Annual Review and Summary People Efficiency Innovation the driver of our the foundation of the essence of transformation our success our leadership Financial Statements 2011 Reaching new frontiers Annual Review and Summary Financial Statements 2011 TNK-BP 3/1 Begovaya str. Moscow Russian Federation 125284 Contact us on +7 495 787 9681 or email [email protected] On the way to the Suzunskoye field People. Efficiency. Innovation. in the north of the Krasnoyarsk www.tnk-bp.com region of Russia Annual Review and Summary People Efficiency Innovation the driver of our the foundation of the essence of transformation our success our leadership Financial Statements 2011 Reaching new frontiers Annual Review and Summary Financial Statements 2011 TNK-BP 3/1 Begovaya str. Moscow Russian Federation 125284 Contact us on +7 495 787 9681 or email [email protected] On the way to the Suzunskoye field People. Efficiency. Innovation. in the north of the Krasnoyarsk www.tnk-bp.com region of Russia TNK-BP in 2011 21 regions of Russia as well as operational presence in Venezuela, Vietnam, Ukraine and Belarus Farm-in agreement signed with HRT Oil & Gas – joint activity in the Solimões Basin, a high-potential hydrocarbon opportunity onshore Brazil 747 1,987 mb/d of refining mboe/d oil and gas output, throughput including affiliates Go to page 25 to find out more 60.2 13.8 9.0 bn USD in revenues bn boe total PRMS bn USD of net income proved reserves attributable to Group shareholders Go to page 118 Go to page 19 Go to page 118 to find out more to find out more to find out more Designed and produced by MerchantCantos. www.merchantcantos.com TNK-BP in 2011 21 regions of Russia as well as operational presence in Venezuela, Vietnam, Ukraine and Belarus Farm-in agreement signed with HRT Oil & Gas – joint activity in the Solimões Basin, a high-potential hydrocarbon opportunity onshore Brazil 747 1,987 mb/d of refining mboe/d oil and gas output, throughput including affiliates Go to page 25 to find out more 60.2 13.8 9.0 bn USD in revenues bn boe total PRMS bn USD of net income proved reserves attributable to Group shareholders Go to page 118 Go to page 19 Go to page 118 to find out more to find out more to find out more Designed and produced by MerchantCantos. www.merchantcantos.com Overview 02-15 Overview TNK-BP is a leading Russian oil 02 Strategic address from the Board Chairman company and is among the top ten 04 Strategy of efficient growth 06 Industry position privately-owned oil companies in the 08 Macroeconomic background 09 Key financial and operational world in terms of liquids production. highlights Upstream The Company was formed in 2003 as Upstream 16-59 19 Exploration and reserve replacement a result of the merger of BP’s Russian 25 Oil and gas production oil and gas assets and the oil and gas 32 Brownfield production 41 Greenfield production assets of Alfa, Access/Renova group 57 Interaction with suppliers and contractors Downstream (AAR). BP and AAR each own 50% of Downstream 60-75 62 Oil refining TNK-BP. The shareholders of TNK-BP 68 Marketing 73 B2B product wholesale also own close to 50% of Slavneft, a 74 Sales, trading and logistics Gas vertically integrated Russian oil company. Gas business development 76-85 80 External environment 81 Free gas 82 Associated petroleum gas 83 Power generation projects 85 Implementation of energy efficiency program Global reach Global Global reach 86-91 Slavneft 92-95 Corporate governance 96-105 99 Corporate structure of the TNK-BP Group Slavneft 100 Board of Directors 104 Internal audit Social responsibility 106-117 108 Contributing to society 110 Environmental protection 114 Our people Visit us online at: www.tnk-bp.com Governance Our financial performance 118-129 120 Our financial performance 123 Independent auditors’ report 124 Condensed consolidated balance sheets 125 Condensed consolidated statements of income 126 Condensed consolidated statements responsibility Social of cash flows 127 Notes to the condensed consolidated financial statements 129 Summary consolidated balance sheet for the past five years 129 Summary consolidated income statement for the past five years Financials Additional information 130-132 131 Subsequent events Cautionary statement Affiliates 132 Glossary This publication contains forward-looking statements TNK-BP owns close to 50% of Slavneft, which is regarding TNK-BP’s assets and financial and operational managed independently and reports as a separate 132 Abbreviations and Units performance and strategy. Actual results may differ entity. In 2011, TNK-BP acquired minority equity depending on a variety of factors. interests in three Upstream producing entities in Venezuela, majority ownership and control in each case is held by Petroleos de Venezuela S.A. (‘PDVSA’), a