Strengthening the oil and gas power of Russia

RussNeft is the only major oil company of Russia which was not created within the privatization of the state oil production assets in early 90^th of the XX century but was built entirely with market instruments. The holding has been growing and moving forward in spite of difficulties along the decade.

HITTING THE TARGET

The history of OAO NK RussNeft started in 2002. The main strategic target at the first stage was to set up a highly-efficient, competitive structure, leader of the oil and gas community of Russia and guarantor of the wellbeing of the regions within the area of responsibility of the young company.

Since then, RussNeft has integrated own and newly purchased subsidiaries into a common production chain. At the same time the resource base was dynamically developed by acquisition of new assets. Due to the efficient management and consistency in implementation of the development strategy, the volume of hydrocarbons in 2004 increased 5 times, up to 10 million tons, which allowed to get firmly into the top ten of the Russian market of the industry.

The indicators achieved in 2008 became foundation for resistance to the suddenly coming world crisis: against the background of the decreasing indicators of the industry in general, RussNeft managed to increase the hydrocarbons production as well as to raise the refining and increment the resource base.

The exploration works, focused on development of potentially reach deposits, were continued.

Thanks to the successful implementation of anti-crisis activities, the Company managed to keep a number of the key exploration projects in West Siberia, Saratov region and Republic of Udmurtia.

Fast growth of the RussNeft performance was in 2010. For the first time, the investment program of the holding grew more than 60%, the reserves increment was 280% and the exploration works increased 20% against 2009. 123 new wells were launched. For the first time since 2008, the personnel managed to build a trend of stable increment of the daily hydrocarbons production.

FULL STEAM AHEAD!

The RussNeft production increment dynamic in 2011 significantly exceeded the industrial average indicators among the Russian vertically integrated companies. This was due to the successful implementation of the large-scale drilling programs in the regions of a number of producing assets in West Siberia, Tomsk Region, and Udmurtia. For instance, 186 wells were drilled last year including 34 HDD. The Company commissioned 151 producing wells with the average daily production of 78 tons.

Implementation of exploration and engineering activities also contributed in the production increase. Altogether, 1592 exploration and engineering activities were performed in the oil fields of NK RussNeft. Their effect added over 956 thousand tons of oil to the overall production of the holding.

40 well pads were upgraded for installation of drilling rigs and fitted out last year. 205 km of pipelines were laid, 65 km of electrical power lines were erected.

One of the key results of the Company’s activity in 2011 was the efficient implementation of the exploration programs. Last year, the commercial reserves increment fully compensated the production being 15 million tons of crude oil under Category C1. Two oil deposits and one field were discovered. The area of the seismic measurements was 1,150 km².

Last year, NK RussNeft paid special attention to the issue of the associated gas utilization efficiency as well as the programs of natural gas production, refining and gas-energy. 185 engineering infrastructure facilities were scheduled by the holding management to be built during those programs implementation, and 106 facilities out of 185 were already commissioned last year. A major gas project is construction of the gas pipeline from the Zapadno-Variegankoe field early water knockout unit to Varieganskaya KC-3 compressor station with the feeding gas pipeline from the booster station to the tie-in point via Roslavlskoe field. The total length of the line will be 94 km. Complete project cycle was performed and public hearings were held within the framework of the project to be launched in 2012. Construction of the pipeline will allow to increase the associated gas utilization efficiency and improve the environment in the West-Siberia fields. The amount of investments in the construction and upgrade of the own gas infrastructure was one billion rubles.

TO NEW ACHIEVEMENTS

A long-term strategy of OAO NK RussNeft development was approved in December 2010. Its principal focus is hydrocarbons production accretion, exploration, gas projects implementation.

In the coming years, the Company will continue its active involvement in the exploration of the available license areas with updating the reserves geological structure, raising their number within the limits of the holding’s oil fields. Production growth will be based on implementation of large-scale programs of production drilling, exploration and engineering activities, utilization of innovation methods of production and reservoir recovery intensification.

The expected oil production by 2018 will be 15.1 million tons which is almost two million tons more against that in 2011.

Today, the management of OAO NK RussNeft considers acquisition of new assets corresponding to its profile and meeting the strategic priorities.

The Company intends to continue increasing the efficiency of its activity by implementation of advanced technologies and modern equipment, investing in development of own production facilities.

Achievement of compliance with world standards in Health, Safety and Environment is also one of the priorities specified by NK RussNeft.