Annual Report 2008 West Siberian Resources Ltd 2008 Revenues MUSD • Successful merger with Alliance Oil Company Cash fl ow from operations, before changes in working capital MUSD • Cash fl ow increased to MUSD 367 Oil reserve growth Proven and probable reserves • Proven and probable reserves Million barrels increased by 35% Total oil production and refi ning volumes • 24.6 million barrels of oil were Million barrels refi ned and 17.4 million barrels of oil were produced. Crude oil production Oil refi ning Comparative information for 2004–2007 presented in graphs and tables on pages 3–21 refers to data from WSR’s previous dis- closures, including previous annual reports, unless otherwise noted. In the fi nancial statements presented on pages 34–92, all comparative information refers to Alliance Oil Company’s historical fi nancial statements unless otherwise noted. 3 Annual Report 2008 The Annual General Meeting The company’s Annual General Meeting (“AGM”) will be held on May 28, 2009 at 4 pm at the Stockholm Concert Hall (The Grünewald Hall), in Stockholm, Sweden. Holders of Swedish Depository Receipts, (“SDRs”), of the Company who wish to attend the AGM must be listed in the register of directly registered holders of SDRs kept by Eu- roclear Sweden AB on Friday, May 22, 2009 and notify Skandinaviska Enskilda Banken AB (publ) (“SEB”) of their intention to attend the AGM not later than the same day, Friday, May 22, 2009 at 5.00 pm. SDR holders registered in the name of a nominee must have their SDRs re-registered in their own names in the Euroclear Sweden AB register in order to at- tend and vote at the AGM. SDR holders who hold SDRs through a nominee must therefore notify their nominee to request a temporary owner registration (so-called voting-right registration) in ample time before Friday, May 22, 2009 if they wish to attend and vote. SDR holders who are directly registered in the shareholder register or who have a vo- ting-right registration by May 22, 2009 may vote at the AGM. Notice of the intention to attend the AGM should be given to SEB, by mailing to the address: SEB Issue department, Special Services, RB6, SEB Group Operations, SE-106 40 Stockholm, email: [email protected] or by faxing +46 8 763 62 50 or phone +46 8 763 55 60. Financial information The company plans to publish the following fi nancial reports: Three months report (January – March 2009) on May 28, 2009 Six months report (January – June 2009) on August 27, 2009 Nine months report (January – September 2009) on November 26, 2009 Twelve months report (January – December 2009) in February 2010 The company provides continuous operations updates and reports major developments in accordance with the listing agreement with NASDAQ OMX Nordic. All information is directly published on the company’s website: www.westsiberian.com 4 WEST SIBERIAN Resources Ltd Annual Report 2008 Contents West Siberian Resources Ltd 2008 3 Overview of Operations 6 Message from the Managing Director 8 Summary 2008 10 Share Data 20 Corporate Governance Report 22 Corporate Social Responsibility 32 Financial Statements 2008 34 • Income statement 34 • Balance sheet 35 • Statement of cash fl ow 36 • Statement of changes in equity – group 37 • Statement of changes in equity – parent company 38 • Key fi nancial and operating ratios, with defi nitions 39 Notes to the fi nancial information 41 Independent Auditors’ Report 94 Supplemental information 96 Abbreviations and Terms Used 98 Addresses 99 5 Annual Report 2008 Overview of Operations Timano-Pechora Region Russian Far East Crude oil production Network of gas stations, wholesale terminals and transportation Moscow Head office Khabarovsk Oil refinery Atyrau Region (Kazakhstan) Tomsk Region Crude oil production Crude oil production Volga-Urals Region Crude oil production 6 WEST SIBERIAN Resources Ltd Tynda The Amur oblast Skovorodino Bolshoy Never Taldan Zeya Magdagachi Tygda Sivaki Shimanovsk Novokievsky Uval Svobodny The Khabarovsk krai Seryshevo Berezovy Belogorsk Ivanovka Ekaterinoslavka Komsomolsk-na-Amure Blagoveshchensk Zavitinsk Tambovka Amursk Raychikhinsk Talakan Konstantinovka Progress Poyarkovo Novobureysk Selikhino Arkhara Lidoga Tyoploe Ozero Troitskoye Pashkovo Bira Obluchye Kirga Mayak Birobidzhan Smodovichi Khabarovsk Nikolayevka Korfovsky Pereyaslavka Khor СHINA Novostroyka Vyazemsky Kotikovo Lermontovka Bikin Luchegorsk Pozharskoe Roshchino Dalnerechinsk Novopokrovka Rakitnoe The Primorsky krai Lesozavodsk Gornye Klyuchi Terney Plastun Kamen-Rybolov Dalnegorsk Pogranichny Spassk-Dalny Kavalerovo Chernigovka Chuguevka Sibirtsevo Arsenyev Ussuriysk Anuchino Olga Kiparisovo Artyom Volno-Nadezhdinskoe JAPAN Tavrichanka Vladivostok SEA OF JAPAN Nakhodka Zarubino 7 Annual Report 2008 Arsen E Idrisov Managing Director Message from the Managing Director Dear Shareholders, ess our own crude oil which provides supply security for For West Siberian Resources, 2008 was a year of many refi ning and marketing operations. We are also witness- achievements and