ANNUAL REPORTANNUAL REPORT 1JJSC GAZPROM NEFT 2008SC GAZPROM NEFT 2008 Dear Shareholders! Gazprom as a global energy company pays serious attention to the development of its oil business

ANNUAL REPORTJSC GAZPROM NEFT 2008

ANNUAL REPORTJSC GAZPROM NEFT 2008

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TS 1 MESSAGE TO SHAREHOLDERS

7 REGIONS OF OPERATION13 HIGHLIGHTS OF 200817 COMPANY PROFILE

18 ESTABLISHMENT DATA, LOCATION 19 AUTHORIZED CAPITAL, SHARE CAPITAL STRUCTURE 20 COMPANY’S STRUCTURE

23 GAZPROM NEFT TODAY33 COMPANY’S GROWTH PROSPECTS39 2008 KEY PERFORMANCE INDICATORS BY TYPE OF OPERATION

40 STATUS OF THE RESOURCE BASE 40 EXPLORATION 44 LICENSING 46 OIL PRODUCTION 49 OIL REFINING 52 DISTRIBUTION OF OIL PRODUCTS 58 OIL AND PETROLEUM PRODUCT EXPORTS 60 TRANSPORTATION OF OIL AND PETROLEUM PRODUCTS

63 INVESTMENT: TECHNICAL RE-EQUIPMENT AND DEVELOPMENT OF THE COMPANY67 PERFORMANCE AND FINANCIAL INDICATORS

68 KEY PERFORMANCE INDICATORS 70 KEY FINANCIAL RESULTS 72 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

97 MAJOR RISK FACTORS109 CORPORATE GOVERNANCE

111 MEMBERSHIP OF THE BOARD OF DIRECTORS 117 ACTIVITIES OF THE BOARD OF DIRECTORS IN 2008 118 MEMBERSHIP OF THE MANAGEMENT BOARD 121 TOTAL AMOUNT OF REMUNERATION TO MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT BOARD

123 ECOLOGY, ENERGY SAVING, INNOVATION

124 HEALTH, SAFETY AND ENVIRONMENT 130 ENERGY SAVING 130 INNOVATIVE ACTIVITIES

135 SOCIAL POLICY

136 PERSONNEL, OCCUPATIONAL SAFETY AND HEALTH 138 SOCIAL RESPONSIBILITY

143 TO SHAREHOLDERS AND INVESTORS

144 STOCK MARKET AND CAPITALIZATION 146 PARTICIPATION IN THE AMERICAN DEPOSITORY RECEIPT PROGRAM 148 DIVIDEND HISTORY 150 OBSERVING THE CORPORATE CODE OF CONDUCT

153 MAJOR AND INTERESTED-PARTY TRANSACTIONS167 ASSET MANAGEMENT AND IMPROVEMENT OF THE CORPORATE STRUCTURE173 CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT

180 GLOSSARY OF KEY TERMS AND DEFINITIONS 183 ADDRESSES AND CONTACTS 184 SUPPLEMENT 1. US GAAP CONSOLIDATED FINANCIAL STATEMENTS. AUDITOR’S REPORT. 208 SUPPLEMENT 2. RAS FINANCIAL STATEMENTS. AUDITOR’S REPORT

1ANNUAL REPORT JSC GAZPROM NEFT 2008JSC GAZPROM NEFT 2008

Dear Shareholders!

Gazprom as a global energy company pays serious attention to the development of its oil business. A good case in point was the decision by Gazprom to exercise the purchase option for a 20% interest in Gazprom Neft in April 2009 with the result that our stake in this critical oil asset of Gazprom Group has increased to 95.68%.

In 2008 Gazprom Neft methodically strengthened its positions in the traditional Russian oil and petroleum product markets. The Company began the implementation of new large-scale projects associated with the sales of lubricants as well as fuel for aviation, marine and river transport. Considerable attention was given to supporting research developments and improvement of oil exploration and production technologies.

The reporting period saw a milestone event for Gazprom – in December 2008 Gazprom Neft and the Government of Serbia signed an agreement for the purchase of a 51% interest in Serbian oil company NIS – one of the largest in Central Europe. In February 2009 the deal was closed. Thus we laid a solid foundation for the development of Gazprom Neft at the international level.

The stable position of JSC Gazprom Neft n the Russian oil industry, entry of the company into the world market, effective corporate governance measures – all this shows a powerful production potential of Gazprom Group in the oil sphere.

MILLER A.B. Chairman of the Management Board, JSC Gazprom,

Chairman of the Board of Directors, JSC Gazprom Neft


2008 was very eventful and successful for the Company. Over the past year Gazprom Neft made a big step forward and continued its successful development as part of Gazprom Group.

Today we are confident to say that Gazprom Neft is one of the leaders of the Russian oil industry. The Company has increased its reserves, the acquisition of a stake in Tomskneft has allowed production growth, the volume of oil refining and petroleum product sales has been up as well. Our subsidiaries – Gazpromneft-Aero, Gazpromneft-Lubricants, Gazprom Neft Marine Bunker and Gazpromneft-Nefterservice have been growing rapidly to become important players in the relevant markets.

We have shown good financial results attributable not only to the market environment but also to the implementation of measures designed to enhance the Company’s efficiency. And I have no doubts that our successful results of 2008 will become a springboard for Gazprom Neft’s effective development in the following difficult period.

We are moving steadily towards achievement of the ambitious goals set out in Gazprom Neft’s Development Strategy until 2020. In the future we see Gazprom Neft as a global player of the world fuel market. Already now we are laying the basis for our international business. Last year was a signature one in this respect: we successfully completed talks with the Serbian Government on the acquisition of a 51% interest in oil company NIS. Now it is the largest foreign asset not only of Gazprom Neft but of all Gazprom Group. However we will have to deal with the difficult challenges of improving the acquired asset management system and of new asset modernization.

A young, vibrant, rapidly growing company in the oil industry market – such experts’ take on Gazprom Neft is without question something to be proud of. Our strongest advantages are – an effective governance system, a young management team capable of getting the right result. In the coming years we will receive invaluable experience of working in difficult economic conditions, however, I am confident we will overcome the crisis to become even stronger.

Alexander DUKOVChairman of the Management Board,

JSC Gazprom Neft


KEY PERFORMANCE INDICATORS OF THE COMPANY

KEY FINANCIAL INDICATORS2008 2007 2006 2008/2007 2007/2006

• Sales revenue, mln USD 33 075 21 767 20 176 51.95% 7.89%• EBITDA, mln USD 7 965 6 236 5 676 27.73% 9.87%• Operating income, mln USD 6 249 4 899 4 366 27.56% 12.21%• Income before tax, mln USD 6 122 5 458 4 854 12.17% 12.44%• Net income, mln USD 4 658 4 143 3 661 12.43% 13.17%• Net cash from operating activities, mln USD 5 444 5 316 3 320 2.41% 60.12%• Capital investment, mln USD 3 327 2 212 1 525 50.41% 45.05%• Dividend paid, mln USD 792 2 071 602 -61.76% 244.02%• Net debt (avg.), mln USD 1 618 1 519 771 6.51% 96.97%• Average capital employed, mln USD 14 357 11 700 9 564 22.71% 22.33%• Average shareholders’ equity, mln USD 12 197 10 182 8 793 19.79% 15.79%• Price per share at year-end, USD RTS 2.05 6.35 4.56 -67.72% 39.25%• Price per share at year-end, USD MICEX 2.13 6.21 4.55 -65.70% 36.48%

KEY FINANCIAL RATIOS2008 2007 2006 2008/2007 2007/2006

• Basic and Diluted Earnings per Common Share, USD per share 0.98 0.87 0.77 12.64% 12.99%• Dividend per share, rub. 5.40 8.08 7.90 -33.17% 2.28%• Return on average capital employed, % 33.12% 31.78% 34.43% 3.13% -5.88%• EBITDA margin, % 24.08% 28.65% 28.13% -17.24% 3.57%• EBITDA per barrel, USD per barrel 34.84 25.64 23.33 35.88% 9.90%• Net income margin, % 14.08% 19.03% 18.15% -26.32% 5.56%• Net income per barrel, USD per barrel 20.38 17.04 15.05 19.60% 13.22%• Return on equity, % 38.19% 40.69% 41.63% -7.32% -2.38%• Gearing, % 10.39% 20.56% 3.27% -52.38% 600.00%• Current ratio 1.48 1.31 1.99 12.98% -34.17%

KEY PRODUCTION INDICATORS2008 2007 2006 2008/2007 2007/2006

• Oil reserves, mln bbl 4 488 4 823 4 476 -6.95% 7.75%• Gas reserves, bn ft3 2 154 728 1 041 195.68% -30.05%• Hydrocarbon reserves, mln BOE 4 847 4 945 4 650 -1.97% 6.34%• Oil production of consolidated subsidiaries, mln bbl 228.60 243.20 243.30 -6.00% -0.04%• Oil production with share in equity investees (Slavneft and Tomskneft), mln bbl 337.30 319.40 318.00 5.60% 0.44%• Oil refining at own refineries, mln t 18.40 16.50 16.30 11.52% 1.23%• Oil refining at equitiy investees’ refineries, mln t 10.10 9.70 8.10 4.12% 19.75%• Oil exports, mln t Non-CIS 16.30 15.10 18.20 7.95% -17.03%• Oil exports, mln t CIS 3.30 2.50 2.60 32.00% -3.85%• Oil sales, mln t Russian Federation 0.90 1.60 0.10 -43.75% 1500.00%• Petroleum product exports, mln t Non-CIS 11.40 11.40 12.20 0.00% -6.56%• Petroleum product exports, mln t CIS 1.90 1.90 1.30 0.00% 46.15%• Petroleum product sales, mln t Russian Federation 15.70 13.40 11.90 17.16% 12.61%• Petroleum product sales through filling stations, mln t 3.00 2.30 1.90 30.43% 21.05%• Number of filling stations (own, leased and franchise) 865 782 777 10.61% 0.64%

REGIONS

OF OPERATION

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JSC GAZPROM NEFT 2008JSC GAZPROM NEFT 2008

REGIONS OF OPERATION


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REGIONAL LOCATION OF COMPANY’S OIL PRODUCTION AND LICENSE PLOTS

(including subsidiaries and associates)

• PRODUCTION AND RESERVES

1 Nenets Autonomous District

2 Yamal-Nenets Autonomous District

3 Khanty-Mansi Autonomoius District

4 Tomsk Region5 Omsk Region6 Krasonyarsk Krai7 Serbia*8 Angola*

• RESERVES

9 Irkutsk Region10 Republic of Sakha (Yakutia)11 Chukotski Autonomous District12 Sea of Okhotsk Offshore Area

(Lopukhovsky Block)

* – the regions extraction of group NIS





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OIL REFINERIES AND REGIONS OF SALES


• REGIONS WITH RETAIL SALES

1 Moscow and Moscow Region2 Kaluga Region3 Yaroslavl Region4 Ivanovo Region5 Nizhniy Novgorod6 Saint-Petersburg

and Leningrad Region7 Chelyabink Region8 Sverdlovsk Region9 Tyumen Region10 Omsk Region11 Tomsk Region12 Novosibirsk Region13 Kemerovo Region14 Republic of Altai15 Krasnoyarsk Krai16 Kazakhstan17 Kyrgyzstan18 Tajikistan19 Krasnodar Krai20 Serbia

• REGIONS WITH WHOLE SALES ONLY

21 Tula Region22 Republic of Karelia23 Murmansk Region24 Arkhangelsk Region25 Irkutsk Region26 Republic of Sakha (Yakutia)27 Khabarovsk Kraiй28 Primorsky Krai29 Belarus

Refinery Operations of Gazprom Neft Marine Bunker LLC (ports) Operations of Gazprom Neft-Aero

HIGHLIGHTSOF 2008



HIGHLIGHTS OF 2008

JANUARY• JSC Gazprom Neft and JSC Moscow Oil and Gas Company settled their differences over management

of the Moscow Refinery.

FEBRUARY• Gazprom Neft developed and approved a medium-term investment program for 2008-2010 targeting recovery

and a higher utilization rate of associated gas; • CJSC Gazpromneft – Aero and LUKOIL AERO LLC started joint into-plane fueling operations

at the Pulkovo International Airport (Saint-Petersburg).

MARCH• Gazprom Neft won the bidding for a subsoil license for the Zimnee oil field in the Khanty-Mansi Autonomous District; • Gazprom Neft approved a medium-term investment program for 2008-2010;• Gazprom Neft entered into a trusteeship agreement with Plekhanov Saint-Petersburg State Mining Institute

(technical university); • Gazprom Neft entered into a cooperation agreement with the Omsk Region for 2008;• Gazprom Neft entered into a socio-economic agreement with the Khanty-Mansi Autonomous District for 2008.

APRIL• Gazprom Neft started the production and retailing of Euro 3 fuel; • Gazprom Neft became one of the founders of the Saint-Petersburg Commodity Exchange; • JSC Gazprom Neft’s Management Board approved the Company’s growth strategy until 2020; • Gazprom Neft established a subsidiary, Information Technology Service Company, to enhance the efficiency

of IT services; • Gazprom Neft entered into a cooperation agreement with Gubkin Russian State University of Oil and Gas for 2008.

MAY• JSC Gazprom Neft and JSC Moscow Oil and Gas Company registered a joint venture to manage the Moscow

Refinery – Moscow NPZ Holdings B.V.

JUNE• Gazprom Neft’s Annual General Shareholders’ Meeting was held; • JSC Gazprom Neft’s Management Board approved a development strategy for subsidiary service enterprise

Gazpromneft-Nefteservice LLC until 2020.

JULY• JSC Gazprom Neft and Yokogawa Electric Corporation signed a strategic cooperation agreement;• JSC Gazprom Neft’s Management Board approved a development strategy for bunker enterprise

Gazprom Neft-Marine Bunker LLC until 2020 ; • JSC Gazprom Neft successfully completed syndication of an 1bn USD loan; • JSC Gazprom Neft and JSC Transaero Aviation Company signed a cooperation agreement.

AUGUST• JSC Gazprom Neft and the Administration of the Yamal-Nenets Autonomous District entered into

a cooperation agreement.

SEPTEMBER• JSC Gazprom Neft started petroleum product sales through an electronic trading floor;• JSC Gazprom Neft and Lomonosov Moscow State University entered into a 5-year

strategic cooperation agreement; • JSC Gazprom Neft and JSC Sheremetievo International Airport entered into a general cooperation

agreement on air transportation and jet fuel supplies within the implementation of the program of the Russian Ministry of Transport for the creation of a system of alternative jet fuel supply complexes at the airports.

OCTOBER• A Gazprom Neft lecture hall opened at Saint-Petersburg State Mining Institute.

NOVEMBER• JSC Gazprom Neft made a decision to switch to formula pricing when selling jet fuel to end consumers;• Gazprom Neft shareholders elected a new Board of Directors; • The five millionth ton of oil was produced at the Zapadno-Krapivinskoye oil field in the Tarsky District

of the Omsk Region.

DECEMBER• JSC Gazprom Neft and state corporation Bank for Development and Foreign Economic Affairs

(Vnesheconombank) signed a 750 mln USD credit line; • JSC Gazprom Neft and the Serbian Government signed a purchase agreement for a 51% interest

in oil company Naftna Industrija Srbije (NIS).

HIGHLIGHTS OF 2008

COMPANY PROFILE



COMPANY ESTABLISHMENT DATA, LOCATION

1995 Joint Stock Company Gazprom Neft was established under Decree of President of the Russian Feder ation № 872 «On Establishment of Open Joint Stock Company Siberian Oil Company,» dated August 24, 1995, and Resolution of the Government of the Russian Federation № 972 «On Organization of Open Joint Stock Company Siberian Oil Company,» dated September 29, 1995. The Company was regis tered on October 6, 1995 under the name: Open Joint Stock Company Siberian Oil Company. Acting as the Company’s founder, the state created a vertically integrated company by investing shares of JSC Noyabrskneftegaz, JSC Omsk Refinery, JSC Noyabrskneftegazgeophysica, and JSC Omsknefteproduct in the authorized capital. Privatization of the Company was completed in May 1997.

2005 A controlling interest in the Company (75.68%) was bought out by Gazprom Group. Since May 13, 2006 the Company’s name has been Joint Stock Company Gazprom Neft.

JSC Gazprom Neft controls a 49.9% interest in JSC Slavneft, which is run jointly with TNK-BP.

2006 The Company entered the retail market of Central Asia – Gazprom Neft became the owner of CJSC Munai Myrza and Alliance Oil Asia LLC, holding the largest filling station and tank farm networks in Kyrgyzstan.

In 2006 the Company for the first time joined an international pipeline project of state significance as a shareholder – construction of the Burgas-Alexandroupolis Transbalkan Oil Pipeline. As part of the arrangements reached in November 2006, in January 2007 the Company, jointly with JSC Transneft and JSC OC Rosneft, established the Burgas-Alexandroupolis Pipeline Consortium. Gazprom Neft received a 33.33% stake in its authorized capital.

2007 In late 2007 Gazprom Neft acquired a 50% interest in Tomskneft and signed agreements with the holder of the other 50% – Rosneft.

2008 JSC Gazprom Neft completed the ownership structure of Joint Stock Company Moscow Refinery. The project partners – JSC Gazprom Neft and JSC Moscow Oil and Gas Company established on a parity basis a company called Moscow NPZ Holdings B.V. contributing to its authorized capital 90.01% of voting shares or 77.25% of the authorized capital of the Moscow Refinery. Gazprom Neft and MNGK came to an agreement to jointly manage the Moscow Refinery and make all decisions on a parity basis.

On December 24, 2008 Gazprom Neft and the Government of the Republic of Serbia signed a purchase agreement for a 51% interest in Serbian company NIS. Naftna Industrija Srbije (NIS) is one of the largest vertically integrated oil companies in Central Europe involved with oil and petroleum product refining and distribution, hydrocarbon production in Serbia and Angola.

Each year the Company grows substantially in scale and strengthens its positions in the oil and gas sector of Russia and abroad.

LOCATION, REGISTRATION DATA• Corporate Name of the Company: Joint Stock Company Gazprom Neft (JSC Gazprom Neft) • Location of the Company: 5A Galernaya St., Saint-Petersburg, 190000, Russian Federation• The Company was registered on 06.10.1995 by the Omsk City Registration Chamber• Certificate of State Registration № 38606450• Primary State Registration Number - 1025501701686

CORE BUSINESS OF THE COMPANY:• Prospecting of oil, gas and other deposits; • Production, transportation and refining of oil, gas and other minerals; • Oil, gas, petroleum product storage; • Production of petroleum products, petrochemicals; • Oil and petroleum product supplies and sales; • Conduct of exploration, geophysical and prospecting work in search of oil, gas and other mineral deposits.

AUTHORIZED CAPITAL, SHARE CAPITAL STRUCTURE • The Company’s Authorized Capital is 7 586 079.4224 rubles, which was formed by placement

of 4 741 299.639 common registered shares.• The par value of shares: 0.0016 rub. The state registration number of the issue of JSC Gazprom Neft

common shares: 1-01-00146-А.• As of 31.12.2008 the Share Register contained 9 802 personal accounts, including 18 legal entities,

9 772 individuals, 1 trustee and 11 nominal holders.• As of december 31, 2008 JSC Gazprom Neft had no preferred shares.

COMPANY PROFILE

Table 1. LIST OF REGISTERED PERSONS HOLDING IN THEIR ACCOUNTS A STAKE OF AT LEAST 1% OF THE AUTHORIZED CAPITA

Shareholders of RecordAs of 31.12.2007 As of 31.12.2008

Share in Authorized Capital,% Number of Securities Share in Authorized

Capital,% Number of Securities

JSC Gazprom 55.9961 2 654 942 903 55.9961 2 654 942 903Gazprom Finance BV 16.6667 790 216 606 16.6667 790 216 606Deutsche Bank LTD* 20.0002 948 271 442 20.0002 948 271 442CJSC Depositary Clearing Company* 3.6176 171 521 271 3.4363 162 926 684ING Bank (Eurasia) ZAO* 2,2112 104 837 789 2,3660 112 179 295NP National Depositary Center* 1.0883 51 597 297 1.1104 52 648 608

* – nominal holder

COMPANY PROFILE

20 ANNUAL REPORT JSC GAZPROM NEFT 2008JSC GAZPROM NEFT 2008

SALES

• JSC Gazpromneft-Omsk• CJSC Gazpromneft-Kuzbass• JSC Gazpromneft-Altai• LLC Gazpromneft-Tsentr • LLC Gazprom Neft – Lubricants • CJSC Munai-Myrza• LLC Gazprom Neft Marine

Bunker • LLC Gazprom Neft Asia • JSC Gazpromneft-Tyumen• LLC Gazpromneft- Chelyabinsk • LLC Gazpromneft-Krasnoyarsk • JSC Ekaterinburgnefteproduct• JSC Gazpromneft-Ural• JSC Gazpromneft-Aero• JSC Gazpromneft-Aero

Novosibirsk• CJSC Gazpromneft-Severo-Zapad• LLC Gazpromneft-Kaluga • LLC Sibneft-

Krasnoyarsknefteproduct • JSC Sibneft-Yaroslavnefteproduct • JSC Gazpromneft-Novosibirsk• LLC Gazpromneft-Noyabrsk • LLC Gazpromneft-Aero Murmansk • LLC Gazpromneft-Tajikistan • LLP Gazpromneft-Kazakhstan • LLC Alliance Oil Asia • LLC Gazpromneft-Shipping • LLC Gazpromneft-Resurs • LLC Gazpromneft-Nizhniy Novgorod

OIL SERVICE AND EXPLORATION

• LLC Gazpromneft-Nefteservice • JSC Gazpromneft-Noyabrskneftegaz • LLC Kapitalny Remont Skvazhin –

Service • LLC Spetstransservice • LLC Noyabrskneftegazsvyaz • LLC Noyabrskteploneft • LLC Gazpromneft –

Omsk Refinery • LLC Noyabrskneftespetsstroy • LLC Noyabrskenergoneft • LLC NoyabrskEPUService • LLC Service Drilling Company • LLC Neftekhimremont • LLC YamalServiceTsentr • LLC Muravlenkovskaya

Transportnaya Kompaniya • LLC Noyabrskneftegazproekt • LLC Yamalenergoremont • LLC Noyabrskneftegazavtomatika • JSC Gazprom Neft-Mobilnaya Karta• LLC Avtomatika Service • LLC Servisnaya Transportnaya

Kompaniya • LLC Vyshkomontazhnoe Upravlenie • LLC Noyabrskaya Tsentralnaya

Trubnaya Baza

EQUITY INVESTEES

• Moscow Refinery• Slavneft• Slavneft

PRODUCTION• JSC Gazpromneft -Noyabrskneftegaz• LLC Gazpromneft- Khantos• LLC Gazpromneft– Vostok• CJSC Archinskoye• JSC Meretoyakhaneftegaz • LLC Sibneft-Yugra • LLC Severnaya Taiga- Neftegaz • JSC NP Ortyagunskoye• LLC Zapolyarneft • LLC Gazpromneft-Yamal • CJSC Pechora Neftegaz• LLC Sibneft-Chukotka • LLC Shinginskoye • LLC Gazpromneft-Angara • LLC Gazpromneft-Sakhalin

REFINING• JSC Gazprom Neft-Omsk Refinery

OIL EXPORTS• Gazprom Neft Trading Gmbh

OTHER OPERATIONS• LLC Gazpromneftfinance • LLC Gazpromneftenergo • LLC Gazprom Neft- ZS • LLC Gazprom Neft – NTTS • LLC OKTS NP • LLC Gazprom Neft Business Service • Sib Finance B.V.• Sibneft Oil Trade Company Limited• LLC Komplex Galernaya 5

COMPANY’S STRUCTURE

COMPANY PROFILE

GAZPROM NEFT

TODAY


JSC Gazprom Neft together with its subsidiaries is a vertically integrated oil company operating primarily in the Russian Federation and engaged in the following types of operations: prospecting, development of oil and gas deposits, oil and gas production, production and retailing of petroleum products. The Company boasts proved oil reserves in excess of 4 bn barrels which ranks it among the top twenty oil companies of the world.

Gazprom Neft today is one of the fastest growing oil companies in Russia.

GEOGRAPHY OF OPERATIONS The Company is engaged in the prospecting, development and production of oil and gas reserves primarily at the deposits located in the Yamal-Nenets and Khanty-Mansi Autonomous Districts of Western Siberia, in the Omsk and Tomsk Regions and in Chukotka.

Gazprom Neft holds a 49.9% interest in JSC Slavneft (Slavneft) and a 50.0% interest in JSC Tomskneft VNK (Tomskneft), which are engaged in the development of oil and gas deposits in the Urals and Siberian Federal Districts. The Company accounts for investment in Slavneft and Tomskneft using the equity method and acquires from them, at an agreed price, part of produced oil commensurate with the Company’s interest in each of these affiliates.

The main refinery of Gazprom Neft is JSC Gazpromneft - Omsk Refinery in the south-west of Siberia. The Omsk Refinery is the second largest and one of the most technologically advanced refineries in Russia. The Company also holds a 50.0% interest in Moscow NPZ Holdings B.V. which owns a 77.25% stake in JSC Moscow Refinery. Furthermore, the Company has access to the refining capacities of JSC Slavneft-YANOS (YANOS), owned by Slavneft. Thus the Company uses the refining capacities of these two plants in proportion to its interest in each refinery. Oil is processed by the Company at these refineries under refining agreements.

Gazprom Neft sells petroleum products in Russia and CIS countries mostly through its subsidiaries and associates. Export trading is conducted through a wholly-owned subsidiary, Gazprom Neft Trading GmbH, acting as an export trader forthe Company.

Gazprom Neft’s distribution network covers the entire country.

The Company is expanding its presence in Central Asian republics, developing there its distribution network. In 2006 JSC Gazprom Neft purchased in Kyrgyzia CJSC Munai Myrza and Alliance Oil Asia LLC, owners of petroleum product storage and distribution assets. As of December 31, 2008 Gazprom Neft Asia LLC operated 102 filling stations and 8 tank farms.

GAZPROM NEFT TODAY



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GEOGRAPHY OF COMPANYS OPERATIONS

1 Moscow Region2 Yaroslavl Region3 Nizhniy Novgorod Region4 Leningrad Region5 Murmansk Region6 Chelyabink Region7 Sverdlovsk Region8 Tyumen Region9 Omsk Region10 Novosibirsk Region11 Tomsk Region12 Khanty-Mansi

Autonomoius District13 Yamal-Nenets

Autonomous District14 Krasnoyarsk Krai15 Chukotski

Autonomous District16 Kazakhstan17 Kyrgyzstan18 Tajikistan19 Vienna20 Serbia

Exports Jet Fuel

Refining Bunkering Sales Service

Production Headquarters

GAZPROM NEFT TODAY

GAZPROM NEFT TODAY


The Company is also ready for participation in international projects of state significance. In particular, the Company’s involvement as a full shareholder in the implementation of the Burgas- Alexandroupolis Transbalkan Oil Pipeline construction project in partnership with JSC OC Rosneft and JSC Transneft will make it possible to address the strategic task of oil transportation, bypassing the congested Black Sea straits, which meets the interests not only of Russia but of the Black Sea and Caspian Regions on the whole.

In October 2008 JSC Gazprom Neft together with Russian companies JSC Rosneft, JSC Lukoil, TNK-BP, JSC Surgutneftegaz signed a Memorandum of Understanding providing for cooperation and joint participation in projects in Venezuela and Cuba through the Consortium. In October 2008 National Oil Consortium LLC was established in Moscow to act as an operator of the Consortium’s projects. Shares in the Company will be equally distributed between the Consortium members, each getting 20%. The priorities for the Consortium are hydrocarbon prospecting and production in the Carabobo and Hunin-6 blocks (Venezuela) as well as in the offshore blocks of an exclusive economic zone (Cuba). The Consortium is currently considering the possibility of joining the above projects.

In January 2008 Gazprom Neft signed an agreement on the principal terms of acquisition of a 51% interest in Serbian oil company Naftna Industrija Srbije (NIS). In September 2008 the agreement was ratified by the Serbian Government. On December 24, 2008 the Republic of Serbia and JSC Gazprom Neft signed a purchase agreement for a 51% interest in NIS. On February 2, 2009 the purchase transaction for NIS shares was closed. Naftna Industrija Srbije (NIS) Naftna Industrija Srbije (NIS) is one of the largest vertically integrated oil companies in Central Europe engaged in petroleum product refining and distribution, hydrocarbon production in Serbia and Angola.

NIS produces annually around 0.7 mln tons of oil. NIS is the owner of oil refineries in Pancevo and Novi Sad with a total refining capacity of 7.2 mln tons a year. NIS has a corporate distribution network including tank farms and 480 retail filling stations and is the leading petroleum product supplier in the Serbian market. NIS produces around 85% of all petroleum products consumed in the country.

The Company finished 2008 in fifth place among Russian vertically integrated oil companies in oil production and exports and in fourth in refining.

OIL PRODUCTIONAfter seven years of continuing growth average oil production in Russia peaked in mid-2007 (9.9 mln bpd) and in January 2008 began declining. The decline continued over 2008, but the sharpest drop occurred in March 2008 – by 1.3% compared to March 2007 and in June – by 1.2% compared to June 2007. In 2008 production in Russia totaled 488.49 mln tons which is a 0.57% decrease compared to 2007.

Total oil production by Gazprom Neft, including the share of oil produced by the affiliates, was up by 7.3% in 2008 due to the purchase of a 50% interest in Tomskneft. Gazprom Neft’s share in total oil production in Russia grew to 9.5% (8.8% in 2007), which ranks it 5th among Russian vertically integrated oil companies. (table 2)

REFININGOil refining in the Russian Federation was growing over the last five years to increase in 2008 by 3.4% up to 236.3 mln tons. This growth is attributable to the fiscal policy of the Russian Federation, which makes this line of business the most attractive for Russian vertically integrated oil companies or, sometimes, in the event of a sharp drop in oil prices (which occurred in the second half of 2008) – the only profitable line of business. Production of diesel fuel in 2008 grew by 4.1%,

GAZPROM NEFT TODAY

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SENOKT

NOVDEC

• OIL PRODUCTION IN RUSSIA, THOUSAND BPD A DAY• OIL REFINING IN THE RUSSIAN FEDERATION, MLN TSOURCE: INFOTECH

10 000

9 800

9 600

9 400

9 200

9 000

8 800

8 600

219,57

236,30

194,96207,43

228,60



OIL PRODUCTION IN THE RUSSIAN FEDERATION IN 2008, %SOURCE: INFOTECH

OIL REFINING IN THE RUSSIAN FEDERATION IN 2008, %SOURCE: INFOTECH

OIL EXPORTS BY RUSSIAN COMPANIES IN 2008*, %SOURCE: INFOTECH

23 Rosneft 20 Rosneft 22 Rosneft18 LUKOIL 19 LUKOIL 13 LUKOIL16 TNK-BP 13 TNK-BP 15 TNK-BP9 Gazprom Neft 12 Gazprom Neft 7 Gazprom Neft

13 Surgutneftegaz 9 Surgutneftegaz 15 Surgutneftegaz2 Bashneft 9 Ufa refineries 7 Tatneft5 Tatneft 3 TAIF-NK 2 Bashneft3 Russneft 3 Russneft 2 Russneft

11 Other 12 Other 17 Other* – oil exports via the Transneft System

20

19

13

12

9

93

3

12

22

15

15

13

7

722

17

23

1816

13

9

53

2

11

of fuel oil – by 1.9%, motor gasoline – by 1.8% with the overall capacity utilization rate across Russia reaching a new milestone – 86.9% as against 81.5% the year before.

In primary oil refining the leader is Rosneft (45.54 mln t). It is worth noting a high level of concentration of refining assets in the Russian Federation with the five leading companies accounting roughly for three-fourths (72.95%) of all oil processed at Russia’s refineries. (table 3).

EXPORTSRussian oil exports to non-CIS countries in 2008 totaled 203.091 mln tons (4.067 mln bpd) which is 6.2% less than in 2007, of which 185.513 mln tons were exported via the Transneft system and around 17.578 mln tons – by other routes. In 2008 via the Transneft system 42.554 mln tons (including transit volumes) were shipped through the port of Novorossisk, 4.502 mln tons – through Tuapse, 7.888 mln tons – through Odessa, 73.926 mln tons - Primorsk, 7.748 mln tons - Yuzhny Marine Oil. Enterprises not affiliated with vertically integrated oil companies in 2008 supplied to non-CIS countries via the Transneft system 7.484 mln tons of oil.

In 2008 Russian oil companies reduced exports to CIS-countries by 6.1% - to 34.213 mln tons. The volume of supplies to the Ukraine was down by 37.5%, compared to 2007, totaling 6.013 mln tons. However, exports of Russian raw materials to Belorussia and Kazhakhstan increased to 21.132 mln tons (+5.4%) and 7.068 mln tons (+4.7%), respectively.

Oil company Rosneft in 2008 supplied to non-CIS countries via the Transneft system 45.756 mln tons, LUKOIL – 28.103 mln tons, Surgutneftegaz – 32.081 mln tons, TNK-BP Holding – 31.272 mln tons, Tatneft – 14.797 mln tons, Gazprom Neft – 14.256 mln tons.

