciation, issued on an annual basis to the Company's directors and senior manage- ing from options granted to senior managers and the Directors of the Group. Capitalized interest. Interest from external borrowings is capitalized on major depletion and amortization charge. ment as approved by the Board of Directors. Each Award provides a cash projects. Capitalized interest is added to the cost of the underlying asset and Leases where the lessor retains substantially all the risks and benefits of payment at the settlement date equal to one of the Company's common Treasury shares. is amortized over the useful lives of the assets in the same manner as the ownership of the assets are classified as operating leases. Operating lease shares multiplied by the difference between the lowest share price for the Common shares of the Company owned by the Group at the balance sheet underlying assets. payments are recognized as an expense in the consolidated statements of preceding three years as of the grant date and the highest share price for date are designated as treasury shares and are recorded at cost using the operations and comprehensive income on a straight-line basis over the lease the preceding three years as of each year-end. Share prices are mea- weighted-average method. Gains on resale of treasury shares are cred- Asset retirement obligations. term. sured based on the weighted average daily trading price as reported on the ited to additional paid-in capital whereas losses are charged to additional The Group recognizes a liability for the fair value of legally required asset Moscow Interbank Currency Exchange (MICEX). Awards are subject to indi- paid-in capital to the extent that previous net gains from resale are included retirement obligations associated with long-lived assets in the period in which Environmental expenditures. vidual annual performance conditions and are generally settled within 90 days therein or otherwise to retained earnings. the retirement obligations are incurred. The Group has numerous asset Environmental expenditures are expensed or capitalized, depending on their after the Company’s Management Committee approval. removal obligations that it is required to perform under law or contract once future economic benefit. Expenditures that relate to an existing condition The Company accounts for its Awards under the liability method prescribed Guarantees. an asset is permanently taken out of service. The Group’s field exploration, caused by past operations, and do not have a future economic benefit, are in ASC 718. The fair value of the Awards is determined using the Black- The Group recognizes a liability for the fair value of the obligation it assumes development, and production activities include assets related to: well bores expensed. Liabilities for these expenditures are recorded on an undiscounted Scholes valuation model at the grant date and subsequently remeasured under the guarantee in accordance with the provisions of US GAAP. and related equipment and operating sites, gathering and oil processing basis when environmental assessments or cleanups are probable and the each interim reporting period. The liability at December 31, 2009, 2008 systems, oil storage facilities and gathering pipelines. Generally, the Group’s costs can be reasonably estimated. and 2007 is determined based on the final expected bonus payments. The New accounting standards adopted. licenses and other operating permits require certain actions to be taken by Awards are recognized as expense over the annual service period, net of for- Effective 1 January 2008, the Group adopted the authoritative guidance of the Group in the abandonment of these operations. Such actions include well Pension and post-employment benefits. feitures, with a corresponding liability to other accounts payable and accrued ASC 820, Fair Value Measurements and Disclosures, as it relates to items abandonment activities, equipment dismantlement and other reclamation The Group has various pension plans covering substantially all eligible employ- liabilities. that are recognized at fair value in the financial statements on a recurring activities. The Group’s estimates of future abandonment costs consider pres- ees and members of management. The amount of contributions, frequency For the year ended December 31, 2009, the Company issued 7,909,000 basis. For the recognition, measurement and disclosure of nonfinancial ent regulatory or license requirements and are based upon management’s of benefit payments and other conditions of these plans are regulated by the Awards to senior management and directors, all of which are expected to assets and liabilities measured at fair value on a non-recurring basis, the experience of the costs and requirement for such activities. Most of these “Statement of Organization of Non-Governmental Pension Benefits for OAO be settled at a price of RR 161.17 per Award. Final settlement is subject guidance of ASC 820 became effective for the Group on 1 January 2009. costs are not expected to be incurred until several years, or decades, in the Tatneft Employees” and the contracts concluded between the Company or to approval at the Company’s Management Committee meeting in July- The guidance defines fair value, establishes a framework for measuring fair future and will be funded from general Group resources at the time of remov- its subsidiaries, management, and the non-profit organization “National Non- September 2010. For the year ended December 31, 2008, the Company value and expands disclosures about fair value measurements. The adop- al. The Group is not subject to any legal or contractual obligations, to retire Governmental Pension Fund”. In accordance with these contracts the Group issued 8,753,600 Awards to senior management and directors, of which tion of this guidance had no material effect on the Group’s results of opera- or otherwise abandon petrochemical, refining and marketing and distribution is committed to make certain contributions on behalf of all employees and 8,175,700 were ultimately settled at a price of RR 150.08 per Award. For the tions, financial position or liquidity. assets. Inasmuch as the regulatory and legal environment in Russia continues guarantees a minimum benefit upon retirement. Contributions or benefits are year ended December 31, 2007, the Company issued 8,874,000 Awards to Effective 1 January 2009, the Group adopted the authoritative guidance to evolve, there could be future changes to the requirements and costs asso- generally based upon grade and years until official retirement age (age 60 senior management and directors, of which 8,780,600 were ultimately settled of ASC 805, Business Combinations. ASC 805 provides guidance for rec- ciated with abandoning long-lived assets. for men and 55 for women), and in the case of management are based upon at a price of RR 145.25 per Award. The amount of related compensation ognition and measurement in the financial statements of identifiable assets

OAO Tatneft Annual report 2009 www.tatneft.ru 88 89 acquired, liabilities assumed and non-controlling interest in the acquire. on the balance sheet at fair value. The adoption of this guidance had no In January 2010, ASU No. 2010-6, Fair Value Measurements and ASC 805 similarly provides guidance for accounting for goodwill acquired material effect on the Group’s results of operations, financial position or Disclosures, was issued. The ASU amends ASC 820, Fair Value in a business combination or a gain arising from a bargain purchase. This liquidity. Measurements and Disclosures, and requires separate disclosures of trans- guidance also enquires the Group to recognize acquired contingencies at Effective December 31, 2009, the company implemented the expanded fers in and out Level 1 and Level 2 fair value measurements and the reasons fair value on the acquisition date if fair value can be reasonably estimated disclosure requirements for the plan assets of defined benefit pension plans for the transfers. Also the ASU requires disclosure of activity in Level 3 fair during the allocation period. The adoption of this guidance had no material (ASC 715) to provide users of financial statements with an understanding of: value measurements on a gross basis rather than as one net number. The effect on the Group’s results of operations, financial position or liquidity. how investment allocation decisions are made; the major categories of plan guidance requires the Group to provide fair value measurement disclosure Effective 1 January 2009, the Group adopted the authoritative guidance assets; the inputs and valuation techniques used to measure the fair value for each class of assets and liabilities as well as disclosures about valuation of ASC 815, Derivatives and Hedging, as it relates to disclosures on deriva- of plan assets; the effect of fair-value measurements using unobservable techniques and inputs used to measure fair value for both recurring and tives and hedging activities. This guidance requires enhanced disclosures inputs on changes in plan assets for the period; and significant concentra- nonrecurring fair value measurements that fall either in Level 2 or Level 3. about how and why an entity uses derivative instruments, how deriva- tions of risk within plan assets. The provisions of this ASU will become effective for the Group on 1 January tive instruments and related hedged items are accounted for under ASC In January 2010, ASU No. 2010-2, Accounting and Reporting for 2010 with the exception of disclosure of activity in Level 3 fair value mea- 815, Derivatives and Hedging, and how derivative instruments and related Decreases in Ownership of a Subsidiary, a Scope Clarification, was issued surements which will become effective on 1 January 2011. hedged items affect an entity’s financial position, financial performance, and became effective for the Group from the annual reporting period ended and cash flows. The adoption of this guidance had no material effect on 31 December 2009. This ASU clarifies that transactions involving transfer Group’s results of operation, financial position or liquidity. of a subsidiary or group of assets that constitutes a business to an equity Effective 1 January 2009, the Group adopted the authoritative guidance method investee or joint-venture and exchange of a group of assets for a of ASC 350, Intangibles - Goodwill and Other, and ASC 275, Risks and non-controlling interest in an entity are included in the scope of ASC 810, Uncertainties, as it relates to determining the useful life of intangible assets. Consolidation. This ASU also expands disclosures about the deconsolida- This guidance was issued to improve the consistency between the useful life tion of a subsidiary or derecognition of a group of assets. The adoption of of a recognized intangible asset under ASC 350, Intangibles - Goodwill and this ASU had no material effect on the Group’s results of operations, finan- Other, and the period of expected cash flows used to measure the fair value cial position or liquidity. of the asset under ASC 805, Business Combinations, and other account- In January 2010, ASU No 2010-3, Oil and Gas Reserves Estimation and ing guidance. The guidance for determining the useful life of a recognized Disclosures, was issued and became effective for the Group from the intangible asset is to be applied prospectively. The adoption of this guid- annual reporting period ended 31 December 2009. This ASU amends oil ance had no material effect on the Group’s results of operations, financial and gas reserves estimation and disclosure requirements in ASC 932, position or liquidity. Extractive Industry – Oil and Gas, to align it with the Securities and Exchange Effective 1 January 2009, the Group adopted the authoritative guidance Commission’s final rule, Modernization of the Oil and Gas Reporting of ASC 323, Investments – Equity Method and Joint Ventures, as it relates Requirements, issued in December 2008. This ASU revised the definition of to certain issues raised by ASC 805, Business Combinations, and ASC 810, the oil- and gas-producing activities to classify non-traditional resources as Consolidation, in respect to equity method accounted investments, includ- reserves. The definition of proved oil and gas reserves was amended, so that ing impairment considerations. The adoption of this guidance had no mate- the Group is required to use average, first-day-of-the-month price during the rial effect on the Group’s results of operations, financial position or liquidity. reporting period rather than the year-end price in determining reserves quan- Effective from the interim period ended on 30 June 2009, the Group tities which are economical to produce. The revised guidance requires pre- adopted the authoritative guidance of ASC 855, Subsequent Events. This senting expanded disclosures about the Group’s equity affiliates in the same guidance sets forth the period after the balance sheet date during which level of detail as disclosures about its consolidated subsidiaries. The adoption events or transactions that may occur should be evaluated for potential rec- of this ASU had no material effect on the Group’s results of operations, finan- ognition or disclosure in the financial statements, the circumstances under cial position or liquidity. The presentation of Supplemental Information on Oil which events or transactions occurring after the balance sheet date should and Gas Exploration and Production activities was amended prospectively in be recognized in financial statements and the disclosures that should be accordance with the requirements of the ASU. made about events or transactions that occurred after the balance sheet date. The guidance introduced the concept of financial statements being Recent accounting pronouncements. available to be issued. It requires the disclosure of the date through which In December 2009, ASU No. 2009-17, Improvements to Financial Reporting an entity has evaluated subsequent events and the basis for that date. The by Enterprises Involved with Variable Interest Entities, was issued and will adoption of this guidance had no material effect on the Group’s results of become effective for the Group on 1 January 2010. This ASU amends ASC operations, financial position or liquidity. 810, Consolidation, and changes the rules for determination when an entity Effective from the interim period ended on 30 June 2009, the Group should be consolidated. The new guidance requires the Group to perform adopted the authoritative guidance of ASC 820, Fair Value Measurements an analysis to determine whether the Group’s variable interest or interests and Disclosures, as it relates to estimating the fair value when the volume give it a controlling financial interest in a variable interest entity. The Group and level of activity for the asset or liability have significantly decreased. is also required to assess whether it has an implicit financial responsibility to This guidance also clarifies the approach for identifying circumstances that ensure that the variable interest entity operates as designed when determin- indicate a transaction is not orderly. This guidance emphasizes that even if ing whether it has the power to direct the activities of the variable interest there has been a significant decrease in the volume and level of activity for entity that most significantly impact the entity’s economic performance. It the asset or liability and regardless of the valuation techniques used, the is expected that the adoption of this ASU will have no material effect on the objective of a fair value measurement remains the same. Fair value is the Group’s results of operations, financial position or liquidity. price that would be received to sell an asset or paid to transfer a liability in In August 2009, ASU No. 2009-5, Measuring Liabilities at Fair Value, was an orderly transaction (that is, not a forced liquidation or distressed sale) issued and will become effective for the Group on 1 January 2010. This ASU between market participants at the measurement date under current mar- amends ASC 820, Fair Value Measurements and Disclosures, and provides ket conditions. The adoption of this guidance had no material effect on the additional guidance on how companies should measure liabilities at fair Group’s results of operations, financial position or liquidity. value. While reaffirming the existing definition of fair value, this ASU reintro- Effective from the interim period ended on 30 June 2009, the Group duces the concept of entry value into the determination of fair value. Entry adopted the authoritative guidance of ASC 825, Financial Instruments, as it value is the amount an entity would receive to enter into an identical liability. relates to fair value disclosures of financial instruments in interim financial Under the new guidance, the fair value of a liability is not adjusted to reflect statements. This guidance requires fair value disclosures for financial instru- the impact of contractual restrictions that prevent its transfer. It is expected ments on a quarterly basis, providing qualitative and quantitative information that the adoption of this ASU will have no material effect on the Group’s about fair value estimates for all those financial instruments not measured results of operations, financial position or liquidity.

OAO Tatneft Annual report 2009 www.tatneft.ru 90 91

Note 4: Long-term investments are as follows:

Accounts Receivable GROUP’S SHARE OF INCOME OWNERSHIP PERCENTAGE AT DECEMBER 31, NET BOOK VALUE AT DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31, Accounts receivable are as follows:

2009 2008 2007 2009 2008 2007 2009 2008 2007

AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 INVESTMENTS IN EQUITY AFFILIATES AND JOINT VENTURES

ZAO Tatex 50 50 50 1,997 2,125 2,146 130 60 303 ACCOUNTS ACCOUNTS ACCOUNTS IPCG Fund 49 49 49 3,619 3,283 11,553 (141) (9,470) 4,545 RECEIVABLE RECEIVABLE RECEIVABLE FROM FROM FROM Bank Zenit 25 25 25 4,614 3,712 4,044 513 (112) 677 TOTAL RELATED TOTAL RELATED TOTAL RELATED ACCOUNTS PARTIES ACCOUNTS ACCOUNTS PARTIES ACCOUNTS ACCOUNTS PARTIES ACCOUNTS Osmand Holdings Ltd 30 — — 2,592 — — (3) — — RECEIVABLE (NOTE 17) RECEIVABLE RECEIVABLE (NOTE 17) RECEIVABLE RECEIVABLE (NOTE 17) RECEIVABLE Other 20-50 20-50 20-50 728 356 888 11 (34) 264

Total investments Trade – domestic 14,315 209 14,106 9,861 476 9,385 7,880 544 7,336 in equity affiliates 13,550 9,476 18,631 510 (9,556) 5,789 and joint ventures/income (expense) Trade – export 22,130 — 22,130 10,913 — 10,913 34,464 — 34,464

LONG-TERM INVESTMENTS, AT COST

Other receivables 7,913 342 7,571 2,852 302 2,550 2,900 507 2,393 ZAO Ukrtatnafta 9 9 9 — 504 2,751 Other 0-20 0-20 0-20 1,046 736 578

Total accounts receivable, 44,358 551 43,807 23,626 778 22,848 45,244 1,051 44,193 Total long-term net investments, 1,046 1,240 3,329 at cost

Long-term certificates 2,846 7,450 10,350 Accounts receivables are presented net of an allowance for doubtful (US $105 million) resulting in a decrease of the bad debt provision amount to of deposit accounts of RR 10,171 million, RR 12,980 million and RR 375 million at US $334 million as of December 31, 2009 (Note 19). December 31, 2009, 2008 and 2007, respectively. Changes in provisions for doubtful accounts are included in selling, general Less: due from In accordance with the Group’s policies for recorded allowances for and administrative expenses in the consolidated statements of operations related parties (2,846) (500) — doubtful accounts the Group fully provided for receivables from ChMPKP Avto and comprehensive income. (Note 17) of US $439 million as of 31 December 2008 and 31 December 2007, relating Total long-term to the sale of crude oil to Ukraine (Kremenchug refinery). During the year of 14,596 17,666 32,310 investments 2009 part of this receivable was collected in the amount of RR 3,174 million

Long-term investments not designated as available-for-sale or trading During the years ended December 31, 2009, 2008 and 2007 the Group Note 5: securities are recorded at cost because they are not traded on any market received dividends from equity investees of RR 357 million, RR 408 million Short and Long-Term Investments and it is not practicable to determine their fair value. and RR 661 million, respectively. Short-term investments are classified as follows: The condensed financial information of the Group’s equity basis investments is as follows:

AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 2009 2008 2007 Certificates of deposit 17,781 13,731 15,011 Sales / interest income 26,865 28,679 22,595 Trading securities 7,220 7,678 10,695 Net income 3,770 2,461 3,753 Total short-term investments 25,001 21,409 25,706 Current assets 190,224 171,755 152,214 Less: due from related parties (14,387) (11,666) (12,729) (Note 17) Long-term assets 39,873 43,653 66,128 Short-term investments, net 10,614 9,743 12,977 Current liabilities 167,325 141,966 130,978 Long-term liabilities 773 33,336 22,956 Trading securities are held in the Group with the objective of earning profits on short-term price differences. In June 2009, Osmand Holdings Ltd ("Osmand"), a newly formed wholly At December 31, 2009, 2008 and 2007, IPCG Fund owned 113.1 million, Short-term investments classified as trading securities are as follows: owned subsidiary of the Company, issued additional shares to investors 122.7 million and 142.2 million, respectively, of Tatneft common shares, who contributed a 17.05% ownership interest in Ak Bars Bank valued at RR including in form of depository receipts, of which the Group’s share is AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 3,442 million. As a result of this transaction, the Group’s ownership interest accounted for as treasury shares. in Osmand decreased to 29.5%. Therefore the Company deconsolidated During the year ended December 31, 2009 and 2008, IPCG Fund dis- Russian government 1,079 678 563 Osmand and began to account for this investment under the equity method posed of 9.6 million and 19.5 million Tatneft common shares, respectively. debt securities which amounts to RR 2,592 million as at 31 December 2009. At December These transactions were accounted for by the Group as disposals of trea- Corporate debt securities 1,887 3,634 2,781 31, 2008, Osmand owned 39.9 million Tatneft common shares which were sury shares and resulted in an increase in the carrying value of the Group’s Equity securities 4,254 3,366 7,351 accounted for as treasury shares by the Group. As a result of the Group’s investment in IPCG Fund and a decrease in treasury shares of RR 141 mil- change in interest in Osmand and sale of a portion of Tatneft shares by lion and RR 303 million and an increase in additional paid in capital of RR Total trading securities 7,220 7,678 10,695 Osmand during 2009 28.8 million shares previously classified as treasury 431 million and RR 897 million in 2009 and 2008, respectively. Less: corporate debt securities due from (46) — (223) shares of the Group were no longer reflected as treasury shares resulting In December 2008 the Group submitted a redemption request to IPCG related parties (Note 17) an increase in additional paid in capital of shareholders' equity of RR 1,275 Fund to redeem a part of its holding in the fund. IPCG Fund accepted this Trading securities, net 7,174 7,678 10,472 million. request subject to certain conditions which were met in May 2009. The

OAO Tatneft Annual report 2009 www.tatneft.ru 92 93 redemption was performed (on a non cash basis) by delivering to the In December 2007, the Company acquired equity interests in AmRUZ Loans and notes receivable, excluding amounts due from related parties, The fair value of loans and notes receivable is approximately RR 10,773 mil- Group 51% shares in TANECO. As a result, the Group currently owns 91% Trading AG (“AmRUZ”) and Seagroup International Inc. (“Seagroup”). These reported as of December 31, 2009 in the amounts of RR 615 million, RR 637 lion, RR 14,096 million and RR 18,463 million as of December 31, 2009, 2008 in TANECO. Also as a result of the redemption, the Group's investment in entities primary activities are ownership interests in Closed Joint Stock million and RR 1,068 million mature in 2011, 2012 and thereafter (2013-2024), and 2007 assuming a discount rate of 9%, 13% and 10% as of December 31, IPCG Fund decreased by RR 1,424 million with a corresponding decrease Company Ukrtatnafta (“Ukrtatnafta”), the owner of the Kremenchug refinery, respectively. 2009, 2008 and 2007, respectively (CBR interbank refinancing rate). in additional paid in capital of shareholders' equity of RR 1,962 million. which constitute 8.34% and 9.96% of the outstanding common shares in Loans and notes receivable, excluding amounts due from related parties, Subsequent to this redemption the Group’s interest in IPCG Fund increased Ukrtatnafta, respectively. The Company acquired 49.6% of AmRUZ for US reported as of December 31, 2008 in the amounts of RR 996 million, RR 263 from 35.74% to 49.07% as a result of other transactions. This increase in $23.9 million (RR 591 million) and 100% of Seagroup for US$ 57.1 million million and RR 2,777 million mature in 2010, 2011 and thereafter (2012 – the Group interest in IPCG Fund resulted in an increase in treasury shares of (RR 1,402 million). The AmRUZ purchase agreement also contains an option 2024), respectively. RR 1,871 million. allowing the Company to acquire an additional 49.1% in AmRUZ for US At December 31, 2009, 2008 and 2007 IPCG Fund owned an indirect own- $23.7 million. As the exercise of the option is subject to certain contingen- ership interest in Bank Zenit of 41.92%, 41.92% and 41.81%, respectively. cies, the acquisition of AmRUZ was accounted for under the equity method. Note 9: In March 2007, the Group disposed of 1,138 million of Bank Zenit shares As a result of the ongoing legal dispute over the indirect shareholding Other long-term assets for RR 1,787 million, decreasing the Company's ownership in Bank Zenit to interests in Ukrtatnafta, in 2008 the Company fully provided for these invest- Other long-term assets are as follows: 28.35%. The Group recorded a gain of RR 195 million as a result of this trans- ments (See Note 19). action. In June 2007 Bank Zenit carried out a private placement of 1,545 mil- AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 lion newly issued ordinary shares to a private investor unrelated to the Group, Long-term accounts receivable 2,584 1,387 1,925 resulting in the dilution of the Group’s ownership in Bank Zenit to 24.56%. Prepaid license agreements 2,959 1,979 1,346 Non-current deferred tax assets (Note 14) 2,209 1,892 196 Note 6: Inventories Prepaid computer programs 2,084 1,723 1,405 Other long-term assets 2,080 683 1,312 Inventories are as follows: Total other long-term assets 11,916 7,664 6,184 AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Less: due from related parties (Note 17) (3) (6) (5) Materials and supplies 5,454 5,113 4,857 Total other long-term assets, net 11,913 7,658 6,179 Crude oil 3,546 4,599 2,965 Refined oil products 1,146 1,405 1,952 Petrochemical supplies and finished goods 1,538 3,004 1,149 Note 10: Total inventories 11,684 14,121 10,923 Property, Plant and Equipment Property, plant and equipment are as follows: ACCUMULATED DEPRECIATION, COST DEPLETION AND AMORTIZATION NET BOOK VALUE Note 7: Prepaid Expenses and Other Oil and gas properties 291,139 125,406 165,733 Current Assets Buildings and constructions 32,541 13,460 19,081 Prepaid expenses and other current assets are as follows: Machinery and equipment 56,068 49,077 6,991 Assets under construction 130,670 — 130,670 AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 December 31, 2009 510,418 187,943 322,475 VAT recoverable 9,778 7,925 5,817 Oil and gas properties 279,480 120,483 158,997 Advances 4,896 4,490 3,225 Buildings and constructions 29,658 12,518 17,140 Prepaid export duties 7,333 5,234 6,532 Machinery and equipment 55,430 47,007 8,423 Prepaid income tax 350 4,763 527 Assets under construction 57,009 — 57,009 Prepaid transportation expenses 933 696 499 December 31, 2008 421,577 180,008 241,569 Deferred tax asset (Note 14) —19315 Oil and gas properties 258,728 116,361 142,367 Other 1,937 2,212 1,053 Buildings and constructions 33,265 12,072 21,193 Prepaid expenses and other current assets 25,227 25,339 17,968 Machinery and equipment 51,167 42,687 8,480 Assets under construction 21,707 — 21,707 December 31, 2007 364,867 171,120 193,747 Note 8: Loans and notes receivable Loans receivable are as follows: As of December 31, 2009, 2008 and 2007, oil and gas properties include lives most of the Group’s licensed fields extend beyond these dates. Under

AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 RR 5,982 million, RR 7,223 million and RR 5,952 million, respectively, of Russian law, the Group is entitled to renew the licenses to the end of the unproved properties. economic lives of the fields, provided certain conditions are met. Article 10 Notes receivable 2,575 4,952 8,327 As stated in Note 3, the Group calculates depreciation, depletion and of the Subsoil Law provides that a license to use a field “shall be” extended Loans to employees 699 763 924 amortization for oil and gas properties using the units-of-production method at its scheduled termination at the initiative of the subsoil user if neces- over proved or proved developed oil and gas reserves depending on the sary to finish production in the field, provided that there are no violations of Other foreign currency denominated loans receivable 1,512 2,075 1,365 nature of the costs involved. The proved or proved developed reserves used the conditions of the license. The legislative history of Article 10 indicates Other Russian Rouble denominated loans receivable 7,941 12,174 10,515 in the units-of-production method assume the extension of the Group’s that the term “shall” replaced the term “may” in August 2004, clarifying Total loans and notes receivable 12,727 19,964 21,131 production license beyond their current expiration dates until the end of the that the subsoil user has the right to extend the license term so long as it economic lives of the fields as discussed below in further detail. has not violated the conditions of the license. In August 2006, the term of Less: current portion of loans receivable and short-term loans (3,185) (5,842) (3,796) The Group’s oil and gas fields are located principally on the territory of the Group’s license to produce oil and gas from the Group’s largest field, Less: due from related parties (Note 17) (7,222) (10,086) (12,493) Tatarstan. The Group obtains licenses from the governmental authorities Romashkinsokoye, was extended through 2038. And the license to produce Total long-term loans and notes receivable 2,320 4,036 4,842 to explore and produce oil and gas from these fields. Most of the Group’s oil and gas from the Group’s second largest field, Novo-Elkhovskoe, was existing production licenses expire from 2013 to 2019, and the license for extended through 2026. The Group’s right to extend licenses is, however, the Group’s largest field, Romashkinskoye, expires in 2038. The economic dependent on the Group continuing to comply with the terms of the licens-

OAO Tatneft Annual report 2009 www.tatneft.ru 94 95 es, and management has the ability and intent to do so. Management plans licenses and until the end of the economic lives of the fields. “Reasonable The following tables provide details of the changes in the balance of capital- to request the extension of the licenses that have not yet been extended. certainty” is the applicable standard for defining proved reserves under the ized exploratory wells costs pending the determination of proved reserves. The Group’s current production plans are based on the assumption, which SEC’s Regulation S-X, Rule 4-10. management considers to be reasonably certain, that the Group will be able to extend all existing licenses. Balance as of 31 December 2009 7,216 Reclassification to production wells (1,207) These plans have been designed on the basis that the Group will be Asset Retirement Obligations. Additions 1,899 Charged to expense (600) producing crude oil through the economic lives of the fields and not with a The following tables summarize the Group’s asset retirement obligations Acquisition of subsidiaries 1,909 Balance as of 31 December 2007 1,789 view to exploiting the Group’s reserves to maximum effect only through the and asset retirement costs activities: license expiration dates. Asset Retirement Obligations Reclassification to production wells (1,250) Additions 1,551 Management is reasonably certain that the Group will be allowed to pro- Charged to expense — Acquisition of subsidiaries — duce oil from the Group’s reserves after the expiration of existing production Balance as of 31 December 2008 4,658 Reclassification to production wells (674) Additions 2,879 Charged to expense (8) AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Acquisition of subsidiaries 1,797 Balance as of 31 December 2006 920 Balance, beginning of period 35,374 32,037 28,990 Accretion of discount 3,537 3,204 2,899 New obligations 169 191 188 Note 11: Debt Spending on existing obligations (31) (58) (40) Short-term and long-term debt as follows: Balance, end of period 39,049 35,374 32,037 Less: current portion AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 (122) (111) (100) of asset retirement obligations (Note 12) Long-term balance, end of period 38,927 35,263 31,937 SHORT-TERM DEBT Foreign currency denominated debt

Capital leases. Current portion of long-term debt 63,217 — — The Group leases machinery and equipment. Other foreign currency denominated debt 7,318 5,112 3,444 The following is an analysis of the leased property under capital leases: Rouble denominated debt Current portion of long-term debt 26 76 144 AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Other rouble denominated debt 925 623 838 Machinery and equipment 7,113 7,109 6,617 Less: due to related parties (Note 17) (258) (21) (94) Less: accumulated amortization (5,797) (4,944) (3,889) Total short-term debt 71,228 5,790 4,332 Net book value of machinery 1,316 2,165 2,728 and equipment under capital leases LONG-TERM DEBT

Foreign currency denominated debt The following is a schedule by year of future lease payments under Social assets. BNP Paribas 60,488 43,336 8,591 capital leases together with the present value of the future minimum lease During the years ended December 31, 2009, 2008 and 2007 the Group payments as of December 31, 2009: transferred social assets with a net book value of RR 324 million, RR 1,413 Other foreign currency denominated debt 17,876 1,377 461 million and RR 10 million, respectively, to local authorities. At December 31, Rouble denominated debt 1,467 176 274 2009, 2008 and 2007, the Group held social assets with a net book value of Total long-term debt 79,831 44,889 9,326 RR 2,932 million, RR 3,260 million and RR 3,434 million all of which were Year ended December 31: constructed after the privatization date. The social assets comprise mainly Less: current portion (63,243) (76) (144) 2010 170 dormitories, hotels, gyms and other facilities. The Group may transfer some Total long-term debt, 16,588 44,813 9,182 of these social assets to local authorities in the future, but does not expect net of current portion 2011 37 these to be significant. The Group incurred social infrastructure expenses of 2012 — RR 2,465 million, RR 2,845 million and RR 2,330 million for the years ended Foreign currency debts are primarily denominated in US Dollars. In November 2007, TANECO entered into a senior secured credit facil- 2013 — December 31, 2009, 2008 and 2007, respectively, for maintenance that mainly relates to housing, schools and cultural buildings. ity arranged by ABN AMRO (now RBS), BNP Paribas (Suisse) SA, Citibank 2014 — Short-term foreign currency denominated debt. International PLC, Bayerische Hypo-und Vereinsbank AG, Sumitomo Mitsui Total future lease payments 207 In December 2003 the Group entered into a RR 1,034 million (US $35 mil- Finance Dublin and WestLB AG, for US$ 2.0 billion to be used in the construc- lion) one month revolving credit facility with Credit Suisse Zurich. The monthly tion of TANECO’s refinery and petrochemical complex. BNP Paribas is the Less interest (22) revolving loan bears interest at one month LIBOR plus varying margin of lender of record in this credit facility. The amount outstanding under this loan as Present value of future of December 31, 2009, 2008 and 2007 was RR 60,488 million (US $2,000 mil- 185 about 1.8% per annum and is collateralized by crude oil sales. The amount minimum lease payments of loan outstanding as of December 31, 2009, 2008 and 2007 was RR 1,037 lion), RR 43,336 million (US $1,475 million) and RR 8,591 million (US 350 mil- Less current portion (170) million (US $34 million), RR 1,028 million (US $35 million) and RR 508 million lion), respectively. The loan bears interest at LIBOR plus 1.65% and matures in Long-term portion (US $20.7 million), respectively. July 2010. The loan is fully guaranteed by OAO Tatneft as a major shareholder 15 of capital lease obligations In 2008 and 2009 the Group entered into credit agreements with BNP of TANECO. The Company’s guarantee is collateralized with the contractual Paribas Geneva for RR 4,688 million (US $155 million) in aggregate. The rights and receivables under an export contract between Tatneft and Tatneft loans bear interest from 1.78% to 5.78% per annum and are collateralized by Europe AG under which Tatneft supplies no less than three million metric tones total crude oil sales of 344 thousand tons. During the year ended December of oil per annum. The loan agreement requires compliance with certain finan- 31, 2009 the Group partially repaid the credit received of RR 3,932 million (US cial covenants including, but not limited to, minimum levels of consolidated $130 million). The amount of loans outstanding as of December 31, 2009 and tangible net worth, and interest coverage ratios. 2008 was RR 756 million (US $25 million) and RR 3,819 million (US $130 mil- In December 2009, the Company entered into a 1-month credit agreement lion), respectively. with Bank of Moscow for RR 5,142 million (US $170 million). The loan was repaid in full in January 2010.