challenges. We experienced a rapid ing the operational and fi nancial benefi ts of vertical in- price increase with crude oil prices fi rst reaching histori- tegration. In recent months, it has become evident that cal highs and then falling dramatically as recession fears we are well positioned to face the challenging market hit the oil market. Overall, the demand for crude oil and environment. oil products decreased precipitously driving down prices. For 2008, we report record revenues, EBITDA and cash Market conditions became more challenging towards fl ow. The net result was aff ected by a non-cash impairment the end of the year, particularly for our upstream seg- charge to the book value of upstream assets. Pro forma for ment. The economic downturn is expected to further the merger, in 2008 the combined company generated deepen this year to expose us to new threats and to open revenues of USD 2.9 billion, EBITDA of MUSD 629, and net new opportunities at the same time. income of MUSD 321 excluding the impairment charge. Our performance in 2008 was exceptionally good and Our diverse upstream asset base provides low-risk showed the ability to deal with an unstable environment. development opportunities and exploration opportuni- The merger with Alliance Oil Company and the transfor- ties from which we can grow reserves and production for mation into a fully integrated oil company has made us years to come. However, the market volatility is testing less vulnerable to market volatility with the downstream our industry with new challenges. We seek to minimise segment becoming increasingly important to our oper- operating costs, optimize capital expenditures and ef- ating and fi nancial performance. The integration has also fi ciently invest in development and exploration drilling. created a well balanced company with better fi nancing The company will maintain the focus on improving oper- opportunities, lower cost of capital and increased inves- ating effi ciencies while insuring long-term growth. tor awareness. The downstream refi ning and marketing business is The merger has enabled us to integrate upstream and well positioned to benefi t both from the growing Rus- downstream activities and participate throughout the oil sian Far East and neighbouring export markets. The industry value chain. We are now in the position to proc- Khabarovsk Oil Refi nery is located close to the borders 8 WEST SIBERIAN Resources Ltd with China, North Korea and Japan which facilitates ac- the capital structure and lower the cost of capital as the cess to Asia Pacifi c rising petroleum markets. Our long- fi nancial markets stabilise. Important steps have been term outlook for the downstream sector stays clear and taken towards securing the long term debt funding for fi rm. In 2007, we initiated a great modernisation plan to the refi nery upgrade. make the Khabarovsk Oil Refi nery the best-in-class player Looking ahead to coming years, our objectives have in terms of operational effi ciency and quality of products, not changed. We will, however, always adjust to chang- and we look forward to complete this plan in 2012. ing markets. Despite current demanding conditions West Alliance Oil is a well recognised premium brand and Siberian Resources is committed and well positioned to market leader in the region with a strong focus to supply continue strengthening its presence in the Russian oil in- domestic markets with high quality oil products. We will dustry and growing both its upstream and downstream maintain our strategy on providing our customers with segments. a guaranteed quality and most excellent services while We owe our strong position to the dedicated eff orts improving our performance and delivering strong results of our employees in all regions. I wish to thank them all to shareholders. for their continued support and loyalty to the company For 2009, the budgeted targets are to produce 16 through these troublesome times. million barrels of crude oil and to refi ne and market 21 In order to further capitalise on the high awareness million barrels of oil products. The downstream target and greatly recognized value of the Alliance Oil brand refl ects that maintenance of the refi nery’s reforming will in the Russian oil markets, we plan to integrate all seg- reduce refi ning volumes in the last quarter 2009. ments under this brand and will propose that share- The capital expenditures budget amounts to MUSD 194 holders approve the change of the corporate name to out of which we plan to spend MUSD 58 in the upstream Alliance Oil Company Ltd. Following last year’s merger segment and MUSD 136 in the downstream segment. In this step marks the fi nal integration into one company, an environment of severely disrupted fi nancial markets – a dynamic and profi table business with a solid interna- and an uncertain oil price outlook, the modernisation of tional reputation. Khabarovsk Oil Refi nery and the Kolvinskoye oil fi eld devel- opment continue at slower rates than originally planned.