Annual Report Full-scale efficiency Rosneft is the leading Russian petroleum company and ranks among the world’s top publicly traded oil and gas corporations Regions of operations: the Company’s operations extend to almost all regions of Russia and several foreign states Core activities exploration and production of oil and gas, production of petroleum products and petrochemicals, and marketing of outputs in Russia and abroad Strong and Diversified Portfolio: proved reserves: 18.1 bln barrels of oil and 816 bcm of gas 395 producing fields with output of 2.2 mln barrels of oil per day and over 12 bcm of gas per year 97 exploration blocks, access to over 47 bln barrels of oil equivalent of prospective recoverable resources 7 refineries with an aggregate capacity of 1.1 mln barrels per day 1,690 filling stations in 39 regions of Russia Sustained Competitive Edge unique and highly efficient reserve base Russia’s biggest new upstream projects lowest upstream operating expenses per tonne Russian strategic enterprise more than 20% of Russia’s oil production and refinery throughput proprietary export terminals Strategic objective: to be among the world’s top 3 oil and gas companies by overall efficiency and scale of operations Rosneft Oil Company Annual Report 2009 Contents Chairman’s Address 4 President’s Address 8 Key Events in 2009 12 Vankor: A Key Oil Project for Modern Russia 14 Company Profile 28 History 30 Structure 32 Rosneft Today 34 Development Prospects and Strategy 38 Performance Review 40 Licensing 42 Geological Exploration 45 Reserves 52 Production 54 Refining 64 Marketing 74 Key Macroeconomic Factors 84 Key Financial Results 91 Research and Innovation 102 Corporate Scientific Research Complex 104 Innovation Management 105 IT Infrastructure Development 113 Social Responsibility 114 Personnel 116 Social Policy and Charity 122 Health, Safety and Environment 132 Corporate Governance 136 System of Corporate Governance 138 Remuneration of Members of the Board of Directors and Management 156 Internal Control and Audit 158 Share Capital 163 Dividend Policy 165 Information Disclosure 169 Appendix 1. Consolidated Financial Statements under US GAAP 172 Appendix 2. Non-Consolidated Financial Statements under RAS 216 Appendix 3. Risk Analysis 263 Appendix 4. Information on Observance of the Corporate Сode of Conduct 267 Appendix 5. Major Transactions and Related-Party Transactions 279 Appendix 6. Taxation of Dividends and Capital Gains 320 General Information 327 Contact Details 328 Rosneft Oil Company Regions of Rosneft Operation Rosneft Oil Company Annual Report 2009 Annual Report 2009 Regions of Rosneft Operation Belokamenka Arkhangelsk Polar Lights Severnaya Neft Vankorneft Moscow Sakhalinmorneftegaz Sakhalin-1, 3, 5 Purneftegaz De-Kastri Udmurtneft Yuganskneftegaz East Siberian Oil and Gas Company Verkhnechonskneftegaz Komsomolsk Priazovneft Samara Tomskneft Krasnodarneftegaz Samaraneftegaz Achinsk Tuapse Stavropolneftegaz Caspian Oil Company Angarsk Grozneftegaz Nakhodka Dagneft LEGEND Development Marine Oil pipelines and production terminals Pipelines under Refineries Headquarters construction 2 3 Rosneft Oil Company Annual Report 2009 Chairman’s Address Igor Sechin Chairman of the Board of Directors of OJSC Rosneft Oil Company 4 Chairman’s Address Rosneft Oil Company Annual Report 2009 Dear Shareholders, For us, as for many of you, 2009 was a challenging year. to these efforts, we posted a very high rate of reserve The difficulties which Rosneft had to face included macro- replacement once again. Modernization work continued economic instability, with sharp fluctuations of prices and at the Company’s industrial facilities, particularly oil refin- currency rates, and a decline in demand for petroleum eries, in order to ensure that products meet the highest products. The exceptional environment tested flexibility of environmental and quality standards. the Company’s management system and called for extra scrutiny of Rosneft’s strategy plans. I would emphasize Strong operating trends and good decision-making that we rose to the challenges of 2009. Our business is ensured excellent financial results in the reporting year. fully on track and we have strengthened our competitive The Board of Directors was therefore able to recommend advantages. Moreover: the extra care in decision mak- the AGM to increase dividends per share once again, by ing, which was needed in the reporting year, has greatly 20%, to a level of RUB 2.30. This recommendation is fully improved our strategic positions. Optimization of our debt in line with the Company’s policy of striking a balance portfolio is the best proof of that. between the interests of Rosneft and of its sharehold- ers. Growth of the share price at a faster rate compared Good