Table 2. OIL PRODUCTION IN THE RUSSIAN FEDERATION IN 2008

CompanyOil Production Share Increase

2008 2007 2008 2007 2008/2007• Rosneft* 108 154 110 383 22.1% 22.5% -2.0%• Lukoil 90 245 91 432 18.5% 18.6% -1.3%• TNK-BP** 78 580 79 893 16.1% 16.3% -1.6%• Surgutneftegaz 61 684 64 495 12.6% 13.1% -4.4%• Gazprom Neft*** 46 254 43 121 9.5% 8.8% 7.3%• Tatneft 26 060 25 741 5.3% 5.2% 1.2%• Russneft 14 247 14 169 2.9% 2.9% 0.5%• Bashneft 11 738 11 606 2.4% 2.4% 1.1%• Other 51 526 50 467 10.5% 10.3% 2.1%

Total 488 487 491 306 100.0% -0.6%

* 2008 production was adjusted to include Tomskneft’s share** Including share in Slavneft’s production

*** Including share in Slavneft and Tomskneft’s production

SOURCE: INFOTECH

Table 3. OIL REFINING IN THE RUSSIAN FEDERATION IN 2008

CompanyOil Refining Share Increase

2008 2007 2008 2007 2008/2007• Rosneft 49 544 48 764 21.0% 21.3% 1.6%• Lukoil 44 126 42 501 18.7% 18.6% 3.8%• TNK-BP* 29 752 28 194 12.6% 12.3% 5.5%• Gazprom Neft** 28 390 26 227 12.0% 11.5% 8.2%• Surgutneftegaz 20 563 19 793 8.7% 8.7% 3.9%• Ufa refineries 20 362 19 229 8.6% 8.4% 5.9%• TAIF-NK 7 669 7 499 3.2% 3.3% 2.3%• Russneft 7 523 7 375 3.2% 3.2% 2.0%• Other 28 373 29 016 12.0% 12.7% -2.2%

Total 236 301 228 598 3.4%

*Including share in Slavneft’s refining **Including share in Slavneft and Moscow Refinery’s refining

SOURCE: INFOTECH

Table 4. OIL EXPORTS BY RUSSIAN COMPANIES 2008*

CompanyOil Exports Share Increase

2008 2007 2008 2007 2008/2007

• Rosneft 45 757,5 46 536,80 21.9% 21.1% -1.7%• Lukoil 28 102,9 36 179,70 13.4% 16.4% -22.3%• TNK-BP 31272 34 546,10 15.0% 15.7% -9.5%• Surgutneftegaz 32 081,3 32 601,60 15.3% 14.8% -1.6%• Gazprom Neft 14 255,9 15 108,50 6.8% 6.8% -5.6%• Tatneft 14797,4 11 728,60 7.1% 5.3% 26.2%• Russneft 4910,3 4 995,90 2.3% 2.3% -1.7%• Bashneft 3379,1 4 380,20 1.6% 2.0% -22.9%• Other 34 595,4 34 519,2 16.5% 15.6% 0.2%

Total 209 151,8 220 596,60 -5.2%

* – oil exports via the Transneft SystemSOURCE: INFOTECH

GAZPROM NEFT TODAY

GAZPROM NEFT TODAY

COMPANY’S GROWTH

PROSPECTS


The strategic objective of JSC Gazprom Neft is to become a global company of Russian origin, a major international player boasting a regionally diversified package of assets along the entire value creation chain.

The oil business development strategy of Gazprom Neft Group provides for an increase in annual oil production up to 100 mln tons by 2020. Refining by 2020 will reach 70-80 mln tons and the distribution network will be expanded to 5000-5500 filling stations. The volume of petroleum product sales through own filling station network is to be around 12 mln tons a year by 2020 with an annual average production growth rate expected to exceed 4% which is double that of the world largest oil companies.

The plan for reaching the production level of 2020 provides for phasing in the development of all proved oil fields of JSC Gazprom Neft (including the 50% interest held by the Company in JSC Slavneft and JSC Tomskneft) and for expanding the resource base by putting into production fields that are held on the balance sheet of other companies of the Group as well as by obtaining new licenses. Thus Slavneft is already engaged in two major projects that are currently at the exploration stage.

Intensification of exploration through the Company’s own resources will target further development and formation of the mineral resource base in the main gas producing regions for the purpose of creating a single gas production, transportation and supply system in Eastern Siberia and in the Far East. Exploration will focus on the Nadym-Pur-Taz region (including the offshore area of the Ob and Taz Gulfs), the Yamal Peninsula, the offshore areas of the Barents, Pechora and Kara Seas, the Arkhangelsk Region and Krasnoyarsk Krai, the Irkutsk Region, the Sakhalin shelf, and other regions with subsequent obtaining of production licenses for the deposits discovered.

The resource base development program of the Company provides for a three-times increase in the amount of recoverable hydrocarbon reserves under development by 2020.

Gazprom Neft plans to boost its presence in Russia, where Western Siberia will remain the key region with the importance of Eastern Siberia and the Nenets Autonomous District also growing.

Having said that, in the long-term Gazprom Neft also intends to develop its operations abroad. In particular, regions of strategic interest for the Company are Europe, the Asia-Pacific Region and the USA.

COMPANY’S GROWTHPROSPECTS

GROWTH IN SCALEPROVED OIL RESERVES – 2 400 MLN TOIL PRODUCTION – 90-100 MLN T PER YEARREFINING – 70-80 MLN T PER YEARDISTRIBUTION NETWORK – 5 000-5 500 FILLING STATIONSRETAIL SALES THROUGH OWN NETWORK – 12 MLN T PER YEARREVENUES – 64 BN$; EBITDA – 14 BN$

MARKET TARGETSPRODUCTION – RUSSIAN FEDERATION, CENTRAL

ASIA, MIDDLE EAST, LATIN AMERICA

REFINING – RUSSIAN FEDERATION, EUROPE

TARGET MARKETS – RUSSIAN FEDERATION, EUROPE, APR, USA

EFFICIENCYCOST REDUCTION ALONG THE ENTIRE PRODUCTION CHAIN TO BELOW INDUSTRY AVERAGE

MAINTAINING THE HIGHEST RETURN ON INVESTED CAPITAL AMONG RUSSIAN VERTICALLY INTEGRATED OIL COMPANIES

COMPANY

PROFILE IN 2020


THE COMPANY’S STRATEGY IS DIVIDED INTO THREE TIME HORIZONSI. 2008-2010. The objective of this period is to create the basis for fundamental growth in the Company’s scale by discovering new reserves and reclassifying upwards those of the existing license plots, by acquiring, and commencing the development of new plots in the traditional regions of operation, entering into new producing regions, restructuring the service and creating research and development centers, by building up the refining capacity of the existing assets, expanding the retail network in the Russian Federation, developing product and functional strategies.

II. 2011-2015. Launch of large-scale projects ensuring long-term business development and size growth. For this purpose, it is planned to build a balanced asset portfolio, achieve a high quality of products and processes, commence the commercial development of Gazprom’s oil assets, start production at the fields in Eastern Siberia and Timan-Pechora region, make a transition to self-financing of the service, possible exchange assets with a strategic partner for vertical integration purposes, increase Downstream assets in proportion to production growth, implement organizational, system and personnel projects aimed at the integration of target and existing assets taking into account the growing scale of operations.

III. 2016-2020. The Company has reached a new scale of business, intense international activities which provides for a significant scale of operations, a high quality of products and processes, a balanced investment policy ensuring an average return on capital employed of 12-15%, innovative projects and technologies, organization and development of sea projects: primarily in the oil-bearing offshore areas of the Barents, Chukchi, East Siberian, Laptev Seas; Black Sea basin; first production in international projects; own refining capacity is up to 70-80 mln tons per year, annual retail sales increased to 12 mln t.

In a volatile economic environment the strategic objectives of Gazprom Neft have not changed, however, the medium-term objectives have become anti-crisis ones in nature which will allow the Company to meet its qualitative and quantitative targets without significant adjustment.

In 2009 the Company will continue to introduce a system approach to creating a strategic development concept. Strategies will be developed for the Exploration and Production and the Logistics, Refining and Distribution Blocks. To coordinate the actions of Management in running the Company at all levels and in all directions it is planned to gradually switch to an integrated system of long-term strategy development and medium-term business plan protection.

To meet the target production level, in the coming years JSC Gazprom Neft will be developing its resource base and increasing the volume of production both within the existing asset portfolio and by acquiring new plots. In the very near term the Company will start the development of JSC Gazprom’s oil deposits with first production contemplated for as early as 2009.

In the Oil Refining Block JSC Gazprom Neft will seek to enhance the efficiency of refining and the quality of petroleum products in compliance with the new Technical Regulations “On Requirements for Main Petroleum Products” which have become effective this year and are to become effective in the years to come.

An important aspect is to ensure successful integration of Naftna Industrija Srbije (NIS) into Gazprom Neft Group. In early 2009 a new management team composed of JSC Gazprom Neft managers set to work at NIS.

As far as market sales of products are concerned, the main goal in 2009 and subsequent years will be to enhance the efficiency of distribution operations by increasing the retail share in total sales and optimizing the methods, directions and structure of petroleum product sales.

COMPANY’S GROWTHPROSPECTS

KEY PERFORMANCE

INDICATORSOF THE COMPANY IN 2008 BY TYPE OF OPERATION


KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION

STATUS OF THE RESOURCE BASE Since 2003 the Company’s reserves have been audited by SPE (Society of Petroleum Engineers) standards and more conservative SEC (Securities and Exchange Commission) standards. The audit has been conducted for all deposits based on the estimates of a representative sample of JSC Gazprom Neft’s fields accounting for 90-95% of Russian ABC1 category.

According to independent reservoir engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 and 2006), as of December 31, 2008 JSC Gazprom Neft had total reserves of “proved” and “probable” categories by SPE standards of 994.9 mln t of oil (7 251.36 mln bbl) and 208.1 bn of gas m3 7 350.94 bn ft3).

Their current value is estimated at 23.7 bn USD.

The current reserves-to-production ratio of Gazprom Neft for B+C1 crude reserves is over 27 years. In 2008 additions to Gazprom Neft’s recoverable C1+С2 oil and condensate reserves, less new acquisitions, totaled 61.4 mln tons, to C1+С2 gas reserves – 3.4 bn m3. At yearend of 2008, replacement of Gazprom Neft’s ABC1 reserves was 152%.

Additions to Gazprom Neft’s recoverable C1+С2 reserves at the expense of new acquisitions made through a bidding process totaled 9.4 mln tons of oil in 2008.

EXPLORATION In the reporting period 24 exploration-and-appraisal wells were completed in the license plots of JSC Gazprom Neft and its subsidiaries, of which 20 yielded commercial oil inflows, which makes it 240% and 211%, respectively, compared to 2007. Total exploration meters drilled in 2008 - 66 088 line m, which is 112% compared to 2007, this increase in exploration drilling metreage being attributable to stepped up investment in exploration.

JSC GAZPROM NEFT’S B+C1 CRUDE RESERVES’ GROWTHSOURCE: INFOTECH

2004 2005 2006 2007 2008

27,5YEARS25,6

YEARS22,1YEARS21,8

YEARS21,5YEARS

2004 2005 2006 2007 2008



1

3

5

4

2 6

9

10

11

12

78



REGIONAL LOCATION OF COMPANY’S OIL PRODUCTION AND LICENSE PLOTS


• PRODUCTION AND RESERVES

1 Nenets Autonomous District

2 Yamal-Nenets Autonomous District

3 Khanty-Mansi Autonomoius District

4 Tomsk Region5 Omsk Region6 Krasonyarsk Krai7 Serbia*8 Angola*

• RESERVES

9 Irkutsk Region10 Republic of Sakha (Yakutia)11 Chukotski Autonomous District12 Sea of Okhotsk Offshore Area

(Lopukhovsky Block)

* – the regions extraction of group NIS


JSC GAZPROM NEFT 2008

The exploration drilling success rate was 83.3% with efficiency of 368 tons of hydrocarbons per meter drilled and 154 rub/TOE.

The conducted exploration work resulted in the discovery of small Valyntoiskoye oil field in the namesake Valyntoisky license plot and 18 new oil reservoirs in the existing fields with total recoverable C1 and C2 oil reserves of 6.9 mln tons and 3.8 mln tons, respectively.

Overall in 2008 additions to the Company’s reserves totaled 46.8 mln tons, resulting mostly from exploration and additional exploration in the producing fields (24.3 mln tons) as well as from re-estimation of reserves due to an increase in the oil recovery factor and development drilling rate primarily for the Priobskoye, Vyngapurovskoye, Sugmutskoye and Karamovskoye fields (22.5 mln tons).

In the reporting period 3D and 2D seismic surveys of 1518 sq km and 3794 line km, respectively, were conducted in the license plots of JSC Gazprom Neft and its subsidiaries. Furthermore, seismic survey preparation work was performed in the Tympuchikansky license plot, where transient electromagnetic surveys and differential-normalized electrical measurements were carried out as well in the amount of 1186 line km.

In 2008 of the 98 tested zones 47 yielded commercial oil inflows and gas condensate, 4 – non-commercial oil and gas inflows, 24 yielded no inflow, the remaining 23 zones yielded either reservoir water inflows or those slightly admixed with oil.

The financing of exploration by JSC Gazprom Neft and its subsidiaries in 2008 totaled 5.5 bn rub, this being a 35% increase compared to 2007.

In 2008 the Company continued to participate in biddings held by the Federal Agency for Subsoil Use for subsoil licenses for new plots of the unallocated subsoil stock. In 2008 Gazpromneft-Khantos was declared winner of the bidding for a portion of the Zimnee field located in the Khanty-Mansi Autonomous District.

Thus in 2008 the Company purchased at the bidding 9.4 mln tons (in total for C1+C2 reserves) of recoverable hydrocarbons found in the Zimniy subsoil plot.

LICENSINGAs of 31.12.2008 JSC Gazprom Neft and its subsidiaries held sub soil licenses for 72 license plots located in 11 regions and within the continental shelf of the Russian Federation.

By type of operation, 15 licenses entitle the Company to a five year period of geological survey and 57 licenses grant the right to hydrocarbon exploration and production for a period of 20 to 50 years.

Subsoil licenses are held by 14 subsidiaries, however these licenses are managed by three operators: JSC Gazpromneft - Noyabrskneftegaz, Gazpromneft-Khantos LLC and Gazpromneft-Vostok LLC.

JSC Gazpromneft – Noyabrskneftegaz carries out a full cycle of hydrocarbon operations in 59 license plots owned by 9 subsoil users.

In 2008 terms of license agreements were updated to bring provisions of said license agreements into line with applicable legislation and existing practice of subsoil use as well as to more clearly define the obligations and deadlines for their


45454545455454454545TTTTTT08880888


performance. In 2008 the Licensing Committee of the Federal Agency for Subsoil Use reviewed and approved additions to 5 subsoil licenses of the Company: for three plots – the geological survey period was extended, for one plot – additionally, the right to drilling waste injection operations was executed, 2D seismic survey was replaced by 3D.

By priority right and on the basis of applications from subsoil users four licenses were registered in the Yamal-Nenets and Khanty-Mansi Autonomous Districts for geological survey of the producing fields below the mining allotment.

In 2008 42 licenses were reissued in connection with changes in the names of legal entities affiliated with subsoil users.

OIL PRODUCTION Gazprom Neft is engaged in oil and gas exploration and production primarily in the fields located in the Khanty-Mansi and Yamal-Nenets Autonomous District, Omsk, Tomsk Regions and the Chukotka Autonomous District.

The largest hydrocarbon reserves in the Yamal-Nenets Autonomous District are found in: Sugmutskoye, Sutorminskoye, Vyngapurskoye, Sporyshevskoye and Muravlenkovskoye fields. In 2008 these fields accounted for 42.7% of total oil production by the Company.

Production in these fields is carried out by oil and gas producing enterprises JSC Gazpromneft-Noyabrskneftegaz and Zapolyarneft LLC, holding a production license for Vyngapurovskoye, Yarainerskoye and Novogodnee deposits.

The Company’s oil production is carried out predominantly by three of its subsidiary operators: JSC Gazpromneft-Noyabrskneftegaz, JSC Gazpromneft-Khantos, and Gazpromneft – Vostok LLC. Over 2007 the Company set up two new operators: Gazpromneft- Yamal LLC engaged in the exploration and development of JSC Gazprom’s oil fields and Gazpromneft-Angara LLC engaged in the exploration and development of the Company’s new oil deposits in Eastern Siberia.

JSC Gazpromneft-Noyabrskneftegaz, the major producing subsidiary of Gazprom Neft, is developing around 30 fields in the Khanty-Mansi and Yamal-Nenets Autonomous Districts, which accounts for 58% of total proved PRMS reserves of the Company. Moreover, JSC Gazpromneft-Noyabrskneftegaz provides operator servicers to other producing subsidiaries of the Company, such as JSC Meretoyakhneftegaz, Sibneft-Chukotka LLC and the recently acquired subsidiaries: Pechora Neftegaz LLC, NGP Ortyagunskoye LLC. JSC Meretoyakhneftegaz, a 67% interest in which is owned by the Company, holds a license for the Meretoyakhinskoe field to the north of Noyabrsk.

In the Khanty-Mansi Autonomous District the most prospective deposit of JSC Gazprom Neft is the Priobskoye field, a production license for which is held by a subsidiary of the Company, Sibneft-Yugra LLC, with Gazpromneft-Khantos LLC acting as operator. Located in the same region is the Palyanovskaya Area and a group of license plots acquired by the Company in early 2005 (Salymsky-2, Salymsky-3, Salymsky-5) and the Zimnee field in the Tyumen Region.

The Priobskoye field is one of the largest and most promising oil deposits of the Company. Active development of the field began in 2004 and as early as 2008 it already accounted for 23% of total oil produced by the Company with this figure expected to be up at 30.4% by 2010. The Priobskoye field is a key asset strategically important for the Company’s future development which is sure to become the main source of oil production growth in the long term.

A regional group of fields in the Omsk and Tomsk Regions will become a second “new” center. Here the Krapivinskoye field located in the Omsk Region, and the Shinginskoye and Urmanskoye fields, acquired by the Company in the Tomsk Region,




are expected to become leaders in the next five years. In 2008 the Zapadno-Krapivinskoye field, which went into production in 2001, yielded the five millionth ton of oil.

On top of that, production licenses for deposits in the Tomsk Region and the Khanty-Mansi Autonomous District are held by Tomskeneft, which is managed on a parity basis by Gazprom Neft and Rosneft. Tomskneft operates in 31 fields, the Sovetskoye field being the largest of them.

Besides, in the Yamal-Nenets, Khanty-Mansi Autonomous Districts and the Krasnoyarsk Krai reserves are developed by Slavneft, which is managed on a parity basis by Gazprom Neft and TNK-BP. Slavneft holds geological survey, oil and gas exploration and production licenses for 38 license plots in Western Siberia and the Krasnoyarsk Krai.

In 2008 Gazprom Neft had 36 producing fields, the same number as in 2007.

In 2008 Gazprom Neft maintained its position as one of the industry leaders among Russian oil companies. The Company is fifth in oil production in the Russian Federation. Total production by Gazprom Neft in 2008 was up by 7.3% due to the acquisition of a 50% interest in Tomskneft to reach a total of 46 253.8 thou. tons of oil.

Own production by JSC Gazprom Neft in 2008 was 30 775.6 thou. tons, which is 1 890 thou tons less than in 2007 (-5.8%). In 2007 such reduction was 0.2% compared to 2006.

A drop in production was attributable principally to a decline in the output of JSC Gazpromneft-Noyabrskneftegaz, which was in part compensated for by an increase in the output at new deposits, such as Priobskoye (+13.2%) and some deposits in the Tomsk and Omsk Regions. The main reasons for the production decline were an increase in the base production decline rate and in the water cut of produced fluid, insufficient scope and a lower efficiency of geotechnical operations (GTO).

The sharpest drop in output was registered at the Sugmutskoye (-31.5%) and Sporyshevskoye (-20.7%) fields resulting from both being at the third stage of production. In 2008 the share of oil produced by subsidiaries went up due to the acquisition of a 50% interest in Tomskneft and totaled 15 478.2 thou. tons, including 9 785.5 thou. tons for JSC Slavneft and 5. 692. thou. tons for Tomskneft..

Over 12 months of 2008 609 new development wells were put on production, which is 88 wells more than in 2007. It became possible to increase the number of wells put on production due to an expansion of the development drilling program: meters drilled reached 2 033.4 thou. m, which is 335 thou. m more than in 2007, as a result of favorable oil prices.

As of the end of 2008, the producing well stock of the Company grew by 92 units to reach 5102 wells.

In the post-peak production fields secondary recovery methods are used. The purpose of the Company is to maximize the oil recovery factor (ORF). Gazprom Neft plans to increase the average ORF across the Company from 30% as of now to 40% in 2020.

OIL REFINING In 2008 JSC the Company maintained its position as one of the leaders among Russian oil companies in the growth rate of oil refining volumes. In the reporting period the enterprises of the Company refined 28.4 mln tons of oil. In as short a span as two years the Company has managed to increase the refining volume by 16.4%: from 24.4 to 28.4 mln tons of oil.

The main refining asset of the Company is the Omsk Refinery (share in refining – 100%). The Company also has a share in the oil processed by the Moscow Refinery and JSC Slavneft-Yaroslavnefteorgsintez.

OIL AND GAS CONDENSATE PRODUCTIONSOURCE: COMPANY DATA

• Gazprom Neft • Share of Slavneft• Share of Tomskneft

2005 2006 2007 2008

50 000

40 000

30 000

20 000

10 000

0

THOU. TONS

EXPLORATION METERS DRILLEDSOURCE: COMPANY DATA

THOU. M

2005 2006 2007 2008

2 500

2 000

1 500

1 000

500

0

10211410

1698

2033

+20%

+20%

+38%

DEVELOPMENT DRILLING. NEW WELLS PUT ON PRODUCTIONSOURCE: COMPANY DATA

UNITS

2005 2006 2007 2008

424491

521

609

+17%

+6%

+16%

PRODUCTION OF MAIN TYPES OF PETROLEUM PRODUCTSSOURCE: COMPANY DATA

• Jet Fuel• Gasoline• Diesel Fuel• Fuel Oil

9

8

7

6

5

4

3

2

1

0 2004 2005 2006 2007 2008

MLN TONS

PRIMARY REFINING GROWTHSOURCE: COMPANY DATA

• Yaroslavl Refinery• YANOS• Moscow Refinery• Omsk Refinery

25

20

15

10

5

0 2005 2006 2007 2008

MLN TONS





18

12

3

4

5

6

7

8

9

1011

1213

14

15

16

17

21

22

23

24

25

26

27

28

29

19

20



OIL REFINERIES AND REGIONS OF SALES


• REGIONS WITH RETAIL SALES

1 Moscow and Moscow Region2 Kaluga Region3 Yaroslavl Region4 Ivanovo Region5 Nizhniy Novgorod6 Saint-Petersburg

and Leningrad Region7 Chelyabink Region8 Sverdlovsk Region9 Tyumen Region10 Omsk Region11 Tomsk Region12 Novosibirsk Region13 Kemerovo Region14 Republic of Altai15 Krasnoyarsk Krai16 Kazakhstan17 Kyrgyzstan18 Tajikistan19 Krasnodar Krai20 Serbia

• REGIONS WITH WHOLE SALES ONLY

21 Tula Region22 Republic of Karelia23 Murmansk Region24 Arkhangelsk Region25 Irkutsk Region26 Republic of Sakha (Yakutia)27 Khabarovsk Kraiй28 Primorsky Krai29 Belarus

Refinery Operations of Gazprom Neft Marine Bunker LLC (ports) Operations of Gazprom Neft-Aero



An 8.3% growth in oil refining in 2008 was attributable primarily to an increase in refining at the main refining enterprise – the Omsk Refinery.

The Omsk Refinery is one of the most advanced refineries in Russia and one of the largest in the world. The installed capacity of the Omsk Refinery is 19.5 mln tons of crude oil a year. In 2008 the Refinery maintained leadership in Russia in light hydrocarbon and aromatic hydrocarbon production. In terms of oil refining volumes -18.4 mln tons (7.79% of total oil refined in Russia), in 2008 the Omsk Refinery finished second among Russian refineries (next only to a subsidiary of JSC Surgutneftegaz, PO Kirishinefteorgsintez LLC, with 20.5 mln tons).

In 2008 the utilization rate of primary refining capacities at the Omsk Refinery was 94.4% with processing depth being 82.5% against the Russian industry average of 71.4%.

The staple products of the refinery are: motor gasolines, diesel oil, fuel oil, jet oil, as well as a variety of aromatic hydrocarbons, liquefied hydrocarbon gases, different types of lubricants, additives, catalysts and other products.

The volume of primary refining at the Moscow Refinery in 2008 was 9.8 mln tons, which is a 2.1% drop compared to 2007 attributable to an overhaul of the ELOU-AVT-6 plant in April-May 2008, of which Gazprom Neft’s share is 3.27 mln tons.

The Company is involved in refining at the Moscow Refinery in proportion to its interest in the authorized capital. In 2007 primary oil refining at this enterprise totaled 9 996 mln tons, which is a 3.3% increase compared to 2006, of which the Com-pany accounted for 3.336 mln tons.

In proportion to its equity interest in the authorized capital of JSC Slavneft, Gazprom Neft has access to the refining capacities of this company, in particular, to JSC Slavneft- Yaroslavnefteorgsintez. In 2008 the volume of primary oil refining at JSC Slavneft totaled 13.5 mln tons, of which the share of Gazprom Neft was 6.75 mln tons.

PRODUCTION OF PETROLEUM PRODUCTSIn 2008 Gazprom Neft increased the production of petroleum products by 8.5% up to 26.8 mln tons from 24.7 mln tons in 2007. This increase was due to an expansion of the domestic petroleum product market, extension of the Company’s retail network and reduction of the turnaround time at the Omsk Refinery. The Company processes oil, produced or purchased in the domestic market, mainly at its own Omsk Refinery as well as at the Moscow Refinery and YANOS.

Both oil processed at these refineries and also refined petroleum products are owned by Gazprom Neft, which pays the cost of refining services to each refinery.

DISTRIBUTION OF OIL PRODUCTSIn 2008 Gazprom Neft, boasting one of the most extensive distribution networks in Russia, consoli dated its position in the retail petroleum product mar ket.

The Company sells petroleum products in Russia mainly through 21 subsidiaries, 17 of which are retail distribution companies engaged in both wholesale distribution and in retail sales of petroleum products through filling stations. Three of these subsidiaries sell specific types of petroleum products: CJSC Gazpromneft-Aero – jet fuel, Gazpromneft-Lubricants LLC – oils and lubricants, Gazpromneft-Resurs LLC supplies petroleum products to the Federal Agency for State Reserves.


5353535355TTTTTTTTTTTTT00888888800888888

• Gasoline• Diesel Fuel• Fuel Oil• Jet Fuel

2004

2005

PRODUCTION BALANCE OF MAIN PETROLEUM PRODUCTSSOURCE: COMPANY DATA

2006

2007

2008



In 2008 petroleum product sales in the domestic market went up by 17.2%, compared to 2007, and reached 15.7 mln tons.

Over 2008 small wholesales were up by 38%, compared to 2007, to reach 3 001.54 thou. tons, wholesale (transit) distribution grew by 134% to 3 132.9 thou. tons.

The total number of filling stations operated by the Company’s distribution enter prises increased from 782 to 865 with an increase in daily sales per filling station of 13%. The number of franchise filling stations was down from 30 to 8. 29 filling stations were built and another 51 renovated. As part of the retail network optimization, the Company decommissioned 23 filling stations and reduced the number of leased filling stations by one.

In 2008 sales through the filling stations in operation grew by 24% to reach 2 806 thou. tons. Gasoline sales increased by 20% up to 2 027 thou. tons, diesel sales - by 36% up to 725.4 thou. tons.

In 2008 the Company continued working under the program for unification of its distribution enterprises until 2010, the principal objective of which is to enhance the efficiency of Gazprom Neft’s distribution network.

In 2008 transition of distribution enterprises to a unified organizational structure was completed. Distribution enterprises of the European part of the Russian Federation offered their customers a new Petrol Plus-based solution for fuel cards. The Company completed the active phase of introduction of wholesale efficiency enhancement tools at the distribution enterprises, began putting in place a CRM system, developed uniform service standards for retail customers and started the implementation of unification projects for accounting policies and procedures and budget planning.

The quarterly bonus system based on economic competition results introduced in 2008 proved to be highly effective for purposes of enhancing the efficiency of operations in the Company’s network of distribution enterprises.

The Company has three foreign distribution enterprises in the customs union countries: Gazpromneft-Kazakhstan LLP, Gazpromneft-Tajikistan LLC and Gazprom Neft Asia in Kyrgyzia. Over 2008 they sold 944.9 thou. tons of petroleum products and also developed a growth strategy for the above markets with an emphasis on the acquisition of retail assets.

Gazprom Neft continued with the development of projects for entering the markets of the Yaroslavl, Ivanovo and Chelyabinsk Regions through JSC Gazpromneft-Yaroslavl and Gazpromneft-Chelyabinsk LLC.

JSC Gazpromneft-Yaroslavl was organized as part of the division of JSC Slavneft-Yaroslavnefteproduct’s property with TNK-BP. The new enterprise will operate in the Yaroslavl and Ivanovo Regions. After completion of the property transfer process Gazprom Neft will be represented in the specified regions by 97 filling stations and 7 tank farms with total sales of around 250 thou. tons a year.

Gazpromneft-Chelyabinsk LLC was set up with a view to entering into the regional market and to acquiring retail assets.The Company developed a growth strategy for oil distribution enterprises and a medium-term investment program for 2008-2010 designed to double the sales in the retail sector.

An important step was the creation of “product” enterprises within Gazprom Neft – Gazpromneft-Aero, Gazpromneft Marine Bunker and Gazpromneft Lubricants. Now these enterprises are actively growing and expanding their business in accordance with the overall development strategy.

SHIP BUNKERINGIn Autumn of 2007 Gazprom Neft established a subsidiary, Gazprom Neft Marine Bunker, whose purpose is to supply bunker fuel for sea- and river-going vessels. As of now the company is one of the leaders among Russian bunker companies with a 10% share in the bunker market. The company has been given the following range of objectives: active entry into the market, stable, guaranteed all-year-round supplies of high-quality ISO 8217-2005(E) bunker fuel to the end user – shipowners and charterers.

Bunkering is a premium sales market for fuel oils and diesel fuel. The ambitious objectives of Gazprom Neft is by 2020 to take up one third of the bunker market and to sell 100% fuel oil and 12% of diesel fuel produced by the Company at a premium compared to exports. To this end, it is required, first, to ensure the production of 4.2 mln tons of marine fuel complying with international standards; second, to create own port infrastructure of six terminals, a bunker fleet consisting of 19 bunker tankers and trade branches united into a single network. In pursuance of the targets set, 9 bunker ships were purchased in 2008.

AIRCRAFT FUELINGSale of jet fuel produced at JSC Gazprom Neft’s refineries and operation of fuel service complexes at the airports of the Russian Federation are the key operational priorities of CJSC Gazpromneft-Aero.

CJSC Gazpromneft-Aero will follow this line of business development: transition to direct contracts with jet fuel end users, increase in the retail share (aircraft fueling), creation of a distribution network of fuel service complexes both affiliated (own) and on a partnership basis. The Development Strategy of CJSC Gazpromneft-Aero until 2020 provides for establishing a corporate network of 15 modern fuel service complexes at the Russian airports and for phased regional development from Russian airports at the moment to CIS airports in the near term and to airports in other regions of the world by 2020.

Availability of own capacities at the airports will allow the company to ensure good competitive positions in the distribution markets and get a retail margin on jet fuel sales.




Currently CJSC Gazpromneft-Aero operates under direct contracts with airlines selling jet fuel without intermediaries. Among the principal counterparties of the company are JSC Aeroflot – Russian Airlines, FGUP State Customs Committee of Russia, JSC Transaero, JSC Sibir Airlines, CJSC Sky Express, CJSC Aeroflot – Nord, CJSC Aeroflot-Don, JSC Atlant-Soyuz.

The company provides aircraft fueling services at the following airports: Sheremetievo (Moscow), Domodedovo (Moscow), Pulkovo (Saint-Petersburg), Novosibirsk, Krasnoyarsk, Murmansk, Tomsk, Kemerovo, Bryansk.

PRODUCTION AND SALE OF MOTOR FUELSGazpromneft-Lubricants LLC – a young subsidiary of Gazprom Neft – showed the first results of its operation in 2008 within the global marketing strategy of the Company.

In 2008 the enterprise managed to build an effective distribution structure which allowed it to take up 6% of the Russian oils and lubricants market. Another achievement of the past year was active development of export sales, particularly in Kazakhstan and the Ukraine.

In last December the enterprise introduced to the consumer market a fundamentally revamped assortment of products under the SibiMotor brand.

Super T-2, Super T-3 and Trans KP-2 gear oils of Gazpromneft-Lubricants LLC were tested for compliance with the specifications of Zahnradfabrik Friedrichshafen (ZF), a German concern.

Within two years Gazpromneft-Lubricants intends to turn its brand name from a local and marginally known to a national one. The emphasis will be laid on adequate import substitution: the consumer will receive a wide assortment of products complying with international standards, but – at domestic prices.

In the next 3 years the company will invest 74 mln USD in the renewal of existing and construction of new production capacities.

The key role in the promotion of new products will be played by regional distributors of the company. As part of the distribution network development a comprehensive promotion program for new products has been developed, providing, among other things, for loans to the distributors of Gazpromneft-Lubricants LLC.

REBRANDING OF THE FILLING STATION NETWORKConsumers have never questioned the high quality of products produced by the Company’s refineries. The comprehensive development program of the Omsk Refinery will enable it in the very near future to produce motor gasolines and diesel fuel complying with existing European environmental standards (EURO 4 – from 2012 and EURO 5 – from 2015). The Company plans to increase the number of filling stations not only by expanding the retail network in its traditional regions and those with high demand, but also by actively entering into new, promising regions. Gazprom Neft is beginning to bring the filling stations to a uniform exterior appearance, provide a wide range of auxiliary services, increase the service quality to comply with modern standards, analyze demand and consumer satisfaction with its services, develop customer loyalty programs.



In 2008 a visual concept and architectural-and-technical project of filling stations under the Gazprom Neft brand name was developed. The official opening of the first filling station under the brand name is contemplated for the second quarter of 2009. The first filling stations of the new network will appear in Moscow, Moscow Region, Saint-Petersburg, Kaluga, Nizhniy Novgorod and Tyumen. In 2009 it is planned to rebrand 225 filling stations and install 59 stelae of the new retail brand.

TENDER SYSTEM OF PETROLEUM PRODUCT SALESIn June 2008 Gazprom Neft’s electronic trading floor (ETF) went into operation, allowing buyers themselves to form market prices for Company products. At the moment Gazprom Neft’s ETF is the most advanced floor for electronic sales of petroleum products in Russia boasting over 320 companies that have registered at the floor since the start of its operation. Large and small traders as well as end consumers take part in trading.