information Additional state-owned oil company. TNK-BP’s net income and EBITDA numbers include its share of Slavneft’s and Venezuela affiliates’ results. Any other figures quoted in this publication exclude Slavneft and Venezuela affiliates unless stated otherwise. Annual Review and Summary Financial Statements 2011 01 Strategic address from the Board Chairman Our most successful year yet 2011 was indeed a milestone year for TNK-BP in its strategic development. Our record-breaking financial and operational results, along with the completion of the first steps in our international expansion, have laid a strong foundation for the Company’s success going forward. We can be proud that we are on track in carrying out our strategy and delivering superior value to our stakeholders, both now and in the long term. 02 Overview In our upstream operations we We have remained steadfastly committed to We were very pleased to welcome several delivered on our commitment to enhancing efficiency in order to fully capture new members to TNK-BP’s executive replace production with new reserves, our underlying potential. On the Upstream management team over the course of the side, the successful implementation of our year. As has been true since the inception of achieving an industry-leading reserves West Siberia Efficiency Program enabled us TNK-BP, our unique blend of Russian industry replacement ratio of 145% by SEC to slow base production decline by 4% in veterans and high-level international talent LOF standards. At the same time, 2011. Considering the scale of our West positions us to continue delivery of robust we intensified development at our Siberia projects, the effect is significant. industry-leading performance. greenfield projects, enabling them Perhaps the most exciting aspect of our At TNK-BP, we understand that our activities to contribute 14% of our total liquids dynamic Upstream growth in 2011 was our have an impact on the environment and the production in 2011. We also made international expansion. In addition to having communities in which we operate. Their successfully closed acquisition deals in support is vital and enables us to move significant headway with our projects Venezuela and Vietnam, we also announced forward with confidence on new projects that in the Yamal region, the country’s our entrance to the prospective Brazilian will help us expand our business. To ensure newest emerging oil and gas province, market. We will continue to integrate each of the sustainability of our growth, we continued which has the potential to contribute these assets into TNK-BP Group, along the to work closely with these communities and over 30% of TNK-BP’s total way capturing synergies, sharing expertise act in their best interests in 2011. and expanding our skill set. We believe that We are making great efforts to build TNK- production by 2020. the fast-growing markets of Southeast Asia BP’s corporate culture based on our values of and Latin America represent a great leadership, performance, safety and integrity. opportunity to generate increased value The success we achieved in 2011 is very in the years ahead. much thanks to our commitment to each of 2011 proved to be a difficult year for the these principles. We had many opportunities Go to page 87 global refining markets, yet we managed to to live this out in 2011 through reinforcing our to find out more about maintain good margins and increase refining commitment to sound governance and zero geographical expansion. throughput at our refineries by 2% to an tolerance of ethical misconduct, improving historic 747mb/d, thanks to comprehensive our HSE metrics, enhancing our efficiency debottlenecking initiatives. Additionally, we and raising up a new generation of leaders expanded our retail footprint by opening new within the Company. TNK- and BP-branded filling stations, thereby increasing our marketing cover by 4%. The development of our gas business is an integral element of the strategic direction we Mikhail Fridman are pursuing at TNK-BP. In 2011, we made Executive Chairman, TNK-BP great progress in this area, raising production Board of Directors at Rospan by 20% compared to the previous year, expanding our associated gas value chain and signing an important supply contract through 2030. Annual Review and Summary Financial Statements 2011 03 Strategy of efficient growth Highlights of TNK-BP strategy Our goal is to become a major international oil and gas company and the leader among private companies in the Russian oil and gas sector. Our key focus is on efficient growth aimed at increasing shareholder value. Our corporate strategy is based on the following foundations: 1. Efficient transfer of resources into 4. Development of international reserves and