OAO Tatneft Annual report 2009 www.tatneft.ru 96 97

Short-term Russian Rouble denominated debt. Aggregate maturities of long-term debt outstanding at December 31, 2009 The following table provides information about the benefit obligations, plan Russian Rouble denominated short-term debt is primarily comprised of loans are as follows: assets and actuarial assumptions used as of December 31, 2009, 2008 and with Russian banks. Short-term Rouble denominated loans of RR 925 million, 2007. The benefit obligations below represent the projected benefit obligations RR 623 million and RR 838 million bear contractual interest rates of 7.3% to 2010 63,243 of the Group’s benefit plans. 19.5%, 7% to 15% and 11% to 17% per annum for the years ended December 2011 12,889 31, 2009, 2008 and 2007, respectively. AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 2012 2,700

Long-term foreign currency denominated debt. 2013 — BENEFIT OBLIGATIONS 9,073 million (US $300 million) unsecured loan agreement with Bank of 2014 — Moscow. The loan has been prepaid in full in March 2010. Benefit obligations as of January 1 3,095 3,362 3,212 In October 2009, the Company entered into a dual (3 and 5 year) tranches 2015 31 Effect of exchange rate changes 3 15 (5) secured syndicated pre-export facility for up to USD 1.5 billion arranged Thereafter 968 Service cost 162 145 90 by WestLB AG, Bayerische Hypo-und Vereinsbank AG, ABN AMRO Bank Total long-term debt 79,831 N.V., OJSC Gazprombank, Bank of Moscow and Nordea Bank. The amount Interest cost 325 229 230 outstanding under this loan as of December 31, 2009 was RR 7,561 million (US Benefit paid (386) (300) (218) $250 million). Actuarial gain (373) (910) (120) Management believes that for the year ended December 31, 2009 the Group Interest paid during the years ended December 31, 2009, 2008 and 2007 was in compliance with all covenants required by the above loan agreements. was RR 2,325 million, RR 191 million and RR 417 million, respectively. Other 72 554 173 Loan arrangements on short-term and long-term debt have both fixed and The Group has no subordinated debt and no debt that may be converted in Benefit obligations as of December 31 2,898 3,095 3,362 variable interest rates that reflect the currently available terms for similar debt. an equity instrument of the Group. The carrying value of this debt is a reasonable approximation of its fair value. PLAN ASSETS

Fair value of plan assets as of January 1 1,219 2,619 2,098 Note 12: Actual return on plan assets 350 44 148 Other Accounts Payable Contributions 220 599 435 and Accrued Liabilities Benefit paid (230) (170) (38) Other accounts payable and accrued liabilities are as follows: Actuarial gain/(loss) 1 (193) 75 Other (426) (1,680) (99) AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Fair value of plan assets as of December 31 1,134 1,219 2,619 Salaries and wages payable 4,355 3,302 3,449 Funded status at end of year 1,764 1,876 743 Advances received from customers — — 6,274 Insurance provision 1,636 1,282 1,106 Dividends payable 207 158 99 YEAR ENDED YEAR ENDED YEAR ENDED AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Current portion of asset retirement 122 111 100 obligations (Note 10) Accrued benefit liabilities included in “other accounts payable (278) (335) — and accrued expenses” Current deferred tax liability (Note 14) 1,261 — — Accrued benefit liabilities included Other accrued liabilities 7,194 5,431 5,867 (1,486) (1,541) (1,608) in “other long-term liabilities” Less: due to related parties Prepaid benefit obligations included (513) (285) (75) — — 865 (Note 17) in “other long-term assets” Total other accounts payable Net amount 14,262 9,999 16,820 (1,764) (1,876) (743) and accrued liabilities recognized

Note 13: The Group has several pension programs for management, which are concluded through various agreements between the Company, the Fund YEAR ENDED YEAR ENDED YEAR ENDED Pensions and Post ASSUMPTIONS DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 and management. Under the agreements, participants are provided a Employment Benefits monthly benefit payment, generally based upon grade, for a period of 10 to Discount rate 9.5% 10.0% 6.8% The Company sponsors a post retirement program for all eligible employees, 25 years subsequent to retirement. The Company makes voluntary periodic Expected return on plan assets 9.0% 9.0% 9.0% whereby the Company makes an annual contribution on behalf of all contributions to the Fund on behalf of eligible participants. employees to the non-profit organization National Non-governmental Pension In accordance with the provisions of collective agreements concluded Rate of increase in salary levels 7.0% 7.0% 7.0% Fund (the “Fund”). Employees are also eligible to make contributions into the on an annual basis between the Company or its subsidiaries and their Fund. The amount of contributions, frequency of benefit payments and other employees, the Group is obligated to pay certain post-employment benefits, conditions of this plan are regulated by the Statement of Organization of Non- including a lump sum payment upon retirement, jubilee and holiday payments Components of net periodic benefit costs were as follows: governmental Pension Benefits for OAO Tatneft Employees (the “Agreement”) during retirement and funeral benefits. Benefits are generally based on salary and the Fund. The Company also guarantees a minimum benefit upon grade and years of service at the time of retirement. There are no contribution YEAR ENDED YEAR ENDED YEAR ENDED retirement to all participants in the Fund covered by the Agreement. The requirements for these benefits, which are paid by the Group directly to DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 minimum guaranteed benefit component of this plan is accounted for retirees. Service cost 162 145 90 as a defined benefit plan, with the resulting projected benefit obligation The Company uses December 31 as the measurement date for its post Interest cost 325 229 230 netted against the fair value of the contributions made to date as of each retirement benefits program. measurement date. Less expected return on plan assets (193) (236) (189) Effect of exchange rates 3 15 (5) Disposals — — (155) Other 498 2,234 272 Total net periodic benefit costs 795 2,387 243

OAO Tatneft Annual report 2009 www.tatneft.ru 98 99

The annual contributions made by the Group are managed by the Fund. The fair value of the pension plan assets held by Fund is based on quoted, Presented below is reconciliation between the provision for income taxes and The primary investment objectives of the Fund are to achieve the highest rate unadjusted prices for identical assets in active market that the Fund has ability taxes determined by applying the statutory tax rate to income before income of total return within prudent levels of risk and liquidity, to diversify and mitigate to access. These inputs are classified as Level 1 in fair-value hierarchy. The fair taxes: potential downside risk associated with the investments, and to provide ade- value of the Group’s respective share of the Fund’s assets reported as the fair YEAR ENDED YEAR ENDED YEAR ENDED quate liquidity for benefit payments and portfolio management. value of the Group’s plan assets was as follows: DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007

Income before income taxes and non-controlling interest 74,526 18,154 62,609 TYPE OF ASSETS AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Theoretical income tax expense at statutory rate 14,905 4,357 15,026 Russian corporate bonds and equity securities of Russian issuers 513 694 1 030 Increase (reduction) due to: Russian municipal bonds 318 171 579 Non-deductible expenses, net 2,651 7,213 3,228 Russian state bonds 161 102 715 Effect of change in statutory profit tax rate from 24% to 20% — (2,228) — Bank deposits 90 163 127 effective January 1, 2009 Other 52 89 168 Income tax expenses 17,556 9,342 18,254 Total 1,134 1,219 2,619 No provision has been made for additional income taxes of RR 3,050 Income taxes paid during the years ended December 31, 2009, 2008 million on undistributed earnings of a foreign subsidiary. These earnings and 2007 was RR 12,502 million, RR 15,922 million and RR 18,859 million, The following benefit payments, which reflect expected future services, as have been and will continue to be reinvested. These earnings could become respectively. appropriate, are expected to be paid: subject to additional tax of approximately RR 274 million if they were remitted The Company is subject to a number of taxes other than income taxes, 2010 2011 2012 2013 2014 2015–2019 as dividends. which are detailed as follows:

Pension benefits 100 107 114 121 127 689 YEAR ENDED YEAR ENDED YEAR ENDED Other long-term employee benefits 278 226 226 227 229 1,134 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Total expected benefits to be paid 378 333 340 348 356 1,823 Export duties 97,169 136,541 85,327 Unified production tax 53,571 77,235 58,049 Note 14: Property tax 1,916 1,493 1,398 Taxes Excise taxes 346 328 300 Deferred income taxes reflect the impact of temporary differences between Penalties and interest 94 121 205 the amount of assets and liabilities recognized for financial reporting pur- Other 701 1,553 1,020 poses and such amounts recognized for statutory tax purposes. Deferred tax Total taxes other than income taxes 153,797 217,271 146,299 assets (liabilities) are comprised of the following December 31, 2009, 2008 and 2007: Effective January 1, 2007, the base tax rate formula for unified produc- fields are more than 80% depleted, the Company received a benefit of AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 tion tax was modified to provide a benefit for fields whose depletion rate approximately RR 7.0 billion, RR 8.3 billion and RR 5.1 billion for the years Accounts receivable 64 17 — exceeds 80% of proved reserves as determined under Russian resource ended December 31, 2009, 2008 and 2007, respectively. classification. Under the new rules, the Company receives a benefit of Long-term investments —58— At December 31, 2009, 2008 and 2007, taxes payable were 3.5% per field for each percent of depletion in excess of the 80% threshold. as follows: Obligations under capital leases 37 118 196 As the Company’s largest field, Romashkinsokoe, along with certain other Tax loss carry forward 2,537 1,717 — Other 732 806 1,266 AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 Deferred tax assets 3,370 2,716 1,462 Unified production tax 5,485 2,520 6,105 Property, plant and equipment (12,899) (13,052) (16,672) Value Added Tax on goods sold 2,526 1,474 1,832 Inventories (1,051) (794) (688) Other 2,310 1,598 1,730 Accounts receivable — — (58) Total taxes payable 10,321 5,592 9,667 Long-term investments (621) — (1,869) Undistributed Earnings (852) (1,091) (833) Other liabilities (387) (11) (569) mental right – in the Company. The exercise of its powers under the Golden Deferred tax liabilities (15,810) (14,948) (20,689) Note 15: Share enables the Tatarstan government to appoint one representative to Net deferred tax liability (12,440) (12,232) (19,227) Share Capital, Additional Capital the Board of Directors and Revision Committee of the Company and to veto and Other Comprehensive Income certain major decisions, including those relating to changes in the share Authorized share capital. capital, amendments to the Charter, liquidation or reorganization and “major” At December 31, 2009, 2008 and 2007, deferred taxes were classified At December 31, 2009 the authorized share capital consists of 2,178,690,700 and “interested party” transactions as defined under Russian law. The Golden in the consolidated balance sheet as follows: voting common shares and 147,508,500 non-voting preferred shares; both Share currently has an indefinite term. The Tatarstan government also con- AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 classes of shares have a nominal value of trols or exercises significant influence over a number of the Company’s sup- RR 1.00 per share. pliers and contractors, such as the electricity producer OAO Tatenergo and Current deferred tax asset (Note 7) — 19 315 the petrochemicals company OAO Nizhnekamskneftekhim (see also Note 1). Non-current deferred tax assets (Note 9) 2,209 1,892 196 Golden share. Rights attributable to preferred shares. Current deferred tax liability (Note 12) (1,261) — — OAO Svyazinvestneftekhim, a company wholly owned by the govern- ment of Tatarstan, as of December 31, 2009 holds approximately 33.59% Unless a different amount is approved at the annual shareholders meeting, Non-current deferred tax liability (13,388) (14,143) (19,738) of the Company’s capital stock. These shares were contributed to preferred shares earn dividends equal to their nominal value. The amount of a Net deferred tax liability (12,440) (12,232) (19,227) Svyazinvestneftekhim by the Ministry of Land and Property Relations of dividend for a preferred share may not be less than the amount of a dividend Tatarstan in 2003. Tatarstan also holds a “Golden Share” – a special govern- for a common share.

OAO Tatneft Annual report 2009 www.tatneft.ru 100 101

Preferred shareholders may vote at meetings only on the following decisions: differ significantly from US GAAP (see Note 2). The statutory accounts are Segment sales and other operating revenues. the amendment of the dividends payable per preferred share; the basis for profit distribution and other appropriations. Russian legislation Reportable operating segment sales and other operating revenues are stated the issuance of additional shares with rights greater than the current rights of identifies the basis of distribution as the current period net profit calculated in in the following table: preferred shareholders; and accordance with RAR. However, this legislation and other statutory laws and the liquidation or reorganization of the Company. regulations dealing with distribution rights are open to legal interpretation. YEAR ENDED YEAR ENDED YEAR ENDED For the years ended December 31, 2009, 2008 and 2007, the Company had a DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 The decisions listed above can be made only if approved by 75% of preferred statutory current profit of RR 50,873 million, RR 36,522 million and RR 43,812 shareholders. million, respectively. EXPLORATION AND PRODUCTION Holders of preferred shares acquire the same voting rights as holders of Domestic own crude oil 45,792 48,667 48,924 common shares in the event that dividends are either not declared, or declared Net income per share. but not paid, on preferred shares. On liquidation, the shareholders are entitled Under the two-class method of computing net income per share, net income is CIS own crude oil 14,411 15,800 55,849 to receive a distribution of net assets. Under Russian Joint Stock Companies computed for common and preferred shares according to dividends declared Non – CIS own crude oil 218,196 246,733 148,341 Law and the Company’s charter in case of liquidation, preferred shareholders and participation rights in undistributed earnings. Under this method, net Other 4,474 5,083 3,625 have priority over shareholders holding common shares to be paid declared income is reduced by the amount of dividends declared in the current period but unpaid dividends on preferred shares and the liquidation value of preferred for each class of shares, and the remaining income is allocated to common Intersegment sales 11,277 13,534 5,155 shares, if any. and preferred shares to the extent that each class may share in income if all Total exploration and production 294,150 329,817 261,894 income for the period had been distributed. Amounts available for distribution to shareholders. REFINING AND MARKETING Amounts available for distribution to shareholders are based on the Company’s Domestic sales non-consolidated statutory accounts prepared in accordance with RAR, which Crude oil purchased for resale 9,278 17,139 6,030 Refined products 37,406 48,707 37,013 YEAR ENDED YEAR ENDED YEAR ENDED Total Domestic sales 46,684 65,846 43,043 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 CIS sales Net income attributable to Group shareholders 54,372 8,413 43,279 Crude oil purchased for resale 2,418 — 2,044 Common share dividends (9,436) (12,310) (10,020) Refined products 1,189 673 2,669 Preferred share dividends (652) (833) (681) Total CIS sales(1) 3,607 673 4,713 Income / (loss) available to common and preferred shareholders, 44,284 (4,730) 32,578 net of dividends Non – CIS sales Basic and diluted: Crude oil purchased for resale 9,982 17,922 9,772 Weighted average number of shares outstanding Refined products 4,339 6,164 3,544 (millions of shares): Total Non – CIS sales(2) 14,321 24,086 13,316 Common 2,095 2,076 2,073 Other 4,066 2,246 1,893 Preferred 148 148 148 Intersegment sales 1,579 2,412 2,129 Combined weighted average number of common 2,243 2,224 2,221 Total refining and marketing 70,257 95,263 65,094 and preferred shares outstanding

Basic and diluted net income per share (RR) PETROCHEMICALS

Common 24.25 3.79 19.50 Tires – domestic sales 14,549 17,100 18,100 Preferred 24.15 3.53 19.27 Tires – CIS sales 3,521 2,784 3,337 Tires – non-CIS sales 793 1,325 1,080 refined products from third parties, own refining activities and retailing Non-controlling interest. Petrochemical products and other 1,555 1,256 1,609 Non-controlling interest is adjusted by dividends paid by the Group’s sub- operations. sidiaries amounting to RR 190 million, RR 163 million and RR 148 million at Sales of petrochemical products include sales of tires and petrochemical Intersegment sales 1,168 1,158 1,370 December 31, 2009, 2008 and 2007, respectively. raw materials and refined products, which are used in production of tires. Total petrochemicals 21,586 23,623 25,496 In March 2007, the Group transferred approximately 10.8 million Tatneft com- Other sales include revenues from ancillary services provided by the spe- Total segment sales 385,993 448,703 352,484 mon shares to the non-profit organization “National Non-governmental Pension cialized subdivisions and subsidiaries of the Group, such as sales of oilfield Fund” (the “Fund”). A substantial portion of the Group’s pension and post equipment and drilling services provided to other companies, revenues from Corporate and other sales 8,679 12,733 12,446 employment benefit programs are administered through the Fund, in which the sale of auxiliary petrochemical related services and materials as well as Elimination of intersegment sales (14,024) (17,104) (8,654) the Group is the primary participant. The terms of the share transfer was not other business activities, which do not constitute reportable business seg- Total sales and other operating revenues 380,648 444,332 356,276 made under any of the Group’s benefit programs, but was for the benefit of the ments. Group’s employees. The fair value of this transfer, RR 1,289 million, was reflect- The Group evaluates performance of its reportable operating segments (1) – CIS is an abbreviation for Commonwealth of Independent States (excluding the Russian Federation). ed as a Loss on disposal of property, plant and equipment and investments and allocates resources based on income or losses before income taxes and (2) – Non-CIS sales of crude oil and refined products are mainly made to European markets. and impairments in the Group's 2007 consolidated statement of operations and non-controlling interest not including interest income, expense, earnings from comprehensive income. equity investments, other income and monetary effects. Segment accounting policies are the same as those disclosed in Note 3. Intersegment sales are at Note 16: prices that approximate market. Segment Information For the year ended December 31, 2009, the Group had four customers which accounted for RR 228,224 million in crude oil sales, comprising 23%, 23%, The Group’s business activities are conducted predominantly through three 16% and 12% respectively of the total tons of crude oil sold by the Group during business segments: exploration and production, refining and marketing and the year. For the year ended December 31, 2008, the Group had four custom- petrochemicals. The segments were determined according to how manage- ers which accounted for RR 302,518 million in crude oil sales, comprising 26%, ment recognizes the segments within the Group for making operating decisions 21%, 19% and 17% respectively of the total tons of crude oil sold by the Group and how they are evident from the Group structure. during the year. For the year ended December 31, 2007, the Group had four Exploration and production segment activities consist of exploration, devel- customers which accounted for RR 206,875 million in crude oil sales, compris- opment, extraction and sale of own crude oil. Intersegment sales consist of ing 26%, 24%, 15% and 9% respectively of the total tons of crude oil sold by the other goods and services provided to other operating segments. Group during the year. Management does not believe the Group is dependent Refining and marketing comprises purchases and sales of crude oil and on any particular customer