Products are traded on the ETF from four bases – the Omsk Refinery, Moscow Refinery, YANOS and Sokur station without restrictions on the regions of shipping and counterparties’ access. In prospect – joining of the trading by Gazprom Neft subsidiaries, upgrade of the sales algorithm and creation of a secondary market for petroleum products purchased from Gazprom Neft. In prospect – trading will be joined by Gazprom Neft subsidiaries, the sales algorithm will be upgraded and a secondary market for petroleum products purchased from Gazprom Neft will be created.

Revenues from ETF trading for 7 months totaled 3 638 mln rub. with 115 836 tons of petroleum products sold.

We hope that the development of Gazprom Neft’s ETF will over time allow it to become one of the market price indicators.

OIL AND PETROLEUM PRODUCT EXPORTSOver 2008 the Company exported oil and petroleum products through its exclusive trading subsidiary - Gazprom Neft Trading GmbH, which was registered in Vienna in 2005. The main routes of oil export shipments were the Black Sea ports of Novorossiysk and Tuapse, the Baltic Sea port of Primorsk, as well as Slovakia, Germany and Poland - via the Druzhba Pipeline.

In 2008 Gazprom Neft Group supplied to the world market, in absolute terms, a total of 16.3 mln tons of oil, a 7.9% increase compared to 2007, of which 10.3 mln. tons were exported by sea, 5.7 mln tons – via the Druzhba Oil Pipeline and 0.4 mln tons via the Atasu-Alashankou Pipeline to China (transited through Kazakhstan).

3.3 mln tons were exported to the CIS markets, which is 32% more than in 2007.Currently Gazprom Neft does not make any significant oil sales in Russia.

In 2008 petroleum product exports by Gazprom Neft to non-CIS countries remained at the 2007 level with 11.4 mln tons. Exports to the CIS and Baltic countries barely changed in 2008 totaling 1.9 mln tons.


DEVELOPMENT OF OIL AND PETROLEUM PRODUCTS EXPORTSSOURCE: COMPANY DATA

• OIL EXPORTS• PETROLEUM PRODUCT EXPORTS

18

16

14

12

10

8

6

4

2

MLN TONS

2000

2001

2002

2003

2004

2005

2006

2007

2008


TRANSPORTATION OF OIL AND PETROLEUM PRODUCTS Oil exports are transported by Gazprom Neft mainly through the state pipeline system run by JSC Transneft (Transneft). Under Russian legislation access to the pipeline system is regulated by the Russian Ministry of Industry and Energy. The throughput capacity of the pipeline system, as a rule, is distributed between users in proportion to their quarterly share of supplies into the system and on a request basis. Pursuant to the Law “On Natural Monopolies” the rights of access to the pipeline system are distributed between the oil producing companies and their parents in proportion to the volume of oil produced and supplied into the Transneft pipeline system (that is, not only in proportion to the volume of oil produced).

As it stands now, the Federal Energy Agency approves quarterly plans specifying the exact volumes of oil a producer may pump into the Transneft system. Once the rights have been distributed, oil producers, as a rule, cannot increase the through-put capacity in the export pipeline system assigned to them, although they have a limited option for changing the transporta-tion routes. Oil producers are normally allowed to transfer their access rights to other parties. Alternatively, international markets may be accessed, bypassing the Transneft system, by rail, tankers as well as using own export infrastructure of oil companies.

Most of the oil produced by the Company is graded as Siberian Light or SILCO and has a below-average density of 34.20 degrees API or 830-850 kg/m3 and a below-average sulfur content of 0.56% compared to average Russian oil. If not blended with other Russian oil, oil produced by the Company could be sold at a premium to the Urals price. Yet this advantage is lost, since during transportation through the trunk pipeline system oil produced by the Company is blended with oil of other Russian producers.

The Company exports SILCO through Tuapse via a special pipeline designed for this type of oil. In 2008 SILCO sales through Tuapse accounted for 6.5% of all export sales by the Company.

In 2008 45% of total oil exports were delivered by the Company through the Baltic Sea ports (Primorsk, mostly); 27.4 of oil was exported via the Transneft-owned Druzhba Pipeline (mainly, to Germany, Poland and Slovakia); 24.9% of oil was transported through the Black Sea ports of Novorossiysk and Tuapse and the Ukrainian port of Yuzhniy; 2.7% of oil was exported via a transit pipeline through Kazakhstan to China.

Domestically, in Russia, petroleum products are transported by rail and via the JSC Transnefteproduct pipeline system. The Russian railways are owned and managed by JSC Russian Railways. Both companies are state-owned. In addition to the transportation of petroleum products, JSC Russian Railways provide oil transportation services to oil companies. The bulk of petroleum products (70%) are transported by the Company by rail; 19% of petroleum products are transported via the petroleum product pipeline system. Insignificant volumes are delivered to consumers by road and water as well as via process product pipelines.


INVESTMENT:TECHNICAL RE-EQUIPMENT AND DEVELOPMENT OF THE COMPANY


In early 2008 JSC Gazprom Neft approved the scope of the medium-term investment program (MTIP) for 2008-2010 in the amount of 267.5 bn rubles. The bulk of investment in the amount of 176.5 bn rub. was allocated to oil production projects, 29.7 bn rub. of investment was channeled to exploration, 14.1 bn rub. – to the development of oil service operations, 27.3 bn rub. to oil refining and 19.9 bn – to the retailing and small wholesaling of petroleum products.

Implementation of the medium-term investment program will allow JSC Gazprom Neft to accomplish its major strategic objectives: increase oil production, ensure future oil production growth through effective exploration and development of new fields, strengthen the competitive positions of the oil service block, switch to the output of Euro 4 petroleum products by 2012, and substantially increase retail sales of petroleum products.

Total investment in 2008 was 94.9 bn rub. JSC Gazprom Neft’s capital investment in “organic growth” and asset maintenance in 2008 was 82 bn rub., which is a 58% increase compared to 2007. In particular, capital investment in oil production was 65.9 bn rub., in exploration – 5.7 bn rub., in refining – 4.2 bn rub., in petroleum product sales – 4.2 bn rub., another 1.6 bn rub. of investment was allocated to supporting oil service operations. Financing of asset acquisition and other investment totaled 12.9 bn rubles.

In accordance with JSC Gazprom Neft’s investment program for 2008 the bulk of investment in exploration and production was allocated to drilling new wells, maintaining basic production and conducting exploration in new license plots. Investment in oil refining was channeled to the projects for upgrading the quality of motor fuels to the Euro 4, 5 standards.

The fallen oil prices in world markets and significantly reduced credit resources forced nearly all domestic oil companies into reviewing their investment programs and developing anti-crisis measures to prevent losses and continue normal operations. In late 2008 JSC Gazprom Neft adopted a Medium-Term Investment Program (MTIP) for 2009-2011. Total investment for 2009 is down by 7% compared to 2008. The Company has extended completion deadlines for projects that have no bearing on production output, scaled back exploration, as well as ineffective production projects. Investment programs for associated gas recovery, distribution and service enterprises have been minimized.

In 2009 JSC Gazprom Neft is expected to invest 88.2 bn rub., of which 50.3 bn rub. is to be allocated to oil production, 3.5 bn rub. to exploration, 7.1 bn rub. – to oil refining (including production of bitumens and lubricants); 5.4 bn rub. – to petroleum product sales, 1.5 bn rubles to oil service operations and another 20.4 bn rub. will be spent on asset acquisition.

INVESTMENT: TECHNICAL RE-EQUIPMENT AND DEVELOPMENT OF THE COMPANY

CAPITAL INVESTMENT*, BN RUB.SOURCE: COMPANY DATA

46

+13%

+58%

-17%

2006

2007

2008

2009PROJECTED

52

8268

PERFORMANCEAND FINANCIAL

INDICATORS


KEY PERFORMANCE INDICATORS

PERFORMANCE AND FINANCIAL INDICATORS

UTILILZATION OF REFINING CAPACITIES (2008)SOURCE: COMPANY DATA

PETROLEUM PRODUCT SALES IN RUSSIAN FEDERATIONSOURCE: COMPANY DATA

PETROLEUM PRODUCT EXPORTSSOURCE: COMPANY DATA

• Exports• Non-CIS

80

9694

ОНПЗ ЯНОС МНПЗ

%

13,4

15,7

+17,2%

2007 2008

MLN TONS

11,4 11,4

1,9 1,913,3 13,3

2007 2008

MLN TONS

0%

EXPORT SOURCE: COMPANY DATA

• Non-CIS• CIS

REFININGSOURCE: COMPANY DATA

• Omsk• Yaroslavl• Moscow

OIL PRODUCTIONSOURCE: COMPANY DATA

• Slavneft• Gazprom Neft• Tomskneft

15,1

2,53.3

16,3

+32%

2007 2008

MLN TONS

+7,9%

2007 2008

16,518,4

6,46,8

3,33,3

26.228.4MLN

TONS

+8.8%

228,6243,2

76,271,2

37,5

319,4

337,3

+5,6%

2007 2008

MLN BARRELS

PROVED HYDROCARBON RESERVES UNDER SPE CLASSIFICATIONSOURCE: COMPANY DATA

• Exploration & Reestimation• Oil and Gas Production

OIL BALANCE SOURCE: COMPANY DATA

• oil sales• refining and marketing

RESERVES-TO-PRODUCTION RATIOSOURCE: COMPANY DATA

• proved reserves• 2P• 3P

425 (342)

6808

2007 2008

6906

BN BOE

45% 47% 40% 39%

55% 53% 60% 61%

2005 2006 2007 2008

%

20 YEARS ’30 YEARS ’50 YEARS

20 000

15 000

10 000

5 000

0

BOE

OUTPUT OF PETROLEUM PRODUCTS SOURCE: COMPANY DATA

OILSJET FUEL

OTHER

FUEL OIL

GASOLINES

DIESELS33%

28%

22%

9%

7% 1%


KEY FINANCIAL RESULTS

* Adjusted EBITDA includes EBITDA share of equity investees (Slavneft and Tomskneft)

ADJUSTED EBITDA* SOURCE: COMPANY DATA

6 554

8 560

2007 2008

+31%

MLN US$

ADJUSTED EBITDA* MARGIN SOURCE: COMPANY DATA

30%

26%

2007 2008

%

-4%

ADJUSTED EBITDA* SOURCE: COMPANY DATA

21

25

US$ PER BARREL

+19%

2007 2008

EBITDASOURCE: COMPANY DATA

5 6766 236

7 965

2006 2007 2008

+10%+28%

MLN US$

REVENUESSOURCE: COMPANY DATA

20,17621,767

33,075

2006 2007 2008

MLN US$

+8% +52%

NET INCOMESOURCE: COMPANY DATA

MLN US$

3,6614,143

4,658

2006 2007 2008

+13%+12%

NET CASH FROM OPERATING ACTIVITIES SOURCE: COMPANY DATA

3 320

5 316

5 444

2006 2007 2008

+55%+2,4%

MLN US$

DEBT-TO-EBITDA RATIOSOURCE: COMPANY DATA

• Net Debt/EBITDA (left axis)• Gearing (right axis)

2005 2006 2007 2008

0,5

0,4

0,3

0,2

0,1

0

30

20

10

0

MLN US$ %


REVENUE STRUCTURE 2008SOURCE: COMPANY DATA

Petroleum Products

- Domesti

c Market 3

1

Petroleum Products

to CIS 4

Oil - D

omestic M

arekt 1

Petroleum Products

- Exp

ort 24

0 Gas S

ales

2 Other

3 Oil E

xports

to CIS

35 Oil Exp

orts



MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2008, 2007 AND 2006The following discussion is intended to assist you in understanding of JSC Gazprom Neft’s financial position as of December 31, 2008 and 2007 and results of operations for the three years ended December 31, 2008 and should be read in conjunction with the Consolidated Financial Statements and notes thereto, which were prepared in accordance with accounting principles generally accepted in the United States of America.

Such terms as “Gazprom Neft”, “Company” and “Group” in their different forms in this report represent JSC Gazprom Neft and its consolidated subsidiaries and affiliated companies. This report represents JSC Gazprom Neft’s financial condition and results of operations on a consolidated basis.Tonnes of crude oil produced are translated into barrels using conversion rates reflecting oil density from each of our oil fields. Crude oil purchased as well as other operational indicators expressed in barrels are translated into barrels using a conversion rate of 7.33 barrels per tonne. Translations of cubic meters to cubic feet were made at the rate of 35.31 cubic feet per cubic meter. Translations of barrels of crude oil into barrels of oil equivalent (“BOE”) were made at the rate of 1 barrel per BOE and of cubic feet into BOE at the rate of 6 thousand cubic feet per BOE.

FORWARD-LOOKING STATEMENTS This discussion contains forward-looking statements concerning the financial condition, results of operations and businesses of Gazprom Neft and its consolidated subsidiaries. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements.

Forward-looking statements include, among other things, statements concerning the potential exposure of Gazprom Neft to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases.

There are a number of factors that could affect the future operations of Gazprom Neft and could cause those results to differ materially from those expressed in the forward-looking statements included in this Report, inclusively (without limitation): (a) price fluctuations in crude oil and gas; (b) changes in demand for the Company’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) economic and financial market conditions in various countries and regions; (j) political risks, project delay or advancement, approvals and cost estimates; and (k) changes in trading conditions.

All forward-looking statements contained in this discussion are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on these forward-looking statements. Each forward-looking statement speaks only as of the date of this discussion. Neither Gazprom Neft nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information (table 5).

OPERATING SEGMENTSThe Company’s activities are divided into two main operating segments:

• Exploration and production segment– which includes exploration, development and production of crude oil and gas. • Refining, Marketing and Distribution – which includes refining of crude oil, purchases, sales and transportation

of crude oil and refined petroleum products.

These segments are interdependent; a portion of the revenues of one segment forms a part of the costs of the other segment. In particular, JSC Gazprom Neft, as a holding company, buys crude oil from its production subsidiaries, part of which is processed at the Company’s refinery and other refineries; the remaining production is primarily exported through a wholly owned export trading company. The refined petroleum products are then distributed on the international or domestic markets through the Company’s own marketing subsidiaries. In most cases it is difficult to determine market prices for crude oil in the domestic market due to the significant intragroup turnover within the vertically integrated oil companies. The prices set for intragroup purchases of crude oil reflects a combination of market factors such as international crude oil prices, transportation costs, the cost of crude oil refining, capital investment requirements of the individual upstream subsidiaries and other factors. Accordingly, the results of operations of these segments on a stand-alone basis do not necessarily represent each segment’s underlying financial position and results of operations. For this reason, we do not analyze our segments separately. Refer to financial data by operating segments in Note 20 of the Consolidated Financial Statements.

MAIN MACROECONOMIC FACTORS AFFECTING RESULTS OF OPERATIONSThe main factors affecting the Company’s results of operations include:

• Changes in market prices of crude oil and petroleum products;• Russian Ruble (“RR”) exchange rate versus the US Dollar (“USD”); inflation;• Taxation; • Changes in transportation tariffs of crude oil and petroleum products.

Table 5. KEY FINANCIAL AND OPERATING RESULTSChange, %

2008 2007 2006 2008/2007 2007/2006• Revenues, US$ million 33,075 21,767 20,176 52.0 7.9• Net income, US$ million 4,658 4,143 3,661 12.4 13.2• EBITDA, US$ million 7,965 6,236 5,676 27.7 9.9• Crude oil production including our share of equity investees,

millions of barrels 337.3 319.4 318.0 5.6 0.4

• Refining throughput at own and equity investee refineries, millions of tonnes 28.4 26.2 24.4 8.8 7.4




CHANGES IN MARKET PRICES OF CRUDE OIL AND PETROLEUM PRODUCTSThe prices of crude oil and petroleum products in the international and Russian markets are the primary driver of the Company’s results of operations. We do not use derivative instruments to manage our trade operations. Accordingly, market crude oil prices are the main driver of the Company’s revenues.

During 2008, Brent crude oil price grew from average of US$ 92.00 per barrel in January 2008 to its historical high US$ 144.22 in July 2008, and then collapsed to US$ 36.55 at the end of December 2008. In the first half of 2008, the price growth was driven by financial market fluctuations and weakening US dollar. In the second half of 2008 global money supply decrease and falling demand for crude oil and oil products caused crude oil price fall to a four year low. In the forth quarter 2008 crude oil prices were below a level at which development of many oilfields worldwide and in the Russian Federation is profitable (table 6).

In 2008 the Brent average price was US$ 97.26 per barrel, which is 34.4% higher than the corresponding period of 2007; in 2007 the Brent average price was US$ 72.34 per barrel, which is 11.1% higher than the corresponding period of 2006. The average Urals price in 2008 increased by 36.9% to US$ 94.79 per barrel as compared to 2007; in 2007 the average Urals price increased by 13.0% to US$ 69.23 compared to 2006.

RUBLE VS. US DOLLAR EXCHANGE RATE AND INFLATIONA substantial part of the Company’s revenues from sales of crude oil and petroleum products is denominated in US Dollars, while most of the expenses are settled in Russian Rubles. Accordingly, any real Ruble appreciation to the US Dollar negatively affects the results of the Company’s operations, though this fact is partially offset by an increased Ruble denominated revenue from sales in Russia. Ruble appreciated against the US Dollar in real and nominal terms during of the years 2006 and 2007 and throughout the first half of 2008. However, as a result of the sharp decline of crude oil prices and a global economic slowdown in the second half of 2008, Ruble depreciated significantly against the US Dollar in both real and

Table 6. AVERAGE CRUDE OIL AND PETROLEUM PRODUCTS PRICES IN THE INTERNATIONAL AND DOMESTIC MARKETS Change %

2008 2007 2006 2008/2007 2007/2006International market (in US$ per barrel)

Brent 97.26 72.34 65.14 34.4 11.1Urals Spot (average Med. + NWE) 94.79 69.23 61.28 36.9 13.0

(in US$ per tonne)Premium gasoline (average NWE) 841.55 697.41 622.79 20.7 12.0Regular gasoline (average NWE) 840.31 690.83 616.23 21.6 12.1Naphtha (average Med. + NWE) 779.84 662.27 563.33 17.8 17.6 Diesel fuel (average NWE) 948.49 667.70 609.37 42.1 9.6Gasoil 0.2% (average Med. + NWE) 903.81 640.69 581.44 41.1 10.2Fuel oil 3.5% (average NWE) 452.55 330.76 282.25 36.8 17.2

Domestic market (in US$ per tonne)High-octane gasoline 1,023.15 835.47 737.17 22.5 13.3Low-octane gasoline 803.38 656.82 589.81 22.3 11.4Diesel fuel 880.67 617.92 590.78 42.5 4.6Fuel oil 329.05 219.45 206.92 49.9 6.1

SOURCE: PLATTS (INTERNATIONAL MARKET) AND KORTES (DOMESTIC MARKET)




nominal terms. In order to mitigate the effects of fluctuation in Ruble – US Dollar exchange rate, in April 2008 the Company began using derivative instruments. Refer to additional information in Note 16 of the Consolidated Financial Statements (table 7).

TAXATION (table 8)

CRUDE OIL EXPORT CUSTOMS DUTY RATE. Export custom duty rate per tonne of crude oil is enacted by the Government of the Russian Federation based on the average Urals prices, referred to as the monitoring period. The monitoring period comprises two months starting from November 1, 2001. The rate is effective of the first day of the second month after the monitoring period.

In December 2008 the Government approved as amended the new mechanism: export custom duty rate is revised monthly according to data provided by monitoring of the world crude oil price. The special export custom duty rate in October - November 2008 (US$ 372.20 and US$ 287.30 per tonne, respectively) led to partial offset of the negative influence of arising difference between the estimated export custom duty rate and the actual sales price.

The export customs duty on crude oil increased by 71.8% in 2008 to US$ 355.08 per tonne (US$ 48.44 per barrel) from US$ 206.70 per tonne (US$ 28,20 per barrel) in 2007. The increase in these comparative periods was associated with the growth of Urals prices, which increased by 36.9% to US$ 94.79 per barrel in 2008 compared to US$ 69.23 per barrel in 2007.

The export customs duty on crude oil in 2007 increased by 4.9% to US$ 28.20 per barrel compared to the corresponding period of 2006. The growth was due to higher Urals prices in 2007.

EXPORT CUSTOMS DUTY RATE ON PETROLEUM PRODUCTS. Export custom duty rate on oil products is determined by the Government based on the prices for crude on international markets separately for light and middle distillates and for fuel oil (table 9).

CRUDE OIL MINERAL EXTRACTION TAX RATE. Starting from January 1, 2007 mineral extraction tax rate on crude oil (R) is determined based on the formula R = 419 * (P – 9) * D/261 where P - is the average monthly Urals oil price on Rotterdam and Mediterranean markets (US$/bbl) and D - is the RUR/US$ average exchange rate for the month.

In case of the depletion, which is determined as the accumulated volume of crude produced from the field (N) divided by the total volume of reserves (V = A + B + C1 + C2, as determined by Russian Resources Classification), equals or exceeds 80%, there is a special ratio (C) added to the formula (419 * (P – 9) * D/261* C), where C = -3.5 * N/V + 3.8. This adjustment provides a reduction of the tax payable in accordance with the formula provided above by 3.5% for every 1% of depletion over 80%.

Because of the current economic downturn, starting from September 2008, the Government revised the calculation of mineral extraction tax on crude oil described above. Effective from January 1, 2009 the Urals crude oil price used in the formula above will increase from US$9 per barrel to US$ 15 per barrel. This change in the tax rate will lead to reduction of the Company’s mineral extraction tax payments.

In 2008 mineral extraction tax rate on crude oil increased by 38.5% to US$ 18.27 per barrel primarily due to a 36.9% increase in average crude oil prices as compared to the corresponding period of 2007.

In 2007 mineral extraction tax rate on crude oil increased by 16.0% to US$ 13.19 per barrel primarily due to a 13.0% increase in average crude oil prices as compared to the same period of 2006.

Table 7. RUBLE VS. US DOLLAR EXCHANGE RATE AND INFLATION2008 2007 2006

• Inflation (CPI), % 13.30 11.90 9.00• Ruble/US dollar exchange rate as of the end of the period 29.38 24.55 26.33• Average Ruble/US dollar exchange rate for the period 24.86 25.58 27.19• Real appreciation (depreciation) of the Ruble against the US dollar, % (5.3) 20.0 19.1SOURCE: THE CENTRAL BANK OF THE RUSSIAN FEDERATION, THE FEDERAL STATE STATISTICS SERVICE.

Table 8. AVERAGE ENACTED TAX RATES SPECIFIC TO THE OIL AND GAS INDUSTRY IN RUSSIAChange %

2008 2007 2006 2008/2007 2007/2006Export customs duty

• Crude oil (US$ per tonne) 355.08 206.70 197.01 71.8 4.9• Crude oil (US$ per barrel) 48.44 28.20 26.88 71.8 4.9• Light and middle distillates products (US$ per tonne) 251.53 151.59 143.40 65.9 5.7• Fuel oil (US$ per tonne) 135.51 81.64 77.27 66.0 5.7

Mineral extraction tax• Crude oil (RUR per tonne) 3,329.09 2, 472.69 2,265.72 34.6 9.1• Crude oil (US$ per barrel) 18.27 13.19 11.37 38.5 16.0• Natural gas (RUR per 1000 cm) 147.00 147.00 147.00 00.0 00.0

Table 9. AVERAGE URALS PRICEQuoted Urals price (P), USD per tonne Maximum Export Custom Duty Rate

0 – 109.50 0%109.50 – 146.00 35.0% * (P - 109.50)146.00 – 182.50 USD 12.78 + 45.0% * (P - 146.00)

>182.50 USD 29.20 + 65.0% * (P - 182.50)ИСТОЧНИК: RUSSIAN FEDERATION RULE DATED 21.05.1993 № 5003-1 (RED. DATED 30.12.2008) « CUSTOMS TARIFFS»

NATURAL GAS MINERAL EXTRACTION TAX RATE. The rate of mineral extraction tax for natural gas has remained stable since January 1, 2006 and equals 147.00 Rubles per thousand cubic meters of natural gas.

TRANSPORTATION OF CRUDE OIL AND PETROLEUM PRODUCTS

The transportation tariff policies are defined by the state authorities to ensure the balance of interests of the state and all participants in the transportation process. Transportation tariffs of natural monopolies are set by the Federal Tariffs Service of the Russian Federation (“FTS”). The tariffs are dependent on transport destination, delivery volume, distance of transportation, and several other factors. Changes in the tariffs depend on inflation forecasts by the Ministry of Economic Development of the Russian Federation, the investment needs of owners of transport infrastructure, other macroeconomic factors, and compensation of economically reasonable expenses, incurred by entities of natural monopolies. Tariffs are to be revised by FTS at least annually, comprising a dispatch tariff, loading, transshipment, pumping and other tariffs.

The main Russian crude oil production regions are remote from the main crude oil and refined products markets. Therefore, access of crude oil production companies to the markets is dependent on the extent of diversification of transport infrastructure and access to it. As a result, transportation cost is an important macroeconomic factor affecting our results.




Table 10. THE COMPANY’S RESERVES

millions barrels of oil equivalent (BOE)Changes in 2008

31.12.2008 Production Revision of previous estimates 31.12.2007• Gazprom Neft 4,847 (234) 136 4,945• Company’s share in equity investees* 1,961 (109) 109 1,961• Proved oil and gas reserves 6,808 (343) 245 6,906• Gazprom Neft 3,630 1,448• Company’s share in equity investees* 1,297 1,520• Probable oil and gas reserves 4,927 2,968• Gazprom Neft 4,708 1,568• Company’s share in equity investees* 1,856 3,363• Possible oil and gas reserves 6,564 4,931

* 49.9% of Slavneft’s reserves and 50% of Tomskneft’s reserves

RESOURCE BASEAccording to the independent reservoir engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 and 2006) on the basis of the standards set forth by the Society of Petroleum Engineers, Petroleum Reserves Management System (“PRMS”) as of December 31, 2008 the Company had 4,847 millions of barrel of oil equivalent (BOE), including proved crude oil reserves of 4,488 millions of BOEl and proved gas reserves of 2.2 trillion cubic feet.

The PRMS reserves above differ from those reported in the supplementary information on oil and gas activities included with our consolidated financial statements. Oil and gas reserves included in this supplementary information are prepared using definitions provided by the US Securities and Exchange Commission (SEC), which require the use of period end market prices and costs when determining oil and gas reserve estimates. The PRMS reserves above use management’s best estimate of future crude oil and natural gas prices.

The Company’s proved reserves including equity investees were 6,808 millions of BOE, including proved crude oil reserves of 6,303 millions of BOE and proved gas reserves of 3.0 trillion cubic feet.

The Company’s reserves are all located in the Russian Federation, primarily in the Western and Eastern Siberia and in the Far East (table 10).

PRODUCTION OF CRUDE OIL, GAS AND PETROLEUM PRODUCTSCRUDE OIL PRODUCTION. In 2008 the Company’s crude oil production decreased by 6.0% to 228.6 million barrels (30.8 million tones), compared to 2007. The reduction in this period was primarily a result of a decrease in output at Noyabrskneftegaz, which was partially offset by an increase in production in new fields such as Priobskoye and certain fields in Tomsk and Omsk regions.

In 2007 the Company’s crude oil production was approximately the same as in 2006 - 243.2 million barrels (32.7 million tonnes respectively) (table 11).




In 2008 the Company’s share in production of equity investees increased by 42.7% to 108.7 million barrels (14.8 million tonnes) compared to 2007. The increase was primarily due to the acquisition of our 50% interest in Tomskneft in December 2007 (table 12).

In 2007 the Company’s share in production of equity investees increased by 2.0% to 76.2 million barrels (10.4 million tonnes) compared to 2006.

In 2008 the Company increased the volumes of crude oil purchased internationally due to the expansion in its marketing activities.

GAS PRODUCTION. In 2008 the Company produced 2.2 billions of cubic meters of associated and natural gas with an increase of 22.2% compared to 2007. This increase relates to the Company’s program for the utilization of associated gas, which is described below.

Including share in gas production of equity investees the Company’s production increased by 45.5% to 3.2 billions of cubic meters in 2008 compared to 2007. The increase was attributed to the acquisition of our 50% interest in Tomskneft in December 2007.

In 2007 including share in gas production of equity investees the Company produced 2.2 billions of cubic meters of associated and natural gas, which is slightly less than 2.5 billions of cubic meters produced in 2006.

In February 2008, Gazprom Neft adopted a medium term program for the utilization of associated gas with the goal of increasing its efficient use, mitigating environmental and tax risks and increasing revenues from the sale of additional volumes of associated gas and its refined products. The Company plans to invest Rubles 18 billion (approximately US$ 600 million) to implement this program during the period from 2008 through 2010. In particular, the program provides for the construction of associated gas transportation facilities from the Ety-Purovskoye, Meretoyakhinskoye, Severo-Yangtinskoye, Chatylkinskoye, Kholmistoye, Yuzhno-Udmurtskoye, Ravninnoye, Vorgenskoye, Urmanskoye and Shinginskoye fields (table 13).

PRODUCTION OF PETROLEUM PRODUCTS. In 2008 the Company increased the volumes of refined petroleum products by 8.5% to 26.8 million tonnes from 24.7 million tonnes in 2007. The increase was associated with the extension in the domestic petroleum market capacity, an expansion of the Company’s retail network and increasing of regional sales.

The Company processes domestic crude oil into refined products primarily at its Omsk Refinery, Moscow Refinery and Yaroslavl Refinery. Gazprom Neft owns the Omsk Refinery and has access to the Moscow Refinery and Yaroslavl Refinery in proportion of its equity interest. Gazprom Neft owns both the crude oil processed at these oil refineries and the products produced from refining and pays each refinery a fee for their processing services.

The Company primarily markets its own crude oil and petroleum products for export through Gazprom Neft Trading GmbH, its trading subsidiary in Austria.

The Company’s petroleum products are distributed within Russia primarily through 21 subsidiaries. Most of these subsidiaries are retail distribution companies engaged in wholesale distribution, providing petroleum oil products for Rosreserv or operate in the gas station retail markets. Gazprom Neft Aero JSC, Gazpromneft Smazochny materialy LLC and Gazprom Neft Marine Bunker LLC specialize in the sale of particular petroleum products. Gazprom Neft distributes

Table 14. THE COMPANY’S PETROLEUM PRODUCTS PRODUCTIONmillions of tonnes Change %

2008 2007 2006 2008/2007 2007/2006• Production of petroleum products at the Company’s refinery 17.3 15.5 15.2 11.6 2.0• Production of petroleum products at equity refineries 9.5 9.2 7.6 3.3 21.1• Total production of petroleum products 26.8 24.7 22.8 8.5 8.3• Petroleum products purchases in Russia and CIS 1.1 0.3 1.7 266.7 (82.4)• Petroleum products purchases internationally 1.7 1.6 1.5 6.3 6.7• Total petroleum products purchases 2.8 1.9 3.2 47.4 (40.6)

Table 11. THE COMPANY’S PRODUCTIONmillions of barrels Change %

2008 2007 2006 2008/2007 2007/2006• Crude oil produced by consolidated subsidiaries 228.6 243.2 243.3 (6.0) -• Company’s share in production of equity investees 108.7 76.2 74.7 42.7 2.0• Total crude oil production 337.3 319.4 318.0 5.6 0.4

its refined products in central Asia through three subsidiaries: Gazpromneft Asia LLC in Kyrgyzstan; Gazpromneft—Tajikistan LLC and Gazpromneft—Kazakhstan LLC (table 14).

During 2008 the Company’s revenues increased by 52.0% to US$ 33,075 million compared to US$ 21,767 million in 2007 (in 2007 increased by 7.9% compared to 2006 results). The growth in revenues was primarily due to the following:

• an increase in crude oil and petroleum products production;• an increase in sales volumes of crude oil and petroleum products.• an increase in average prices

Table 12. THE COMPANY’S CRUDE OIL PURCHASESmillions of barrels Change %

2008 2007 2006 2008/2007 2007/2006• Crude oil purchases in Russia and CIS* 12.0 16.3 14.2 (26.4) 14.8• Crude oil purchases internationally 15.3 3.9 6.8 292.3 (42.6)• Total crude oil purchases 27.3 20.2 21.0 35.1 (3.8)

* Crude oil purchases in Russia and CIS exclude purchases from Company’s equity investees Slavneft and Tomskneft

Table 13. THE COMPANY’S GAS PRODUCTIONbillions of cubic meters Change %

2008 2007 2006 2008/2007 2007/2006• Gas produced by consolidated subsidiaries 2.2 1.8 2.1 22.2 (14.3)• Company’s share in production of equity investees 1.0 0.4 0.4 150.0 -• Total gas production 3.2 2.2 2.5 45.5 (12.0)• Gas purchased in Russia* 1.2 0.5 0.8 140.0 (37.5)

* Gas purchases in Russia exclude purchases from Company’s equity investees Slavneft and Tomskneft.