results in 2009 were also the outcome of hard with most competitors is confirmation of the Company’s work, good planning and adherence to the highest busi- successes and of the confidence which shareholders ness standards in previous years, and the crisis environ- and investors place in Rosneft. Market capitalization of ment did not distract us from long-term goals. Our main Rosneft had almost regained its pre-crisis level by the end achievement was launch, as per schedule, of industrial of 2009. production at the enormous Vankor field in Eastern Si- beria. Development of Vankor is largest and most capital The Company continued to play an active role in design of intensive project ever implemented by the Company. amendments to the current system of oil sector taxation. The field was prepared for production at record speed, The most important outcome for Rosneft in 2009 was despite doubling of target output levels since the initial creation of a system of preferential export duty rates on investment decision was taken. Vankor will be the main oil produced at a number of fields in Eastern Siberia. The source of production growth for Rosneft in the medium measure is intended to stimulate field development and term: crude oil output at the field by 2014 should be geological exploration work in that region. over 500,000 barrels of oil per day, or around 5% of total Russian output. Oil from Vankor will be the main input to We reached a number of long-term agreements with the Eastern Siberia – Pacific Ocean pipeline, which has our Chinese partners in 2009. The agreements include strategic importance for Russia. Transport of Vankor oil a long-term credit to Rosneft on favorable terms by the through the pipeline for export to Asia-Pacific countries Chinese Bank of Development as well as a long-term con- began in December 2009. tract for annual deliveries to China of 66 million barrels of oil at market prices, starting from 2011. Deepening of Other strategic projects also moved ahead in 2009, cooperation with China is an important strategic priority despite cost-saving measures. We continued intensive for the Company. geological exploration work in new regions of key impor- tance to the Company, namely Eastern Siberia, the Far Rosneft is always keen to make every possible improve- East offshore shelf and Russia’s southern seas. Thanks ment to its corporate governance system, taking account 5 Rosneft Oil Company Chairman’s Address Annual Report 2009 of the latest legal requirements and best international informational openness among all Russian public compa- practice. Amendments were made in 2009 to the Com- nies in 2009. pany Charter and to a number of internal documents regulating activities of the President, Board of Directors, Successes in the reporting year show that we are well Management Board of the Company and of the Internal equipped for further sustainable development and at- Audit Commission. I should also point out that two new tainment of all the goals we have set ourselves, without professionals took up positions on our Board in the ac- exception. We will continue to work efficiently in the future counting year. The new Directors are experienced manag- for the good of the country and of our shareholders, ad- ers who are making important contributions to develop- hering to the highest business standards with respect to ment of the Company and improvement of its efficiency. production, the environment and society. High levels of informational openness and transparency On behalf of senior management of Rosneft I would like to are integral to a developed system of corporate gover- thank all our employees for their excellent work in 2009 nance. Progress by Rosneft in this field was acknowl- and all our shareholders for the confidence which they edged by one of the top international rating agencies, have continued to place in the Company throughout the Standard & Poor’s, which acclaimed Rosneft the leader by economic crisis. Igor Sechin Chairman of the Board of Directors of OJSC Rosneft Oil Company 6 Rosneft Oil Company Annual Report 2009 Strategic Priorities Efficiency Cost control Logistics improvements Optimization and diversification of asset portfolio Capital structure enhancements Continuous governance improvements Sustainable Growth Prudent strategic planning Efficient production growth and refining capacity expansion More value-added outputs Risk management improvements Commitment to increasing shareholder value Transparency Compliance with Russian and international regulations Information accessible to all interested parties Regular information updates Quarterly financial results under international standards Ongoing dialogue with minority shareholders and institutional investors Social Responsibility Industrial