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Segment earnings. The amounts of transactions for each year and the outstanding balances at YEAR ENDED YEAR ENDED YEAR ENDED each year end with related parties are as follows: DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Segment earnings Exploration and production 69,947 36,554 61,982 Sales of crude oil —376 Refining and marketing 6,686 12,009 11,007 Volumes of crude oil sales (thousand tons) — 4 1 Petrochemicals 789 1,045 3,843 Sales of refined products 24 27 82 Total segment earnings 77,422 49,608 76,832 Volumes of refined product sales (thousand tons) 1 1 5 Corporate and other (8,713) (15,405) (20,104) Sales of petrochemical products — 2 — Other income/(expenses) 5,817 (16,049) 5,881 Other sales 740 2,002 851 Income before income taxes and non-controlling interest 74,526 18,154 62,609 Purchases of crude oil (4,927) (11,233) (7,766) Volumes of crude oil purchases (thousand tons) 350 760 693 Purchases of refined products — — (18) Segment assets. YEAR ENDED YEAR ENDED YEAR ENDED Volumes of refined products purchases (thousand tons) — — 1 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Purchases of electricity (193) (5,284) (4,425) Assets Other purchases (216) (1,148) (980) Exploration and production 245,948 218,509 225,817

Refining and marketing 132,207 72,720 21,715 For the years ended December 31, 2009, 2008 and 2007, the Group sold Petrochemicals 23,496 18,768 13,881 crude oil on a commission basis from related parties for RR 8,859 million (780 thousand tons), RR 6,278 million (580 thousand tons) and RR 5,220 million Corporate and other 94,091 82,983 108,806 (533 thousand tons), respectively. Total assets 495,742 392,980 370,219 AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007

ASSETS The Group’s assets and operations are primarily located and conducted in Russia. Accounts receivable (Note 4) 551 778 1,051 Segment depreciation, depletion and amortization and additions to property, Notes receivable (Note 8) 1,150 3,352 5,021 plant and equipment are as follows: Short-term certificates of deposit (Note 5) 14,341 11,666 12,506 YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Trading securities (Note 5) 46 — 223 Loans receivable (Note 8) 397 1,809 931 DEPRECIATION, DEPLETION AND AMORTIZATION Due from related parties short-term 16,485 17,605 19,732 Exploration and production 9,081 7,673 7,582 Long-term certificates of deposit (Note 5) 2,846 500 — Refining and marketing 906 849 598 Long-term loans receivable (Note 8) 5,675 4,925 6,541 Petrochemicals 677 621 773 Long-term accounts receivable (Note 9) 3 6 5 Corporate and other 1,253 996 1,426 Due from related parties long-term 8,524 5,431 6,546 Total segment depreciation, depletion and amortization 11,917 10,139 10,379 LIABILITIES ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT Other accounts payable (Note 12) (513) (285) (75) Exploration and production 16,455 23,391 19,445 Notes payable — (22) — Refining and marketing 64,805 26,613 10,754 Short-term debt (Note 11) (258) (21) (94) Petrochemicals 5,947 6,263 2,061 Trade accounts payable (732) (453) (1,218) Corporate and other 2,052 4,207 2,175 Due to related parties short-term (1,503) (781) (1,387) Total additions to property, plant and equipment 89,259 60,474 34,435 Note 18: The net carrying values of cash and cash equivalents, short-term invest- receivable due from Bank Zenit or its wholly-owned subsidiary Bank Devon Financial Instruments ments, short-term loans receivable, accounts receivable and payable Note 17: approximate their fair values because of the short maturities of these Related Party Transactions Credit. These loans and notes mature between 2010 and 2019, bearing interest and Risk Management between 7.0% and 8.5%. As of December 31, 2009, 2008 and 2007, the Group instruments. Transactions are entered into in the normal course of business with affiliates, has short and long-term certificates of deposit of RR 11,237 million, RR 11,966 Fair values. As discussed in Note 5, the Company has investments in a number of com- directors and other related parties. These transactions include sales of crude million and RR 12,592 million, respectively, held with Bank Zenit or its wholly- The estimated fair values of financial instruments are determined with refer- panies. There are no quoted market prices for these instruments and oil and refined products, purchases of electricity and banking transactions. owned subsidiary Bank Devon Credit. ence to various market information and other valuation methodologies as a precise estimate of fair value could not be made without incurring excessive As of December 31, 2009, 2008 and 2007, the Group had RR 6,298 mil- In March 2009 the Group issued a long-term deposit to Bank Zenit for RR considered appropriate, however considerable judgment is required in inter- costs. lion, RR 8,328 million and RR 8,292 million, respectively, in loans and notes 2,140 million payable in 10 years bearing interest 10.85%. preting market data to develop these estimates. Accordingly, the estimates Information concerning the fair value of loans receivable is disclosed in are not necessarily indicative of the amounts that the Company could realize Note 8 and information concerning the fair value of short-term and long-term in a current market transaction. debt is disclosed in Note 11.

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The Company implemented the provisions of ASC 820. The implemen- Note 19: Environmental contingencies. In October 2007 the existing management of Ukrtatnafta, as appointed tation of ASC 820 did not have a material effect on the Group’s results Commitments The Group, through its predecessor entities, has operated in Tatarstan for by its shareholders, was forcibly removed based on an alleged court order. of operations or consolidated financial position and had no effect on the and Contingent Liabilities many years without developed environmental laws, regulations and Group Subsequently, individuals who obtained the ability to manage Ukrtatnafta took company’s existing fair-value measurement practices. However, ASC 820 policies. Environmental regulations and their enforcement are currently being certain actions effectively assisting MFEU in taking control over the shares in requires disclosure of a fair-value hierarchy of inputs the Company uses to Guarantees. considered in the Russian Federation and the Group is monitoring its potential Ukrtatnafta owned by SeaGroup and AmRUZ. In addition, Ukrtatnafta subse- value an asset or a liability. The three levels of the fair-value hierarchy are The Group has no outstanding guarantees at December 31, 2009, 2008 obligations related thereto. The outcome of environmental liabilities under pro- quently refused to settle its payables to ChMPKP Avto (Note 4), a Ukrainian described as follows: and 2007. posed or any future environmental legislation cannot reasonably be estimated intermediary that previously purchased crude from the Group for deliveries Level 1: Valuations utilizing quoted, unadjusted prices for identical assets or at present, but could be material. Under existing legislation, however, manage- to Ukrtatnafta. Following this forced change of control of Ukrtatnafta, the liabilities in active markets that the Company has the ability to access. This Operating environment. ment believes that there are no probable liabilities, which would have a material Company (originally the key crude supplier to the Kremenchug refinery) sus- is the most reliable evidence of fair value and does not require a significant While there have been improvements in the economic situation in the Russian adverse effect on the operating results or financial position of the Group. pended its crude oil deliveries to Ukrtatnafta and initiated legal proceedings degree of judgment. For the Group, Level 1 inputs include marketable Federation in recent years, the country continues to display some characteris- against the Ukrainian owners in international arbitration. securities that are actively traded on the Russian domestic markets. tics of an emerging market. These characteristics include, but are not limited Legal contingencies. In May 2008, Tatneft commenced international arbitration against Ukraine Level 2: Valuations utilizing quoted prices in markets that are not consid- to, the existence of a currency that is not easily convertible in most countries The Group is subject to various lawsuits and claims arising in the ordinary on the basis of the agreement between the Government of the Russian ered to be active or financial instruments for which all significant inputs are outside of the Russian Federation and relatively high inflation. The prospects course of business. The outcomes of such contingencies, lawsuits or other pro- Federation and the Cabinet of Ministries of Ukraine on the Encouragement observable, either directly or indirectly for substantially the full term of the for future economic stability in the Russian Federation are largely dependent ceedings cannot be determined at present. In the case of all known contingen- and Mutual Protection of Investments of November 27, 1998 (“Russia-Ukraine asset or liability. Certain investments held by IPCG Fund, which is account- upon the effectiveness of economic measures undertaken by the government, cies the Group accrues a liability when the loss is probable and the amount is BIT”). The arbitration concerns losses suffered by Tatneft as a consequence ed for under the equity method, including its investment in Bank Zenit are together with legal, regulatory, and political developments. reasonably estimable. Based on currently available information, management of the forcible takeover of Ukrtatnafta. Tatneft requested the arbitral tribunal valued using level 2 inputs. believes that it is remote that future costs related to known contingent liability declare Ukraine has breached the Russian-Ukraine BIT and to order MFEU to Level 3: Valuations utilizing significant, unobservable inputs. This provides Recent volatility in global financial markets. exposures would have a material adverse impact on the Group’s consolidated restore Ukrtatnafta’s lawful management and pay compensation in excess of the least objective evidence of fair value and requires a significant degree The global liquidity crisis in 2009 resulted in, among other things, a lower financial statements. US$2.4 billion. of judgment. The Group does not use Level 3 inputs for any of its recurring level of capital market funding and lower liquidity levels across the Russian In November 2009 the Business Court of the City of the Poltava Region fair-value measurements; however, certain investments held by the IPCG Federation. The uncertainties in the global financial market, also led to bank Capital commitments. invalidated the initial purchase of 8.6% of Ukrtatnafta shares by the Company Fund are valued using level 3 inputs. failures and/or bank rescues. Such circumstances could affect the ability of The Group has outstanding capital commitments of RR 17,885 million mainly without payment of any compensation to the Company. This decision became the Group to obtain new borrowings and re-finance its existing borrowings at for the construction of the TANECO refinery complex. These commitments are effective but is currently under further appeal. Assets and Liabilities Measured at Fair Value terms and conditions similar to those applied to earlier transactions or generally expected to be paid between 2010 and 2011. There are a number of legal proceedings currently in process in Ukraine, on a Recurring Basis favorable to the Group. Additionally, the uncertainty in the global markets com- Russian Federation and international courts to recover the Group’s assets. Marketable securities: The Group has RR 7,220 million, RR 7,678 million and bined with other local factors has led to very high volatility in the Russian Stock Social commitments. As a result of the ongoing legal dispute over shareholding interests, as of RR 10,695 million in marketable securities as of December 31, 2009, 2008 Markets during 2009. The Group contributes significantly to the maintenance of local infrastructure December 31, 2009 the Company has fully provided for its investments in and 2007, respectively. The Group calculates fair value for its marketable Management believes the Group's current and long-term capital expendi- and the welfare of its employees within Tatarstan, which includes contributions Ukrtatnafta. securities based on quoted market prices for identical assets and liabilities tures program can be funded through cash generated from existing operations towards the construction, development and maintenance of housing, hospitals (Level 1 valuations). as well as lines of credit available to the Company. The TANECO refinery proj- and transport services, recreation and other social needs. Such funding is Note 20: IPCG Fund: IPCG Fund follows the accounting principles of the AICPA Audit ect has been funded from the Company’s cash flow as well as the US$ 2.0 bil- periodically determined by the Board of Directors after consultation with gov- Subsequent events. and Accounting Guide “Investment Companies.” Accordingly, IPCG Fund’s lion line of credit, of which US$ 2.0 million was drawn as of December 31, 2009. ernmental authorities and recorded as expenditures when incurred. investments are fair valued each reporting period primarily using, Level 2 This line of credit is payable in July 2010. Management believes the Company We have evaluated the existence of both recognized and unrecognized inputs. The Company’s carrying value of its investment in IPCG Fund is RR has the ability to obtain syndicated loans and other financings as needed to Transportation of crude oil. subsequent events through the date of this report April 27, 2010 and have 3,619 million, RR 3,283 million and RR 11,553 million at December 31, 2009, continue funding the TANECO refinery project refinance any maturing debts as The Group benefits from the blending of its crude oil in the Transneft pipeline deemed no adjustments or additional disclosures are necessary. 2008 and 2007, respectively. well as finance business acquisitions and other transactions that may arise in system since the Group’s crude oil production is generally of a lower quality the future. than that produced by some other regions of the Russian Federation (mainly Supplemental Information on Oil and Gas Exploration Credit risk. Western Siberia) which supply through the same pipeline system. There is and Production Activities (Unaudited) The Group’s financial instruments that are potentially exposed to concentra- Taxation. currently no equalization scheme for differences in crude oil quality within the In accordance with ASC 932-235, Extractive Activities – Oil and Gas, this sec- tions of credit risk consist primarily of accounts receivables, cash and cash Russian tax and customs legislation is subject to varying interpretations, Transneft pipeline system and the implementation of any such scheme is not tion provides supplemental information on oil and gas exploration and pro- equivalents, prepaid VAT as well as loans receivable and advances. A signif- and changes, which can occur frequently. Management’s interpretation determinable at present. However, if this practice were to change, the Group’s duction activities of the Group. icant portion of the Group’s accounts receivable is due from domestic and of such legislation as applied to the transactions and activity of the Group business could be materially and adversely affected. The Group does not disclose the effect of adoption of ASU No 2010-3, Oil export trading companies. The Group does not always require collateral to may be challenged by the relevant authorities. The Russian tax authorities and Gas Reserves Estimation and Disclosures, on the supplemental informa- limit the exposure to loss; however, in some circumstances letters of credit may be taking a more assertive position in their interpretation of the legisla- Ukrtatnafta. tion on oil and gas exploration and production activities as of and for the year and prepayments are used, especially with respect to accounts receivables tion and assessments, and it is possible that transactions and activities that Historically, and in particular during the course of 2007, there have been a num- ended 31 December 2009, as it is not practicable to estimate. from non-CIS sales of crude oil. Although collection of these receivables have not been challenged in the past may be challenged. The Supreme ber of attempts by Ukraine to challenge AmRUZ and Seagroup’s acquisition of The following information presents the quantities of proved oil and gas could be influenced by economic factors affecting these entities, manage- Arbitration Court issued guidance to lower courts on reviewing tax cases shares in Ukrtatnafta, and in particular, by the State Property Fund and NJSC reserves and changes thereto as at and for the years ended 31 December ment believes there is no significant risk of loss to the Group beyond provi- providing a systemic roadmap for anti-avoidance claims, and it is possible Naftogaz of Ukraine (“Naftogaz”). Naftogaz is 100% owned by the Ukrainian 2009, 2008 and 2007. sions already recorded. that this will significantly increase the level and frequency of tax authori- Government and also owner of record of 43% Ukrtatnafta’s common shares. The definitions used are in accordance with United States Securities and The Group deposits available cash mostly with financial institutions in the ties’ scrutiny. As a result, significant additional taxes, penalties and interest The challenges were suspended in April 2006 when the Supreme Court Exchange Commission (“SEC”) regulations. Russian Federation. To manage this credit risk, the Group allocates its avail- may be assessed. Fiscal periods remain open to review by the authorities of Ukraine ruled the payment for Ukrtatnafta shares made with promissory The Group’s oil and gas production is predominantly in Tatarstan within the able cash to a variety of Russian banks. Management periodically reviews in respect of taxes for three calendar years preceding the year of review. notes issued by AmRUZ and Seagroup was lawful. However, in May 2007 the Russian Federation; therefore, all of the information provided in this section the credit worthiness of the banks in which it deposits cash. Under certain circumstances reviews may cover longer periods. Ministry of Fuel and Energy of Ukraine (“MFEU”) resumed its attempts and, pertains entirely to that region. Prepaid VAT, representing amounts paid to suppliers, is recoverable from Tax authorities are currently reviewing the operations of the Company and as a result, succeeded in obtaining alleged and doubtful court decisions, the tax authorities through offset against VAT payable to the tax authori- its subsidiaries for the years ended December 31, 2008. While the results after which it announced the transfer into Naftogaz’s custody the 18.3% of Oil Exploration and Production Costs ties on the Group's revenue or direct cash receipts from the tax authorities. of that review have not been finalized, management expects the ultimate Ukrtatnafta’s shares, representing the entire holdings of AmRUZ and Seagroup The following tables set forth information regarding oil exploration and pro- Management periodically reviews the recoverability of the balance of pre- outcome will not have a material effect on the Group’s results of operations in Ukrtatnafta. Subsequent to these actions, MFEU effectively began to exclude duction costs. The amounts reported as costs incurred include both capital- paid VAT and believes it is fully recoverable within one year. or cash flows. the Group from exercising their shareholder rights related to Ukrtatnafta. ized costs and costs charged to expense during the year.