RESULTS OF OPERATIONSin US$ million Change, %

2008 2007 2006 2008/2007 2007/2006Revenue

• Refined products and oil and gas sales 32,410 21,247 19,931 52.5 6.6• Other 665 520 245 27.9 112.2

Total 33,075 21,767 20,176 52.0 7.9Costs and other deductions

• Crude oil, petroleum and other products purchased 8,296 3,928 3,705 111.2 6.0• Operating expenses 2,060 1,981 1,635 4.0 21.2• Selling, general and administrative expenses 1,078 874 563 23.3 55.2• Transportation expenses 1,661 1,279 1,348 29.9 (5.1)• Depreciation, depletion and amortization 1,309 929 803 40.9 15.7• Export duties 6,533 3,371 4,669 93.8 (27.8)• Taxes other than income taxes 5,222 3,998 2,940 30.6 36.0• Exploration expenses 193 184 107 4.9 72.0• Cost of other sales 474 324 40 46.3 710.0

Total 26,826 16,868 15,810 59.0 6.7Operating income 6,249 4,899 4,366 27.6 12.2Other income (expense)

• Income from equity affiliates 407 408 507 (0.2) (19.5)• Interest income 100 94 39 6.4 141.0• Interest expense (167) (149) (126) 12.1 18.3• Other income (expense), net 89 45 (6) 97.8 (850.3)• Foreign exchange (loss) gain, net (517) 161 74 (421.1) 117.6• Minority interest (39) - -

Total (127) 559 488 (122.7) 14.5• Income before provision for income taxes 6,122 5,458 4,854 12.2 12.4• Provision for income taxes 1,425 1,342 1,113 6.2 20.6• Deferred income tax (benefit) expense 39 (27) 80 (244.4) (133.8)

Total 1,464 1,315 1,193 11.3 10.2• Net income 4,658 4,143 3,661 12.4 13.2

:REVENUES

in US$ million Change %2008 2007 2006 2008/2007 2007/2006

Crude oil• Export 11,229 6,861 7,945 63.7 (13.6)• CIS 1,090 766 707 42.3 8.3• Domestic 297 486 27 (38.9) 1700.0

Total crude oil sales 12,616 8,113 8,679 55.5 (6.5)Gas 148 44 49 236.4 (10.2)Petroleum products

• Export 8,072 6,177 6,055 30.7 2.0

REVENUES in US$ million Change %2008 2007 2006 2008/2007 2007/2006

• CIS 1,267 820 526 54.5 55.9• Domestic 10,307 6,093 4,622 69.2 31.8

Total petroleum products sales 19,646 13,090 11,203 50.1 16.8Other sales 665 520 245 27.9 112.2Total sales 33,075 21,767 20,176 52.0 7.9

SALES VOLUMESChange %

2008 2007 2006 2008/2007 2007/2006Crude oil, millions of barrels

• Export 118.7 109.9 132.5 8.0 (17.1)• CIS 24.0 18.2 18.9 31.9 (3.7)• Domestic 6.6 11.6 0.7 (43.1) 1571.1

Crude oil, millions of tonnes• Export 16.3 15.1 18.2 7.9 (17.0)• CIS 3.3 2.5 2.6 32.0 (3.8)• Domestic 0.9 1.6 0.1 (43.8) 1500.0

Total crude oil sales 20.5 19.2 20.9 6.8 (8.1)Gas (bcm) 3.7 2.2 3.0 68.2 (26.7)Petroleum products, millions of tonnes

• Export 11.4 11.4 12.2 - (6.6)• CIS 1.9 1.9 1.3 - 46.2• Domestic 15.7 13.4 11.9 17.2 12.6

Total petroleum products sales 29.0 26.7 25.4 8.6 5.1

REALIZED AVERAGE SALES PRICESChange %

2008 2007 2006 2008/2007 2007/2006Crude oil, US$ per barrel

• Export 94.60 62.43 59.96 51.5 4.1• CIS 45.42 42.09 37.41 7.9 12.5• Domestic 45.00 41.90 38.57 7.4 8.6

Crude oil, USD per tonne• Export 688.90 454.37 436.54 51.6 4.1• CIS 330.30 306.40 271.92 7.8 12.7• Domestic 330.00 303.75 270.00 8.6 12.5

Gas, US$ per bcm 40.00 20.00 16.33 100.0 22.5Petroleum products, USD per tonne

• Export 708.07 541.84 496.31 30.7 9.2• CIS 666.84 431.58 404.62 54.5 6.7• Domestic 656.50 454.70 388.40 44.4 17.1




CRUDE OIL EXPORT SALES. In 2008 our revenues from export crude oil sales increased by 63.7% to US$ 11,229 million compared to US$ 6,861 million in 2007. This growth was primarily due to an increase in sales prices by 51.5% and a 8.0% increase in sales volumes. The price increase was attributable to the growth in Urals price by 36.9%. The growth in volumes was primarily due to the acquisition of our 50% interest in Tomskneft in December 2007. In 2007 our revenues from export crude oil sales decreased by 13.6% to US$ 6,861 million compared to US$ 7,945 million in 2006. This decrease was primarily due to a decrease in sales volumes by 17.1% accompanied be a slight increase in sales prices by 4.1%. The price increase was attributable to the growth in Urals price by 13.0%. A decrease in sales volumes was primarily driven by the reallocation of export sales volumes and due to a decrease in crude oil purchases by 3.8%.

CRUDE OIL SALES TO CIS. In 2008 the Company’s revenues from CIS crude oil sales increased by 42.3% to US$ 1,090 million compared to US$ 766 million in 2007. This growth was primarily due to an increase in sales prices by 7.9% and a 31.9% increase in sales volumes. The price increase was driven by the general growth in world prices. Increase in sales volumes was primarily due to the acquisition of our 50% interest in Tomskneft in December 2007.

In 2007 the Company’s revenues from CIS crude oil sales increased by 8.3% to US$ 766 million compared to US$ 707 million in 2006. This was primarily due to an increase in sales prices by 12.5%, which was offset by slightly decreased in sales volumes by 3.7%. The price increase was due to the general growth in world prices.

CRUDE OIL DOMESTIC SALES. In 2008 our revenues from domestic crude oil sales decreased by 38.9% to US$ 297 million compared to US$ 486 million in 2007. The decrease in domestic crude oil sales was caused by an increase in the relative volume of crude oil that the Company sent to the export and CIS markets.

In 2007 our revenues from domestic crude oil sales increased to US$ 486 million compared to US$ 27 million in 2006. This growth was attributable to an increase in crude oil purchased volumes in Russia by 14.8% and an increase in sales prices by 8.6%. The price increase was driven by the general growth in world prices.




PETROLEUM PRODUCTS EXPORT SALES. In 2008 the Company’s revenues from export petroleum product sales increased by 30.7% to US$ 8,072 million compared to US$ 6,177 million in 2007. This growth was primarily a result of an increase in sales prices by 30.7%. The price increase was driven by the general growth in world prices.

In 2007 the Company’s revenues from export petroleum product sales slightly increased by 2.0% to US$ 6,177 million compared to US$ 6,055 million in 2006. This was due to an increase in sales prices by 9.2% accompanied by a slight decrease in sales volumes by 6.6%

PETROLEUM PRODUCTS SALES TO CIS. In 2008 our revenues from CIS petroleum product sales increased by 54.5% to US$ 1,267 million compared to US$ 820 million in 2007. This growth was primarily due to an increase in sales prices by 54.5%. The price increase was attributable to the growth in sales price by 54.5%. In 2007 the Company’s revenues from CIS petroleum product sales slightly increased by 55.9% to US$ 820 million compared to US$ 526 million in 2006. This was due to an increase in sales prices by 9.2% accompanied by an increase in sales volumes by 46.2%

PETROLEUM PRODUCTS DOMESTIC SALES. In 2008 the Company’s revenues from domestic petroleum product sales increased by 69.2% to US$ 10,307 million compared to US$ 6,093 million in 2007. This growth was primarily due to an increase in sales prices by 44.4% and a 17.2% increase in sales volumes. The price increase was driven by the general growth in world prices. In 2007 the Company’s revenues from domestic petroleum product sales increased by 31.8% to US$ 6,093 million compared to US$ 4,622 million in 2006. This growth was primarily due to an increase in sales prices by 17.1% and a 12.6% increase in sales volumes. The price increase was driven by the general growth in world prices.

OTHER SALES. Other revenues consist primarily of sales of services such as transportation, construction, utilities and other services and are recognized when goods are provided to customers and services are performed providing that the price for the service can be determined and no significant uncertainties regarding realization exist. Other sales were US$ 665 million in 2008 that is 27.9% higher compared to the same period of 2007 (520 US$ million in 2007 which is 112.2% higher than in 2006). The increase was a result of the growth in other sales and services provided to third parties in Russia.

COSTS AND OTHER DEDUCTIONSCRUDE OIL, PETROLEUM AND OTHER PRODUCTS PURCHASED. In 2008 cost of purchased crude oil, gas and petroleum products increased by 111.2% to US$ 8,296 million compared to US$ 3,928 million in 2007. The growth was primarily due to the acquisition of our 50% interest in Tomskneft, which resulted in an increase in crude oil purchases in the domestic market by 42.7% (32.5 million barrels) in 2008.

In 2007 cost of purchased crude oil, gas and petroleum products slightly increased by 6.0% to US$ 3,928 million compared to US$ 3,705 million in 2006. The growth was primarily due to an increase in world prices for crude oil.

OPERATING EXPENSES. The main cost drivers of the Company’s operating expenses are the growth of hydrocarbon extraction expenses and refining costs at own and equity investee refineries. The effective cost control policy implemented by the Company helped us to hold the level of operating costs growth in 2008 to 4.0% compared to 2007. In 2007 operating expenses increased by 21.2% compared to 2006 (table 15).

HYDROCARBON EXTRACTION EXPENSES. Our hydrocarbon extraction expenses include expenditures related to raw materials and supplies, maintenance and repairs of extraction equipment, labor costs, fuel and electricity costs, activities to enhance oil recovery and other similar costs at our extraction subsidiaries.

In 2008 the Company’s extraction expenses increased by 0.6% to US$ 1,416 million compared to US$ 1,408 million in 2007. This was primarily due to an increase in expenses for energy supply, workovers, materials and labor. The Company’s average hydrocarbon extraction cost per barrel of oil equivalent increased from US$ 5.55 to US$ 5.86, or by 5.6% compared to 2007.

In 2007 the Company’s extraction expenses increased by 15.9% to US$ 1,408 million compared to US$ 1,215 million in 2006. This increase is primarily due to an increase in expenses for energy supply, workovers, materials and labor. The Company’s average hydrocarbon extraction cost per barrel of oil equivalent increased from US$ 4.75 to US$ 5.55, or by 16.8% compared to 2006.

OWN REFINING EXPENSES. In 2008 the Company’s refining expenses at our own refinery increased by US$ 28 million, or 9.9%, compared to 2007. This resulted primarily from increase in expenses for electricity and other operating costs due to inflation and because of an increase in the refinery throughout 11.5 % in 2008. The Company’s average refining expenses per barrel at own refinery decreased from US$ 2.33 to US$ 2.30, or by 1.3% in 2008 due to an increase in the volumes of petroleum products produced. In 2007 the Company’s refining expenses at our own refinery increased by US$ 56 million, or 24.8%, compared to 2007. This was primarily due to an increase in expenses for electricity and other operating costs due to inflation and because of growth in production volumes of 1.2 % in 2006. The Company’s average refining expenses per barrel at own refinery increased from US$ 1.89 to US$ 2.33, or by 23.3% in 2007.

Table 15. OPERATING EXPENSESin US$ million Change %

2008 2007 2006 200/2007 2007/2006• Hydrocarbon extraction expenses 1,416 1,408 1,215 0.6 15.9• Refining expenses at own refinery 310 282 226 9.9 24.8• Refining expenses at equity investee refineries 334 291 194 14.8 50.0

Total operating expenses 2,060 1,981 1,635 4.0 21.2




REFINING EXPENSES AT EQUITY INVESTEE REFINERIES. In 2008 the Company’s refining expenses at equity investee refineries increased by US$ 43 million, or 14.8%, compared to 2007. This resulted primarily from increased cost of processing services due to higher electricity costs. The Company’s average refining expenses per barrel at equity investee refineries increased from US$ 4.09 to US$ 4.51 per barrel, or by 10.3%, compared to 2007.

In 2007 the Company’s refining expenses at equity investee refineries increased by US$ 97 million, or 50.0%, compared to 2006. This resulted primarily from increased cost of processing services due to higher electricity costs. The Company’s average refining expenses per barrel at equity investee refineries increased from US$ 3.27 to US$ 4.09 per barrel, or by 25.1%, compared to 2006.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses include general business expenses, wages, salaries, social benefits (except for wages and salaries at our production and refining subsidiaries), insurance, banking commissions, legal fees, consulting and audit services, charity, allowances for doubtful accounts and other expenses.

In 2008 the Company’s selling, general and administrative expenses increased by 23.3% to US$ 1,078 million compared to US$ 874 million in 2007. This growth was due to an increase in the Company’s activities and overall increase in selling expenses.

In 2007 the Company’s selling, general and administrative expenses increased by 55.2% to US$ 874 million compared to US$ 563 million in 2006. This growth was due to an increase in the Company’s activities and overall increase in selling expenses.

TRANSPORTATION EXPENSES. Transportation expenses consist of the costs of delivering crude oil to refineries and crude oil and petroleum products to final customers. These costs consist of pipeline transportation, sea freight, railway, shipping, handling and other costs.




In 2008 our transportation expenses increased by 29.9% to US$ 1,661 million compared to US$ 1,279 million in 2007. This growth was due to an increase in transportation tariffs, volumes of crude oil and petroleum products transported.

In 2007 our transportation expenses slightly decreased by 5.1% to US$ 1,279 million compared to US$ 1,348 million in 2006. This change was due to a decrease in sales volumes of crude oil by 8.1% accompanied by an increase in sales of petroleum products volumes by 5.1%

DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and amortization expenses include depletion of oil and gas producing assets and depreciation of other fixed assets.

In 2008 our depreciation, depletion and amortization expense was US$ 1,309 million compared to US$ 929 million for 2007, an increase of US$ 380 million, or 40.9%. The increase was a result of the growth in depreciable assets due to the Company’s capital expenditure program.In 2007 our depreciation, depletion and amortization expense was US$ 929 million compared to US$ 803 million for 2006, an increase of US$ 126 million, or 15.7%. The increase was a result of the Company’s capital expenditure program, acquisitions and significant increase in depreciable assets.

EXPORT DUTIES. Export customs duties include duties related to the export of both crude oil and petroleum products. In 2008 export customs duties increased by 93.8% to US$ 6,533 million compared to US$ 3,371 million in 2007. The growth was due to an increase in export custom duty rate for crude oil by 68.3% and for petroleum products by 62.0%. The increase in export custom duty was attributable to the growth in Urals price by 36.9% and an increase in export and CIS volumes of crude oil by 8.0% and 31.9% due to the acquisition of 50% interest in Tomskneft (table 16).

In 2007 export customs duties decreased by 27.8% to US$ 3,371 million compared to US$ 4,669 million in 2006. The decline was due to a decrease in export and CIS sales volumes of crude oil by 17.1% and 3.7% which was offset by a slight increase in Urals price by 13.0%.

TAXES OTHER THAN INCOME TAXES. In 2008 taxes other than income tax increased by 30.6% to US$ 5,222 million compared to US$ 3,998 million in 2007. This growth was a result of the increase in mineral extraction tax rate on crude oil by 38.5% and due to the increase in excise caused by increase in volumes of production of petroleum products by 8.5% (table 17). In 2007 taxes other than income tax increased by 36.0% to US$ 3,998 million compared to US$ 2,940 million in 2006. This growth was a result of the increase in mineral extraction tax rate on crude oil by 16.0% and changes in the Russian tax legislation for excise on oil products.

EXPLORATION EXPENSES. Exploration expenses include seismic, geophysical and exploratory drilling costs (including costs associated with stratigraphic test wells). Exploration drilling costs are temporarily capitalized pending determination of whether proved oil and gas reserves have been found, which justify further commercial development. If such reserves are not found, the drilling costs are charged to exploration expenses in the period when a determination is made that such costs have not resulted in additional proved oil and gas reserves. In 2008 and 2007 our exploration costs increased by 4.9% and 72.0% to US$ 193 million and US$ 184 million, respectively. The growth was due to increased volume of exploration services in order to expand the Company’s reserve base.

Table 16. EXPORT DUTIESin US$ million Change %

2008 2007 2006 2008/2007 2007/2006• Export customs duties for crude oil 4,876 2,348 3,371 107.7 (30.3)• Export customs duties for petroleum products 1,657 1,023 1,298 62.0 (21.2)

Total export customs duties 6,533 3,371 4,669 93.8 (27.8)

Table 17. TAXES OTHER THAN INCOME TAXESin US$ million Change %

2008 2007 2006 2008/2007 2007/2006• Mineral extraction taxes 4,202 3,139 2,719 33.9 15.4• Excise 828 681 138 21.6 393.5• Property tax 107 87 70 23.0 24.3• Other taxes 85 91 13 (6.6) 600.0

Total taxes other than income tax 5,222 3,998 2,940 30.6 36.0

COST OF OTHER SALES. Cost of other sales increased by 46.3% and 710.0% in 2008 and 2007, respectively, compared to the previous comparative periods. The increase was primarily due to a result of the growth in other sales and services provided.

INCOME FROM EQUITY AFFILIATES. The Company accounts its investments in Slavneft, Tomskneft, Moscow Refinery using the equity method. These companies are primarily engaged in crude oil exploration, production and refining in the Russian domestic market.

In 2008 income from equity affiliates reduced by 0.2% to US$ 407 million compared to the corresponding period of 2007.

In 2007 income from equity affiliates decreased by 19.5% to US$ 408 million compared to the corresponding period of 2006.

INTEREST INCOME. In 2008 and 2007 interest income increased by 6.4% and 141.0% to US$ 100 million and US$ 94 million, respectively, compared to the previous comparative periods. This was due to an increase in cash and deposits placed in banks during the related periods.

INTEREST EXPENSE. In 2008 interest expense increased by 12.1% to US$ 167 million compared to US$ 149 million in 2007. The increase was attributable to obtaining a US$ 1 billion syndicated loan in May and July of 2008.

In 2007 interest expense increased by 18.3% to US$ 149 million compared to US$ 126 million in 2006. The increase was attributable to obtaining US$ 2.2 billion syndicated loan in September 2007.





INCOME TAX EXPENSES. In 2008, 2007 and 2006 effective income tax rate was 23.9%, 24.1% and 24.6. In 2008 effective income tax rate was slightly lower than a statutory tax rate in Russia due to the change in income tax rate from 24% to 20% and non-deductible permanent differences during the period indicated.

EBITDA represents earnings before interest, income tax, depreciation and amortization. EBITDA is a supplemental non-GAAP financial measure used by management, as well as industry analysts, to evaluate operations. Management believes that EBITDA represents useful means of assessing the performance of the Company’s ongoing operating activities, as it reflects the Company’s earnings trends without showing the impact of certain charges.

EBITDA is not used by management as an alternative to net income as an indicator of the Company’s operating performance, as an alternative to any other measure of performance in conformity with US GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. EBITDA does not have a standardized meaning prescribed by US GAAP (table 18).

LIQUIDITY AND CAPITAL RESOURCESNET CASH PROVIDED BY OPERATING ACTIVITIES. In 2008 net cash provided by operating activities was US$ 5,444 million as compared to US$ 5,316 million in 2007. The increase of US$ 128 million or 2.4% in net cash provided by operating activities is due to the following (table 19):

• a growth in net income of US$ 515 million and depreciation, depletion and amortization increase of US$ 380 million accompanied by an decrease in income from equity investees of US$ 101 million resulted in higher operating cash flow in 2008 compared to 2007;

• a US$ 265 million net decrease in accounts receivable and payable; • an increase in inventory of US$ 173 million was a result of the increase in balances of purchased and produced crude

oil and petroleum products; • a US$ 901 million decrease in income and other taxes payable.

In 2007 net cash provided by operating activities was US$ 5,316 million as compared to US$ 3,320 million in 2006. The increase of US$ 1,996 million or 60.1% increase in net cash provided by operating activities is due to the following:• a growth in net income of US$ 482 million and depreciation, depletion and amortization increase of US$ 126 million and

an increase in income from equity investees of US$ 111 million resulted in higher operating cash flow in 2007 compared to 2006;

• a US$ 1,026 million net decrease in accounts receivable and payable; • a US$ 360 million increase in income and other taxes payable.

NET CASH USED IN INVESTING ACTIVITIES. In 2008 net cash used in investing activities was US$ 3,463 million compared to US$ 5,636 million in 2007 (or 38.6% decrease). These changes in the net cash used in investing activities were due to acquisition of 50% interest in Tomskneft in December 2007 and due to an increase of capital expenditures by US$ 1,115 million in 2008 compared to 2007, which was due to the necessity to maintain the Company’s production on existing fields and development of the related infrastructure.

In 2007 net cash used in investing activities was US$ 5,636 million against US$ 1,864 million in 2006 (or three times increase). These changes in the net cash used in investing activities consist primarily of:

• an increase in purchase of investments during 2007 by US$ 3,623 million of cash used primarily due to the acquisition of 50% interest in Tomskneft in December 2007;

• a significant increase of capital expenditures by US$ 687 million in 2007 compared to 2006, which was due to necessity to maintain the Company’s production on existing fields and development of the related infrastructure.

NET CASH USED IN FINANCING ACTIVITIES. In 2008 net cash used in financing activities was US$ 566 million as compared to US$ 320 million of net cash used in financing activities for the same period of 2007. The increase of US$ 246 million or 76.9% was due to net loans proceeds and repayments (US$ 271 million in 2008 as compared to US$ 1,751 million in 2007), which is partially offset by amount of dividends paid (by US$ 1,279 million less in 2008 as compared to 2007).

In 2007 net cash used in financing activities decreased by US$ 120 million as compared to US$ 440 million in 2006. The decrease was due to the healthy increase of dividends paid - US$ 2,071 million in 2007, which was partially offset by net loans proceeds and repayments (US$ 1,751 million in 2007 as compared to US$ 162 million in 2006).

CAPITAL EXPENDITURES. In 2008 the Company’s capital expenditures increased by 50.4% to US$ 3,327 million as compared to US$ 2,212 million in 2007. The growth was primarily driven by the exploration and production and refining activities. Exploration and production increased by 45.7% to US$ 2,979 million due to the rapid development of Priobskoe oilfield,

Table 19. CASH FLOWSin US$ million Change %

2008 2007 2006 2008/2007 2007/2006• Net cash provided by operating activities 5,444 5,316 3,320 2.4 60.1• Net cash used in investing activities (3,463) (5,636) (1 864) (38.6) 202.4• Net cash used in financing activities (566) (320) (440) 76.9 (27.3)

Table 18. RECONCILIATION OF NET INCOME TO EBITDA (EARNINGS BEFORE INTEREST, INCOME TAX, DEPRECIATION AND AMORTIZATION)

in US$ million 2008 2007 2006Net income 4,658 4,143 3,661Add back: • Minority interest 39 - -

• Income tax expense 1,464 1,315 1,193• Depreciation, depletion and amortization 1,309 929 803• Interest income (100) (94) (39)• Interest expense 167 149 126• Other income (expenses), net (89) (45) 6• Foreign exchange (loss) gain, net 517 (161) (74)

EBITDA 7,965 6,236 5,676




refining - by 76.6% to US$ 189 million in 2008 compared to 2007. The increase in refining segment was a result of the modernization program launched at the Omsk Refinery.

In 2007 the Company’s capital expenditures increased by 45.0% to US$ 2,212 million as compared to US$ 1,525 million in 2006. The growth was primarily driven by the exploration and production and refining activities. Exploration and production increased by 46.7% to US$ 2,045 million due to the rapid development of Priobskoe oilfield, refining - by 148.8% to US$ 107 million in 2007 compared to 2006. The increase in refining segment was a result of the modernization program launched at the Omsk Refinery (table 20).

RECENT VOLATILITY IN GLOBAL FINANCIAL MARKETS. The ongoing global liquidity crisis has resulted in, among other things, a lower level of capital market funding and lower liquidity levels across the Russian Federation. The uncertainties in the global financial market, has also led to bank failures and or bank rescues.

While the Russian government has introduced a range of stabilization measures aimed at providing liquidity and supporting debt refinancing for Russian banks and companies, such circumstances could affect the ability of the Company to obtain new borrowings and re-finance its existing borrowings at terms and conditions similar to those applied to earlier transactions. Additionally, the uncertainty in the global markets combined with other local factors has led to very high volatility in the Russian Stock Markets during 2008.

Management is unable to reliably determine the effects on the Company’s future financial position, results of operations or cash flows as a result of the ongoing crisis. Management believes the Company’s current and long-term investment and capital expenditures program can be funded through cash generated from existing operations.

Management also believes the Company has the ability to obtain syndicated loans and other financings as needed to fund business acquisitions and other transactions that may arise in the future.

Table 20. CAPITAL EXPENDITURESin US$ million Change %

2008 2007 2006 2008/2007 2007/2006• Exploration and production 2,979 2,045 1,394 45.7 46.7• Refining 189 107 43 76.6 148.8• Marketing and distribution 159 60 88 163.3 (31.8)

Total capital expenditures 3,327 2,212 1,525 50.4 45.0


MAJOR RISK

FACTORS



RISK MANAGEMENT POLICY OF THE COMPANYIn 2008 JSC Gazprom Neft developed a Risk Management Policy setting out the risk management principles and objectives for the purpose of enhancing the efficiency of the Company’s operations in the short and long-term. The main Policy implementation tool is the introduction of an integrated risk management system (IRMS) covering all levels and areas of the Company’s operations.

INDUSTRY RISKSThe oil-and-gas industry is critical for the budget of the Russian Federation. Development of the industry is among the state priorities.

The main industry development prospects are related to putting onstream new oil-and-gas fields and creating high-tech production facilities for deep hydrocarbon processing, which will ensure comprehensive and rational use of hydrocarbons with maximum recovery of valuable components.

It should be noted that against the backdrop of stable oil consumption levels and absence in the mid-term of any alternative fuel sources capable of largely replacing oil and petroleum products, no serious deterioration of the situation in the industry is expected. RISKS ASSOCIATED WITH POTENTIAL CHANGES IN THE PRICES OF TARGET RAW MATERIALS AND SERVICESIn the course of its business, JSC Gazprom Neft uses the infrastructure of monopoly providers of oil, petroleum product transportation, and energy supply services.

The Company has no control over the infrastructure of such monopoly providers which may potentially lead to the risks of a logistics system failure or disruptions of operations.

The rates of monopoly providers are regulated by the appropriate regulatory authorities of the Russian Federation: and yet, they are raised annually, this resulting in growing costs for the Company.

To reduce exposure to these risks the Company:

• performs long-term planning of commodity flows, timely reserves oil and petroleum product throughput volumes and required rolling stock;

• conducts optimal redistribution of commodity flows by type of transport; • takes measures to use alternative and own power generation sources;

These measures allow the Company to reduce risks associated with the use of services and goods acquired from monopoly providers to an acceptable level and to ensure continuing operation of the Company.

RISKS ASSOCIATED WITH POTENTIAL CHANGES IN OIL AND PETROLEUM PRODUCT PRICES The financial performance indicators of the Company are directly related to the level of oil and petroleum product prices. The Company cannot control prices for its products which depend on the supply and demand balance as well as actions of Russian regulatory authorities.

The major consequence of a drop in oil and petroleum product prices is deterioration of corporate financial indicators. To reduce adverse exposure to the above risks the Company has taken the following measures:

• has developed comprehensive measures for reducing the cost of mineral production; • has introduced a flexible commodity flow distribution system allowing the Company to promptly and timely redistribute

commodity flows in the event of a gap in oil and petroleum product prices between the foreign and domestic markets; • has a business planning system which is based on a scenario approach to identifying the key performance indicators

of the Company dependent on the level of world oil prices. This approach enables the Company to reduce costs, among other things, by scaling back or postponing its investment programs.

These measures allow the Company to reduce risks to an acceptable level and perform the obligations assumed.

INDUSTRY COMPETITION RISKSThe oil-and-gas industry is known for tough competition between the leading Russian oil-and-gas companies in the main areas of production and economic operations, including:

• obtaining subsoil licenses for hydrocarbon production at the biddings organized by Russian government authorities; • acquisition of other companies that hold subsoil licenses for hydrocarbon production or existing assets associated

with hydrocarbon production; • engagement of leading independent service companies; • purchase of high-tech equipment; • purchase of existing retail network enterprises and land plots for the construction of new ones;• expansion of sales markets and volumes.

Implementation of a portfolio of strategic projects aimed at the development of JSC Gazprom Neft across the key areas of operation enables the Company to strengthen its competitive positions in the oil-and-gas industry and reduce industry competition risks.

EXPLORATION RISKS The key strategic goal of the Company is to increase its hydrocarbon resource base in quantity and in quality to ensure an adequate production level which, in its turn, is largely dependent on the success of exploration activities.

MAJOR RISK FACTORS

MAJOR RISK FACTORS


The major exploration risk is failure to confirm the estimated hydrocarbon reserves. An important factor is the conduct of exploration in different geographical regions, including areas with adverse climatic conditions, which often incurs the risk of cost growth.

At the same time, JSC Gazprom Neft has an extensive experience in conducting exploration work and using state-of-the-art hydrocarbon prospecting and exploration methods as well as advanced drilling and field infrastructure development technologies, which, as a result, reduces the probability of such risks.

COUNTRY AND REGIONAL RISKS

POLITICAL RISKSAs of now the political situation in Russia is stable which is characterized by the sustainability of the federal and regional branches of power.

JSC Gazprom Neft is registered as a taxpayer in Saint-Petersburg which is the administrative center of the North-Western Federal District.

JSC Gazprom Neft is represented by subsidiaries in the North-Western, Siberian, Urals, Far-Eastern and Central Federal Districts.

At the moment the probability of risks associated with changes in the political situation in the country is insignificant.

FOREIGN ASSET RISKSExpansion into new regions is associated for JSC Gazprom Neft with the possibility of getting extra advantages as well as with the risks of misjudging the political and economic situation in the countries where the Company holds assets, which may result in the loss of assets and failure to meet the target efficiency indicators.

The first step was the establishment of Gazprom Neft Asia LLC in Kyrgyzia. An operator of 102 filling stations, Gazprom Neft Asia LLC is already firmly established in the Kyrgyz market.

Furthermore, JSC Gazprom Neft set up distribution enterprises in Kazakhstan – Gazpromneft Kazakhstan LLP and Tajikistan – Gazpromneft Tajikistan LLC, which allows JSC Gazprom Neft to become an important player among petroleum product sellers in the Asian market.

JSC Gazprom Neft is also one of the co-founders of the Burgas-Alexandroupolis Pipeline Consortium. Construction of the namesake pipeline will allow JSC Gazprom Neft to transport oil and petroleum products bypassing the Turkish Straits which will significantly lower transportation expenses.

In December 2008 JSC Gazprom Neft closed the purchase deal for a 51% interest in Serbian company Naftna Industrija Srbije (NIS).

MAJOR RISK FACTORS



NIS is one of the largest vertically integrated oil companies in Central Europe: its total oil production is estimated at 1 mln tons a year, total refining capacity – at 7.3 mln tons a year.

NIS’s producing assets are located in Serbia and Angola and refineries – in Serbia (in the cities of Pancevo and Novi-Sad).

In the recent years the political situation in the countries where the Company holds its foreign assets can be regarded as stable.

At the moment JSC Gazprom Neft views the level of foreign asset risks as acceptable, however, negative changes cannot be ruled out, since said risks are beyond the Company’s control.

FINANCIAL RISKSFinancial risk management at the Company is performed by Company employees in accordance with their professional fields of activity.

The Financial Risk Management Committee outlines a uniform approach to financial risk management at the Company and its subsidiaries. This approach is based on reducing the level of risk exposure and probability of risk occurrence through implementation of appropriate measures and control procedures.

The work performed by Company employees and the Financial Risk Management Committee is instrumental in reducing potential financial damage to the Company and meeting the objectives set.

CREDIT RISK Management of the Company pays increased attention to credit risk management. The Company has implemented a range of measures providing for effective monitoring and management of this risk, including: counterparties’ creditworthiness evaluation, dealing with receivables by line of business, and other measures.

These actions allow Management of the Company to be assured that at the moment there are no significant risks of damage exceeding the amount of accumulated reserves.

The Company places funds on deposit with a number of Russian banks and branches of international banks. The Company has a Policy which is used to regularly evaluate the creditworthiness of the banks holding its deposits and to rank these banks by reliability.

BORROWING RISKIn connection with the world financial crisis many Russian companies have encountered the problem of borrowing. This risk is effectively managed by JSC Gazprom Neft. In particular, in 2009 the Company has already received required credit

resources by drawing loans from Vnesheconombank (under Law № 173-FZ “On Additional Measures for Supporting the Financial System of the Russian Federation”, dated October 13, 2008) and Sberbank. There are plans to use also other instruments enabling diversification of financing.

CURRENCY RISK The greater part of the Company’s gross revenues are generated by oil and petroleum product export operations but at the same time part of the Company’s liabilities are denominated in hard currency, which is a risk factor. However, thanks to the fact that currency revenues significantly exceed the volume of currency liabilities the adverse risk exposure is thereby neutralized (natural hedge).

Since liabilities and assets are denominated in different currencies, the Company is exposed to the currency exchange risk. However the Company hedges these risks and, additionally, in each specific situation draws upon internal financial risk management instruments and reserves, allowing it to effectively manage the currency risk and guarantee the performance of its obligations.

INTEREST RATE RISK As a borrower the Company is exposed to interest rate risks. The main source of borrowing is the international financial market. The debt portfolio is denominated primarily in US dollars. The interest rate for a small portion of these loans (the share is not fixed and may vary) is based on interbank LIBOR rates, which, if raised, may result in higher debt servicing costs for the Company. An increase in the cost of loans for the Company may adversely affect the creditworthiness and liquidity indicators. However currently the LIBOR rate is in a long-term downward trend which, coupled with a small share of LIBOR-based loans, allows us to speak of a low exposure of the Company to the interest rate risk.

INFLATION RISKInflation risk is taken into account in the preparation of the Company’s financial plans. The current and projected inflation rates are far from critical for the Company and the industry on the whole, hence the impact of inflation factors on the financial stability of the Company does not look significant in the long-term.

LEGAL RISKSJSC Gazprom Neft operates in strict compliance with the civil, tax, customs and currency legislation.

The Company cannot guarantee there will be no adverse changes in Russian legislation in the long-term, since most risk factors are beyond the Company’s control.

The adverse exposure to this category of risks is reduced by monitoring and timely responding to the changes made to different sections of legislation as well as by active interaction with legislative and executive authorities, and public organizations over the interpretation and improvement of legislation.

MAJOR RISK FACTORS

MAJOR RISK FACTORS


RISK ASSOCIATED WITH CURRENCY REGULATION CHANGESThe Company is a participant of foreign economic relations. Part of the Company’s assets and liabilities are denominated in foreign currency, therefore any general changes in the currency regulation mechanism made by the state may affect the financial and economic operations of the Company.