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Costs Incurred in Exploration and Development Activities Proved Oil Reserves reasonable certainty to be economically producible from a given date forward YEAR ENDED YEAR ENDED YEAR ENDED As determined by the Group's independent reservoir engineers, Miller and from known reservoirs, and under existing economic conditions, operating DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Lents, Ltd., the following information presents the balances of proved oil methods and government regulation. reserves at December 31, 2009, 2008 and 2007. The definitions used are in Existing economic conditions include prices and costs at which economic Exploration costs 5,300 4,707 2,302 accordance with applicable US Securities and Exchange Commission (“SEC”) producibility from a reservoir is to be determined, which are average, first-day- Development costs 15,312 13,244 9,843 regulations. of-the-month prices during the reporting period for 2009, or year-end prices for Total costs incurred in exploration Management believes that proved reserves should include quantities which the prior periods, and year-end costs. 20,612 17,951 12,145 and development activities are expected to be produced after the expiry dates of the Group’s production Due to the inherent uncertainties and the limited nature of reservoir data, licenses. Most of the Group’s existing production licenses expire from 2013 estimates of underground reserves are inherently imprecise, require the to 2019, and the license for the Group’s largest field, Romashkinskoye, application of judgment and are subject to change over time as additional Property acquisitions for the years ended December 31, 2009, 2008 and 2007 expires in 2038. Management believes the licenses may be extended at the information becomes available. are immaterial to the Group’s oil activities. initiative of the Group and management expects to extend such licenses for “Net” reserves exclude quantities due to others when produced. properties expected to produce subsequent to their license expiry date. The A significant portion of the Group’s total proved reserves are classified as Capitalized Costs of Oil Properties Group has disclosed information on proved oil and gas reserve quantities and developed non-producing. The developed non-producing proved reserves can standardized measure of discounted future net cash flows for periods up to and be produced from existing well bores but require capital costs for workovers, AT DECEMBER 31, 2009 AT DECEMBER 31, 2008 AT DECEMBER 31, 2007 past license expiry dates separately. recompletions, or restoration of shut-in wells, additional completion work or Wells, support equipment and facilities 285,157 272,257 252,776 Proved reserves are defined as those quantities of oil and gas, which, future recompletion prior to the start of production. by analysis of geosciences and engineering data can be estimated with Unproved properties 13,197 11,898 7,758 Uncompleted wells, equipment and facilities 3,780 2,979 3,127 Total capitalized costs of oil properties 302,134 287,134 263,661 NET PROVED RESERVES OF CRUDE OIL NET PROVED RESERVES OF CRUDE OIL RECOVERABLE UP TO LICENSE RECOVERABLE PAST LICENSE TOTAL NET PROVED RESERVES Accumulated depreciation, depletion and amortization (125,406) (120,483) (116,361) EXPIRY DATES EXPIRY DATES OF CRUDE OIL Net capitalized costs of oil properties 176,728 166,651 147,300 (MLN OF BARRELS) (MLN OF TONS) (MLN OF BARRELS) (MLN OF TONS) (MLN OF BARRELS) (MLN OF TONS)

NET PROVED RESERVES OF CRUDE OIL AT DECEMBER 31, 2009 Results of Operations for Oil Producing Activities The Group’s results of operations from oil producing activities are shown Net proved developed 2,335 328 1,255 176 3,590 504 below. Proved natural gas reserves do not represent a significant portion of the producing reserves Group’s total reserves. Net proved developed 1,265 178 1,119 157 2,384 335 In accordance with ASC 932, results of operations do not include general non-producing reserves corporate overhead and monetary effects nor their associated tax effects. Net proved 3,600 506 2,374 333 5,974 839 Income taxes are based on statutory rates for the year, adjusted for tax developed reserves deductions, tax credits and allowances. Net proved 75 11 92 12 167 23 undeveloped reserves YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 Net proved developed 3,675 517 2,466 345 6,141 862 and undeveloped reserves Revenues from net production: Sales 278,399 311,200 253,114 NET PROVED RESERVES OF CRUDE OIL AT DECEMBER 31, 2008 Transfers(1) 11,277 13,534 5,155 Net proved developed 2,395, 336 782 110 3,177 446 producing reserves Total revenues from net production 289,676 324,734 258,269 Net proved developed Less: 1,168 164 1,122 158 2,290 322 non-producing reserves (2) Production and operating costs 49,549 44,786 36,347 Net proved 3,563 500 1,904 268 5,467 768 Exploration expenses 3,540 3,770 1,577 developed reserves Net proved Depreciation, depletion and amortization 9,081 7,673 7,582 60 8 98 14 158 22 undeveloped reserves Taxes other than income taxes 151,971 213,280 142,164 Net proved developed 3,623 508 2,002 282 5,625 790 Related income taxes 15,107 13,254 16,944 and undeveloped reserves Results of operations for oil and gas producing activities 60,428 41,971 53,655 NET PROVED RESERVES OF CRUDE OIL AT DECEMBER 31, 2007 (1) Transfers represent crude oil to the refining subsidiaries at the estimated market price of those transactions. Net proved developed (2) Production and operating costs include transportation expenses and accretion of discount in accordance with ASC 410-20. 2,382 334 1,369 193 3,751 527 producing reserves Net proved 632 89 1,522 213 2,154 302 developed non-producing reserves The average sales price (including transfers) per ton for 2009, 2008 and 2007 Net proved 3,014 423 2,891 406 5,905 829 are RR 11,001, RR 12,962 and RR 9,654 respectively. The average production developed reserves and operating cost per ton for 2009, 2008 and 2007 are RR 1,898, RR 1,719 Net proved 33 5 202 28 235 33 and RR 1,402, respectively. undeveloped reserves Net proved developed 3,047 428 3,093 434 6,140 862 and undeveloped reserves

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Changes in the Standardized Measure of Discounted Future Net Cash NET PROVED RESERVES OF CRUDE OIL NET PROVED RESERVES OF CRUDE OIL RECOVERABLE UP TO LICENSE RECOVERABLE PAST LICENSE TOTAL NET PROVED RESERVES Flows From Proved Reserve Quantities EXPIRY DATES EXPIRY DATES OF CRUDE OIL

(MLN OF BARRELS) (MLN OF TONS) (MLN OF BARRELS) (MLN OF TONS) (MLN OF BARRELS) (MLN OF TONS) YEAR ENDED DECEMBER 31, 2009 YEAR ENDED DECEMBER 31, 2008 YEAR ENDED DECEMBER 31, 2007

MOVEMENTS IN PROVED OIL RESERVES FUTURE CASH FLOWS ATTRIBUTABLE FUTURE CASH FLOWS ATTRIBUTABLE FUTURE CASH FLOWS ATTRIBUTABLE TO TOTAL NET PROVED RESERVES TO TOTAL NET PROVED RESERVES TO TOTAL NET PROVED RESERVES Balance at December 31, 2006 3,046 427 2,865 403 5,911 830 Beginning of year 179,875 661,225 306,981 Revisions 185 27 228 31 413 58 Sales and transfers of oil produced, Production (184) (26) — — (184) (26) net of production costs (88,157) (66,669) (77,384) Balance at December 31, 2007 3,047 428 3,093 434 6,140 862 and other operating expenses Revisions 762 106 (1,091) (152) (329) (46) Net change in prices received per ton, net of production costs 435,952 (694,917) 510,655 Production (186) (26) — — (186) (26) and other operating expenses Balance at December 31, 2008 3,623 508 2,002 282 5,625 790 Change in estimated (11,611) (21,415) (14,593) future development costs Revisions 238 35 464 63 702 98 Development costs incurred Production (186) (26) — — (186) (26) 15,312 13,244 9,843 during the period Balance at December 31, 2009 3,675 517 2,466 345 6,141 862 Revisions of quantity estimates 54,661 24,541 7,363 Net change in income taxes (90,240) 162,992 (112,649) Standardized Measure, The net price used in the forecast of future net revenue is the weighted Accretion of discount 19,085 95,649 38,039 Including Year-to-Year Changes Therein, average year end price received for sales domestically, for exports to Other 27,375 5,225 (7,030) of Discounted Future Cash Flows Commonwealth of Independent States (“CIS”) countries, and for exports to The standardized measure of discounted future net cash flows is calculated non-CIS countries, after adjustments, where applicable, for certain costs, End of year 542,252 179,875 661,225 in accordance with ASC 932, which requires measurement of future net cash duties, and taxes. The weighted average net prices per ton used in the fore- flows by applying average, first-day-of-the-month prices for the reporting peri- casts for 2009, 2008 and 2007, are US $199.98, US $131.7 and US $335.71 od for 2009, or year-end prices for the prior periods, and year-end costs and (US $28,08, US $18.49 and US $47.13 per barrel), respectively. The Company For the years ended December 31 2009, 2008 and 2007 discounted future an annual discount factor of ten percent to year-end quantities of estimated net determined the appropriate mix between domestic sales, exports to CIS coun- cash flows for total net proved reserves include RR 75,848 million, RR 22,913 proved reserves using a standardized formula. The calculations assumed the tries and exports to non-CIS countries using historic percentages which are million and RR 105,349 million, respectively, attributable to net proved reserves continuation of existing political, economic, operating and contractual condi- supported by export quotas granted by the Government or otherwise available recoverable past license expiry dates. tions at each of December 31, 2009, 2008 and 2007. However, such arbitrary to the Company. The Company assumes that the current level of export quotas assumptions have not necessarily proven to be the case in the past and may will remain unchanged through the life of reserves. not in the future. Other assumptions of equal validity would give rise to sub- stantially different results. As a result, future cash flows calculated under this methodology are not necessarily indicative of the Group’s future cash flows nor the fair value of its oil reserves.

AS OF DECEMBER 31, 2009 AS OF DECEMBER 31, 2008 AS OF DECEMBER 31, 2007

FUTURE CASH FLOWS FUTURE CASH FLOWS FUTURE CASH FLOWS ATTRIBUTABLE TO TOTAL ATTRIBUTABLE TO TOTAL ATTRIBUTABLE TO TOTAL RECOVERABLE NET PROVED RECOVERABLE NET PROVED RECOVERABLE NET PROVED RESERVES RESERVES RESERVES

Future cash inflows from production 5,493,325 3,136,411 7,330,086 Future production costs (2,978,580) (2,096,616) (3,559,680) Future development costs (188,733) (190,835) (144,150) Future income taxes (455,042) (160,645) (859,820) Future net cash flows 1,870,970 688,315 2,766,436 10% annual discount (1,328,718) (508,440) (2,105,211) Discounted future 542,252 179,875 661,225 net cash flows

OAO Tatneft Annual report 2009 www.tatneft.ru 110 111 Representation of shareholders’ and investors’ interests

The main principles of corporate behavior in the activities Information Disclosure Committee Interaction Chart of the Information of OAO TATNEFT aim at protection of legal interests and The Information Disclosure Committee is a standing Disclosure Committee rights of shareholders as well as at observance of liabili- committee of the Board of Directors. ties before all interested parties which are participants of corporate relations. Members of the Information Disclosure Committee in 2009: Uniform approach and mutual trust for every inter- ested party are the top priorities for the Company. Chairman: AUDIT COMMITTEE CORPORATE INFORMATION AND INFORMATION 5 MANAGEMENT ANALYTICAL CENTER DISCLOSURE The Corporate Management Code approved by the Vladimir P. LAVUSHCHENKO, member of the Board of COMMITTEE Board of Directors of OAO TATNEFT in 2006, as well as Directors, member of the Management Board, Deputy

internal documents and respective standards regulate General Director for Economics of OAO TATNEFT. INFORMATION the system of mutual relations between the Company's DISCLOSURE shareholders and the management on the basis of deci- Deputy Chairman: sion-making transparency with respect to the develop- Viktor I. GORODNIY, member of the Management ment strategy and current activity. Board, Deputy General Director, Head of the Property COMPULSORY Realization of tasks concerning the observance of Department of OAO TATNEFT, Head of the Corporate DISCLOSURE the shareholders’ rights and control of their implementa- Management Committee. COORDINATION INTERACTION tion are provided for by respective bodies of the Joint- Stock Company: Members of the Committee: Board of Directors: general control of the main proce- Vladlen A. VOSKOBOINIKOV, member of the dures for the protection of the shareholders’ interests; Management Board, Head of the Consolidated Financial INFORMATION DISCLOSURE COMMITTEE, EDITORIAL STAFF SHAREHOLDERS, INVESTORS Committees of the Board of Directors: Reporting Department of OAO TATNEFT. MANAGEMENT BOARD, EXECUTIVE Information Disclosure Committee: transparency proce- DIRECTORATE, INTERNAL AUDIT DEPARTMENT, dures observance control. Yevgeniy A. TIKHTUROV, member of the Management CORPORATE CONTROL DEPARTMENT Audit Committee: direct control of the financial and eco- Board, Head of the Financial Department of nomic activities of the Company. OAO TATNEFT. Revision Commission: : general control of the financial STOCK MARKET and economic activities of the Company and economic Vasiliy A. MOZGOVOY, Assistant to General Director of transactions during a certain period of time.. OAO TATNEFT for corporate funds. COORDINATION RECOMMENDATIONS The following internal Company structures provide for the Danil V. VOLKOV, Chairman Assistant of the Board of (DIVIDENDS, REMUNERATION, ETC.) current audit of all executed financial and economic trans- Directors of OAO TATNEFT. actions for their conformity with the plan and established STATE transaction procedure: Corporate Control Department, Aleksandr T. YUKHIMETS, member of the Management HR AND REMUNERATION BOARD OF DIRECTORS Internal Audit Department and Revision Department. Board, secretary of the Board of Directors of COMMITTEE OAO TATNEFT. Information Disclosure Procedure for information disclosure in OAO TATNEFT Nuriya Z. VALEYEVA, Head of the Department of Technical MASS MEDIA is provided according to the effective legislation and the and Economic Information and Advanced Experience requirements of the stock market, and is regulated by the Distribution. RESOLUTIONS Provision on Information Policy and the Provision on the Use of Insider Information and the Procedure of Notification Marat M. SHARAFUTDINOV, Deputy Head of Securities about Transactions with Securities approved by the Board Department of the Property Department at OAO TATNEFT. of Directors. EXECUTIVE BODY OTHER INTERESTED PARTIES The key principles of the Company’s information policy are equal access to the information, rights equality, expedi- ency and authenticity for all shareholders, investors and other interested parties, confidentiality observance as well as control of using the insider information.

OAO Tatneft Annual report 2009 www.tatneft.ru 112 113

Information subject to compulsory disclosure* Voluntarily Disclosed Information

No. THE MESSAGE CONTENT DATE OF DISCLOSURE No. THE MESSAGE CONTENT

By Russian standards (in the form of a message about an essential fact, or messages about 1 On results of the meetings of OAO TATNEFT Board of Directors (monthly). information which can essentially affect the cost of the Joint-Stock Company securities) according President of Russia Dmitry Medvedev awarded a group of family couples with the "Parental Glory" order. An employee of NGDU Jalilneft 2 to order of FFMS of Russia No. 05-5/pz-n; 03-32/ps; 03-54/ps of OAO Tatneft was among the awardees.

1 Information about the dates of the register closing Feb. 03, 2009 A delegation of the Turkmen oil industry workers, headed by Orazdurdy Hadzhimuradov, Minister of State, 3 Chairman of the State Company “Turkmenneft”, visited TATNEFT. Information about facts resulting in non-recurring increase or decrease of the issuer's 2 Apr. 27, 2009 net profit or net loss by more than 10%+ TATNEFT Company was a general sponsor of the Tatarstan republican charity action "We can" aimed 4 at helping children in difficult life situations. 3 Resolutions of the Board of Directors (supervisory council) Apr. 28, 2009 5 Republican oil summit. 4 Message about the procedure of accessing the information contained in the quarterly report May 14, 2009 NGDU Nurlatneft of OAO TATNEFT began drilling at the Chernoozerskioye field located 5 Information about accrued and (or) paid revenues on securities July 06, 2009 6 in the territory of the Republic of Tatarstan. 6 Information about General meetings resolutions July 06,2009 TatNIPIneft R&D Institute of OAO Tatneft organized a joint expanded meeting of the Departments of Chemistry and Earth Sciences of the RT Information about facts resulting in non-recurring increase or decrease 7 Academy of Sciences and the academic council of TatNIPIneft on studies of possible increase in recoverable oil reserves due to the inflow 7 July 30, 2009 of the issuer's net profit or net loss by more than 10%+ of deep-located oil. TATNEFT was working on the reconstruction of the Minnibayevo gas processing plant (part of Tatneftegazpererabotka Administration) as a part of the 8 Message about the procedure of accessing the information contained in the quarterly report Aug. 12, 2009 8 program to increase the proportion of associated gas utilization. 9 Message about the procedure of accessing the information contained in the quarterly report Nov.12, 2009

Message about disclosure of the affiliated entities list 9 TATNEFT obtained oil flow of 400 barrels per day from well A1-82/04 at the oil block of the field in Ghadames area (Libya). 10 Dec. 31, 2009 of the Joint-Stock Company on the Internet site A traditional open youth conference of OAO TATNEFT dedicated this year to the 50-th anniversary Message about information, obligations execution terms 10 11 Dec. 31, 2009 of NGDU Jalilneft was held. of the issuer before the securities owners OAO TATNEFT in cooperation with OAO Sibur – Russian Tires and with informational support of RIA Novosti held a round table discussion in Moscow By the 15th day of the month 11 about the problems of the tire industry in Russia. The round table was attended by managers and specialists of tire manufacturers, representatives of 12 The issuer’s quarterly report following the reported quarter the State Duma and Federation Council of the Russian Federation, a number of ministries and departments and leading federal mass media.

By the 2nd day of the month 12 TATNEFT took active part in the II International Investment Forum Euromoney - Kazan 2009. 13 The list of affiliated entities following the reported quarter The leaders of Tolochinsky and Dokshitsky regions of Belarus signed an agreement during the Fall Investment Forum in Vitebsk on the construction 13 By the 15th day of the month of OAO TATNEFT’s 30 filling stations in 2009-2010. 14 The reports on the corporate management state following the reported quarter 14 The first facility of the Universiade-2013 to be held in Kazan was constructed with the support of TATNEFT. A delegation of OAO Rosneft, headed by S.M.Bogdanchikov, President of the Company, visited OAO TATNEFT to share experience in the field By international standards (in the form of press releases and publication 15 of reports according to the rules of the London Stock Exchange) of complex construction of oil refineries.

15 On calling the shareholders' annual meeting June 26, 2009 V.V.Putin, Chairman of the Government of the Russian Federation, visited the OAO TANECO Complex of Refining and Petrochemical Plants 16 during his business trip to Volga Federal District. A number of governors of Volga Federal District and leaders of the oil and petrochemical industry 16 On the agenda of the shareholders annual meeting Apr. 28, 2009 visited the Nizhnekamsk factory of truck and bus tires of all steel chord design. Publication of the reviewed consolidated financial statements by the US GAAP standards 17 Apr. 30, 2009 TATNEFT constructed the trunk pipeline from the Kaleykino oil pumping station (Almetyevsk region of Tatarstan) for 2008 and report regarding oil and gas reserves in accordance with Miller and Lents estimate 17 to the OAO TANECO Complex of Refining and Petrochemical Plants. Publication of the reviewed consolidated financial statements by the US GAAP standards 18 Aug. 28, 2009 18 The reconstruction of the Nizhnekamsk - Almetyevsk - Kstovo product pipeline was almost completed. for the first quarter of 2009 (non-audited)

Publication of the reviewed consolidated intermediate financial statements by the US GAAP standard A unique lift installation with a slant mast K-54 manufactured by National Oilwell Varco (USA) and designed for well completion 19 Oct. 28, 2009 19 for the first six months of 2009 (non-audited) after drilling horizontal wells with slanted wellheads at the Ashalchinskoye heavy oil field and their future workovers was put into operation.

Publication of the reviewed consolidated intermediate financial statements by the US GAAP standard A press conference for representatives of federal and Tatarstan mass media was held by Sh.F.Takhautdinov, Company’s General Director, 20 Dec.15, 2009 20 for nine months of 2009 (non-audited) on the current financial and economic situation of TATNEFT and the Company's plans for 2010.

* (main facts and events, including major transactions and transactions executed by the Company being interested in them during the reported year) Note: in aggregate, 100 press releases and messages about the current Company’s activities were distributed under the voluntary disclosure of information in 2009.

Main activities of the Information Disclosure The Committee exercises its activity directly interacting with Unified Information and Analytical Center organization of the methodical work with analysts, Committee in 2009 the Committees of the Board of Directors: Audit Committee, of TATNEFT Group experts and rating agencies; Corporate Management Committee, HR and Remuneration The Unified Information and Analytical Center of TATNEFT provision of systematic analysis of the information and 1. Control of the information disclosure procedures. Committee, and with the executive bodies of the Company Group was created in 2008 and it is in full operation now. analytical activity efficiency; 2. Mutual approval of press releases on compulsorily – Management Board, Executive Directorate, Internal Audit The Center's objective is a principally new approach to distribution of the information about the TATNEFT Group and voluntarily disclosed facts. Department, Corporate Control Department and others. the information and analytical coverage of the Company's activities on a regular basis in the format of monthly 3. Coordination of implementation of the Plan for The Company keeps the following registers for the pur- activity in the status of the Group. informational bulletins in Russian and in English. cooperation with the shareholders and investors pose of timely information disclosure: on facts subject to The main objectives of the Center are: for 2009. compulsory disclosure (CDI), and on voluntarily disclosed provision of the uniform information policy and coordi- The main priority of the Information and Analytical Center 4. Assistance to the editorial staff of the uniform information (VDI). nation of the information delivery on the activities of all in the reported year was formation of the mechanism of integrated Internet portal of TATNEFT Group/ The principal means of information disclosure about the Group's entities; providing up-to-date information to the management and 5. Assistance in the activity of the Unified Information Company’s activity are: the corporate web site of OAO assistance in development of the Unified Integrated to the stock market on a continuous basis. The Center and Analytical Center of TATNEFT Group. TATNEFT www.tatneft.ru, electronic and print mass media, Internet Portal; created a branch information and analytical database for public interviews and press conferences of the Company’s implementation of special communication programs the stock market in the oil and gas industry; it performed Management. aimed at the capitalization increase; situational analysis and issued 102 publications.

OAO Tatneft Annual report 2009 www.tatneft.ru 114 115

Representation Interaction Scheme of shareholders’ of the Audit Committee and investors’ interests

INFORMATION DISCLOSURE INDEPENDENT AUDITOR EXECUTIVE DIRECTORATE COMMITTEE CORPORATE MANAGEMENT COMMITTEE

COORDINATION CONSULTATIONS, ASSISTANCE RESOLUTIONS

Development of the Uniform Integrated Internet Mariya L. Voskresenskaya, member of the Board of Portal of TATNEFT Group Directors, Director of Brent Cross Ltd.; AUDIT COMMITTEE BOARD OF DIRECTORS According to the decision of the Board of Directors the work on creation of a qualitatively new corporate web- Radik R. Gayzatullin, member of the Board of Directors, site of the TATNEFT Group was done in the reported Minister of Finance of the Republic of Tatarstan. year under coordination with the Information Disclosure Committee and the Information and Analytical Center. The The main areas of activity of the Audit Committee in 2009: COORDINATION MANAGEMENT BOARD, RECOMMENDATIONS EXECUTIVE DIRECTORATE, website started working in the test mode in Russian and Formation of proposals for timely delivery and accuracy INTERNAL AUDIT DEPARTMENT English versions on November 1, 2008. of financial statements of OAO TATNEFT for 2008. Since June 2009, the website has been working in Discussion of the issues concerning preparation of the full operational mode. Coordination and control of financial statements within the new target terms defined HR AND REMUNERATION information entry and development of the internet portal by the London Stock Exchange by April 30, 2009, COMMITTEE is performed by the editorial board. The board works elaboration of recommendations for improvement of the on a quarterly basis and its work is controlled by the statements preparation process; Information Disclosure Committee. Assistance in securing and controlling timely per- The work for setting up and adapting the software com- formance of an independent external audit of the plex of 25 sub-portals for a number of the Company’s Company’s financial statements; subsidiaries with regard to informational, stylistic and Regular review of the Internal Audit Department of The results of the check-up by the Revision Commission technological compatibility with the Group of Tatneft OAO TATNEFT reports and preparation of proposals are published as a part of preparation for the Annual Internet–portal was done, there were established and put for the internal audit improvement and cooperation General Meeting in order to inform shareholders and into operation such sub-portals as "60 Years of Tatneft", with external auditors. other interested parties. Dividends for Ordinary and Preferred Shares "Corporate University" and others. (rubles per 1 share) Corporate Control Dividends Payment

Audit Committee The system of corporate control in the Company aims at The dividend policy of OAO TATNEFT is defined by the SHARE TYPE % OF THE FACE VALUE DIVIDEND AMOUNT The Audit Committee has been a standing committee of rendering assistance to the Board of Directors and the Federal Law “On Joint-Stock Companies” and by the 2005 the Board of Directors of OAO TATNEFT since 2004. The Executive Directorate in keeping Company’s activities in Company's Articles of Association. According to the mission of the Committee is rendering assistance to the the area of protecting interests of shareholders and inves- Articles of Association, the holders of preferred shares are Ordinary shares 100% 1 Board of Directors in exercising control of authenticity of tors efficient. entitled to receive annual fixed dividends in the amount of Preferred shares 100% 1 the OAO TATNEFT financial reports, providing an indepen- The main functions of the corporate control in the 100% of the share face value, unless the General meet- 2006 dent audit, functioning of the internal audit system of the Company are exercised by the Corporate Control ing of the shareholders decides otherwise (article 5.4). Ordinary shares 460% 4.6 Company, as well as complying with regulatory and legal Department and the Internal Audit Department both of The decision about the amount of dividends for ordinary requirements. which are directly subordinate to the General Director and shares is made on the basis of the recommendation of the Preferred shares 460% 4.6 The Committee acts in direct cooperation with the com- accountable to the Board of Directors of OAO TATNEFT. Company's Board of Directors. 2007 mittees of the Board of Directors: Information Disclosure General control of the financial and economic OAO TATNEFT continues adhering to the positive divi- Ordinary shares 565% 5.65 Committee, Corporate Management Committee, HR and Company's activity is exercised by the Revision dend policy maintaining a high level of dividends pay- Preferred shares 565% 5.65 Remuneration Committee, as well as with the Executive Commission elected annually by and accountable to the ments every year. Bodies of the Company: Management Board, Executive General Meeting of the Shareholders. In 2009, according to the results of TATNEFT’s activity 2008 Directorate, Internal Audit Department, Corporate Control The ongoing check-up of all performed financial and in 2008, the total sum of dividends for the preferred and Ordinary shares 442% 4.42 Department and others. economic operations for compliance with plans and ordinary shares amounted to RUR 10.3 billion or 30% of Preferred shares 442% 4.42 established procedures is executed by internal structures the net annual profit. The value of dividends charged per 2009* Members of the Audit Committee in 2009: of the Company: the Corporate Control Department and 1 share amounted to 4.42 rubles (442 % of the share face Ordinary shares 656% 6.56 Chairman: the Auditing Department. value). Sushovan Gosh, member of the Board of Directors, At the initiative of the Audit Committee of the Board of The dividends profitability with regard to the market cost Preferred shares 656% 6.56 Managing Director of SGI GROUP, member of the HR Directors, PricewaterhouseCoopers Company carried out of the ordinary shares amounted to 4.7% by the end of * amount of dividends recommended by the Board of Directors for decision-making and Remuneration Committee. the assessment of the Internal Audit Department activities 2009. by the Meeting of the Shareholders in OAO TATNEFT. According to the assessment results, Members of the Committee: the activity of the Internal Audit Department meets the David William Waygood, member of the Board of requirements of international standards concerning the Directors, Director of Waygood Ltd, Chairman of the HR professional activity of the Institute of Internal Auditors and and Remuneration Committee; the practice of the internal audit in oil companies.

OAO Tatneft Annual report 2009 www.tatneft.ru 116 117 Corporate social liability

OAO TATNEFT is fully aware of its responsibility before the received material aid in the amount of 49.6 million rubles 11 residential buildings were commissioned under The Company participates in improvement of the society and therefore the Company implements long-term through the Miloserdiye (Mercy) Charity Foundation. this Program in the cities of Almetyevsk, Leninogorsk, material and technical basis of comprehensive schools goal-oriented projects based on the priorities of the state The structure of social benefits and guarantees for Bugulma, Yelabuga, Nurlat and the settlement of Jalil in and kindergartens in the south eastern part of Tatarstan, social policy. the Company's employees is reflected in the Collective the current year. The Company employees received 1,039 their reconstruction, capital repair and equipment. Realization of the social responsibility principles is an Agreement Standard of the TATNEFT Group, which is of apartments with the total area of 69.4 thousand square important component of the Company’s mission and it recommendation nature for all enterprises of the Group. meters, while young families were allocated 30% of the Assistance in Sports Development 6 is carried out in the form of social programs aimed at apartments. These families were allocated 18.7 million OAO TATNEFT implements goal-oriented programs for improvement of cities conditions, maintenance of health Non-Governmental Pension Fund rubles for acquisition of furniture. development of mass sport for adults and children in care and education and development of culture, sports The Program of non-governmental pension security based In 2009, TATNEFT paid 143.9 million rubles of the initial the south-east of Tatarstan. The Company takes part in and healthy lifestyle. on formation of savings for non-governmental pension via contribution for structural divisions workers, which made construction of new sports facilities and reconstruction of In addition to the corporate programs, the Company transfer of the employees’ funds has been effective in the 24.2 % of the allocated housing cost. the existing ones. participates in the National social projects. Special atten- Company for the period of the last 12 years. The Company acts as an organizer of physical and tion is paid to the children’s physical and creative devel- In the reported year the Program covered about 50 Participation in the National Projects health improvement events, sports competitions, and ice opment. thousand of employees working in the Company, whose One of the priority areas of the corporate social policy hockey tournaments with the prizes from OAO TATNEFT. It Charity remains the most important ingredient of the professional activity had been connected with oil produc- oriented in general to maximize social impact of the also pays attention to providing payment to the coaches' corporate social policy. The Company supports three tion and refining. Company's main activity is promotion of education, health team and providing sports equipment for the children’s charity funds: “Rukhiyat”, “Mercy” and “Talented Children”. The amount of the non-governmental pension is and sports. ice hockey teams. The social policy of the Company is a uniform ingredient under permanent control of the TATNEFT Company TATNEFT considers its input in development of junior in the activity of all structural divisions and enterprises of Management. Additional funds are assigned for indexation Assistance in the Healthcare Development sports to be its special social investments. the TATNEFT Group and has been integrated in all finan- of the non-governmental pension biennially. Under the National “Health” project the Company There are more than four thousand children attending cial and economic processes. At present the non-governmental pension of the implements complex programs aimed at maintenance children's clubs and sports sections supported by the Every year the Company publishes its Social Report National Non-Governmental Pension Fund is paid to over and improvement of the employees and local population Company. simultaneously with its Annual Report, which, according to 12 thousand retired Company's employees. Its minimal health, including through participation in the construction In the Year of Sports and Healthy Lifestyle TATNEFT the international and national standards (GRI), discloses amount is 500 rubles per month. and reconstruction of healthcare facilities. continues to build sports facilities. The Company opened information about all socially important aspects of its The following facilities were renovated in 2009: another Ice Palace, named "Yashlek”, in Zainsk. The activities and also presents the Register of current corpo- Voluntary Medical Insurance the building of the maternity hospital and the warm Company supported construction of a general purpose rate social programs. Voluntary medical insurance is an important way to transition between the maternity hospital and the gym in Bavly and a universal sports complex Zilant in maintain good health of the employees. The Company Central Republican Hospital in Aznakayevo, Leninogorsk Kazan, which is the first facility of the Universiade-2013. provides the Program of Voluntary Medical Insurance Central Republican Hospital and Jalil hospital. Medical In aggregate, 15 Ice Palaces were built and 200 hockey 6.1. Corporate Liability (VMI) of the employees in four categories: “Outpatient equipment was purchased for the Medical Center in pitches were reconstructed during recent years in the to the Personnel Service”, “Hospital Service”, “Rehabilitation Treatment” Almetyevsk, Central Republican Hospital of Cheremsha south-eastern part of Tatarstan. Collective Agreement and “Complex Medical Aid”. According to the Voluntary region, surgical equipment was acquired for Hospital 3 in One of the important tasks of the Company is ensuring of Medical Insurance Agreement signed between OAO Nizhnekamsk and two X-ray diagnostic complexes were Program of Supporting Small-Scale and Mid-Scale social well-being and adequate level of life, and oppor- TATNEFT and Chulpan Insurance Company the total num- acquired for the Nizhnekamsk region hospital. Business Development tunities for the employees’ professional development, ber of insured employees amounted to 24,600 people. In the reported year the Company continued its support which is reflected in the level of wages, social guarantees, The total sum of VMI amounted to 266.7 million rubles. Assistance in Education Development for perspective innovative enterprises and small-scale advanced training programs of the staff. It allows ensur- Under the VMI Program the employees are able to The Company pays big attention to the education enterprises undergoing re-engineering under the national ing self-interest of the employees in high results of the get free medical aid and sanatorium vouchers. 5,619 development. project of small-scale and mid-scale business support. Company activity and their liability. Company employees improved their health during the In this regard the Company focuses on the support of This work is coordinated by the Property Department The Company’s liabilities to the staff are stipulated in the year for the total sum of 95.5 million rubles; among them educational establishments and training of high-qualified of OAO TATNEFT, and is aimed at solution of socially Collective Agreement of OAO TATNEFT. 4,888 employees improved their health in sanatoriums of specialists. It also maintains permanent cooperation important issues, including maintenance of manpower In 2009 the pre-crisis level of wages and benefits OAO TATNEFT for the total sum of 78.3 million rubles. with higher educational establishments on a mutually balance in the region. was preserved. In addition special wage bonuses were beneficial basis. TATNEFT at its own expense performs granted for the knowledge of foreign languages and by Mortgage Lending competitive selection among the students of all courses Victory Day celebration the workers on the home front The Company implements a Program of social mortgage who study at the budget expense for their future received 40% increase of the material aid. aimed at improvement of the employees' housing employment in the Company, and forms groups with the The total sum of social payments to the employees of conditions by buying the housing by installment. The targeted education programs. the structural divisions under the Collective Agreement Company also supports provision of young families with amounted to 241.3 million rubles in 2009, and pensioners housing.