Having said that, today the currency regulation of the Russian Federation is significantly liberalized, which is attributable to the general policy of the state designed to ensure free convertibility of the ruble. The conducted liberalization of currency regulation reduces the risks of adverse consequences for the Company’s operation associated with future changes in the currency legislation.

RISK ASSOCIATED WITH TAX LEGISLATION CHANGESJSC Gazprom Neft is one of the top taxpayers whose operations are based on the principles of good faith and tax transparency.

The Company bears the burden of paying value-added tax, income tax, mineral extraction tax, property tax, land tax, unified social tax, subsoil use fees.

In the course of business the Company performs online monitoring of tax legislation changes, changes in the application of current provisions; it also acts as an expert in the law-making process by assessing and developing draft laws, including tax ones.

In view of the crisis the Government provides assistance to Russian business and oil companies. In addition to cutting the income tax rate from 24% to 20%, a number of other measures having a positive effect on the industry have been adopted:

• As regards mineral extraction tax, the cut-off price has been increased from 9 to 15 USD per barrel;• Obstacles to applying depletion and oil viscosity allowances have been removed; • Depreciation bonus for new capital assets has been increased; • License amortization period has been reduced to two years; • Reference period for calculation of oil and petroleum product duties has been reduced from two months to one.

This package of measures allows oil companies to count on additional sources of investment in the low oil price environment.

JSC Gazprom Neft assesses and forecasts the extent of potential adverse impact of tax legislation changes, directing its efforts to minimize the related risks.

MAJOR RISK FACTORS



RISKS ASSOCIATED WITH CHANGES IN CUSTOMS REGULATIONS AND DUTIES JSC Gazprom Neft is a participant of foreign economic relations, hence it is exposed to risks associated with changes in the legislation governing foreign economic activities as well as the Customs Legislation governing relations with respect to establishment of the procedure for transfer of goods through the customs border of the Russian Federation, imposition and application of customs regimes, imposition, introduction and collection of customs payments.

The history and nature of changes made to the Customs Legislation since the enactment of the Tax Code of the Russian Federation (effective from January 1, 2004) allows us to view the customs legislation of the Russian Federation as one of the most stable sections of Russian legislation. One can single out as a risk the possibility that the Government of the Russian Federation will change customs duty rates (both export and import) for specific goods, in respect of which JSC Gazprom Neft signs foreign trade deals. The major adverse consequence of this risk, if realized, will be higher costs and lower export efficiency.

The Company complies with the customs control requirements, timely executes all documents necessary for the performance of both export and import operations and has sufficient financial and personnel resources to observe the customs rules and regulations.

RISKS ASSOCIATED WITH CHANGES IN LICENSING REQUIREMENTS FOR CORE BUSINESSDevelopment of the modern subsoil legislation is based on detailed regulation of the subsoil use processes by the state, on the need to enhance the rational use of subsoil plots, need for strict compliance with the environmental legislation.

JSC Gazprom Neft conducts its operations in the license plots in compliance with the strict requirements of the Russian subsoil legislation, updating its license agreements subject to changes in the current legislation.

The current law of the Russian Federation “On Subsoil” has been supplemented to include a list of grounds for transferring the right to use subsoil plots and for reissuing subsoil licenses. The right to use a subsoil plot may now be transferred from the parent to a subsidiary, from a subsidiary to the parent and between subsidiaries of the same parent. In this case, the transferee legal entity must comply with the requirements for subsoil users set forth in Russian legislation.

The above changes can be viewed on the whole as positive, since Russian legislation has been revised to include provisions allowing the transfer of a license within a group which enables JSC Gazprom Neft to optimize its license management system.

JSC Gazprom Neft works to analyze and evaluate the legislative initiatives of the interested ministries and departments concerning the subsoil legislation and the licensing of specific operations. The proposed and discussed amendments to the current legislation will have an overall positive effect on the regime of subsoil use and on the performance of licensable operations in the Russian Federation.

JSC Gazprom Neft does not appear to be directly exposed to any legal risks associated with the loss of the right to use subsoil plots or violation of the current legislation, resulting from the above changes.

RISKS ASSOCIATED WITH CHANGES IN COURT PRACTICE REGARDING ISSUES RELATED TO THE COMPANY’S BUSINESSJSC Gazprom Neft regularly monitors decisions made by the supreme courts and evaluates the trends in law enforcement practice taking shape at the level of district arbitration courts, actively using and employing it not only to protect in court its rights and legal interests but also to resolve any legal issues arising in the course of the Company’s business. In view of this, the risks associated with changes in court practice are estimated as insignificant.

RISKS ASSOCIATED WITH VIOLATION OF ANTIMONOPOLY LEGISLATION REQUIREMENTS In September 2008 the Commission of the Federal Antimonopoly Service (FAS) of the Russian Federation found the Company in violation of an antimonopoly legislation requirement. Based on its decision, the FAS assessed the Company an administrative penalty of 1.357 bn rubles. Seeing the decisions made by the FAS as illegal and unjustified, the Company applied to arbitration courts seeking to annul the decision on violation by the Company of the antimonopoly legislation and the penalty assessment ruling.

In January 2009 the Saint-Petersburg and Leningrad Region Arbitration Court annulled the FAS ruling on assessment of an administrative penalty on the Company. The decision has not become effective, as an appeal was filed. As of 10.04.2009 hearing of the case in the appellate instance was put on hold.

The case for the annulment of the FAS Commission’s decision on violation of the antimonopoly legislation by the Company is being heard by the Moscow Arbitration Court. As of 10.04.2009 no decision was made in the case.

ENVIRONMENTAL RISKSJSC Gazprom Neft’s operations involve a potential risk of environmental damage or contamination which may result in civil liability and the need to carry out works to eliminate such damage.

The Company is fully aware of its responsibility to society for the creation of safe working conditions and preserving the environment, continuously controls its operations to ensure compliance with the appropriate environmental standards, implements environmental protection programs.

The environmental policy of JSC Gazprom Neft is designed to ensure compliance with the requirements of the current environmental legislation by investing considerable funds in the implementation of environmental protection measures, including employment of technologies minimizing the negative environmental impact. As a result of such activities, the probability of environmental contamination risks has significantly diminished.

MAJOR RISK FACTORS

MAJOR RISK FACTORS

CORPORATE GOVERNANCE



As one of the largest and most rapidly growing Russian oil-and-gas companies, JSC Gazprom Neft recognizes the objective importance and significance of maintaining a high level of corporate governance to be successful in running the business, reduce investment risks, increase competitiveness, shareholder value and investment appeal of the Company.

The Company is making its best efforts to achieve maximum compliance not only with Russian but also international standards of corporate governance, continuing to work on improvement of its corporate governance system.

The Company models its operations after the best international corporate relations practices, being governed, first of all, by the principles of ensuring a high level of business ethics in relations with the shareholders, investors, employees, counterparties of the Company and other market participants and of compliance with the current Russian legislation, the Charter and bylaws, observing the generally accepted standards and principles of corporate governance.

The Company operates on the principle of ensuring effective protection of the rights and interests of Company shareholders, fair treatment of all Company shareholders without exception, transparency of decision-making by the governing bodies of the Company, professional and ethical responsibility of the members of the governing and supervisory bodies to the Company, its employees and counterparties, expansion of information transparency and development of a system of business ethics standards.

By following the above principles the Company seeks to achieve a new level of corporate governance, develop positive interaction between the governing bodies and shareholders of the Company, maintain sustainable growth of financial indicators, successfully perform its charter activities as well as to build a positive image of the Company in the eyes of its shareholders, employees, counterparties and potential investors.

The governance system of the Company is based on compliance with the current Russian legislation, the Charter and bylaws of the Company as well as with the provisions of the Corporate Governance Code recommended for use by the Federal Commission for the Securities Market. On top of that, as a public company whose shares are traded on the Russian and world stock exchanges, JSC Gazprom Neft fully complies with the requirements of the Russian stock exchanges.

The supreme governing body of the Company, in accordance with the Russian legislation on joint-stock companies, is the General Shareholders’ Meeting acting on the basis of the Charter and the Regulation on the General Shareholders’ Meeting.


The general management of the Company’s operations is the responsibility of the Board of Directors, whose main functions are to ensure the exercise and protection of the shareholders’ rights, provide for long-term growth of the Company’s shareholder value, create effective mechanisms of internal control over the financial and economic activities and a risk management system, ensure timely, full and fair disclosures.

The management of the day-to-day operations of the Company is the responsibility of the executive bodies: Director General (sole executive body) and Management Board (collective executive body).

The governing bodies of the Company act within the scope of their competence clearly defined by the Charter.

Over the reporting period the Company has held two General Shareholders’ Meetings, whose resolutions amended the Charter of the Company, among other things, extending the deadline for notifying the shareholders of General Shareholders’ Meetings. The amendments adopted by Gazprom Neft evidence that the Company seeks to make sure that the principle of observing the rights of its shareholders is realized as fully as possible.

MEMBERSHIP OF THE BOARD OF DIRECTORSA professional and effective Board of Directors held in confidence by the shareholders is viewed by the Company as the main element of high level corporate governance. Hence, the members of the Company’s Board of Directors are persons whose professional qualities and experience are not questioned by the shareholders or potential investors. The Board of Directors is headed by the Chairman of impeccable reputation and high professional qualification in Gazprom Neft’s area of business. The number of Board members is adequate to the scope of the Company’s operations and ensures the most effective fulfillment of the functions assigned to the Board of Directors.

The Company recognizes that one of the most important guarantees of observing and protecting the rights of its shareholders is to ensure maximum transparency of the Board member election procedure allowing the shareholders to get access to information about the Board member candidates and to freely exercise their right to elect this governing body.

The Company recognizes the importance of having independent directors among the Board members in order to form a balanced and objective position on the issues of the Board competence. Therefore, two of the directors on the Board meet




the independence criteria recommended by the Corporate Code of Conduct of the Federal Commission for the Securities Markets which fosters the confidence of potential investors in the Company.

To make the work of the Board of Directors as productive and effective as possible, some of its members are concurrently members of the governing bodies. That said, the Company maintains the balance recommended by the Federal Commission for the Securities Markets – members of the governing bodies account for 1/4th of the total Board membership.

To best observe the principle that the Directors must act for the benefit of the Company, positions of the Board members at JSC Gazprom Neft are held by persons unrelated to any entities competing with the Company. Moreover, the elected directors notify the Company in good faith of any information about situations that may lead to a potential conflict of interest.

The productiveness of the Board of Directors is ensured by effective interaction with Company officials resulting in timely provision to the Board members of all requested information necessary for balanced and informed decision-making.

As of December 31, 2008 the Company had the Board of Directors elected by resolution of the extraordinary General Shareholders’ Meeting of the Company on November 20, 2008, which includes:

MILLER Alexei Borisovich (Chairman of the Board of Directors)

Born in 1962 in Leningrad. Education: 1984 - N. A. Voznesenskiy Leningrad Finance and Economics Institute. 2000-2000 - Director General, Open Joint Stock Company “Baltic Piping System”. 2000-2001 - Deputy Minister of Energy of the Russian Federation. 2001-present - Chairman of the Management Board, Joint Stock Company Gazprom. Since 2002 – Deputy Chairman of the Board of Directors, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

GOLUBEV Valeriy Alexandrovich

Born in1952 in Leningrad. After graduation from V. I. Ulyanov (Lenin) Leningrad Electrotechnical Institute in 1975, went to work at the Central Research Institute of Ship Electrical Engineering and Technology. In 1979 enlisted to serve in the KGB of the USSR. In 1991 left for the Saint-Petersburg Administration. Worked as Head of Secretariat at the Mayor’s Office, Head of the Administration of Vasileostrovsky District, Chairman of the Tourism Committee. Graduated from the Academy of National Economy under the Government of the Russian Federation in 1996, defended a thesis in 1997, and received a Ph.D. degree in economics. In April 2002 was elected by the Legislative Assembly of the Leningrad Region as Representative at the Federation Council of the Federal Assembly of the Russian Federation. In February 2003 was appointed Director General of Gazkomplektimpex LLC and elected a member of the Management Board, JSC Gazprom. Since March 2005 – Head of the Department for Investments and Construction, General Director of Gazkomplektimpex LLC, member of the Management Board, JSC Gazprom. Since November 2006 – Deputy Chairman of the Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

DUBIK Nikolai Nikolaevich

Born in 1971 in the town of Orekhovo-Zuyevo, Moscow Region. In 1993 graduated from the Law Faculty of Lomonosov Moscow State University. 1992 to 1997 Nikolai Dubik worked for the Constitutional Court of the Russian Federation as assistant and adviser to a judge of the Constitutional Court. Since 1997 employed at JSC Gazprom. In 2002 and 2003 held the positions of Head of the Directorate of Legal Support for International Business, from 2003 to 2008 – Deputy Head of the Legal Department. In 2008 appointed First Deputy Head and subsequently Head of Legal Department, JSC Gazprom. In June 2008 elected member of the Management Board, JSC Gazprom. 1st Class Counselor of Justice. Executive Director of Gazprom Finance B.V. and RosUkrEnergo AG. Authorized share capital (as at 31.12.2008) is not.

DUKOV Alexander Valerievich

Born in 1967 in Leningrad. After leaving school in 1985 he entered the Leningrad Order-of-Lenin Shipbuilding Institute; From 1996 to 1998 Dukov held consecutive positions of Financial Manager and Chief Executive Director of JV CJSC Saint-Petersburg Oil Terminal. In 1998 was Economics Director, and during 1999 acted as Director General of JSC Sea Port Saint-Petersburg. In 2000 resumed work at JSC Saint-Petersburg Oil Terminal as Chairman of the Board of Directors. In 2001 received an IMISP MBA degree. In February 2003 was appointed President of JSC AK SIBUR. From July 2005 - also President of JSC AKS Holding. In November 2005 released from the office of President of JSC AK SIBUR. He is President of JSC AKS Holding and since December 2005 - also President of JSC SIBUR Holding. Since November 2006 - Chairman of the Board of Directors, JSC SIBUR Holding. From November 23, 2006 – Acting President of JSC Gazprom Neft. On December 30, 2006 was elected President of JSC Gazprom Neft at an extraordinary General Shareholders’ Meeting (since 19.11.2007 – Director General). Authorized share capital (as at 31.12.2008) is not.





KRUGLOV Andrei Vyacheslavovich

Born in 1969 in Leningrad. Education: 1994 - Saint-Petersburg Technological Institute of the Refrigeration Industry. 2000-2001 - Head of the Foreign Trade and Investment Division at the Foreign Economic Cooperation Department of the Foreign Relations Committee, St. Petersburg Administration. 2001-2002 - Deputy Director, Invest-In Limited Liability Company. 2002-2003 - Head of the Corporate Finance Department, member of the Management Board, JSC Gazprom. 2003-2004 - Head of Financial and Economic Department, member of the Management Board, JSC Gazprom. 2004-2004 - Acting Deputy Chairman of the Management Board - Head of the Financial and Economic Department, member of Management Board, JSC Gazprom. 2004-present - Deputy Chairman of the Management Board - Head of the Financial and Economic Department, member of Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

PAVLOVA Olga Petrovna

Born in 1953 in Vladivostok. Graduated from the Far Eastern State University in 1976. Candidate of Legal Sciences. From 2001-2002 - Assistant Professor of the Civil Law Department, Saint-Petersburg State University; 2002-2003 - Deputy Head of the Economic Department of the President of the Russian Federation; 2003-2004 - Head of the Property Management and Corporate Relations Department, JSC Gazprom. 2004-present - member of the Management Board, JSC Gazprom, Head of the Property Management and Corporate Relations Department, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

PODYUK Vasiliy Grigorievich

Born in 1946 in Kobaki Village of the Kosov District, Ivano-Frankovsk Region. Education: 1969 - Ivano-Frankovsk Oil and Gas Institute; 2000-2002 - Head of the Gas, Gas Condensate and Oil Production & Processing Department, member of the Management Board, JSC Gazprom. 2002-present - Head of the Gas, Gas Condensate and Oil Production Department, member of the Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

SELEZNEV Kyrill Gennadievich

Born in 1974 in Lengingrad. Education: 1997 - D.F. Ustinov Baltic State Technical University; 2002 - Saint-Petersburg State University; 2000-2001 - Head of the Tax Policy Group of Open Joint Stock Company Baltic Pipeline System (BPS), then of a BPS branch - Verkhnevolzhskie Magistralnye Nefteprovody. 2001-2002 - Deputy Head of the Management Board Administration – Assistant to Chairman of the Management Board, JSC Gazprom; 2002-2002 - Head of the Department for Marketing and Processing of Gas and Liquid Hydrocarbons, JSC Gazprom; 2002-present – Head of the Department for Marketing and Processing of Gas and Liquid Hydrocarbons, member of the Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

Marco ALVERA

Born in 1975. Education: London School of Economics and Political Science. 2002-2004 - Assistant to Chief Executive Officer , ENEL S.p.A Rome, Head of Corporate Strategy, ENEL S.p.A Rome. 2004-2005 - Chief Financial Officer, WIND TELECOMUNICAZIONI S.p.A. Rome. 2005-2006 - Assistant to Chief Executive Officer for Special Projects, Eni S.p.A. Rome/Milan. 2006 -present - Senior Vice-President of Supply & Portfolio Development, Gaz & Power Division Eni S.p.A. Milan. 2007 -present - Project Manager Russian Development & Project Manager South Stream, Eni S.p.A. Moscow. Authorized share capital (as at 31.12.2008) is not.

Claudio DESCALZI

Born in 1955. 2002-2005 – Senior Vice-President of Italy, Africa and Middle East Geographic Division, Exploration and Production Department, Eni S.p.A. 2006-present – Deputy Senior Director of Operations and Senior Vice-President of Italy, Africa and Middle East Geographic Division, Exploration and Production Department, Eni S.p.A.; 2006 – Chairman of Assominerari; 2006 – 2007 – Senior Vice-President, Confindustria Energia. 2007-2008 – Deputy Senior Director of Operations, Exploration and Production Department, Eni S.p.A.; 2008-present – Senior Director of Operations, Exploration and Production Department, Eni S.p.A. Authorized share capital (as at 31.12.2008) is not.





INFORMATION ON CHANGES IN THE MEMBERSHIP OF THE BOARD OF DIRECTORS IN THE REPORTING YEARFrom the regular (annual) General Shareholders’ Meeting of the Company conducted on June 20, 2006 to election of the Board of Directors that was in office as of the end of 2008, the Board of Directors of the Company was composed of:

Miller Alexei Borisovich (Chairman of the Board of Directors)Dubik Nikolai NikolaevichDukov Alexander ValerievichGolubev Valery AlexandrovichKruglov Andrei VyacheslavovichMarco AlveraPavlova Olga PetrovnaPodyuk Vasily GrigorievichSeleznev Kyrill GennadievichStefano Cao

Until June 20, 2008 the following were members of the Board of Directors of the Company elected by the extraordinary General Shareholders’ Meeting on November 19, 2007:

Miller Alexei Borisovich (Chairman of the Board of Directors)Golubev Valery AlexandrovichKruglov Andrei VyacheslavovichPavlova Olga PetrovnaPodyuk Vasily GrigorievichSeleznev Kyrill GennadievichChuichenko Konstantin AnatolievichDukov Alexander ValerievichMarco AlveraStefano Cao

COMMITTEES OF THE BOARD OF DIRECTORSFor the purpose of preliminary review and in-depth study of the most important issues falling within the competence of the Board of Directors and preparation of recommendations to the Board of Directors on such issues, the Board of Directors of the Company has set up two committees:

THE AUDIT COMMITTEEThe Audit Committee assists the Board of Directors in exercising control over the financial and economic activities of the Company; preparation and presentation of financial and other statements; their completeness and fairness; creation and effective operation of internal control and risk management systems; ensuring constructive communication with the external auditor, bodies supervising the financial and economic activities of the Company; internal audit units of the Company; compliance of the Company with the current legislation and approved bylaws.

The Audit Committee ensures actual participation of Board members in exercising control and assists in establishing their personal awareness with respect to the Company’s operations in the above areas.

As of December 31, 2008 the Audit Committee was composed of:

Kruglov Andrei VyacheslavovichPavlova Olga PetrovnaDubik Nikolai Nikolaevich

THE PERSONNEL AND REMUNERATION COMMITTEEThe Personnel and Remuneration Committee assists the Board of Directors in reviewing the issues of corporate governance, personnel policy and social sphere. It is within the province of the Personnel and Remuneration Committee to develop recommendations to the Board of Directors of the Company regarding the recruitment, keeping, incentivization and development of the Company’s human resources.

As of December 31, 2008 the Personnel and Remuneration Committee was composed as follows:

Pavlova Olga PetrovnaKruglov Andrei VyacheslavovichDubik Nikolai Nikolaevich

The activities of the Board of Directors’ Committees is minutely governed by the relevant Regulations setting out their goals, objectives, functions, membership, formation procedure and organization of their work.

ACTIVITIES OF THE BOARD OF DIRECTORS IN 200812 meetings of the Board of Directors were held in the reporting period, adopting resolutions which: • approved a bond issue program of the Company for a total of 35 bn rubles in order to attract financing

for implementation of JSC Gazprom Neft’s investment program and to refinance the Company’s current liabilities; • on the basis of proposals received from the shareholders, approved a list of candidate members for the Board

of Directors and the Audit Commission of the Company;• following analysis of the issue by the Audit Committee, determined the amount of recommended distributable dividend

income for 2007;• preliminarily approved the 2007 Annual Report of the Company;• approved new memberships of the Board of Directors’ Committees of the Company;• reelected the Management Board of the Company;• on the recommendation of the Audit Committee, determined the amount of payment for the services of the Company’s

Auditor for 2008;• approved interested-party transactions of the Company;• approved participation of the Company in other organizations.





MEMBERSHIP OF THE MANAGEMENT BOARDIn accordance with the legislation on joint stock companies the management of day-to-day operations of the company is assigned to the executive bodies constituting a key link of the corporate governance structure: Director General (sole executive body) and Management Board (collective executive body).

The executive bodies of the Company act for the benefit of the Company and its shareholders and are accountable to the Board of Directors and the General Shareholders’ Meeting.

The main objectives of the executive bodies of the Company are: organization of day-to-day operations of the Company in accordance with the adopted financial and economic plan and efficient and timely implementation of resolutions of the General Shareholders’ Meeting and the Board of Directors of the Company.

Director General of the Company is Alexander Valerievich Dukov. By virtue of his office Director General helms the Management Board of the Company composed of highly-qualified professionals possessing special knowledge and skills in the area of the Company’s business and sufficient management experience.

The Company’s policy regarding remuneration of the executive bodies is designed to incentivize top managers of the Company into long-term and maximally productive work for the benefit of the Company. In view of this, the incentive system for the members of the executive bodies of the Company is based on the following principles:

• the amount of remuneration is commensurate with the professional experience and qualification of the members of the executive bodies of the Company;

• the amount of remuneration is directly dependent on the results of operations achieved by the Company.

As of December 31, 2008 the members of the Management Board of the Company were::

ZILBERMINTS Boris Semenovich, Deputy Chairman of the Board, Deputy Director General for Exploration and Production

Born in 1967 in Cherkassy. 1992 - graduated with distinction from the Geology Faculty of Gubkin Russian State University of Oil and Gas with a degree in “field geology of oil and gas”. 1997 - awarded a Masters Degree in economics at Southern Methodist University (Dallas, USA). Worked as senior geologist of the Oil and Gas Production Workshop at JSC Noyabrskneftegaz, strategic planning analyst at oil company “AMOCO-Eurasia” (Houston, USA), Senior Economics and Finance Adviser at oil consulting firm Gaffney, Cline and Associates (Olton, United Kingdom). From 2001 - Head of the Strategy Department, LUKOIL Overseas Service Ltd. in Kazakhstan. From November 2002 - Regional Director of LUKOIL Overseas Service Ltd. in Kazakhstan. Since February 2008 - Deputy Chairman of the Board, Deputy Director General for Exploration and Production, JSC Gazrpom Neft. Authorized share capital (as at 31.12.2008) is 0,0004218253%.

KRAVCHENKO Kyrill Albertovich, Deputy Chairman of the Management Board, Deputy Director General for Organizational Matters

Born in 1976 in Moscow. 1998 - graduated with distinction from Lomonosov Moscow State University (sociology). 2002-2003 - studied at the Open British University (financial management), in 2003-2004 – at IMD Business School. Doctor of Science in Economics, professor. Until 2000 worked in consulting, 2000-2004 - at YUKOS holding various positions in Moscow and Western Siberia. 2001-2002 - employed with Schlumberger (under partnership program with NK Yukos) in Europe and Latin America. 2004-2007 – Administrative Director, JSC MHK Eurohim. Many times elected member of the boards of directors of major companies. In April 2007 appointed Vice-President of JSC Gazprom Neft. Since January 2008 – Deputy Director General for Organizational Matters, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.

CHERNER Anatoliy Moiseevich, Deputy Chairman of the Management Board, Deputy Director General for Logistics, Refining and Distribution

Born in 1954. 1976 - graduated from Groznyy Oil Institute with a degree in “chemical technology of oil and gas refining”. 1976-1993 – worked at the Sheripov Groznyy Refinery, where he rose through the ranks from a machine operator to Director of the Refinery. 1996 - joined JSC NGK SlavNeft as Head of the Oil and Petroleum Products Trading Department and was later appointed Vice-President of the company. Appointed Vice-President of Sibneft (from June 2006 – Gazprom Neft) for Refining and Distribution in April 2006. Since January 2008 - Deputy Chairman of the Management Board, JSC Gazprom Neft, Deputy Director General for Logistics, Refining and Distribution. Authorized share capital (as at 31.12.2008) is not.

DUKOV Alexander Valerievich, Director General, Chairman of the Management Board

Born in 1967 in Leningrad. After leaving school in 1985 he entered Leningrad Order-of-Lenin Shipbuilding Institute; From 1996 to 1998 Dukov held consecutive positions of Financial Manager and Chief Executive Director of JV CJSC Saint-Petersburg Oil Terminal. In 1998 was Economics Director, and during 1999 acted as Director General of JSC Sea Port Saint-Petersburg. In 2000 resumed work at JSC Saint-Petersburg Oil Terminal as Chairman of the Board of Directors. In 2001 received an IMISP MBA degree. In February 2003 was appointed President of JSC AK SIBUR. From July 2005 - also President of JSC AKS Holding. In November 2005 released from the office of President of JSC AK SIBUR. He is President of JSC AKS Holding and since December 2005 - also President of JSC SIBUR Holding. Since November 2006 - Chairman of the Board of Directors, JSC SIBUR Holding. From November 23, 2006 – Acting President of JSC Gazprom Neft. On December 30, 2006 was elected President of JSC Gazprom Neft at an extraordinary General Shareholders’ Meeting (since 19.11.2007 – Director General). Authorized share capital (as at 31.12.2008) is not.





YAKOLEV Vadim Vladislavovich, Deputy Chairman of the Management Board, Deputy Director General for Economics and Finance

Born in 1970. 1993 - graduated from Moscow Engineering Physics Institute (in applied nuclear physics). 1995 - graduated from Higher School of Finance at the International University in Moscow. 1999 - qualified as a member of the Association of Chartered Certified Accountants (ACCA); 1995-2000 - worked with PricewaterhouseCoopers, starting his career as a consultant and promoted to audit manager in 2000. 2001-2002 – held office of Deputy Head of the Financial and Economic Department, CJSC YUKOS EP. 2003-2004 - Financial Director, JSC YuganskNeftegaz (NK Yukos). 2005-2006: - Deputy Director General for Economics and Finance, LLC SIBUR-Russian Tyres. Since December 2006 employed with JSC Gazprom Neft – first as Head of the Budget Planning Department, then, since January 2008, - as Deputy Chairman of the Management Board, JSC Gazprom Neft, Deputy Director General for Economics and Finance. Authorized share capital (as at 31.12.2008) is not.

DYBAL Alexander Mikhailovich, member of the Board, Director General for Corporate Communications

Born November 3, 1966 in Leningrad. 1991 - graduated from Leningrad Electrotechnical Institute with a degree in “automatic control systems”. 1991-1995 and 1997-2001 – Commercial Director, Radio Baltica (St. Petersburg). 1995-1997 – Director General of the state-owned TV and Radio Broadcasting Company Petersburg – Pyatiy Kanal. 2001 – Deputy Director of Severo-Zapad Strategic Research Center; same year appointed Director of Information Policy Department, JSC Gazprom. 2003-2004 – Director General of JSC Gazprom-Media. From July 2004 – Chairman of the Board of Directors, JSC Gazprom-Media. February 2007 - appointed Vice-President and Head of the Corporate Communications Department, JSC Gazprom Neft. Adviser to Chairman of the Management Board, JSC Gazprom. Since January 2008 – member of the Management Board, JSC Gazprom Neft, Deputy Director General for Corporate Communications. Authorized share capital (as at 31.12.2008) is not.

ILYUKHINA Elena Anatolievna, member of the Board, Deputy Director General for Corporate and Legal Matters

Born in 1969. 1993 – graduated from Ulyanov (Lenin) Saint Petersburg State Electrotechnical University with a degree in “electronic devices”. 1999 – graduated from Saint Petersburg State University with a degree in “law”. 2001 – received a Ph.D. in economics. 1993 - 1996 – Executive Director of AOZT OSTO. 1996-1999 – Director General of Firm Onega Plus LLC. 1999 to 2001 - worked for banking companies such as JSCB SbS Agro and JSCB North-Western O.V.K. holding various positions from a legal advisor to Head of the Legal Department. 2001 to 2007 – Deputy Director General, FGUP Rublevo-Uspensky LOK (medical and recreational complex) of the Property Management Department of the President of the Russian Federation. Prior to employment with JSC Gazprom Neft – Executive Director of North-Western Investment Company LLC. Since January 2008 – member of the Management Board, JSC Gazprom Neft, Deputy Director General for Corporate and Legal Matters. Authorized share capital (as at 31.12.2008) is not.

ANTONOV Igor Konstantinovich, member of the Board, Deputy Director General for Security

Born in 1951 in Leningrad. 1974 – graduated from Leningrad Institute of Aviation Instrument Engineering. 1977-1995 – served for the state security bodies. 1995 – 2000 – Director for Security and Information Protection, JSC Bank Saint-Petersburg. 2000-2005 – Director General, Saint-Petersburg State Unitary Enterprise Informatika. From December 2005 – Vice-President for Security, JSC Sibneft. 2007- present – Deputy Director General for Security, JSC Gazprom Neft. Authorized share capital (as at 31.12.2008) is not.

INFORMATION ABOUT JSC GAZPROM NEFT SHARES HELD BY MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT BOARD (AS OF DECEMBER 31, 2008)Members of the Board of Directors and Management Board, JSC Gazprom Neft Number of Common Shares Share in Authorized Capital, %

• Zilbermints Boris Semenovich 20 000 0,0004218253

TOTAL AMOUNT OF REMUNERATION TO THE MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT BOARD The total amount of remuneration to the members of the Board of Directors paid in 2008 was 407.99 mln rub. including 180.21 mln rub. for the period from 23.06.2007 to 31.12.2007 (in accordance with the resolution of the Annual Meeting of June 20, 2008) and 227.78 mln rub. for the period from 23.06.2006 to 22.06.2007 ((in accordance with the resolution of the Annual Meeting of November 19, 2007).

The remuneration was paid only to those Board members who do not hold positions at the executive bodies of the Company (are not Executive Directors).

The total amount of payments to the members of the Management Board, including Chairman of the Management Board, in 2008 was 283.59 mln rub. Payments included salary for the reporting period, taxes assessed on salary and other mandatory payments to the relevant budgets and extra-budgetary funds, payment for annual paid leave for work in the reporting period, treatment and medical expenses.



ECOLOGY,ENERGY SAVING, INNOVATION



HEALTH, SAFETY AND ENVIRONMENTIn 2008 the Company approved the “Health, Safety and Environmental Policy”. The Policy sets out the strategic goal facing the Company – to become one of the leaders among world oil-and-gas companies in ensuring health, safety and environmental protection, proving this by actual results and advanced work methods. The Policy identifies the employee, public and environmental safety as the priority in the economic and technical decision-making. Among the obligations of the Company, confirmed in the Policy, are continuing improvement of working conditions, industrial and environmental safety, introduction and continuing improvement of an effective management system, development of information exchange with interested parties, increasing the competence of and involvement of employees in the Policy implementation, setting uniform safety requirements to the employees and contractors of the Company.

INTRODUCITON OF AN INTEGRATED MANAGEMENT SYSTEMIn 2008 the Company developed and approved an Integrated Health, Safety, Environment and Civil Protection Management System (hereinafter HSE and CP) complying with the main requirements set out by OHSAS 18001 (Occupational Health & Safety Assessment Series), ISO 14001 (environmental management) and ISO 9001 international standards (quality management) as well as with the recommendations of the International Association of Oil and Gas Producers.

INDUSTRIAL RISK MANAGEMENTOne of the key instruments in HSE and CP is the risk management mechanism. The Company has developed and approved a standard called: “The Procedure for Identification, Assessment and Minimization of Industrial, Environmental, Occupational and Civil Protection Risks”. We organized training of specialists and began an industrial risk analysis process.

Company employees at all levels are involved in the HSE and CP risk identification process which lays a good basis for creating a high safety culture.

ENVIRONMENTAL SAFETY MANAGEMENTThe Company seeks to fully comply with the current environmental legislation. The amount of payments for exceeding the existing environmental impact standards at the major enterprises of Gazprom Neft in 2008 totaled 210 mln rub., which is a 21% increase compared to 2007. A total of 1.66 mln rub. was paid in penalties for violation of the environmental legislation,

ECOLOGY, ENERGY SAVING, INNOVATION

measures were taken to correct the violations found. The Company plans to further develop the procedures for investigation and analysis of incidents related to violation of the legislation and introduce corrective measures which will enable it to minimize the probability of such events occurring again.

ENVIRONMENTAL EXPENDITUREThe Company’s current and capital expenditure on environmental measures, including the use of technologies minimizing the adverse environmental impact many times exceed payments made by the Company for environmental contamination. Current costs include also expenses on the development of regulatory documents, conduct of environmental monitoring, industrial environmental control, improvement of environmental qualifications and environmental training of specialists. ATMOSHERIC EMISSIONSThe enterprises of the Company work non-stop to reduce harmful atmospheric emissions. In the period from 2006 to 2008 total emissions at Gazprom Neft have slightly increased due to an increased scope of operations.