OAO Tatneft Annual report 2009 www.tatneft.ru 118 119 Appendices Information Reference about the Members of the Board of Directors of OAO TATNEFT

Rustam N. MINNIKHANOV, Sushovan GOSH, Rinat K. SABIROV, Azat K. KHAMAEV, born in 1957. 1978 - graduated from Kazan Agricultural born in 1957, citizen of Great Britain. Graduated from the born in 1967. 1991 – graduated with honors from the born in 1956. 1978 - graduated from Kazan Aviation Institute, specialty - mechanical engineer; 1986 – college of Queen Maria, London University of Electric and physics faculty of Kazan State University; 1994 – Institute, specialty - mechanical engineer. 2000 graduated from the correspondence Institute of Soviet Electronic Developments and Institute of Accountants- graduated from the postgraduate course of Kazan State - graduated from the Law Faculty of Kazan State Trade. 1996-1998 – Minister of Finance of the Republic of Experts in England and Wales. In the last few years Technological University. 1998 – completed training University. From 2004 worked as General Director of Tatarstan. From July 1998 – Prime Minister of the Republic worked as Managing Director of SGI Group Ltd. (1998- under the President’s program for managerial staff. Tatkhimfarmpreparaty Company. December 2008 - 7 of Tatarstan. President of the Republic of Tatarstan since 2000, and from 2002 – till now); 2001-2002 - Deputy During the last few years worked as Chief Specialist, Head appointed first Deputy Minister of Land and Property March 2010. Doctor of Science, Economics. Head of Investments Department, Financial Director of of Marketing Department of OAO Tatneftekhiminvest- Relations of the Republic of Tatarstan. March 2009 - "Renaissance Capital” Investment Bank. holding, Chief Assistant of the Organizational Department appointed Minister of Land and Property Relations of the Valeriy P. VASILYEV, of the President’s Office of the Republic of Tatarstan. Republic of Tatarstan. (Member of OAO TATNEFT Board born in 1947. 1970 – graduated from Kazan Agricultural Nail G. IBRAGIMOV, From August 2003 - appointed Advisor to the Prime of Directors since June 2009). Institute, specialty – mechanical engineer. From May born in 1955. 1977 - graduated with honours from Gubkin Minister of the Republic of Tatarstan on the oil/gas and 1999 – head of Goskomimuschestvo (State Property Moscow Institute of Petrochemical and Gas Industry. 1999 chemical complex issues. 2006 – appointed Assistant of KHISAMOV Rais Salikhovich, Committee) of the Republic of Tatarstan. From March – appointed Deputy General Director, Chief Engineer of the Prime Minister of the Republic of Tatarstan on oil/gas born in 1950. 1978 – graduated from the evening 2009 – Deputy of the State Council of the Republic OAO TATNEFT. From 2000 – first Deputy General Director and chemical complex. PhD, Chemical. department of Gubkin Moscow Institute of Petrochemical of Tatarstan, Chairman of the Committee Ecology, for Production, Chief Engineer of the Company. Doctor of and Gas Industry. From October 1997 – appointed Chief subsurface use and agriculture. Science, Engineering. Valeriy Yu. SOROKIN, Geologist – Deputy General Director of OAO TATNEFT. born in 1964. 1986 – graduated from Kazan State Doctor of Geological and Mineralogical Sciences, David W. WAYGOOD, University. 1996 – 2002 – worked as Director of the State Professor. born in 1950, citizen of Great Britain. Has an education Vladimir P. LAVUSCHENKO, Debt Management Agency of the Republic of Tatarstan at certificate issued in the United Kingdom of Great Britain born in 1949. Graduated from Gubkin Moscow Institute the Ministry of Finance of the Republic of Tatarstan; from and Northern Ireland; graduated from the banking of Petrochemical and Gas Industry and the postgraduate 2003 – General Director of OAO Svyazinvestneftekhim. courses of the Bank Institute. In the last few years worked course of VNIIOENG. 1997 – appointed Deputy General as the Representative of the Group at the Representative Director for Economics. Doctor of Science, Economics. Mirgaziyan Z. TAZIYEV, Office of the National Westminster Bank in Moscow born in 1947. 1972 – graduated from Gubkin Moscow (1998-1999); 2000-2001 – chief manager of LTPtrade. Nail U. MAGANOV, Institute of Petrochemical and Gas Industry. 1988- net pic, London – commercial financial company. From born in 1958. 1983 – graduated from Tatar evening faculty 2001 – Head of NGDU Irkenneft. 2001-2005 – Head of August 2001 – director of Waygood Limited Company. of Gubkin Moscow Institute of Petrochemical and Gas HGDU Jalilneft. From January 2005 – Head of NGDU Industry. 1994 – appointed Deputy General Director for Almetyevneft. PhD in Technical Sciences. Mariya L. VOSKRESENSKAYA, production, from July 2000 – first Deputy General Director born in 1955. 1977 – graduated from Moscow Financial – Head of Oil and Oil Products Sales Department. Shafagat F. TAKHAUTDINOV, Academy. Has a US CPA certificate, and she is a certified born in 1946. 1971 – graduated from Gubkin Moscow Russian auditor. 1991-2004 – worked in the Ernst & Renat Kh. MUSLIMOV, Institute of Petrochemical and Gas Industry. 1990-1999 Young Company. From 2004 – director of Brentcross born in 1934. 1957 – graduated from Kazan State – Chief Engineer, first Deputy General Director of OAO Ltd. Member of the Board of Association of Independent University, specialty – geology and exploration of oil TATNEFT. 1999 – appointed General Director of OAO Directors of Russia. and gas fields. 1998 – appointed State Advisor to the TATNEFT. Doctor of Science, Economics. President of the Republic of Tatarstan. Since June 2007 Radik R. GAIZATULLIN, – Professor of the Crude Oil and Gas Geology Chair born in 1964. 1985 – graduated from Kazan Agricultural of Kazan State University, Adviser to President of the Institute, specialty – accounting and analysis of economic Republic of Tatarstan on the issues of oil and oil/gas fields activity in agriculture. June 2000 – appointed Deputy development. Doctor of Geological and Mineralogical Minister of Finance of the Republic of Tatarstan; 2001 Sciences, Professor. – first Deputy Minister of Finance of the Republic of Tatarstan. From June 2002 – Head of the Ministry of Finance of the Republic of Tatarstan.

OAO Tatneft Annual report 2009 www.tatneft.ru 120 121 Information Reference about List of Main Issues Reviewed the Members of the Management at the Meetings of the Board of Directors Board of OAO TATNEFT* and the Management Board in 2009

POSITIONS DURING SHARE IN AUTHORIZED NAME DATE OF BIRTH LAST 5 YEARS CAPITAL List of Main Issues Reviewed at the Meetings 4. Establishment of the "Tatbelnefteprodukt" Limited of the Board of Directors in 2009: Liability Company in Minsk, Republic of Belarus. Shafagat F. 2004 — present time — General Director 1946 0.1165% 1. Use of the budget of OAO TATNEFT in 2008. 5. Results of performance indicators achievement under TAKHAUTDINOV of OAO TATNEFT 2. The results of work of the Internal Audit Department orders № 1, 2 and 3 (for 2008, 1st Quarter and 2001-2005 — Financial Director for 2008 and approval of the plan for the Department 9 months of 2009). Vladlen A. of ZAO Siberian Service Company 1965 none activity in 2009. 6. Extension for 2009 of the OAO TATNEFT Management VOSKOBOINIKOV 2005 — present time— Head of Consolidated Financial 3. The results of oil production and increment Board decision dated April 7, 2008 about payment of Reporting Department of OAO TATNEFT of reserves for 2008 and the status of exploration financial assistance to families, which have twins born Iskandar G. 2004 — present time — Head of Accounting and Reporting works outside the Republic of Tatarstan. in the amount of 100 thousand rubles, or 300 thou- 1960 0.0098% GARIFULLIN Department — Chief Accountant of OAO TATNEFT 4. The results of restructuring OAO TATNEFT during sand rubles in the event of triplets. the period of 2003–2008. 7. Interim Report on the Implementation of Phase I of 2004 – present time - Deputy General Director Victor I. 5. The social policy of OAO TATNEFT. a project to develop corporate-wide strategy group 1952 of OAO TATNEFT — Head of Property Department. 0.00025% GORODNY 6. Implementation of the investment program for 2008 of the TATNEFT Group of Companies till 2020: Analysis Doctor of Science, Economics in the areas of the main activity, petro-chemistry and of the internal situation, markets and competition. 2004 — present time — Head of Legal Department filling stations. 8. Implementation of the plan for reorganization of Valery D. ERSHOV 1949 none of OAO TATNEFT 7. The results of consolidated financial reporting of OAO Almetyevsknefteproduct, OAO Bavlynefteprodukt, TATNEFT Group of companies for 2008. OAO Chelnynefteprodukt, OAO Zainsknefteprodukt, 2004 — present time — Deputy General Director Vladimir N. ZINOVYEV 1951 0.000052% of OAO TATNEFT on Capital Construction 8. The construction progress of the refinery and petro- and OAO Chuvashnefteproduct. chemical plants Complex in Nizhnekamsk. 9. OAO TATNEFT activities aimed at withdrawing non- 2004 — present time — First Deputy General Director on 9. The effectiveness of administering medical aid by core assets. Nail G. 1955 Production – Chief Engineer of OAO TATNEFT. 0.01958% IBRAGIMOV the Medical Center of OAO TATNEFT and the city of 10. Application of legislative, regulatory, planning Doctor of Science, Engineering Almetyevsk to the employees of TATNEFT Group of the financial performance parameters by structural companies and possibility of arranging hi-tech medi- divisions and subsidiaries of OAO TATNEFT in 2008. 2004 — present time — Deputy General Director Vladimir P. cal aid for the residents of the South-Eastern part of 11. Establishment of the Nizhnekamsk Thermal Electric 1949 of OAO TATNEFT for Economics. Doctor of Science, 0.04546% LAVUSHCHENKO the Republic of Tatarstan. Power Station Limited Liability Company. Economics 10. The progress of implementing the OAO TATNEFT’s 12. Establishment of the R&D Centre “Oil/Gas & program of anti-crisis activities. Petrochemical Technologies” Limited Liability 2004 — present time — First Deputy General Director — Nail U. 11. The progress of implementing the OAO TATNEFT Company. 1958 Head of Oil and Petroleum Products Sales Department 0.000176% MAGANOV of OAO TATNEFT crude oil production investment program in 2009 13. The progress of preparations for the 65th Anniversary and the investment program elaboration for 2010. of Victory in Great Patriotic War. Rustam N. 2004 — present time — Deputy General Director 12. The progress of developing extra-viscous oil fields 14. Establishment of the Southeastern Energy Retail 1952 0.0042% MUKHAMADEEV of OAO TATNEFT on HR and Social Development. of the Republic of Tatarstan. Company. 13. Placing the orders of OAO TATNEFT with organiza- 15. The work of the Central Committee of OAO TATNEFT Rafael S. 2004 — present time — Head of NGDU Leninogorskneft 1949 0.0104% NURMUKHAMETOV of OAO TATNEFT tions of handicapped workers. for spot checking of managers and specialists hired 14. The progress of establishing the Internet Portal of following the opinion of the structural division’s com- 2004 — present time — Deputy General Director of OAO Rifkat M. RAKHMANOV 1948 0.0206% TATNEFT on Well Workover and Oil Recovery Enhancement TATNEFT Group. mission and working in the structural divisions of by 15. The progress of executing geological and exploration correspondence graduates, as well as those, who 2004 — present time — Head of Financial Department Evgeny A. TIKHTUROV 1960 0.0020% of OAO TATNEFT contracts outside the Republic of Tatarstan. graduated from non-profiled institutes and received 2004 — present time — Adviser to General Director full-time education. Semen A. FELDMAN 1936 0.016877% 16. Fulfillment of the OAO TATNEFT Collective Labor of OAO TATNEFT List of Main Issues Reviewed at the Meetings Agreement in 2009, and the Agreement formation 2004 — present time — Deputy General Director of the Management Board in 2009: Zagit F. for 2010. 1956 of OAO TATNEFT on Petrochemical Production — Director none SHARAFEEV 1. Current financial/economic status and anti-crisis mea- of OAO Tatneft-Neftekhim sures taken in OAO TATNEFT and service companies. 2004 — present time — Deputy General Director 2. Conditions of settlements with suppliers and contrac- Fedor L. SHCHELKOV 1948 0.0299% of OAO Tatneft on General Issues tors under the contracts for 2009. 2004 — present time — Secretary of the Board 3. Results of the restructuring of OAO TATNEFT during Alexandr T. YUKHIMETZ 1949 0.0045% of Directors of OAO TATNEFT the period of for 2003 - 2008.

The total remuneration to all Members of the Board of Directors for the year 2009 amounted to 299.7 million rubles. The remuneration to the persons, who are Members of the Board of Directors and the Collegial Executive Body (Management Board), is included in the amount of the remunerations for all members of the Board of Directors. The total remuneration sum paid out to all members of the Collegial Executive Body for 2009 amounted to 169.3 million rubles.

OAO Tatneft Annual report 2009 www.tatneft.ru 122 123

Information about Compliance COMPLIANCE WITH STANDARDS (FULL, with the Corporate Behavior Standards LIST OF THE CORPORATE PARTIAL, NO BEHAVIOR STANDARDS COMPLIANCE) NOTE in OAO TATNEFT in 2009 2) The Audit Committee shall only consist of the members of the Board of Directors, who meet the requirements of Clause 2 hereof; in case it is (The members of the Committee were approved impossible due to certain reasons – only of the members of the Board by the decision No. 4 of the Board of Directors of Directors who meet the requirements of clause 2 hereof and the dated 26.06.09) Full COMPLIANCE members of the Board of Directors who are not the sole executive body WITH compliance and (or) the members of the Issuer’s Collegial Executive Body. Disclosure of the information about the decisions of STANDARDS (FULL, 3) Assessment of the Issuer’s auditor’s conclusion executed by the Audit the Audit Committee is at the website of OAO TATNEFT: LIST OF THE CORPORATE PARTIAL, NO Committee shall be presented as materials to the annual General Meeting http://www.tatneft.ru/auditcom/otchet.htm BEHAVIOR STANDARDS COMPLIANCE) NOTE of the Issuer’s participants.

The Articles of Association (registration No. 2091644028310) was approved by the General Meeting of the Shareholders 1) The Issuer’s Board of Directors shall have a HR and Remuneration on June 29, 2009. Article 8, i.1 Committee with the following exclusive functions: Provision on the Board of Directors (Approved by the elaboration of principles and criteria for determining the remuneration decision of the General Meeting of the Shareholders amount of the Board of Directors members and members of the Collegial Executive Body and the person performing the functions of OAO TATNEFT on June 28, 2002 Provision on the HR and Remuneration Committee of the sole executive body of the Issuer, including the controlling (changes and amendments were introduced by the (Decision of the Board of Directors No. 7 organization or manager; General Meeting of the Shareholders on June 29, 2007) dated Sept. 28, 2004. Amendment of the Committee elaboration of proposals for definition of essential terms of contracts Section 3, i. 7 provision – Decision of the Board of Directors No. 4 with the members of the Board of Directors, members of the Collegial The Board of Directors was elected by the annual dated 26.06.2009) General Meeting of the Shareholders of OAO TATNEFT Executive Body and the person performing the functions of the sole executive body of the Issuer; on June 26, 2009 (Minutes of the Meeting No.16) Head of Committee: definition of the criteria of selecting candidates for members of the 1. Waygood David William Board of Directors, members of the Collegial Executive Body and the Full Board of Directors Members: (Independent Director); Full position of the sole executive body of the Issuer, and a preliminary compliance The issuer shall form the Board of Directors. 1. Rustam N. Minnikhanov, Chairman of the Board Members of the Committee: compliance assessment of the mentioned candidates; 2. Waygood David William 2. Gosh Sushovan regular assessment of the person performing the functions of the 3. Maria L. Voskresenskaya (Independent Director); sole executive body (the controlling organization, manager) and 4. Radik R. Gaizatullin 3. R.K. Sabirov the members of the Collegial Executive Body of the Issuer and 5. Gosh Sushovan (Non-Executive Director). 6. Nail G. Ibragimov preparation of proposals for the Board of Directors for their possible re-appointment. 7. Vladimir P. Lavushchenko (Approved by the Board of Directors Decision No. 4 2) The HR and Remuneration Committee shall only consist of the members 8. Nail U. Maganov dated June 26, 2009) 9. Renat Kh. Muslimov of the Board of Directors, who meet the requirements of clause 2 hereof; 10. Rinat K. Sabirov in case it is impossible due to certain reasons – only of the members of 11 . Valeriy Yu. Sorokin the Board of Directors who meet the requirements of clause 2 hereof and 12. Shafagat F. Takhautdinov the members of the Board of Directors who are not the sole executive 13. Mirgazyan Z. Taziev body and (or) the members of the Issuer’s Collegial Executive Body. 14. Azat K. Khamaev 15. Rais S. Khisamov Provision on the Management Board (Approved by the Full The Issuer shall form a Collegial Executive Body. decision of OAO TATNEFT General Shareholders Meeting compliance The Issuer’s Board of Directors shall consist of at least 3 members dated June 28, 2002) in compliance with the following requirements: at the time of election they are not and they have not been within 1 year preceding the election officials or employees of the Issuer (manager); Corporate Management Code they are not officials of another business entity in which any of the officers (minutes No. 9, Decision of the Board of Directors dated Provision on the Board of Directors (Approved by the of this company is a member of the Board of Directors’ HR and The Issuer’s internal documents shall stipulate the duties of the members of Dec. 27, 2006) decision of the General Meeting of the Shareholders Remuneration Committee; the Board of Directors, the members of the Collegial Executive Management Article 2.3.13 of OAO TATNEFT on June 28, 2002 they are not spouses, parents, children, brothers and sisters of the officials Body, the person exercising the functions of the sole executive body, Full Provision on the Board of Directors (changes and amendments were introduced by the (manager) of the Issuer (an official of the Issuer’s controlling organization); including the Management Company and its officials, to disclose the compliance (Approved by the Decision of the General Meeting of General Meeting of the Shareholders on June 29, 2007) they are not affiliated persons of the Issuer, except a member of the Board information about the possession of the issuer’s securities, and about the the Shareholders of OAO TATNEFT on June 28, 2002 Section 4, i.2 of Directors of the Issuer; sale and (or) purchase of the Issuer’s securities. (amendments and supplements made by the General they are not parties to the obligations of the Issuer, in accordance with Meeting of the Shareholders on June 29, 2007) Full Corporate Management Code (minutes No.9 which they can acquire property (receive money) with a value of 10 percent Section 4, i. 1 compliance of the decision of the Board of Directors dated or more of the aggregate annual income of the mentioned persons in Dec. 27, 2006) addition to receiving compensation for their participation in the activities Article 2.3.8 Provision on Information Policy (Decision of the Board of the Company’s Board of Directors; The Issuer’s Board of Directors shall approve the document which defines of Directors dated 29.04. 2004) they are not representative of the State, i.e. the persons, who are Full Independent Directors: the rules and approaches towards disclosure of the information about the representatives of the Russian Federation or the constituents of the Russian compliance 1. Sushovan Gosh issuer. Provision on Information Disclosure Committee Federation in the Board of Directors of joint stock companies, who have 2. David W. Waygood (Decision of the Board of Directors No. 3 dated 26.09.2003) been mandated to use a special right ("golden share") and the individuals 3. Mariya L. Voskresenskaya elected to the Board of Directors out of the candidates nominated by the Russian Federation, as well as a constituent of the Russian Federation Provision on Information Policy or a municipal entity, if such Board of Directors members must vote The Issuer’s Board of Directors shall approve the document for using the (Decision of the Board of Directors dated 29.04. 2004) information about the issuer's activity, about the Company securities and on the basis of written directives (instructions, etc.) of the Russian Full transactions with them, which is not generally accessible, and disclosure Provision on the insider information and on the procedure Federation constituent or municipal entity, respectively. compliance of which can make an essential impact on the market cost of the Issuer’s of informing about transactions with securities Provision on the Audit Committee (Decision of the Board securities. of OAO TATNEFT (Decision of the Board of Directors No. 6 of Directors No. 6 as of Oct. 29, 2004. Amendment dated 27.10. 2006) 1) The Issuer’s Board of Directors shall have a Committee, the exclusive of the Provision on the Committee: Decision of the Board functions of which are assessment of candidates to the auditors of of Directors No. 3 dated June 26, 2009) The Issuer’s Board of Directors shall approve the document which stipulates the Joint-Stock Company, assessment of the auditor’s conclusion, Provision on the Internal Audit Department Full procedure for internal control of the Issuer’s financial and economic activities. assessment of the Issuer’s internal control efficiency and preparation of Head of the Committee: Full of OAO TATNEFT compliance The control of observance of such procedure is provided by the individual proposals on their improvement (the Audit Committee), headed by the 1. Gosh Sushovan (Independent Director); compliance (Decision of the Board of Directors No. 4 structural subdivision of the Issuer, which informs the Audit Committee about director who meets the requirements of clause 2 hereof. Members of the Committee: dated 02.02.2009) 2. R.R. Gaizatullin (Non-Executive Director); all revealed violations. 3. Waygood David William (Independent Director); 4. M.L. Voskresenskaya (Independent Director).

OAO Tatneft Annual report 2009 www.tatneft.ru 124 125 Main Corporate Events of 2009

JANUARY A visit of the Syrian delegation headed by Mr. Sufyan TATNEFT signed an international loan agreement with the TATNEFT was recognized a winner of the national contest Conference of TATNEFT labor staff for summing up the Al-Alao, Minister of Oil and Mineral Recourses of the syndicate of banks headed by WestLB, Unicredit and RBS "100 Best Organizations of Russia. Ecology and Ecological results of the Company’s financial and economic activity Syrian Arab Republic, to OAO TATNEFT and familiariza- for financing the project of the Nizhnekamsk refinery and Management" for the third time at running. in 2008. tion with the innovational potential of the Company in the petrochemical plants complex construction. TATNEFT was awarded the 1st Degree Diploma and the Silver areas of oil and gas production, oil and gas service, pro- Conclusion of a Collective Labor Agreement between the Arrangement of a Corporate Energy Summit discussing Cross “For Merits” by the results of the National Ecology Prize fessional training of the personnel, etc. administration and the employees of OAO TATNEFT for the issue of efficient energy and cost-effective use of “EcoMir-2009” contest, arranged with assistance of the 2009. resources. Federation Council of the Russian Federation and participa- JULY tion of the State Duma, Ministry of Natural Resources. 70 years of Tatneftegazrazvedka Trust, which was FEBRUARY DECEMBER succeeded by the Tartar Geological Exploration TATNEFT was recognized a winner in the 11th All-Russia Start of implementing the project for development of OAO TATNEFT launched the Nizhnekamsk factory of solid Administration. Contest “Best Annual Report” in three nominations: “The best the unified corporate strategy of the TATNEFT Group of steel cord tires with a design capacity of 1.2 million tires scope of information disclosure on the practice of Corporate Companies up to 2020. OAO TATNEFT started development of Chernoozerskoye per year. Management”, “The best annual report on stable develop- crude oil field located in the territory of the Republic of The Company started experimental production equipment ment and corporate social responsibility” and “Design and Tatarstan. operation and production of the construction in fibreglass Graphic Arts”. MARCH mesh the frame work of implementing the project for con- 25th anniversary of OAO Nizhnekamsktehuglerod, mem- AUGUST struction of the glass fiber factory in the Alabuga Special Awards and Nominations of the Republic of Tatarstan ber of the TATNEFT Group of Companies. TATNEFT started construction of the NPS Kaleykino – Economic Zone. OAO TATNEFT once again was recognized as “The Best Nizhnekamsk Refinery trunk pipeline. Sergey Kudryashov, Deputy Energy Minister of the Invention and Rationalization Enterprise of the Republic Russian Federation, familiarizes with the innovational Celebration of the 50th anniversary of NGDU Jalilneft Awards and Nominations of OAO TATNEFT in 2009 of Tatarstan”. experience of OAO TATNEFT and small petroleum compa- and 45th anniversary of Jalil settlement. International Awards and Nominations Nine projects of OAO TATNEFT became winners of the nies of the Republic. TATNEFT received ten awards of the International indus- 5th Republican contest “Best fifty innovative ideas for the SEPTEMBER trial property Archimedes-2009 Saloon. Republic of Tatarstan”. TATNEFT received awards in three APRIL OAO TATNEFT recertified the integrated management TATNEFT ranked No. 1 among the oil companies of Russia nominations: “Best invention of the year”, “Start of innova- Elaboration of a new OAO TATNEFT standard STO TN 040 system of Health, Safety and Environment for compli- and No. 4 among 100 largest Russian companies in the tions” and “Cooperation”. 2009 “Resource Saving”. ance with ISO 14001: 2004 and OHSAS 18001:2007 rating of the social and environmental business responsi- international standards. The State Prize of the Republic of Tatarstan was awarded to Victory of the Ak Bars ice hockey team (general sponsor is bility. TATNEFT shares were included into the portfolio of a group of TATNEFT’s specialists for the work “Development OAO TATNEFT) in the championship of Russia and receiv- OAO TATNEFT actively participated in the 16th interna- NERAX-Eco stock exchange index for 2010 formed for the and commercialization of the technical and technological ing of the first in history Gagarin Cup of the Continental tional exhibition “Oil, Gas. Petroleum Chemistry” (Kazan). most ecologically successful companies. solutions providing for maintenance, rehabilitation and pro- Hockey League. The press service and corporate mass media of OAO ductivity enhancement of oil wells”. OCTOBER TATNEFT were recognized as winners in different nomi- MAY IT strategy was re-organized in the Company. Starting TATNEFT was recognized as an absolute winner of the nations of the 15th International Contest of PEGAZ-2008 OAO TATNEFT started implementation of an integrated October 1 the administrations of TatASUneft, TatAISneft Republican ECO-Leader Contest. (Petroleum, Energy, Gas) - "Best Publication on Fuel and project of wider application of the associated petro- as well as production automation shops of NGDUs Energy Issues". Winner Diplomas of the journalists’ contest “Man and Nature” leum gas at the Company’s facilities in the framework of were transformed and the employees of the Corporate were awarded to the corporate mass media of the Company: implementing the Kyoto Protocol signed by the Russian Metrological Center were transferred respectively into National Awards and Nominations “Neftyaniye Vesti” newspaper and “Vremya Tatnefti” Federation. the subsidiaries: OOO TatASU, OOO TatAISneft, General Director of OAO TATNEFT was awarded with an TV-Studio. OOO Automation, OOO TsMP and united in the composi- OAO TATNEFT discovered a gas field in the Kalmyk honorary badge “Ecologist of the Year”. tion of a new Tatintek Management Company. Bugulma Mechanical Plant, one of TATNEFT’ divisions, was Republic. TATNEFT joined the group of ten most profitable compa- awarded a Diploma and was named a winner of the fed- IBM Company and OAO TATNEFT completed creation of nies in Russia by the rating of the Finance Magazine. eral and the republican contests ”100 Best Commodities in JUNE a universal corporate platform for integration of all infor- Russia” for the chain drive of the downhole sucker rod pump. TATNEFT was a general sponsor of the large scale mation systems of the Company’s oil and gas complex. TATNEFT was awarded two I.M. Gubkin prizes for pilot Republican action “We Can” supporting the initiative of developments with awarding the “Engineer of the Year” NGDU Yamashneft was awarded a winner Diploma for the TV Channel One and the Republican Charity Council. The NOVEMBER title to eleven specialists of the Company. works of increasing the effectiveness of associated petro- purpose of this action was to provide assistance to the Vladimir Putin, Chairman of the Government of the leum gas utilization resulting from implementation of the TATNEFT ranked No. 1 among oil companies of the coun- children, who found themselves in difficult life situations. Russian Federation, visited the construction site of the “Energy and Resource Efficiency” Program in the Republic try and No. 4 among 100 largest Russian companies in TANEKO refinery and petrochemical plants complex. of Tatarstan. A General Meeting of the Company’s Shareholders was the rating of the business social and ecological responsi- held on June 26. bility.

OAO Tatneft Annual report 2009 www.tatneft.ru 126 127 List of Abbreviations Forecast Annotation to the Report about Comments Sustainable Development and Social Responsibility of OAO TATNEFT for 2009

This document presents certain data relating to plans The report about Sustainable Development and Social Open Joint Stock Company named OAO TATNEFT after V. D. Shashin and future results of the Company's activity. Achievement Responsibility of OAO TATNEFT has been prepared in of these results is associated with a number of external order to more fully inform all concerned parties about the ZAO Close Joint Stock Company uncontrolled factors: political, economical, social and activities of the Company to achieve sustainable develop- legal, which may affect the actual results. ment. It is the fifth report of the Company and the fourth OOO Limited Liability Company Such factors include: report prepared on the basis of the Guide to reporting on inflation, fluctuation of interest rates and currency sustainable development of the Global Reporting Initiative Oil and Gas Production Board NGDU exchange rates; (GRI) and the standard of interaction with concerned (structural division of OAO TATNEFT) price of oil; parties AA1000 taking into account the principles of the PPD Reservoir pressure maintenance impact of competition in the geographic territories Social Charter of Russia's business (RSPP). and in areas of the Company's activity; The proof of the Company's determination to give the Tatar R&D Institute of Petroleum TatNIPIneft effects of changes in laws, standard-setting parties full, meaningful and sound information is the (structural division of OAO TATNEFT) instruments, standards or procedures of report independent verification, on which results an audi- taxation and accounting; tor's opinion have been received. Administration of process liquids treatment UPTZh dlya PPD for reservoir pressure maintenance transactions for the assets acquisition and alienation; The report on Sustainable Development and Social (structural division of OAO TATNEFT) technological changes. Responsibility reflects the priorities of OAO TATNEFT activity in the area of economic sustainability, environ- AZS Filling station This list of factors is not an exhaustive one. In general, mental safety and social well-being, thereby complement- the Company will take into account in performance of its ing the Company's annual report and fully opening the RTS Russian Trading System economic activities all known factors providing for an inte- aspects and directions of the Company’s activity, which grated effective risk management system. are not included in it. MMVB Moscow Inter-Banc Currency Exchange (MICEX) The forecast data presented in this document shall The report about the stable development and social NOU Non-Governmental educational establishment not be construed either as inducement to the investment liability and the annual report present to the parties inter- activity, or as a basis for investment decisions taking. ested complex information for deep and thorough analy- IT Information technologies sis of the Company’s activity taking into consideration long-term prospects. RSBU Russian Accounting Standards

OAO Tatneft Annual report 2009 www.tatneft.ru REPORT V.P. Lavushchenko CONCEPT V.I Gorodny

WORKING GROUP I.G. Garifullin FOR REPORT E.A. Tikhturov PREPARATION V.A. Voskoboinikov M.M. Sharafutdinov V.A. Mozgovoy D.V. Kurochkin R.R. Gaifullina A.T. Yukhimetz R.I. Khaziev

DESIGN AND GRAPHIC ART Direct Design Visual Branding

CONTACT INFORMATION OF OAO TATNEFT

HEAD OFFICE 75, Lenina Street, Almetyevsk, 423450 Tatarstan, Russia Phone: (+7 8553) 30 70 01 Fax: (+ 7 8553) 30 78 00 MOSCOW REPRESENTATIVE OFFICE 17, Tverskoy boulevard, Moscow 123104, Russia, Phone: (+7 495) 937 55 78 Fax: (+ 7 495) 937 55 79 INFORMATION FOR SHAREHOLDERS 10, Gagarina Street, Almetyevsk 423450, Tatarstan, Russia Phone: (+7 8553) 31 97 48 Fax: (+7 8553) 45 74 89

OAO AKTSIONERNY KAPITAL 10, Mira Street, (COMPANY'S REGISTRAR) Almetyevsk 423450, Tatarstan, Russia Phone: (+7 8553) 22 10 88 Fax: (+7 8553) 22 08 40

ZAO ENERGY CONSULTING/AUDIT 14, Zvezdniy boulevard, (AUDITOR OF THE COMPANY'S Moscow 129515, Russia REPORTS BY RSBU) Phone: (+7 495) 980 9081 Fax: (+7 495) 980 9082 www.ec-group.ru e-mail: [email protected]

OAO Tatneft Annual report 2009