The bulk of Company emissions occur in the oil and gas production sector, whereas in the oil refining sector there were on a decline. Lower emissions in refining were attributable to the renovation of refining capacities, replacement of burner units, optimization of process parameters, reconstruction of tanks and introduction of an installation ensuring precise and leakproof oil loading.

UTILIZATION OF ASSOCIATED GASIn the production sector active work is underway to ensure a high rate of gas utilization. The rate of associated gas (hereinafter – AG) utilization across the Company’s main producing enterprises remains low – 46.8 of recovered gas was used in 2008.

Increasing the AG utilization rate is an important state priority, and to ensure a contribution to addressing this objective, in 2008 the Company adopted a 2008-2010 Medium-Term Investment Program for AG utilization and higher efficiency use (hereinafter – MTIP). The actual financing of MTIP projects in 2008 was 106% compared to plan. The developed Program, as revised in 2009, will allow JSC Gazprom Neft to upgrade the AG utilization rate to 95%, commencing 2012.

ENVIRONMENTAL COSTSSOURCE: COMPANY DATA

2006 2007 2008

MLN RUB.

1 200

1 000

800

600

400

200

0

456

733

1 110

TOTAL HARMFUL ATMOSPHERIC EMISSIONSSOURCE: COMPANY DATA

2006 2007 2008

157, 552

158, 872

157, 583

159,0

158,5

158,0

157,5

157,0

156,5

THOU. T

AG RESOURCES AND UTILIZATION RATE IN 2006-2008 SOURCE: COMPANY DATA

• Gazpromneft-NNG• Gazpromneft-Khantos• Gazpromneft-Vostok• AG Utilization Rate

MLN М3 %

2006 2007 2008

5 000

4 000

3 000

2 000

1 000

0

70

50

30

10

0



PRODUCTION OF ENVIRONMENTALLY-FRIENDLY FUELThe oil refining sector of the Company works methodically to improve the environmental friendliness of its fuels. The Omsk Refinery has come up with a development program designed to ensure a complete transition to the production of environmentally-friendly fuels by 2012. A serious reconstruction of the installation is scheduled for 2009 which will allow a transition to the production of EURO 4 and EURO 5 diesel fuel. In 2008 around 9% of gasolines produced by the Refinery complied with the EURO 3 requirements. Consumption of cleaner fuel produced by the Omsk Refinery will result in a 22 ton-reduction of sulfur dioxide emissions by motor transport.

UTILIZATION OF WATER RESOURCESThe enterprises of the Company seek to utilize water resources with maximum efficiency by injecting reservoir waters back into the wells to maintain the reservoir pressure during oil production and by organizing closed cooling cycles in refining. In 2008 water consumption for the Company’s own needs was up by 15% compared to 2007 due to an increase in oil refining volumes and to the implementation of project solutions conerning water injection into the reservoir pressure maintenance system at Gazpromneft – Khantos LLC. The water reuse rate in refining remained very high – over 97.5%. Company-wide the total volume of effluents in 2006-2008 was around 0.1 mln m3.

WASTE TREATMENTThe Company strives to reduce waste accumulation and improve waste treatment practices. The main share of accumulated waste is represented by drilling waste of hazard class IV (low hazard). In total, IV and V class (low hazard and practically non-hazardous) waste accounts for over 90%. Drilling waste accumulates during the operations of oil producing and oil service enterprises (overall share of these enterprises – over 90%). The principal method of drilling waste treatment remains placement of such waste in dedicated storage areas. The work on waste treatment improvement is performed in all sectors of the Company’s operations. Thus, in refining the Omsk Refinery independently processes 100% of accumulated waste oils. In petroleum product distribution new effective technologies are being introduced, such as a mobile treatment complex designed to clean the inside of tanks from solid deposits. Worth of note among the completed projects is the launch at the Yuzhno-Priobskoye field of a unique-for-Russia installation for waste injection into reservoirs, which allows drilling operations to be conducted without discharging drilling waste on the surface.

LAND CONTAMINATION CONTROL AND REMEDIATIONThe Company performs operations for land decontamination and liquidation of unorganized consumption waste storage areas. In 2008 219 ha of contaminated land was remediated, the sludge pit remediation rate was increased. To reduce the amount of disturbed land the Company plans to introduce pitless drilling methods at a number of fields.

To conduct land remediation the Company’s enterprises use modern chemical biological agents (like Fare Zyme) designed for oil destruction. They are based on mineral, rather than biological, components which artificially feed the natural microflora and facilitate land rehabilitation. Also, biological remediation involves the seeding of large batches of area-specific grasses and perennials.


WATER CONSUMPTION (WATER USED, TOTAL), MLN M3

SOURCE: COMPANY DATA

79,8 71,9 82,5

2006 2007 2008


SAFETY AND HEALTH MANAGEMENT The Health, Safety and Environmental Policy adopted in 2008 gives critical attention to the issues of occupational safety and reducing the accident and injury incidence rate.

Occupational safety costs per worker in 2008 totaled 12 200 rub., which is 18% more than in 2007.

The Company has developed and is introducing a program for the provision of all employees with personal protective equipment, is actively involved in revising the legislation as regards personal protective equipment for oil industry employees.

In 2008 the Company developed and introduced an automated HSE and CP Information Management System (IMS). This system allows it to standardize reporting, reduce the number of one-time inquiries, automate and standardize the main HSE and CP management reporting generation processes, enhance control over compliance with the health, safety and environmental requirements. The IMS is used to give early notification of incidents, provide information about the measures taken to localize and liquidate their consequences, render assistance in conducting investigations. The IMS serves to accumulate and classify data for effective analysis of health, safety and environmental incidents and risks.

A HSE and CP statistics transparency program was introduced. As against 2007, the incident transparency index was up by 40% to reach the level of leading world oil companies. In 2008 the Company-wide lost injury time frequency rate (LTIFR) was 0.76 and the fatal accident rate (FAR) – 12.6. The introduction of a standard governing the incident investigation process enabled the Company to minimize the possibility of a formal approach to this process and to focus on the identification of major causes rather than finger-pointing. To prevent identical incidents, the subsidiaries and affiliates exchange information about incidents and lessons learnt from them. The process of recording minor incidents and prerequisites therefor has been established, this enabling the Company to take preventive measures to avoid major incidents rather than deal with their consequences.

The Company has launched the introduction of a transport safety program to reduce personnel injury and corporate property damage risks in road accidents. To this end, a special standard has been developed and introduction of a training program for drivers and executives is currently underway.

In 2008 the Company reorganized its Civil Protection (Civil Defense and Emergency) Service, developed a regulatory framework, reviewed compliance with the legislative requirements and corporate regulations at the subsidiaries and associates.


CONTAMINATED LAND REMEDIATIONSOURCE: COMPANY DATA

HA

2006 2007 2008

300

250

200

150

100

50

0

164 219269



ENERGY SAVINGTotal energy consumption at the Company is growing due to the intensification of operations in all major sectors. Energy consumption at JSC Gazprom Neft’s subsidiaries was up from 4.8 bn kW/h in 2006 to 5.2 kW/h and 5.5 bn kW/h in 2007 and 2008, respectively.

Yet thermal energy consumption at the Company was down from 350 thou. Gcal in 2006 to 330 and 314 Gcal in 2007 and 2008, respectively. Specific power consumption at JSC Gazprom Neft has increased due to the intensification of operations, primarily resulting from energy consumption growth in the reservoir pressure maintenance system at Gazpromneft-Khantos LLC.

Gazprom Neft is working to ensure efficient energy use. The Company conducts energy audits at its enterprises, introduces energy consumption control and reduction measures, develops and implements efficient energy use programs. In 2009 it is planned to reduce energy consumption at JSC Gazpromneft-Noyabrskneftegaz by 2%, compared to 2008.

The implementation of the energy saving program in oil production yielded economy of 34 mln rub. in 2006, 152 mln rub. in 2007 and 880 mln rub. in 2008.

INNOVATIVE ACTIVITIES

EXPLORATION AND PRODUCTION TECHNOLOGIESThe main purpose of innovations in exploration is development of rational geological-and-geophysical survey complexes, improvement of reserves estimation methods, reduction of geological risks and higher precision in identifying exploration targets. To serve this purpose, state-of-the-art approaches were used during operations in 2008. Thus in the area of field seismic survey, a 2D survey was for the first time conducted on a large-scale (375 line km) in the mountainous conditions of Northern Caucasus, using vibrators, and in the area of seismic data processing and analysis the following original technologies were employed:

• processing and stacking of seismic signals based on the curvilinear reflector model – “multifocusing” – a product of Geoimage (Israel). The technology was employed in the seismic survey of the Novorossiiskoye and Doobskoye license plots. In difficult mountainous and seismological conditions – indented shelf, placation, seismic sections with high-amplitude reflecting horizons were acquired.

• comprehensive analysis of seismic and other geological-and-geophysical data based on the horizontal fault model for the purpose of forecasting oil and gas accumulations. This work was performed at JSC CGE. The materials for a group of areas in the central part of the Noyabrsk region covering Ety-Purovskiy, Valyntoiskiy, Yarainerskiy, Novogodniy and Vyngayakhinskiy license plots show the efficiency of the horizontal fault model in terms of oil and gas deposit prospecting. The existence of rootless anticlines and tectonic faults was substantiated. A new approach to forecasting prolific wells was proposed.

The use of innovative exploration technologies by JSC Gazprom Neft did not result in reserve additions, but further work on the newly acquired data will allow the Company to more accurately locate exploration wells and hence get hydrocarbon reserve additions.

In 2008 JSC Gazprom Neft conducted geotechnical operations (GTO) at 1 194 wells, this resulting in the additional production of 4 649 thou. tons of oils (table 21).

One of the most important results of the Company’s technology improvement activity is extensive use of oil production intensification and enhanced oil recovery (EOR) methods. In 2008 total production from the EOR operations conducted in the reporting year (without the carryover effect) was 1.5 mln tons or 5% of the Company’s total output. These methods allow Gazprom Neft to substantially increase recoverable reserves (additions are estimated at 2.6 mln tons) and bring into production low quality reserves (high viscosity, in impermeable reservoirs).

The Company uses physical, chemical, hydrodynamic and thermal recovery stimulation methods. The bulk of additional production was attributable to physical methods, first and foremost, to hydraulic fracturing (HF). 609 new wells were put into production in 2008, of which 36 – horizontal, 179 HF were created (without HF at the new wells), 43 wells were sidetracked and 31 deepened into lower formations.

Furthermore, the hydrodynamic and chemical field development methods that were used in difficult geological conditions to achieve more complete reserve recovery, yielded additional oil production of 119.4 thou. tons and 158.1 thou. tons, respectively. In 2008 continuing to actively use new drilling and casing technologies, Gazprom Neft:

• Introduced Rihno Reamer, a system designed to prepare the wellbore for casing (manufacturer: Smith Eurasia)• Introduced CemCrete, a new well and sidetrack casing technology (Schlumberger Logelco Inc.)• Completed one horizontal open-hole well (based on this experience, 6 same type wells are scheduled for 2009). • Pioneered the introduction of electromagnetic MWD equipment.

For the purpose of implementation of an effective development control and production monitoring system, Gazprom Neft is introducing at its fields nonstop reservoir data monitoring technologies. This work focuses on two areas:

1. Formation of a bottomhole pressure and temperature control system based on suction pipe-mounted monitor sensors. In 2008 specialists of Gazpromneft-NTTS LLC summarized the measurement results for the entire operating stock of the Priobskoye field. As a result the filtration properties and drilling-in quality characteristics of more than 100 wells were evaluated without intervening into the process cycle, which allowed the Company to avoid oil losses associated with inevitable well shutdowns during dynamic well testing – roughly 10 thou. tons. This experience can be extended to other fields as well, hence the overall oil loss reduction figures will be much higher.

2. Use in the wells of a fixed downhole separate inflow and output composition control system during joint development of two or more oil reservoirs, which allows controlled and managed joint development of several targets by one well network.

The economic effect for the Company from saving on additional production well drilling resulting from the introduction of pilot and industrial technologies in 23 wells at 7 fields totals around 1.12 bn rubles.

Table 21. GEOTECHNICAL OPERATIONS (GTO) IN 2006 -2008.2006 2007 2008

• GTO, number of wells 1 035 1 003 1 194• Additional production, thou. t 5 233,7 4 919,3 4 649,3




OIL REFINING TECHNOLOGIES2008 saw the performance of research and development (R&D) in oil refining, commissioned by Gazprom Neft, for a total of 34 mln rub. The main areas of R&D in 2008 were related to safety and environmental protection; as well as to product quality maintenance and production technologies, efficient inventory consumption technologies, including those used to inspect installations and issue operation optimization recommendations.

The Company pays increased attention to modernization and new construction for the purpose of meeting the technical regulations: “On Requirements for Motor and Aviation Gasoline, Diesel and Marine Fuel, Jet Fuel and Residual Fuel Oil”. To meet the legislative requirements a motor fuel quality upgrade program was developed for JSC Gazpromneft-Omsk Refinery. Under this program in 2008 the Company continued to implement isomerization, diesel fuel hydrotreatment, L-24/9 hydrotreater reconstruction, and catalytic cracking gasoline hydrotreatment projects.

In 2008 construction of Russia’s largest isomerization unit got underway at the Omsk Refinery. The unit construction is scheduled for completion in 2010. The new unit will have the capacity to process 800 thou. tons of raw materials a year and produce isopentane and isomerizate, which will allow the production of gasolines containing no more than 42% of aromatic hydrocarbons, no more than 1% of benzol and sulfur maximum of 150 ppm. The new unit will enable the Company to cut purchases of high octane additives and substantially increase the output of high octane gasolines complying with European standards.

Under the Omsk Refinery modernization program, reconstruction of the L-24/9 diesel fuel hydrotreater was launched in 2008 (design, configuration, construction and installation work). As a result the quality of diesel fuel output will be upgraded to the Euro-4 and Euro-5 level. The L-24/9 diesel fuel hydrotreater will become the first capacity at the Omsk Refinery to produce motor oil of such high grade.

In 2008 refurbishment of the cracking catalyst production complex was completed at the Omsk Refinery. After the refurbishment, the one and only complex in Russia resumed its normal operations. The complex produces modern cracking catalysts for refinery units which are used to convert heavy petroleum stock into a high-octane gasoline component.

A feasibility study for investment in boosting the output of aromatic hydrocarbons at JSC Gazpromneft-Omsk Refinery was conducted.

The Omsk Refinery has developed a growth program designed to make a complete transition to the output of environmentally-friendly fuels by 2012. Serious reconstruction is planned for 2009 which will allow the production of Euro-4 and Euro-5 diesel fuel.

Gazprom Neft pays serious attention to the development of advanced oils and additives production technologies. Continuing improvement of the product quality serves the interests of consumers and the environment.


SOCIALPOLICY



PERSONNEL, OCCUPATIONAL SAFETY AND HEALTHGazprom Neft invests in personnel, supporting the initiatives and innovations designed to enhance operation and management efficiency. The Company acts as a responsible employer maintaining equal relations with the employees, ensuring decent wages, career opportunities and comfortable working conditions.

PERSONNEL MANAGEMENT POLICY AND STANDARDSIn 2008 Gazprom Neft developed a uniform personnel management concept. To identify uniform approaches to dealing with the employees of all enterprises the Company is preparing a collective agreement which will include the uniform obligations of Gazprom Neft to all enterprises of the Company. Additional elements and details of the benefits and terms to be provided will be determined by each enterprise at its own discretion.

In 2008 the Company continued to develop its uniform personnel standards; among them – “Procedure for the Organization of Corporate Employee Training”, “Planning and Training of Personnel Reserve for Target Positions”, “Procedure for Working with Young Specialists”, and other.

In 2008 the Company developed a grading system which allows employees to understand their place in the corporate hierarchy. This system will be the basis for a wage system and social benefit policy.

In 2008 Gazprom Neft developed and approved a Corporate Code containing the basic values and principles. The draft Code was discussed with representatives of the work teams of the Company’s major organizational units and the corporate center. The final version, as far as possible, takes into account the comments and opinions of all interested parties expressed in the discussion.

As of today Gazprom Neft enterprises employ over 48 thousand people working in 18 regions of the Russian Federation as well as in Kyrgyzia, Kazakhstan, Tajikistan. In particular, Moscow and the Moscow Region account for 8% of the employees, roughly 30% of them work at the Head Office. The share of Omsk and the Omsk Region is 17% of Company employees (over 50% of them employed at the Omsk Refinery). However the greater part of Gazprom Neft personnel – about half of the total headcount – is concentrated in the Yamal-Nenets Autonomous District.

DISTRIBUTION OF GAZPROM NEFT PERSONNEL BY REGION IN 2008The Company ensures competitive wages and decent social benefits to its employees. Personnel costs in 2008 showed a more than 20% increase compared to the year before and totaled nearly 25 bn rub.

A perfect employee incentive system, providing for effective work by the personnel, enables the Company to achieve its business objectives. Gazprom Neft is introducing and developing a comprehensive incentive system based on competitive wages, performance bonuses and intangible elements.

SOCIAL POLICY

SOCIAL PACKAGECompany employees, in addition to the statutory benefits, are provided with a social package, which includes voluntary medical insurance, free meals, anniversary bonuses, material aid, payment for employee trips as well as of leave allowance and travel fees, additional childcare allowance, holiday gifts to employees and their families, accident insurance, death allowance. In 2008 social payments averaged 32 thou. rub. per employee, which is twice as much as in 2007.

COOPERATION WITH EDUCATIONAL INSTITUTIONS AND RECRUITMENT OF YOUNG SPECIALISTSIn 2008 as part of cooperation with higher educational institutions Gazprom Neft opened a namesake lecture hall at the G.V. Plekhanov Saint-Petersburg State Mining Institute and a corporate display booth at the I.M.Gubkin Russian State University of Oil and Gas. Representatives of Gazpromneft-NTTS held meetings with the Heads of the relevant faculties over R&D issues, at which the lines of cooperation where identified. In October 2008 two professors of the I.M.Gubkin Russian State University of Oil and Gas were in internship at INFORM training center (Canada) together with Gazprom Neft employees.

The Company seeks to become one of the industry leaders in efficiency and is interested in recruitment of talented specialists. The key areas of personnel development at the Company include working with young specialists, building a personnel reserve, creating a comprehensive continuing training system which would embrace all categories of personnel and all levels of management.

In 2008 Gazprom Neft signed a cooperation agreement with three higher educational institutions, strategic partners of the Company: G.V. Plekhanov Saint-Petersburg State Mining Institute, I.M.Gubkin Russian State University of Oil and Gas and M.V.Lomonosov Moscow State University.

The main purpose of cooperation – is to recruit talented graduates to work for the Company. In 2008 the Company units recruited 326 young specialists.

AVERAGE HEADCOUNT IN 2005-2008SOURCE: COMPANY DATA

2005 2006 2007 2008

PERS.

49

48

47

46

45

44

43

42

44 640

45 775

47 686

48 339

PERSONNEL COSTS IN 2005-2008SOURCE: COMPANY DATA

2005 2006 2007 2008

25 000 000

20 000 000

15 000 000

10 000 000

5 000 000

0

THOU. RUB.

AVERAGE EMPLOYEE WAGES AT THE COMPANY IN 2005 - 2008SOURCE: COMPANY DATA

2005 2006 2007 2008

40 000

30 000

20 000

10 000

0

RUB.

+61%

SOCIALPOLICY


EMPLOYEE PROFESSIONAL DEVELOPMENTGazprom Neft is traditionally committed to the professional development of its personnel. In 2008 1 167 employees received training. The training rate was 1.2 compared to 0.6 in 2007. Professional development costs in 2008 totaled 30.8 mln rub.

Gazprom Neft’s professional training system is designed to comply with the requirements of the Company’s business and its corporate culture. Gazprom Neft’s training and development programs include three main sections: professional training programs designed to provide knowledge and skills for particular specialties and functions, corporate and management competence development programs, and business awareness development programs.

In 2008 the Company launched a number of corporate trainings: “Finance and Economics for Non-Economists”, “Oil Industry for Non-Industry Workers”, “Art of Presentations”.

Development of a career planning system is underway at the Company enterprises with the key career planning tool being Individual Development Plans, which are prepared taking into account the requirements for a specific position, assessment results of employee development capabilities, and also opinions of line managers and mentors.

In 2008 120 persons attended management competence development trainings for Company personnel reserves. The training curricula were developed based on the analysis of Individual Development Plans. As part of the improvement of Gazprom Neft’s personnel development system in 2008 various-function employees were trained in the “best practices” format, including the conduct of subject-specific master classes.

SOCIAL RESPONSIBILITY

RESPONSIBILITY IN THE AREA OF REGIONAL COOPERATION Activities of the Company seriously influence the social sphere and economy of the regions of its operation. Gazprom Neft takes active part in addressing the priorities of regional development.

The Company is a major taxpayer; a number of Gazprom Neft enterprises are local mainstays. Gazprom Neft maintains dialogue and cooperation with interested parties in the regions of operation and also implements charitable programs designed to develop the cultural and social infrastructure, healthcare of the regions, education and upbringing of children and youth.

Gazprom Neft seeks to participate in the development of regions in such manner as to maximize benefits for both society and the Company and to make the jointly implemented projects effective both socially and economically.

In the regions of the Company’s operation the main instrument of cooperation with regional and municipal authorities is socio-economic cooperation agreements. As a rule such agreements are initiated by the Company because the signing of such agreements allows Gazprom Neft to coordinate its strategy with regional needs, direct joint efforts to address the priorities for the Company and the regions.

SOCIALPOLICY

Yamal-Nenets Autonom

ous District

DISTRIBUTION OF GAZPROM NEFT PERSONNEL BY REGION IN 2008SOURCE: COMPANY DATA

Tyumen Region

Kyrgyzstan

Yaroslavl Region

Other Regions

Omsk

Reg

ion

Saint-Petersburg and Leningrad Region

Tomsk Region

Khanty-Mansi Autonomous District

Kemerovo Region

Novosibirsk Region

Ektaterinburg and Sverdlovsk Region

Moscow and Moscow Region



The Company provides assistance to the socio-economic development of the territories in all regions of operation. In 2008 alone, under cooperation agreements signed with the regional and municipal authorities of the Yamal-Nenets, Khanty-Mansi and Nenets Autonomous Districts, Omsk, Tomsk and Tyumen Regions, and Krasnodar Krai, Gazprom Neft allocated over 830 mln rub.

In one of the most important regions for the Company’s development - Yamal-Nenets Autonomous District – aid is provided to the territory on the whole and, separately, to five municipal entities: Krasnoselkup, Nadym, Purovsky Regions, towns of Noyabrsk and Muravlenko. Funds are allocated to the construction, improvements and renovation of residential houses, schools, hospitals, sports facilities. Funding is provided to the construction of a swimming pool, sports-and-fitness center and a Center of National Cultures, renovation of the Ice Palace, serious support of agricultural and national communities.

Another priority region for the Company’s business is the Khanty -Mansi Autonomous District. The main municipal entities receiving aid from the Company are the Khanty-Mansi, Nefteyugansk, Nizhnevartovsk, Oktyabrskoye, Surgut Regions.

It is here that the Priobskoye field is found, the development of which plays an important role in the plans to boost annual oil production up to 100 mln tons by 2020. By agreement with the District Administration, Gazprom Neft is building in Khanty-Mansiisk a Chess Palace as part of the preparation for the 2010 Chess World Cup and World Chess Olympic Games, finances an annual international film festival, “The Spirit of Fire”, provides assistance in the construction and renovation of social facilities located in the district areas. In 2008 Omsk Region agrarians received from Gazprom Neft 80 00 tons of oil at discount prices.

The agreement designed to support the agrarian sector was signed also with the agricultural producers of the Tyumen Region. Social aid programs for orphanages, schools and boarding schools are also financed in these territories.

Notwithstanding the continuing financial crisis, Gazprom Neft has no intention to terminate or significantly cut its “regional” program. Thus at the end of 2008 the Company entered into a new general cooperation agreement with the Khanty-Mansi Autonomous District - Yugra for 2009-2011 and plans to sign similar cooperation agreements in 2009 with the Yamal-Nenets Autonomous District, Omsk, Tomsk, and Murmansk Regions.

Any crisis ends one day, it is a temporary phenomenon, while relations with partner regions are built not for a month or a year – such partnership has no time-limits.

CHARITY The Company approved a “Charity Policy” setting out the principles and objectives of Gazprom Neft’s charitable activities, major priorities and rules of specific projects. JSC Gazprom Neft’s key charitable priorities are determined by the following programs:

• Support of children and youth • Regional cooperation• Support of sports

Total charitable expenses in the reporting period, including those under socio-economic agreements with the regions of the Company’s operation, were 1 bn rub.

The activities of the Charity Commission set up by JSC Gazprom Neft in 2008 allowed the Company to systematize its charitable activities and to work on the key priorities in 2008. It helped reduce total expenses (financing of sports organizations, indirect support through charitable organizations, foundations and associations was scaled down), while at the same time increasing the funding of social aid programs for orphanages, schools and boarding schools, cultural institutions, administrations of the districts, cities and regions where the Company operates.

JSC Gazprom Neft is proud to be one of the general sponsors of Zenit, the football club which in 2008 won the UEFA Cup and the Supercup.

The Company also supports SKA Saint-Petersburg Hockey Club and is a co-founder of Avangard Hockey Club.

In the future the Company will continue its commitment to the strategic priorities, first and foremost, to supporting the health and development of children and youth and, when determining the charitable targets and the scope of charitable programs, will do its utmost to take into account the opinions and expectations of all interested parties.

Today these priorities apply to both the socio-economic agreements with the regions of operation and to specific charitable programs and projects.

Thus in 2008 in the Parabelsky District of the Tomsk Region, construction of a roofed hockey rink with a plastic coating got underway with the assistance of Gazpromneft-Vostok LLC. This rink is given over to one hockey class; also, skate rental services have been organized. In the summer it is planned to organize one volleyball and 3 basketball classes at this rink.

JSC Gazpromneft-Omsk Refinery is implementing a special-purpose program: “On Providing Assistance to Educational Institutions of the Bolsherechie Municipal District”. Within this program they purchased equipment for kindergartens, playgrounds, as well as sports equipment for the children’s sports school in Bolsherechie Village.

JSC Gazpromneft-Ural financed the construction and opening of children’s playgrounds in the towns of Irbit and Serov. It has become a tradition to hold the Interregional Gazprom Neft Cup Children’s Ice Hockey Tournament. In 2008 the 2nd tournament took place in Khanty-Mansiisk boasting 200 participants from 6 regions of the country.

SOCIALPOLICY

SOCIALPOLICY

TO SHAREHOLDERSAND INVESTORS



STOCK MARKET AND CAPITALIZATION

BACKGROUND INFORMATION ON THE OUTSTANDING SECURITIES OF JSC GAZPROM NEFT:• Common registered shares, State Registration Number 1-01-00146-А of 17.06.2003• Par value per issued share: 0.0016 rubles• Number of issued securities: 4 741 299 639 units• Issue Value: 7 586 079.4224 rubles• Shares are included in Quotation List “B” of the CJSC MICEX and JSC RTS Stock Exchanges. • Stock Symbol – SIBN.

STOCK TRADING INFORMATION JSC Gazprom Neft shares are traded on the main trading floors: CJSC MICEX, where, as of December 31, 2008, they accounted for 1.4% in the index and JSC RTS Stock Exchange (0.9%). During 2008 the American Depository Receipt (ADR) Program for Company shares traded in the US, UK, German, and other over-the-counter markets was still in operation.

In 2008 the Company was included in the MSCI Russian index and as of December 31, 2008 its weight in the index was 0.7%.

The volume of trading in JSC Gazprom Neft shares on the RTS Exchange for all types of transactions, including OTC trading, in 2008 totaled 772 mln USD (of which 16 mln USD in the RTS stock market), compared to 1 041 mln USD (14 mln USD) in 2007. The volume of trading in JSC Gazprom Neft shares on the MICEX Exchange in 2008 totaled 56 bn rub. (2 295 mln USD), compared to 52 bn rub. (1 957 mln USD) in 2007.

At yearend of 2008, for the first time in five years, a fall in the price of Company shares was recorded: over the year the price dropped 67.7% (in RTS Trading) to be quoted at 2.05 USD at yearend. JSC Gazprom Neft capitalization as of 31.12.2008 was 9.72 bn USD. Among the major external factors that adversely affected the price of Company shares, the investment community singled out the following:

• world fi nancial and economic crisis• drop in oil prices;• strict fi scal policy of governmental authorities with respect to oil companies.

Despite a decrease in capitalization in 2008 caused by short-term negative factors, there exist serious fundamental prerequisites for further growth of the Company’s shareholder value – it is the best “value-added” business among Russian companies in terms of the depth of refining, availability of distribution capacities and plans for further development of the distribution business which, under the current tax regime, create considerable value for the Company. There is a consensus in the investment community that the record low oil prices of late 2008 are also a short-term phenomenon inconsistent with the real supply and demand balance. All these factors provide a significant competitive edge for the Company, creating a considerable value growth potential in the long-term.

TO SHAREHOLDERS AND INVESTORS

CAPITALIZATION OF JSC GAZPROM NEFT ON THE RTS STOCK EXCHANGE IN 2003-2008SOURCE: RTS

CHANGES IN THE WEIGHTED AVERAGE PRICE OF JSC GAZPROM NEFT SHARES ON THE RTS AND MICEX STOCK EXCHANGES IN 2008SOURCE: RTS, MICEX

• RTS• MICEX

CHANGES IN THE PRICE OF JSC GAZPROM NEFT SHARES ON THE RTS STOCK EXCHANGE, RTS INDEX AND PRICE OF URALS CRUDE SINCE 2008SOURCE: RTS

• Gazprom Neft• RTS• Urals Crude

600

500

400

300

200

100

0

04.0

1.04

04.0

3.04

04.0

5.04

04.0

7.04

04.0

9.04

04.1

1.04

04.0

1.05

04.0

3.05

04.0

5.05

04.0

7.05

04.0

9.05

04.1

1.05

04.0

1.06

04.0

3.06

04.0

5.06

04.0

7.06

04.0

9.06

04.1

1.06

04.0

1.07

04.0

3.07

04.0

5.07

04.0

7.07

04.0

9.07

04.1

1.07

04.0

1.08

04.0

3.08

04.0

5.08

04.0

7.08

04.0

9.08

04.1

1.08

04.0

1.09

04.0

3.09

RUB.

09.0

1.08

09.0

3.08

09.0

5.08

09.0

7.08

09.0

9.08

09.1

1.08

250

200

150

100

50

0

$

45 000 000 000

40 000 000 000

35 000 000 000

30 000 000 000

25 000 000 000

20 000 000 000

15 000 000 000

10 000 000 000

5 000 000 000

0

27.0

1.03

27.0

1.04

27.0

1.05

27.0

1.06

27.0

1.07

27.0

1.08



PARTICIPATION IN THE AMERICAN DEPOSITORY RECEIPT PROGRAMDuring 2008 the ADR Program for Company shares traded in the US, UK, German, and other over-the-counter markets was still in operation. At yearend of 2008, the total number of ADRs issued for common shares was equivalent to 69 mln shares, which is 1.5% of the Company’s authorized capital. The ADR issued for Gazprom Neft shares in 2008 accounted for 0.2% of the total trading volume among foreign company ADRs quoted on the London Stock Exchange in the IOB system (1 068 mln USD).

INFORMATION ON JSC GAZPROM NEFT ADRS: Ticker GZPFY (GAZ, SCF) Closing Price as of 31.12.2008 $9.95CUSIP 36829G107 52 week Max price $40.45Ratio 1 ADR: 5 common shares 52 week Min price $8.00Effective as of April 20, 1999 Average monthly trading volume (IOB) $89 mlnSEDOL 5109407ISIN RU0009062467Depository Bank BNY MellonSOURCE: BLOOMBERG

For further information, please contact the Moscow Office of the depository bank, The Bank of New York Mellon (http://www.adrbnymellon.com).

Contact Person: Irina Baichorova Tel: 7 495 967 3110 Fax: 7 495 967 3106 E-Mail: [email protected]

CHANGES IN THE PRICE OF JSC GAZPROM NEFT ADRS IN LONDON AND FTSE RUSSIA IOB INDEX SINCE 2007SOURCE: BLOOMBERG

• Gazprom Neft (London)• RIOB

21.0

1.07

11.0

2.07

04.0

3.07

25.0

3.07

15.0

4.07

06.0

5.07

27.0

5.07

17.0

6.07

08.0

7.07

29.0

7.07

19.0

8.07

09.0

9.07

30.0

9.07

21.1

0.07

11.1

1.07

02.1

2.07

23.1

2.07

13.0

1.08

03.0

2.08

24.0

2.08

16.0

3.08

06.0

4.08

27.0

4.08

18.0

5.08

08.0

6.08

29.0

6.08

20.0

7.08

10.0

8.08

31.0

8.08

21.0

9.08

12.1

0.08

02.1

1.08

23.1

1.08

14.1

2.08

%


200

180

160

140

120

100

80

60

40

20

0

TRADING VOLUMES OF JSC GAZPROM NEFT ADRS 2008SOURCE: BLOOMBERG

• RTS• RTS - OTC• MICEX• LSE

1 200 000 000

1 000 000 000

800 000 000

600 000 000

400 000 000

200 000 000

0 01.2008 02.2008 03.2008 04.2008 05.2008 06.2008 07.2008 08.2008 09.2008 10.2008 11.2008 12.2008

USD


DIVIDEND HISTORY The Company is committed to the long-term policy of capitalization growth and systematic payment of dividends to its shareholders. The dividend policy of the Company is based on maintaining the balance of interest between the Company and its shareholders. Thus, parallel to increasing the value of its assets, the Company seeks to increase the dividend amount payable to its shareholders taking into account the amount of net income and the development needs of the Company (table 21).

Given the priority of observing the rights of Company shareholders, the Board of Directors, when determining the amount of distributable dividend income, evaluates the scope of the planned investment program and potential expenses on the development of the Company’s operations. The long-term dividend policy of the Company is based on the intent to pay dividends in the amount of at least 15% of net income for a reporting period.

By resolution of the regular (Annual) General Shareholders’ Meeting of the Company, dated June 20, 2008, the total amount of accrued dividends for the 2007 financial year was determined as 25 603 018 050.60 rubles: the dividend amount per common share was set at 5.40 rubles.

The right to receive dividends is granted to all shareholders of record as of the date of compiling the list of shareholders entitled to participate in the General Shareholders’ Meeting, at which the resolution to pay dividends was adopted. The registration date for holders of Company ADRS is set separately by the depository bank, which is The Bank of New York.

Dividend payment period – by May 31 of the year following the year in which the resolution to pay dividends was adopted.

Table 21. DIVIDEND HISTORYPeriod 2005 2006 2007• Dividend per share, rub. 7.9 8.0822 5.40• Total dividend per class of shares, rub. 37 456 227 806 38 320 131 942 25 603 018 051• % of net income 88.15 60.99 32.21• Name of the issuer’s governing body which adopted the resolution

to pay dividends General Shareholders’ Meeting

• Date of the meeting of the issuer’s governing body at which the resolution to pay dividends was adopted, date and No. of the Minutes:

22.06.2006 Minutes № 40 of 29.06.2006

22.06.2007 Minutes № 42 of 27.06.2007

20.06.2008 Minutes № 45 of 30.06.2008

• Dividend payment period: By 31.05.07 By 31.05.08 By 31.05.2009• Method of payment and other terms: In cash

• Unpaid to accrued ratio, % 0.02 0.04Payment

Period is still in progress

Dividends were not paid to the shareholders who failed to provide the data required for dividend transfer under cl.5 of Article 44 of Federal Law № 208-FZ “On Joint Stock Companies”, dated 26.12.1995.

Dividends accrued on shares of unidentified holders are paid as the shareholders’ rights to their securities are established.




OBSERVING THE CORPORATE CODE OF CONDUCTRecognizing the importance of maintaining high standards of corporate governance for the success of its business, the Company in its operations voluntarily follows the recommendations set out in the Corporate Code of Conduct of the Federal Commission for the Securities Market.

Thus the operations of the Company are based on the following principles of corporate governance:

• observance and effective protection of the rights of Company shareholders, as required by applicable legislation;

• observance of the rights of interested parties and Company employees;

• providing Company shareholders with the real opportunity to exercise their rights associated with participation in the Company’s operations;

• ensuring equal treatment of Company shareholders holding the same class (type) of shares;

• ensuring high standards of business ethics in relations between shareholders, investors, employees, counterparties, and other market participants;

• maintaining high standards of social responsibility in the Company’s operations;

• strategic management of the Company’s operations by the Board of Directors and effective control of the Board of Directors over the activities of the Company’s governing bodies as well as accountability of the Board members to Company shareholders;

• reasonable, good-faith and effective management of the Company’s operations by the executive bodies as well as their accountability to the Board of Directors and the General Shareholders’ Meeting;

• ensuring effective control over the financial and economic activities of the Company;

• ensuring the efficiency of the internal control and audit system;

• ensuring timely and full disclosures about the Company, including its financial standing, performance indicators, ownership and management structure.

The Company guarantees observance of the shareholders’ rights by:

• giving shareholders the opportunity to manage their shares at their own discretion, quickly and at will;

• providing shareholders with an option to request a General Shareholders’ Meeting, make proposals for the agenda of the General Shareholders’ Meeting, nominate candidates to the governing and supervisory bodies of the Company, exercise their right to vote with all their shares;

• ensuring the rules of order of the General Shareholders’ Meeting that guarantee equal opportunities for all shareholders present at the meeting to express their opinions and to ask any agenda-based questions;

• ensuring the most simple and unobstructed registration procedure for the participants of the General Shareholders’ Meeting ;

• having at the Company a reliable and effective system for recording stock ownership rights, which is ensured by cooperation of the Company with a professional independent registrar;

• establishing a maximally clear and transparent mechanism for determining the dividend amount and ensuring the dividend payment procedure that allows shareholders to best exercise their right to receive dividends;

• having effective control over the financial and economic activities of the Company by both the internal bodies of the Company (Board of Directors, Management Board, Audit Commission, Audit Committee) and the external Auditor;

• ensuring equal rights and opportunities for all shareholders and other interested parties to receive information;

• information transparency of the Company;

• publishing information about the Company in Russian and English on its corporate website (www.gazprom-neft.ru) to the extent provided by the current legislation and bylaws of the Company;

• giving its shareholders access to complete and reliable information, including that about the Company’s financial standing, the results of its operations, as well as about material facts related to its financial and economic activities;

• not avoiding negative disclosures about the Company and its operations which are essential for Company shareholders and all interested parties;

• making disclosures, on a regular basis, about the most important events and facts of the Company’s operations affecting the interests of its shareholders and other interested parties, using the communication means available to the Company;

• ensuring disclosures about its operations are made as soon as possible to avoid reducing the relevance of such disclosures;

• making sure disclosures made by different methods and/or in different forms are consistent and in agreement with each other;

• using such information dissemination methods that provide for its shareholders and other interested parties free, easy and least expensive access to disclosures;

• not giving preference to meeting the interests of one audience over another when making disclosures.



AND INTRESTED-PARTY TRANSACTIONS

MAJOR



In 2008 JSC Gazprom Neft did not enter into any major transactions as defined by the current legislation of the Russian Federation.

LIST OF INTERESTED-PARTY TRANSACTIONS APPROVED BY THE GOVERNING BODIES OF JSC GAZPROM NEFT№ Party to Transaction Subject and Material Terms of Transaction Interested Party Minutes №,

Date

TRANSACTIONS APPROVED BY THE BOARD OF DIRECTORS

1 JSC Social and Business Center Okhta

Acquisition of JSC Okhta shares of an additional issue: Type of shares: common registered; Issuer: JSC Social and Business Center Okhta; Form of issue: uncertificated; Number of shares: 122 400; Par value: 1 rub.Contract value: 3 060 000 000 rub.

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and being an affiliate of JSC Social and Business Center Okhta; 2. Dyukov A.V., a member of the Board of Directors, the sole executive body of JSC Gazprom Neft and a member of the Board of Directors of JSC Social and Business Center Okhta.

№ 165, 11.03.2008

2 JSC Sibur Holding Supply of 2 162.91 mln cub m of associated gas to JSC Sibur Holding

1.JSC Gazprom holding, together with its affiliates, a more than 20% interest in JSC Gazprom Neft and JSC Sibur Holding;2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies (Board of Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev K.G.; Dyukov A.V.

№ 165 11.03.2008

3 JSC Sibur Holding Purchase of 671.03 mln cub m of dry gas from JSC Sibur Holding

1.JSC Gazprom holding, together with its affiliates, a more than 20% interest in JSC Gazprom Neft and JSC Sibur Holding;2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies (Board of Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev K.G.; Dyukov A.V.

№ 165 11.03.2008

4 JSC Gazprom Provision of services to JSC Gazprom for organizing the transportation of JSC Gazprom Neft’s gas across the Russian Federation in 2008 for the amount of 650.91 mln rub.

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft;2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies of JSC Gazprom: Miller A.B.; Golubev V.A.; Kruglov A.V.; Pavlova O.P.; Podyuk V.G.; Seleznev K.G.; Chuichenko K.G.

№ 165 11.03.2008

5 JSC Gazprombank Signing of a Surety Agreement between JSC Gazprom Neft (Surety) and JSC Gazprombank (Bank). The Surety is jointly and severally liable to the Bank for the performance by Moscow NPZ Holdings B.V. (Principal) of the obligations arising from the Bank Guarantee Agreement, entered into between the Bank and the Principal. Bank guarantee amount: 2 462 330 214. 78 rub. Guarantee valid from 01.12.08 to 31.07.09, fee - 0.5% per annum of the guarantee amount. Surety Agreement expires on 31.08.2012

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank;2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors of JSC Gazprombank; Miller A.B.; Kruglov A.V.; Pavlova O.P.

№ 173 22.09.2008

6 JSC SKA Hockey Club Signing of an Agreement for the Provision to JSC SKA Hockey Club of production and placement services for Gazprom Neft advertising (sponsor advertising) on the following terms: services deadline date: by 31.07.2009, total cost of services: 699 600 760 rub.

Dyukov A.V., a member of the Board of Directors, the sole executive body of JSC Gazprom Neft and Chairman of the Board of Directors of JSC SKA Hockey Club.

№ 173 22.09.2008

7 JSC Gazprombank Signing of a Services Agreement between Gazprom Neft and JSC Gazprombank for Organization of Initial Offering and Subsequent Trading of Gazprom Neft’s Series 01-05 Bond Issues. Maximum service fee will not exceed 1% of the par value of outstanding Bonds.

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank;2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors of JSC Gazprombank; Miller A.B.; Kruglov A.V.; Pavlova O.P.

№ 170 16.06.2008

TRANSACTIONS APPROVED BY THE GENERAL SHAREHOLDERS’ MEETING

1 JSC Sibur Holding Petroleum Product Supply Contract between JSC Gazprom Neft and JSC Sibur Holding on the following basic terms: Supplier – JSC Gazprom Neft, Buyer - JSC Sibur Holding; Subject of the Contract – supply of 7.69 thou. tons of petroleum products for the amount of 122.58 mln rub.

1. JSC Gazprom holding, together with its affiliates, a more than 20% interest in JSC Gazprom Neft and JSC Sibur Holding;2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies (Board of Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev K.G.; Dyukov A.V.

№ 45 29.06.2008



№ 45 29.06.2008



№ 45 29.06.2008

4 JSC Sibur Holding Petroleum Product Supply Contract between JSC Gazprom Neft and JSC Sibur Holding on the following basic terms: Supplier – JSC Gazprom Neft, Buyer - JSC Sibur Holding; Subject of the Contract – supply of 72.27 thou. tons of petroleum products for the amount of 1 483.7 mln rub.


№ 45 29.06.2008

5 Gazprom neft Trading Gmbh Oil Supply Contract between JSC Gazprom Neft and Gazprom Neft Trading Gmbh on the following basic terms: Supplier – JSC Gazprom Neft, Buyer - Gazprom Neft Trading Gmbh; Subject of the Contract – sale of 12 268 thou. tons of oil for the amount of 6636 mln USD.

JSC Gazprom due to the fact that its affiliate – JSC Gazprom Neft holds a more than 20% interest in the authorized capital of a party to the transaction.

№ 46 28.11.2008

MAJOR AND INTERESTED-PARTY TRANSACTIONS




6 JSC Gazpromneft-Omsk Sale of 983 thou. tons of petroleum products for the amount of 14.7 bn rub.


№ 4628.11.2008

7 JSC Gazpromneft-Tyumen Sale of 512 thou. tons of petroleum products for the amount of 9.3 bn rub.


№ 4628.11.2008

8 CJSC Gazpromneft-Kuzbass Sale of 1 378 thou. tons of petroleum products for the amount of 23.6 bn rub.


№ 4628.11.2008

9 JSC Gazpromneft-Ural Sale of 599 thou. tons of petroleum products for the amount of 8.97 bn rub.


№ 4628.11.2008

10 JSC Ekaterinburgnefte-product

Sale of 366 thou. tons of petroleum products for the amount of 6.5 bn rub.


№ 4628.11.2008

11 JSC Gazpromneft-Novosibirsk



№ 4628.11.2008

12 LLC Gazpromneft-Tsentr Sale of 1 011 thou. tons of petroleum products for the amount of 17.6bn rub.

JSC Gazprom due to the fact that its affiliate – JSC Gazprom Neft holds a more than 20% interest in the authorized capital of a party to the transaction

№ 4628.11.2008

13 LLC Gazpromneft-Severo-Zapad



№ 4628.11.2008

14 LLC Sibneft- Krasnoyarsknefte-product



№ 4628.11.2008

15 LLC Gazpromneft-NIzhniy Novgorod



№ 4628.11.2008

16 LLC Gazpromneft-Kaluga Sale of 95 thou. tons of petroleum products for the amount of 1.7 bn rub.


№ 4628.11.2008

17 LLC Gazpromneft-Noyabrsk Sale of 141 thou. tons of petroleum products for the amount of 2.7 bn rub.


№ 4628.11.2008

18 JSC Gazpromneft-Altai Sale of 213 thou. tons of petroleum products for the amount of 3.6 bn rub.


№ 4628.11.2008

19 LLC Gazprom Neft-Asia Sale of 462 thou. tons of petroleum products for the amount of 5.5 bn rub.


№ 4628.11.2008

20 LLP Gazpromneft-Kazakhstan



№ 4628.11.2008

21 LLC Gazpromneft-Tajikistan Sale of 136 thou. tons of petroleum products for the amount of 1.96 bn rub.


№ 4628.11.2008

22 Gazpromneft-Chelyabinsk LLC



№ 4628.11.2008

23 JSC Sibneft-Yaroslavnefteproduct



№ 4628.11.2008

24 Gazprom Neft Trading Gmbh Sale of 6 664 thou. tons of petroleum products for the amount of 4316 mln USD.


№ 4628.11.2008

25 LLC Gazpromneft -Lubricants

Provision of transportation and forwarding services for the amount of 238.05 mln rub.


№ 4628.11.2008

26 JSC Gazpromneft-Noyabrskneftegaz

Purchase of 16 541 thou. tons of oil for the amount of 105.7 bn rub.


№ 4628.11.2008

27 LLC Zapolyarneft Purchase of 4178 thou. tons of oil for the amount of 26.3 bn rub.


№ 4628.11.2008

28 LLC Gazpromneft--Khantos Purchase of 137 thou. tons of oil for the amount of 860.3 mln rub.


№ 4628.11.2008

29 CJSC Archinskoye Purchase of 347 thou. tons of oil for the amount of 2 093.9 mln rub.


№ 4628.11.2008

30 LLC Shinginskoye Purchase of 115 thou. tons of oil for the amount of 725.3 mln rub.


№ 4628.11.2008

31 LLC Sibneft-Yugra Purchase of 7220 thou. tons of oil for the amount of 45.26 bn rub.


№ 4628.11.2008

32 JSC Meretoyakhaneftegaz Purchase of 21 thou. tons of oil for the amount of 108.6 mln rub.


№ 4628.11.2008

33 JSC Tomskneft-VNK Purchase of 4 943 thou. tons of oil for the amount of 30.4 bn rub.


№ 4628.11.2008

34 JSC Slavneft-MNG Purchase of 6 531 thou. tons of oil for the amount of 40.5 bn rub.

Members of the Management Board of JSC Gazprom Neft who are concurrently members of the Board of Directors of JSC Slavneft-MNG:Zilbermints B.S.

№ 4628.11.2008

35 JSC NGK Slavneft Purchase of 569 thou. tons of oil for the amount of 3.4 bn rub.

Members of the Management Board of JSC Gazprom Neft who are concurrently members of the Board of Directors of JSC Slavneft-MNG:Dukov A.V., Yakovlev V.V., Zilbermints B.S., Ilyukhina E.A., Cherner A.M.

№ 4628.11.2008

36 JSC Gazprombank Deposit Transaction № 251084 of 17.09.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 5 000 000 000 rub. Interest rate - 9.5% per annum. Deposit date: 17.09.2008. Maturity date: 18.09.2008.

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank; 2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors of JSC Gazprombank: Miller A.B.; Kruglov A.V.; Pavlova O.P.

№ 4529.06.2008


1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank; 2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.;Pavlova O.P.

№ 45 29.06.2008





38 JSC Gazprombank Deposit Transaction № 247412 of 02.09.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 2 500 000 000 rub. Interest rate – 8.05% per annum. Deposit date: 02.09.2008. Maturity date: 21.10.2008.

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank; 2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; Pavlova O.P.

№ 4529.06.2008



№ 45 29.06.2008

40 JSC Gazprombank Deposit Transaction № 251362 of 18.09.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007 Transaction terms: deposit amount - 2 000 000 000 rub. Interest rate - 8.55% per annum. Deposit date: 18.09.2008. Maturity date: 20.10.2008.


№ 45 29.06.2008



№ 4529.06.2008



№ 4529.06.2008


1. 1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank; 2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; Pavlova O.P.

№ 4529.06.2008

44 JSC Gazprombank Deposit Transaction № 256421 of 09.10.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 5 000 000 000 rub. Interest rate – 8.0% per annum. Deposit date: 09.10.2008. Maturity date: 14.10.2008.


№ 4529.06.2008



№ 4529.06.2008


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46 JSC Gazprombank Deposit Transaction № 259678 of 21.10.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount – 2 500 000 000 rub. Interest rate - 10.0% per annum. Deposit date: 21.10.2008. Maturity date: 24.11.2008.


№ 4529.06.2008



№ 4529.06.2008



№ 4529.06.2008



№ 4529.06.2008



№ 4529.06.2008



№ 4529.06.2008

52 JSC Gazprombank Deposit Transaction № 261361 of 28.10.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount -4 000 000 000 rub. Interest rate - 9.5% per annum. Deposit date: 28.10.08. Maturity date: 05.11.2008.


№ 4529.06.2008

53 JSC Gazprombank Deposit Transaction № 266973 of 19.11.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007 Transaction terms: deposit amount - 2 500 000 000 rub. Interest rate – 8.2% per annum. Deposit date: 19.11.08. Maturity date: 24.11.2008.


№ 4529.06.2008

54 JSC Gazprombank Deposit Transaction № 259673 of 21.10.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 200 000 000 USD. Interest rate - 3.55% per annum. Deposit date: 21.10.08. Maturity date: 24.11.2008.


№ 4529.06.2008

55 JSC Gazprombank Deposit Transaction № 260751 of 24.10.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 100 000 000. 00 USD. Interest rate - 2.5% per annum. Deposit date: 24.10.08. Maturity date: 21.11.2008


№ 4529.06.2008

56 JSC Gazprombank Deposit Transaction № 1-3295/2007 of 15.10.08, entered into under Agreement № 1-3295/2007 on the Procedure for Deposit Operations with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 175 000 000 Euro. Interest rate - 5.15% per annum. Deposit date: 15.10.08. Maturity date: 17.11.2008


№ 4529.06.2008

57 JSC Gazprombank Deposit Transaction № 1-3295/2007-2 of 24.11.08, entered into under Agreement № 1-3295/2007 on the Procedure for Deposit Operations with JSC Gazprombank of 13.06.2007 Transaction terms: deposit amount - 4 000 000 000 .00 rub. Interest rate - 8.4% per annum. Deposit date: 24.11.08. Maturity date: 25.11.08.


№ 4529.06.2008

58 JSC Gazprombank Deposit Transaction № 1-3295/2007-3 of 24.11.08, entered into under Agreement № 1-3295/2007 on the Procedure for Deposit Operations with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 2 000 000 000 rub. Interest rate - 8.75% per annum. Deposit date: 24.11.08. Maturity date: 26.11.08.


№ 4529.06.2008

59 JSC Gazprombank Deposit Transaction № 1-3295/2007-4 of 28.11.08, entered into under Agreement №1-3295/2007 on the Procedure for Deposit Operations with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 5 500 000 000 rub. Interest rate - 10.5% per annum. Deposit date: 28.11.08. Maturity date: 08.12.2008.


№ 4529.06.2008

60 JSC Gazprombank Deposit Transaction № 1-3295/2007-5 of 04.12.08, entered into under Agreement № 1-3295/2007 on the Procedure for Deposit Operations with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 3 500 000 000.00 rub. Interest rate - 8.0% per annum. Deposit date: 04.12.08. Maturity date: 08.12.08.


№ 4529.06.2008

61 JSC Gazprombank Deposit Transaction № 265082 of 12.11.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007 Transaction terms: deposit amount - 200 000 000.00 USD. Interest rate - 4.2% per annum. Deposit date: 12.11.2008. Maturity date: 15.12.2008.


№ 4529.06.2008





62 JSC Gazprombank Deposit Transaction № 265084 of 12.11.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 150 000 000.00 USD. Interest rate - 4.25% per annum. Deposit date: 12.11.08. Maturity date: 22.12.2008


№ 4529.06.2008

63 JSC Gazprombank Deposit Transaction № 265086 of 12.11.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 50 000 000.00 USD. Interest rate - 4.3% per annum. Deposit date: 12.11.08. Maturity date: 23.12.2008.


№ 4529.06.2008



№ 4529.06.2008

65 JSC Gazprombank Deposit Transaction № 265340 of 13.11.08, entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Transaction terms: deposit amount - 50 000 000.00 USD Interest rate - 4.15% per annum. Deposit date: 13.11.08. Maturity date: 19.12.2008.


№ 4529.06.2008



№ 4529.06.2008


1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank; 2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; Pavlova O.P..

№ 4529.06.2008



№ 4529.06.2008

69 JSC Gazprombank Currency exchange transactions entered into under Agreement № 2312 on the General Terms of Transactions with JSC Gazprombank of 13.06.2007. Number of transactions: 70, Currency: USD, amount of currency sold: 4 410 140 000.00 USD.

1. JSC Gazprom holding a more than 20% interest in JSC Gazprom Neft and JSC Gazprombank; 2. Members of the Board of Directors of JSC Gazprom Neft who are concurrently members of the Board of Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; Pavlova O.P..

№ 4529.06.2008

70 JSC Gazprombank Provision of investment consulting services regarding the investment appeal of an asset. Asset means equity interests of JSC Gazprom Neft in JSC Moscow Refinery and JSC Mosnefteproduct.


№ 4529.06.2008

JSC Gazprombank Agreement of 25.09.2008. Fee payable to the bank – 70 000 USD (less VAT), Agreement applies to relations between the Parties that have occurred since 01.06.2008 and will remain effective until the Parties have performed their obligations in full. Period of Services: from 01.06.2008 to 31.07.2008.


№ 4529.06.2008

71 JSC Gazprombank Provision of investment consulting services in order to perform the transaction for the purchase by JSC Gazprom Neft of Naftna Industrija Srbije (Serbia). Agreement of 02.07.2008. Monthly fee payable to the Bank – 10 000 USD (less VAT), overheads – within 1 150 000 rub. (less VAT). If the transaction is signed, the success fee – 2 000 000 USD (less VAT). Agreement applies to relations between the Parties that have occurred since 01.11.2007 and will remain effective until the Parties have performed their obligations in full. Period of Services: from 01.11.2007 to 30.11.2010.


№ 4529.06.2008

72 JSC SOGAZ Supplemental Agreement № 5 to Voluntary Medical Insurance Contract № 07LM0502 of 29.12.2006. Insurance premium: 15 162 683.00 rub.

1.JSC Gazprom holding, together with its affiliates, a more than 20% interest in JSC Gazprom Neft and JSC SOGAZ; 2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies (Board of Directors) of JSC SOGAZ: Miller A.B. Kruglov A.V. Dubik N.N.

№ 4628.11.2008

73 JSC SOGAZ Business Risk Insurance Contract № 08-PR0001F. Insurance premium: 87 475 312.20 rub.

1.1. JSC Gazprom holding, together with its affiliates, a more than 20% interest in JSC Gazprom Neft and JSC SOGAZ; 2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies (Board of Directors) of JSC SOGAZ: Miller A.B., Kruglov A.V., Dubik N.N.

№ 4628.11.2008

74 LLC Gazpromneft-Tsentr Loan Agreement. Loan amount: 1 305 224 000 rub. Maturity date no later than: 30.10.2010.

JSC Gazprom due to the fact that its affiliate – JSC Gazprom Neft holds a more than 20% interest in the authorized capital of a party to transaction.

№ 4628.11.2008

75 LLC Gazpromneft-Tsentr Loan Agreement. Loan amount: 96 864 406.78 rub. Maturity date no later than: 31.12.2011.


№ 4628.11.2008

76 LLC Gazpromneft-Nizhniy Novgorod

Loan Agreement. Loan amount: 483 000 000 rub. Maturity date no later than: 01.01.2015.


№ 4628.11.2008




№ 4628.11.2008




№ 4628.11.2008




№ 4628.11.2008

80 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 8 779 641.25 rub. Maturity date no later than: 31.12.2013.


№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008






№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008

88 LLC Gazprom Neft Asia Loan Agreement. Loan amount::937 382.17 USD Maturity date no later than: 01.05.2009.


№ 4628.11.2008

89 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 815 000 000 rub. Maturity date no later than: 18.05.2008.


№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008



№ 4628.11.2008

95 LLC Muravlenkovskaya Transportnaya Kompaniya



№ 4628.11.2008




№ 4628.11.2008




№ 4628.11.2008




№ 4628.11.2008

99 LLC Gazprom Neft Aero Loan Agreement. Loan amount: 1 300 000 000. 00 rub. Maturity date no later than: 31.12.2018. Interest rate - 9 % per annum.


№ 4628.11.2008

100 LLP Gazpromneft-Kazakhstan

Loan Agreement. Loan amount: 18 500 000. 00 USD. Maturity date no later than: 31.12.2012. Interest rate - 1 % per annum


№ 4628.11.2008


ASSET MANAGEMENT

AND IMPROVEMENTOF THE CORPORATE STRUCTURE



Improvement of the Company’s corporate governance structure is designed to enhance the efficiency of Gazprom Neft’s operations as a vertically integrated company and optimize the core business management structure at the level of subsidiaries.

In February 2009 Gazprom Neft completed the purchase transaction for a 51% interest in Serbian oil company Naftna Industrija Srbije (NIS), the transaction amount being 400 mln Euros.

The Agreement also provides for a program of renovation and modernization of NIS’s refining capacities by 2012; capital investment will be at least 500 mln Euros. As part of this program measures will be implemented to upgrade the quality of petroleum products to the European standards (Euro-5). The bulk of capital investment will be allocated to improving the environmental safety of the production processes.

Gazprom Neft intends to strictly observe all the arrangements set out in the purchase agreement. The purpose of the Company is to enhance the efficiency of NIS’s operations and to propel it to a leadership position in the oil industry of South-Eastern Europe.

Naftna Industrija Srbije (NIS) is one of the largest vertically integrated oil companies in Central Europe engaged in oil refining, petroleum product sales, hydrocarbon production in Serbia and Angola. NIS produces annually around 0.7 mln tons of oil. NIS is the owner of oil refineries in Pancevo and Novi Sad with a total refining capacity of 7.2 mln tons a year. NIS has a corporate distribution network including tank farms and 480 retail filling stations and is the leading petroleum product supplier in the Serbian market. NIS produces around 85% of all petroleum products consumed in the country.

During 2008 Gazprom Neft and MNGK registered a joint venture - Moscow NPZ Holdings B.V. in the Netherlands, to which both parties contributed their respective interests in the Moscow Refinery. As a result the joint venture controls 77.25% of the Moscow Refinery. The Company and MNGK, each holding a 50% stake Moscow NPZ Holdings B.V., came to an agreement to jointly manage the Moscow Refinery and to make all decisions on a parity basis, which will allow for the modernization of the Moscow Refinery to be completed.

During 2008 Gazprom Neft and MNGK registered a joint venture - Moscow NPZ Holdings B.V. (Moscow NPZ) in the Netherlands, into which both parties contributed their respective interests in the Moscow Refinery. As a result the venture controls 77.25% of the Moscow Refinery. The Company and MNGK each own 50% of the Moscow NPZ and agreed to jointly manage Moscow Refinery and make all decisions on an equal basis. This transaction will allow for modernization project to be completed at Moscow Refinery.

Gazprom Neft is a party to the construction project for the Burgas-Alexandroupolis oil pipeline, which is intended to be routed through the territories of Bulgaria and Greece. The expected length of the pipeline is 280-290 km, depending on the exact route of the pipeline, which has not yet been approved. The pipeline’s initial capacity is expected to be 35 million tons of crude oil per year and could potentially be increased to 50 million tons per year. Preliminary estimates indicate the cost of constructing the pipeline will be approximately 1.2 bn USD. The pipeline will comprise an oil terminal in Burgas (Bulgaria) and Alexandroupolis (Greece) and a trunk pipeline connecting these terminals with oil pumping stations, oil storages and other related facilities. The pipeline is expected to provide a route for crude oil transportation from the ports of the Black Sea to the markets of Europe, the USA and Asian-Pacific countries. Russia’s 51% interest in the project is managed by Truboprovodny Konsortsium Burgas-Alexandroupolis LLC, of which 33.33% is owned by Rosneft, 33.34% is owned by Transneft and 33.33% is owned by Gazprom Neft. The Government of Greece and Bulgaria hold the remaining stake in equal proportions. In January 2008, a shareholders agreement of the Russian-Greek-Bulgarian company was signed. In February 2008, a new company, Trans-Balkan Pipeline B.V., was registered in the Netherlands. The current project phase is developing a feasibility study and obtaining all the necessary approvals in Bulgaria and Greece.

In December 2007 the Company acquired a 50% interest in Tomskneft from JSC Oil Company Rosneft for 3 567 mln USD. The purchase price was based on the fair value of Tomskneft as confirmed by an independent appraiser. As part of this transaction, the Company and Rosneft agreed to jointly manage the business operations of Tomskneft and purchase their respective share of Tomskneft’s annual production.

In September 2007 Gazprom Neft established a new company – Gazpromneft-Nefteservice LLC – to manage its existing oil service companies. At present the Company manages ten service companies, which provide a wide range of services, such

ASSET MANAGEMENT AND IMPROVEMENT OF THE CORPORATE STRUCTURE



as development and survey work, drilling, well-workover, geophysical services, construction of drilling rigs, transportation and other. The company has branches in the major oil producing regions of Russia: Yamal-Nenets Autonomous District, Khanty-Mansi Autonomous District, Tomsk and Omsk Regions.

Gazprom Neft continued to consolidate distribution assets in the Sverdlovsk Region, buying JSC Uralnefteproduct in 2008. This transaction gave Gazprom Neft qualified control over JSC Gazpromneft-Ural and JSC Ekaterinburgnefteproduct.

The Company and JSC Lukoil set up a joint venture, NGK Razvitie Regionov LLC, to be run on a parity basis. The JV’s operations focus on the acquisition of subsoil licenses, geological survey of subsoil plots, hydrocarbon exploration and production, field infrastructure development, implementation of infrastructure projects as well as transportation and sales of hydrocarbons produced. Gazprom Neft intends to continue the practice of joint hydrocarbon exploration and development projects, if these projects are instrumental in expanding the regions of the Company’s operation and in enhancing the efficiency of new fields’ development.

More joint ventures were set up in the area of jet fuel distribution. 2008 saw the establishment of Gazpromneft-Aero Tomsk LLC, Toplivno-Zapravochnaya Kompaniya Severo-Zapad LLC, Gazpromneft-Aero Bryansk LLC, Gazpromneft-Aero Sheremetyevo LLC (Gazprom Neft Group’s interest – 50%), Gazpromnneft-Aero Murmansk LLC (wholly owned).

JSC Gazprom Neft carried on with the consolidation of hydrocarbon production assets. In 2008 JSC Ravninnoye merged with JSC Gazpromneft – Noyabrskneftegaz with the subsoil license for the Ravninnoye oil field transferred to the latter.

JSC Gazprom Neft bought out the stake of Chevron Neft B.V. in joint venture Severnaya Taiga Neftegaz LLC, which holds licenses for the Pyakutinskoye and Aikhetinskoye fields, raising its interest to 100%.

JSC Gazprom Neft has completed the renaming of the Group’s subsidiaries to comply with a uniform standard. Renamed in 2008 were: JSC Gazpromneft-Noyabrsknefegaz (formerly – JSC Sibneft-Noyabrskneftegaz), JSC Gazpromneft-Omsk Refinery (formerly – JSC Sibneft-Omsk NPZ), CJSC Gazpromnef - Severo-Zapad (formerly – CJSC Sibneft - Severo-Zapad), CJSC Gazpromneft-Kuzbass (formerly – CJSC Kuzbassnefteproduct), JSC Gazpromneft-Omsk (formerly JSC Sibneft-Omsknefteproduct), Gazpromneft-Tsentr LLC (formerly Sibneft-AZS Service LLC), JSC Gazpromneft-Ural (formerly - JSC Sverdlovsknefteproduct), CJSC Gazpromneft-Mobilnaya Karta (formerly – CJSC Sibneft-Mobilnaya Karta), CJSC Gazpromneft-Aero Novosibirsk (formerly – CJSC Aeroport-Service), JSC Gazpromneft-Novosibirsk (formerly – JSC Novosibirsknefteproduct VNK).


CREDIT

RATINGSAND DEBT PORTFOLIO

MANAGEMENT


STANDARD & POOR’S RATINGS SERVICESOn January 9, 2008, Standard & Poor’s Ratings Services raised its corporate credit rating on JSC Gazprom Neft to "BBB-" from "BB+". The outlook is stable. At the same time, Standard & Poor’s affirmed its "ruAA+" Russia national scale rating on the company.

The stable outlook reflects S&P expectation that Gazprom Neft will maintain strong financial metrics given the continuing high oil price environment. Capital expenditures and investments are, however, likely to increase, reflecting the Company’s need to invest in new fields to offset declines at other major fields.

An equalization of the ratings on Gazprom Neft with those on Gazprom may arise after Gazprom entered into an agreement to acquire an additional 20% interest in the Company from ENI (in April 2009); if the Company’s strategic importance to Gazprom is further strengthened and Gazprom Neft’s operational and financial integration within the Gazprom group increases; or if there is parental support for future acquisitions, either directly or through dividend reductions.

Rating downside could emerge from sizeable debt-financed acquisitions if these are not offset by parental support.

On October 24, 2008, Standard & Poor’s Ratings Services affirmed "BBB-" long-term corporate credit rating and "ruAA+" Russia national scale rating on JSC Gazprom Neft. The outlook is stable.

The rating on Gazprom Neft continues to be based on a bottom-up approach, with a one-notch uplift for potential support from JSC Gazprom, - the "S&P" report says.

Under S&P release, the rating differential to Gazprom reflects Gazprom Neft’s operating and financial autonomy relative to the Gazprom group, as well as the absence of parental guarantees on Gazprom Neft’s debt.

The stable outlook reflects the agency’s expectation that even if the rating on Gazprom were to be lowered by one notch, the rating on Gazprom Neft would likely be affirmed, in line with the bottom-up approach.

CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT

CHANGES IN THE COMPANY’S CREDIT RATINGSSOURCE: COMPANY DATA

S&P

Moodus

BBB/Baa2

BBB-/Baa3

BB+/Ba1

BB/Ba2

BB-/Ba3

B+/B1

B/B2

B-/B32003 2004 2005 2006 2007 2008 2009


MOODY’S INVESTORS SERVICEOn July 4, 2008 Moody’s Investors Service upgraded the senior unsecured ratings of JSC Gazprom Neft ("Gazprom Neft"), including the rating of Gazprom Neft’s senior unsecured 10.75% US$500 million notes with the interest of 10.75% per annum (repaid in January 2009), to Baa3 from Ba1. As part of the upgrade of the ratings into investment grade, the Ba1 Corporate Family Rating and Probability of Default Rating have been withdrawn.

Gazprom Neft’s ratings have a stable outlook which is based on expectation that the recently upgraded investment grade rating is not expected to move further over the immediate term due to the fundamental constraining factors described above. To maintain current rating Moody’s expect the Company to continue delivering a robust operational and financial performance, while adhering to its financial policies and business plan targets.

Given the Company’s strong performance on the majority of the methodological metrics, the key constraining factors relate to low diversification of Gazprom Neft’s reserves base and exposure to the country and operational risks. Therefore significant improvements in the above factors could bring some upward pressure on the current rating. Additionally, Moody’s would require evidence of continued strong operational and financial performance, production and reserves growth and successful execution on its investment program. Upward pressure could also increase if there was to be a commitment by Gazprom to either guarantee Gazprom Neft’s debt.

Decision to raise substantial unsecured debt by Gazprom Neft could eliminate the Group’s financial flexibility and possibly put pressure on ratings (although there is financial headroom at present as compared to 2007 financial ratios). Any uncertainty related the shareholding structure, as well as a major acquisition which would alter the Company’s business and credit risk profile, could also trigger the rating downgrade if not appropriately structured.

JSC Gazprom Neft’s investment grade ratings expand its borrowing options and reduce the cost of loans (table 23).

Table 23. INFORMATION ON THE CREDIT RATINGS ASSIGNED TO JSC GAZPROM NEFT IN 2008Agency Scale Rating Outlook• Standard&Poor’s International scale in foreign currency ВВВ- Stable

International scale in national currency ВВВ- StableNational scale (Russia) ruAA+ Stable

• Moody’s International scale in foreign currency Ваа3 StableSOURCE: STANDARD&POOR'S, MOODY'S


JSC GAZPROM NEFT’S DEBT STRUCTURE BY TYPE OF BORROWING, %SOURCE: COMPANY DATA

2006 2007 2008

510

9

9590 91

• LONG-TERM LOANS, %• SHORT-TERM LOANS, %



Table 24. MATURITIES OF LONG-TERM BORROWINGS AS OF DECEMBER 31, 2008Year Due Amount Due, mln USD

2009 1 4722010 7582011 5292012 2112013 110

3 080

Table 25. MAJOR BORROWINGS IN 2008Lender Loan Amount Date of Agreement Due Date Interest Rate • BBVA $50 000 000.00 24.01.2008 23.01.2009 Libor+0.55 %• ZAO Raiffeisenbank $100 000 000,00 26.11.2008 30.11.2009 Libor+4,75 %• SMBC, BBVA, BTMU,

Barclays, West LB AG $1 000 000 000,00 23.05.2008 23.05.201123.05.2013

Libor+1,50%Libor+1,75%

• Vnesheconombank $750 000 000,00 (first tranche - $150 000 000,00) 15.12.2008 12 months from the

relevant tranche date Libor+5,0%

DEBT OBLIGATIONSIn 2008 JSC Gazprom Neft continued its policy of borrowing in the foreign debt capital markets. Considering the relatively expensive and limited loan options available through Russian banks, in the reporting year JSC Gazprom Neft did most of the borrowing in the foreign financial markets.

As of December 31, 2008 The Company’s long-term debt was US$ 3,080 million as compared to US$ 3,081 million as of December, 31, 2007. The decrease was due to the partial repayment US$ 2.2 billion syndicated loan obtained from Calyon, ABN-AMRO, Commerzbank and Citibank which is partially offset by a US$ 1 billion syndicated loan from BBVA Bank, BTMU Bank, Barclays Capital, Sumitomo Mutsui Banking Corporation and WestLB Bank obtained in 2008 (table 24, 25).

The loan agreements contain financial covenants that set requirements for the Company’s ratios of Consolidated EBITDA to Consolidated Interest Payable, Consolidated Indebtedness to Consolidated Tangible Net Worth and Consolidated Indebtedness to Consolidated EBITDA. Management believes the Company was in compliance with these covenants as of December 31, 2008 and 2007, respectively (table 26).

On August 14, 2008 the Russian Federal Financial Markets Service conducted state registration of the issues and registration of the prospectus of documentary interest-bearing non-convertible bearer bonds to be offered to the public for a total of 35.0 bn rub. In view of the adverse financial situation, the bond offering was rescheduled for the first half of 2009.

Table 26. BORROWING PLANS FOR 2009Instrument Amount, USD• Loan from Vnesheconombank $375 000 000,00• Loan from Sberbank $724 000 000,00• Loan from Vnesheconombank $600 000 000,00• Other instruments $736 000 000,00


1771171711717171717999999999TTTTTTTTT0008888800088888

PLANS FOR RESTRUCTURING THE LOAN PORTFOLIO IN 2009SOURCE: COMPANY DATA

• BBVA• Syndicated Loan II• VEB• RBA

• Sberbank• Eurobonds• Syndicated Loan I• Syndicated Loan III

• Other borrowings

100163

1000

500

3 363-163

-800

-500

-100

736

4 035

736

724 1000

724

600

MLN

US

D

1400

150

-150

975 975

Loan Portfolio01.01.09

Repayment of Syndicated Loan I

Repayment of Syndicated Loan II

Repayment of Eurobonds

Repayment of BBVA Loan

Repayment of RBALoan

Repayment of VEB Loan

Borrowing from Sberbank, VEB and other

Loan Portfolio01.01.10



ADR of JSC Gazprom Neft An American depository receipt (an American depository share) issued for JSC Gazprom Neft shares. It is equivalent to four common shares of JSC Gazprom Neft.

FS Filling StationAPR Asia-Pacific Region. It includes countries located in the continental part of Asia and America

and the Pacific Ocean area. BOE Barrel of oil equivalentVIOC Vertically-integrated oil companyGCR Gas- and / or condensate refineryEW Exploration workGazprom Neft Group, Group, Gazprom Neft

JSC Gazprom Neft (parent) and its subsidiaries taken as a whole.

GTO Geotechnical operationsNon-CIS Foreign countries, other than CIS and Baltic StatesSA Subsidiaries and associatesDollars, USD US dollarsDNEM Differentially-normalized electrical measurementsEU European UnionEBITDA Earnings before interest, taxes, depreciation and amortizationAssociate A company in which Gazprom Neft Group holds more than 20% of voting shares (if a joint

stock company) or 20% of the authorized capital (if a limited liability company). АВС1 Hydrocarbon Reserves Explored reserves by Russian classification standards. They represent the part of geological

reserves, extrac tion of which, as of the date of estimation, is cost-effective, taking into account the market conditions and rational use of modern equipment and technologies, and subject to compliance with the subsoil and environmental protection requirements. Explored gas reserves (categories ABC1) are deemed fully recoverable. For oil and gas condensate reserves a special extraction factor is used, calculated on the basis of geotechnical factors.

С1+С2 Hydrocarbon Reserves C1 category - oil or gas reserves established to be present in specific wells, with favorable production and geological data also available for other wells. C2 category – oil or gas reserve expected to be present within certain known gas-bearing areas on the basis of geological and geophysical data. C2 reserves are treated as preliminary estimates and serve as the basis for organizing exploration at a specific field.

CS Compressor stationm3 Cubic meter of natural gas as measured at a pressure of one atmosphere and 20°CMICEX Moscow Interbank Currency ExchangeOGCF Oil and gas condensate field

MET Mineral extraction taxPRMS and SEC International Standards International classification and estimation of hydrocarbon reserves by PRMS (Petroleum

Reserves Management System) and SEC (Securities and Exchange Commission) standards. The standards not only assess the presence of hydrocarbons but also provide estimates as to the economic practicability of their extraction and the justification of their presence as well as take into account the economic life of a field (term of the licenses for its develop ment).

VAT Value-added taxR&D Research and developmentNPZ RefineryAG Associated gasUGS Underground Gas StorageRTS Russian Trading System Stock ExchangeCIS Commonwealth of Independent States – former republics of the USSR, other than Latvia,

Lithuania and EstoniaJV Joint VentureLNG Liquefied natural gasISO 14001 Standard International environmental standard. It identifies the requirements for the environmental

quality management system, is used to develop environmental policies subject to legislative requirements. It applies to the environmental aspects of an organization’s activities which can be controlled and should be influenced. The standard is voluntary and does not replace legislative requirements.

Baltic States Latvia, Lithuania and EstoniaTOE Ton of oil equivalent (coal equivalent). Equal to 877 m3 of natural gas. FER Fuel and energy resourcesFC Fueling ComplexFTS of Russia Federal Tariff Service of RussiaFFMS of Russia Federal Financial Markets Service KhMAD Khanty-Mansi Autonomous DistrictCentral Asia Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, UzbekistanBFLH Broad fraction of light hydrocarbonsETF Electronic trading floorYNAD Yamal-Nenets Autonomous District2D, 3D Seismic surveySILCO (Siberian Light) Siberian light crude oil

GLOSSARY OF KEY TERMS AND DEFINITIONS


FULL NAME Joint Stock Company Gazprom Neft

ABBREVIATED NAME JSC Gazprom Neft

LEGAL ADDRESS 5A Galernaya St., Saint-Petersburg, 117467, Russian Federation

MAILING ADDRESS 125A Profsoyuznaya St., Moscow, 117647, Russia

INTERNENT ADDRESS http://www.gazprom-neft.ru/

INFORMATION SERVICE Tel: +7 (495) 777-3152; fax: +7 (495) 777-3151

PRESS SERVICE

SAPUN Alla, Directorate for information Policy

Tel: +7 (495) 777-3143; fax: +7 (495) 777-3142 E-mail: [email protected]

SHAREHOLDER RELATIONS

CHUBAROVA IrinaCorporate Governance Department

Tel: +7 (495) 961-1324; fax: +7 (495) 961-2759 E-mail: [email protected]

INVESTOR RELATIONS

SHVETSOV Andrei, Нead of the Consolidation and International Reporting Department

Tel: +7 (495) 662-7548 E-mail: [email protected]

SIDORKINA Anna, Head of the Investor Department


KAMENSKIY Alexei, Chief Specialist of the Investor Department


AUDITOR

The 2008 accounting (financial) statements were audited by independent auditing firm CJSC PricewaterhouseCoopers Audit

Address: 52 Kosmodamianskaya Emb., Bldg. 5, 115054, Moscow. Tel: (495) 967-60-00. Fax: (495) 976-60-01

REGISTRAR

Closed Joint Stock Company Specialized Registrar - Holder of the Gas Industry Shareholder Register (ZAO Spetsializirovanny Registrator Derzhatel Reestra Aktsionerov Gazovoy Promyshlennosti) (ZAO SP-DRAGa).

Address: 71/32 Novocheremushkinskaya Street, 117420, MoscowTel: (495) 719–40–44; fax: (495) 719-45-85http://www.draga.ru; эл. почта: [email protected]

This Annual Report was tentatively approved by Resolution No. 180 of the Board of Directors of JSC Gazprom Neft, dated May 15.05. 2009

Director General Dukov A.V.

Chief Accountant Barabash L.A.

ADDRESSES AND CONTACTS


CONTENTS186 REPORT OF INDEPENDENT AUDITORS

187 CONSOLIDATED FINANCIAL STATEMENTS

188 CONSOLIDATED BALANCE SHEETS

189 CONSOLIDATED STATEMENTS OF CASH FLOWS

190 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

JSC Gazprom Neft

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006

SUPPLEMENT 1



CJSC PricewaterhouseCoopers Audit52 Kosmodamianskaya Emb., Bldg. 5, 115054, Moscow. Tel: (495) 967-60-00. Fax: (495) 976-60-01

Report of Independent Auditors

To the Board of Directors and Shareholders ofJSC Gazprom Neft:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of JSC Gazprom Neft and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

April 15, 2009

The company is an authorized licensee of the corporate name and trademark "PricewaterCoopers". This report is a translation of the original prepared in English. However, in all matters of interpretation of information views or opinions version of the report in the original language takes precedence over the translation.

Notes 2008 2007Assets• Current assets

Cash and cash equivalents 3 2 075 721Short-term investments 143 -Short-term loans receivable 17 12Accounts receivable, net 4 1 866 2 264Inventories3 5 1 256 1 083Other current assets, net 6 580 680

Total current assets 5 937 4 760• Long-term investments 7 4 724 4 685• Long-term loans receivable 16 88 51• Oil and gas properties, net 8 7 559 5 802• Property, plant and equipment, net 9 1 032 832• Construction-in-progress 10 578 230• Other non-current assets 172 112• Non-current deferred income tax assets 17 115 137Total assets 20 205 16 609Liabilities and shareholders’ equity• Current liabilities:

Short-term loans 11 613 241Accounts payable and accrued liabilities 12 1 111 1 171Income and other taxes payable4 13 299 734Dividends payable 525 381Current portion of long-term debt 14 1 472 1 098

Total current liabilities5 4 020 3 625• Long-term debt 14 1 608 2 083• Asset retirement obligations 15 330 324• Deferred income tax liabilities 17 147 141Total liabilities 6 105 6 173• Minority interest 139 3• Commitments and contingencies 18• Shareholders’ equity:

Common stock (authorized, issued and outstanding: 4,741,299,639 shares, 0.0016 Ruble par value) 2 2

Additional paid-in-capital 573 573Retained earnings 13 431 9 858Less: Common stock held in treasury, at cost (23,359,582 shares as of December 31, 2008) (45) -

Total shareholders’ equity 13 961 10 433Total liabilities and shareholders’ equity 20 205 16 609

SUPPLEMENT SUPPLEMENT

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007 CURRENCY – US$ MILLIONS

REPORT OF INDEPENDENT AUDITORS



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006CURRENCY – US$ MILLIONS

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 CURRENCY – US$ MILLIONS


Notes 2008 2007 2006 Revenues

• Refined products and oil and gas sales 32 410 21 247 19 931• Other 65 520 245

Total 20 33 075 21 767 20 176Costs and other deductions

• Crude oil, petroleum and other products purchased 8 296 3 928 3 705• Operating expenses 2 060 1 981 1 635• Selling, general and administrative expenses 1 078 874 563• Transportation expenses 1 661 1 279 1 348• Depreciation, depletion and amortization 1 309 929 803• Export duties 6 533 3 371 4 669• Taxes other than income taxes 13 5 222 3 998 2 940• Exploration expenses 193 184 107• Cost of other sales 474 324 40

Total 26 826 16 868 15 810Operating income 6 249 4 899 4 366Other income (expense)

• Income from equity affiliates 7 407 408 507• Interest income 100 94 39• Interest expense (167) (149) (126)• Other income (expense), net 89 45 (6)• Foreign exchange (loss) gain, net (517) 161 74• Minority interest (39) - -

Total (127) 559 488Income before provision for income taxes 6 122 5 458 4 854

• Provision for income taxes 1 425 1 342 1 113• Deferred income tax expense (benefit) 39 (27) 80

Total 17 1 464 1 315 1 193Net income 4 658 4 143 3 661

• Basic and Diluted Earnings per Common Share (US$ per share) 0,98 0,87 0,77• Weighted-average number of common shares outstanding Basic and Diluted (millions) 4 736 4 741 4 741

2008 2007 2007Operating activities

• Net income 4 658 4 143 3 661• Reconciliation of net income to net cash

provided by operating activities: • Income from equity affiliates, net of dividends received (230) (331) (220)• Deferred income tax expense (benefit) 39 (27) 80• Depreciation, depletion and amortization 1 309 929 803• Asset retirement obligation accretion expense net

of spending on existing obligations 13 22 21

• Allowance for doubtful accounts 44 (8) (20)• Gain on disposal of property, plant and equipment and investments (16) (16) (24)• Changes in assets and liabilities:

• Accounts receivable 413 123 (451)• Inventories (173) (302) (345)• Other current assets 89 23 (238)• Other non-current assets (60) (55) (27)• Accounts payable and accrued liabilities (70) 485 110• Income and other taxes payable (572) 330 (30)

Net cash provided by operating activities 5 444 5 316 3 320Investing activities

• Purchase of investments in associated entities (33) (3 747) (124)• Loans and short-term investments received 372 334 48• Loans and short-term investments issued (557) (42) (290)• Proceeds from disposals of property, plant and equipment and investments 82 31 27• Capital expenditures (3 327) (2 212) (1 525)

Net cash used in investing activities (3 463) (5 636) (1 864)Financing activities

• Short and long-term loans proceeds received 2 367 4 906 772• Short and long-term loans repaid (2 096) (3 155) (610)• Dividends paid (792) (2 071) (602)• Purchase of treasury shares (45) - -

Net cash used in financing activities (566) (320) (440)• Effect of exchange rate changes on cash (61) 26 14• Change in cash and cash equivalents 1 354 (614) 1 030• Cash and cash equivalents as of the beginning of the year 721 1 335 305• Cash and cash equivalents as of the end of the year 2 075 721 1 335• Supplemental disclosures of cash flows information

• Cash paid for interest (net of amount capitalized) 159 158 131• Cash paid for income taxes 1 819 1 087 1 104



GENERAL

DESCRIPTION OF BUSINESSJSC Gazprom Neft (formerly JSC Siberian Oil Company) and its

subsidiaries (the “Company”) is a vertically integrated oil company operating in the Russian Federation. The Company’s principle activities include the exploration, production and development of oil and gas fields, the production of refined petroleum products and distribution and marketing operations through its retail outlets. Export trade is conducted through a wholly owned subsidiary Gazprom Neft Trading GmbH, which operates as a trader for the Company’s export sales.

JSC Siberian Oil Company (‘’Sibneft”) was created by Presidential Decree Number 872 dated August 24, 1995. On September 29, 1995 Sibneft’s charter was approved when the Government of the Russian Federation issued Resolution Number 972. The Omsk Registration Chamber officially registered Sibneft on October 6, 1995. In October 2005 JSC Gazprom (“Gazprom”) completed its acquisition of a 75.68% stake in Sibneft, becoming a subsidiary of Gazprom. On May 30, 2006 Sibneft was renamed into “JSC Gazprom Neft”. In April

2009, Gazprom entered into an agreement to exercise its option to acquire an additional 20% interest in the Company.

In April 2009, JSC Gazprom entered into an agreement to acquire an additional 20% interest in the Company.

Under Russian legislation, natural resources, including oil, gas, precious metals and minerals and other commercial minerals situated within the territory of the Russian Federation are the property of the Russian Federation. The Law of the Russian Federation No. 2395-1, "On Subsurface Resources", regulates relations arising in connection with the geological study, use and protection of subsurface resources within the territory of the Russian Federation. Pursuant to the Law, subsurface resources may be developed only on the basis of a license. The license is issued by the regional governmental body and contains information on the site to be developed, the period of activity, financial and other conditions. The Company holds multiple licenses issued by Regional authorities in areas where its subsidiaries are located.

In 2008, 2007 and 2006 the Company processed approximately 62.3%, 60.9% and 56.8% of produced crude oil, respectively, at the Company’s refinery and other Russian refineries. The remaining production was sent to export. The Company sells its crude oil under general rules of export quotation applicable for all Russian oil producers. Under these general rules, the export quotas for the Transneft pipeline system are defined and approved by the Energy Commission of the Russian Government based on the legislation on equal access to the oil pipeline system.

CURRENCY EXCHANGE AND CONTROLForeign currencies, in particular the US Dollar, play a significant

role in the underlying economics of many business transactions in Russia. For the oil and gas sector in particular, substantial export arrangements as well as investing and financing activities are denominated in foreign currencies such as the US Dollar.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATIONThe Company maintains its books and records in accordance

with accounting and taxation principles and practices mandated by the Russian legislation. The accompanying consolidated financial statements were derived from the Company’s Russian statutory books and records with adjustments and reclassifications made to present them in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

PRINCIPLES OF CONSOLIDATION AND LONG-TERM INVESTMENTSThe accompanying consolidated financial statements include

the accounts of majority-owned subsidiaries where no minority shareholder or group of minority shareholders exercise substantive participating rights, and variable interest entities for which the Company is determined to be the primary beneficiary. Investments in entities that the Company does not control, but has the ability to exercise significant influence over their operating and financial policies, are accounted for under the equity method. Accordingly, the Company’s share of net earnings from these companies is included in the consolidated statements of income as income from equity affiliates. All other investments are recorded at cost. As further discussed in Note 7, the Company has interests in various Russian and CIS legal entities, which are accounted for using the cost method. Intercompany profits, transactions and balances have been eliminated in consolidation.

The Company reviews its equity investments for impairment whenever events or changes in circumstances indicate that an other than temporary decline in value has occurred. The amount of the impairment is based on quoted market prices, where available or other valuation techniques, including discounted cash flows.

Minority interest in the consolidated balance sheets reflects minority owners’ percent share of shareholders’ capital in subsidiaries.

The minority interest is calculated based on the shareholders’ equity of each subsidiary as determined under US GAAP.

MANAGEMENT ESTIMATESThe preparation of financial statements in conformity with US

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet as well as the revenues and expenses during the reporting periods. Certain significant estimates and assumptions for the Company include: recoverability and useful lives of long-term assets and investments; allowances for doubtful accounts receivable; asset retirement obligations; legal and tax contingencies; depreciation, depletion and amortization; environmental remediation obligations; oil reserves; recognition and disclosure of guarantees and other commitments. While management uses its best estimates and judgments, actual results could differ from those estimates and assumptions used.

FOREIGN CURRENCY TRANSLATIONThe management of the Company has determined the US Dollar

is the functional and reporting currency of the Company as the majority of its revenues, costs, property and equipment purchased, debt and trade liabilities are either priced, incurred, payable or otherwise measured in US Dollars. Monetary assets and liabilities have been translated into US Dollars at the exchange rate at the balance sheet date. Non-monetary assets and liabilities have been translated at historical rates. Revenues, expenses and cash flows are translated into US Dollars at average rates for the period or exchange rates prevailing on the transactions dates where practicable. Gains and losses resulting from the re-measurement into US Dollars are included in the consolidated statement of income.

The official rates of exchange of the Ruble to the US Dollar as of December 31, 2008, 2007 and 2006 were 29.38 Rubles, 24.55 Rubles and 26.33 Rubles per US $1.00, respectively.

The translation of local currency denominated assets and liabilities into US Dollars for the purpose of these consolidated financial statements does not indicate that the Company could realize or settle, in US Dollars, the reported values of these assets and liabilities. Likewise, it does not indicate that the Company could return or distribute the reported US Dollar value of capital to its shareholders.

CASH AND CASH EQUIVALENTSCash and cash equivalents include all highly liquid investments

with original maturities of three months or less from the date of purchase.

SHORT-TERM INVESTMENTSShort-term investments consist primarily of bank deposits

with original maturities in excess of three months from the date of purchase.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006CURRENCY – US$ MILLIONS

SUPPLEMENT

Common Stock

Additiona Paid-in Capital

Treasury Stock Retained Earnings

Total Shareholders’

Equity• Balance as of December 31, 2005 2 2 727 - 4 927 7 656• Net income for the year – – – 3 661 3 661• Common stock dividends – – – (1 386) (1 386)• Acquisition of treasury shares – – – - -• Balance as of December 31, 2006 2 2 727 - 7 202 9 931• Net income for the year – – – 4 143 4 143• Common stock dividends – – – (1 487) (1 487)• Recognition of the financial effect of a

transaction under common control (see Note 7) – (2 154) - – (2 154)

• Balance as of December 31, 2007 2 573 - 9 858 10 433• Net income for the year – – – 4 658 4 658• Common stock dividends – – – (1 085) (1 085)• Acquisition of treasury shares – – (45) - (45)• Balance as of December 31, 2008 2 573 (45) 13 431 13 961



ACCOUNTS RECEIVABLEAccounts receivable are presented at net realizable value.

Allowances for doubtful debts are provided for estimated uncollectible amounts. Estimation is made based on aging of the receivable, past history of settlements with the debtor and existing economic conditions. Estimates of allowances require the exercise of judgment and the use of assumptions. The past due status of receivables is determined based on contractual obligations. Changes in allowances for doubtful debts are recorded in the consolidated statements of income within selling, general and administrative expenses.

LOANS RECEIVABLELoans receivable are presented at net realizable value.

Allowances are provided for estimated losses. Estimation is made based on past history of settlements with the borrower and existing economic conditions. The past due status of a receivable is determined based on contractual obligations. Interest income is accrued when earned and recorded in the consolidated statements of income as a part of interest income.

INVENTORIESInventories, consisting primarily of crude oil, refined oil products

and materials and supplies are stated at the lower of weighted average cost or market value. Costs include both direct and indirect expenditures and charges incurred in bringing an item or product to its existing condition and location.

OIL AND GAS PROPERTIESOil and gas properties are accounted for using the successful efforts

method of accounting whereby property acquisitions, successful exploratory wells, all development costs and support equipment and facilities are capitalized. Exploratory well costs (including costs associated with stratigraphic test wells) are temporarily capitalized pending determination of whether such proved oil and gas reserves have been found, which justify commercial development. If such reserves are not found, the drilling costs are charged to exploration expenses. Other exploration costs such as geological and geophysical expenses and the cost of carrying and retaining undeveloped properties are expensed as incurred. Intangible drilling costs applicable to productive wells and to development dry holes, as well as tangible equipment costs and costs of injection wells related to development of oil and gas reserves are capitalized.

PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment are stated at historical cost, net

of accumulated depreciation. The cost of maintenance, repairs and replacement of minor items of property is charged to expenses. Renewals and betterments of assets are capitalized.

Upon sale or retirement of property, plan and equipment, the cost and related accumulated depreciation are eliminated from the accounts. Any resulting gains or losses are recorded in the consolidated statements of income.

DEPRECIATION, DEPLETION AND AMORTIZATIONDepreciation, depletion and amortization of oil and gas

properties are provided on the unit-of-production method at the oil field level based on the ratio of current year production to total estimated future production from proved developed reserves. Cost of unproved properties are not amortized.

The provision for depreciation and amortization with respect to operations other than oil and gas producing activities is computed using the straight-line method based on estimated economic lives. Depreciation rates are applied to similar types of buildings and equipment having similar economic characteristics, as shown below:

Asset Group Average LifeBuildings and constructions 8-35 yearsMachinery and equipment 8-20 yearsVehicles and other equipment 3-10 years

IMPAIRMENT OF LONG-LIVED ASSETSLong-lived assets, including proved oil and gas properties at

a field level, are assessed for possible impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Long-live assets used in operations are assessed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recovered. If the carrying amounts are not expected to be recovered by undiscounted pretax future cash flows, the assets are impaired and an impairment loss is recorded in the amount by which the asset’s carrying value exceeds its fair value, which is calculated based on discounted future cash flows.

In the case of oil and gas fields, the net present value of future cash flows is based on management’s best estimate of future prices, which is determined with reference to recent historical prices and published forward prices, applied to projected production volumes of individual fields and discounted at a rate commensurate with the risks involved. The projected production volumes represent reserves, including risk-adjusted probable and possible reserves, expected to be produced based on a stipulated amount of capital expenditures. The production volumes, prices and timing of production are consistent with internal projections and other externally reported information. The price and cost outlook assumptions used in impairment reviews differ from the assumptions used in the Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities. In that disclosure, SFAS No. 69, “Disclosures about Oil and Gas Producing Activities” requires the use of prices and costs at the balance sheet date, with no projection of future changes in those assumptions.

Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets -

generally on a field-by-field basis for exploration and production assets, at an entire complex level for refining assets or at an operating unit level for other assets. Long-lived assets committed by management for disposal within one year are accounted for at the lower of amortized cost or fair value, less cost to sell. Acquisition costs of unproved oil and gas properties are evaluated periodically and any impairment assessed is charged to expense. No impairment has been recognized for the years ended December 31, 2008, 2007 and 2006.

MAINTENANCE AND REPAIRMaintenance and repair, which are not significant improvements,

are expensed when incurred. The costs of overhauls and preventive maintenance performed with respect to oil refining assets are expensed when incurred.

CAPITALIZED INTERESTInterest is capitalized on expenditures made in connection

with capital projects that, theoretically, could have been avoided if expenditures for the assets had not been made. Interest is only capitalized for the period when construction activities are actually in progress and until the resulting properties are put into operation. During 2008, 2007 and 2006 interest capitalized related to capital projects amounted to US$ 16 million, US$ 8 million and US$ 11 million, respectively.

ASSET RETIREMENT OBLIGATIONSThe Company records the fair value of legal obligations to

retire and remove long-lived assets in the period in which the obligation is incurred (typically when the asset is installed at the production location or when drilling is commenced). When the liability is initially recorded, the Company capitalizes this cost by increasing the carrying amount of the related properties, plants and equipment. Over time the liability is increased for the change in its present value, and the capitalized cost in properties, plants and equipment is depreciated over the useful life of the related asset.

FAS 143 calls for measurements of asset retirement obligations to include, as a component of expected costs, an estimate of the price that a third party would demand, and could expect to receive, for bearing the uncertainties and unforeseeable circumstances inherent in the obligations, sometimes referred to as a market-risk premium. To date, the oil and gas industry in Russia has few examples of credit-worthy third parties who are willing to assume this type of risk, for a determinable price, on major oil and gas production facilities and pipelines. Therefore, because determining such a market-risk premium would be an arbitrary process, it has been excluded from the Company’s assets retirement obligation estimates.

The Company’s field exploration, development, and production activities include assets related to well bores and related equipment, gathering and oil processing systems, oil storage units and pipelines to main transportation trunks. Generally, its licenses and

other operating permits require certain actions to be taken by the Company in the abandonment of well bores and related equipment after the end of production. Such actions include well abandonment activities, equipment dismantlement and other reclamation activities. The Company’s estimates of future abandonment costs consider present regulatory or license requirements and are based upon management’s experience of the costs and requirement of such activities. Most of these costs are not expected to be incurred until several years, or decades, in the future and will be funded from general Company’s resources at the time of removal.

Management believes that present regulatory and permitting activities do not stipulate an obligation associated with abandoning of gathering and oil processing systems, oil storage units and pipelines to main transportation trunks. As a result, the Company believes that it does not have clear or definitive legal or contractual obligations associated with activities to retire or otherwise abandon those assets.

The Company’s refining operations consist of major industrial complexes. These industrial complexes have been in operation for several decades. Because of the nature of the operation of these complexes, management believes that these industrial complexes have indeterminable lives, while certain operating components and equipment have definite lives. Management believes that present regulatory and permitting activities do not stipulate an obligation associated with abandoning these industrial complexes. Furthermore, management believes that existing regulatory requirements do not stipulate an obligation associated with its retail networks. As a result, the Company believes that it does not have clear or definitive legal or contractual obligations associated with activities to retire or otherwise abandon those assets.

Inasmuch as the regulatory and legal environment in Russia continues to evolve, there could be future changes to the requirements and costs associated with abandoning long-lived assets.

INCOME TAXESRussian legislation does not contain the concept of a “consolidated

tax payer” and, accordingly, the Company is not subject to taxation on a consolidated basis. Current income taxes are provided on taxable profit of each subsidiary as determined under the Russian Federation Tax Code at a rate of 24%, as of December 31, 2008, 2007 and 2006, after adjustments for certain items which are not deductible for taxation purposes.

Deferred income tax assets and liabilities are recognized in the accompanying consolidated financial statements in the amounts determined by the Company using the liability method in accordance with SFAS 109 “Accounting for Income Taxes”. This method takes into account future tax consequences attributable to temporary differences between the carrying amounts of existing assets and liabilities for the purpose of the consolidated financial statements and their respective tax bases and in respect of operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities

SUPPLEMENT SUPPLEMENTSUPPLEMENT



are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse and the assets be recovered and liabilities be settled. A valuation allowance for deferred tax asset is recorded when management believes that it is more likely than not that this tax asset will not be realized in the future.

Starting from January 1, 2007 the Company accounts for uncertain tax positions in accordance with FIN 48 Accounting for Uncertainty in Income Taxes. Liabilities for unrecognized income tax benefits under the provisions of FIN 48 together with corresponding interest and penalties are recorded in the consolidated statement of income as income tax expense. Interest and penalties associated with tax liabilities are recorded in the consolidated statement of income as other expenses. The adoption of FIN 48 did not have a material impact on the Company’s financial position or results of operation.

DERIVATIVE INSTRUMENTSThe Company uses derivative instruments to manage its

exposure to changes in foreign currency exchange rates. A substantial portion of the Company’s sales revenues are received in US Dollars. Additionally, a significant portion of the Company’s financing and investing activities are also undertaken in US Dollars. However, Company’s operating expenditures and capital spending are primarily denominated in Russian Rubles. Accordingly, a decline in the value of the US Dollar against the Russian Ruble will negatively impact the Company’s operating results and cash flows. Therefore the Company enters into foreign currency forward contracts to manage this risk.

Derivative instruments are recorded at fair value in either other current assets or other current liabilities on the consolidated balance sheet. Realized and unrealized gains and losses are presented in the consolidated statements of income on a net basis. These transactions are not accounted for as hedges pursuant to SFAS 133 “Accounting for Derivative Instrument and Hedging Activities” or its related guidance.

COMMON STOCKThe common stock represents the authorized capital of

the Company, as stated in its charter document. The common shareholders are allowed one vote per share. Dividends paid to shareholders are determined by the Board of directors and approved at the annual shareholders’ meeting.

TREASURY STOCKCommon shares of the Company owned by the Group as of

balance sheet date are designated as treasury shares and are recorded at cost using the weighted-average method. Gains on resale of treasury shares are credited to additional paid-in capital whereas losses are charged to additional paid-in capital to the extent that previous net gains from resale are included therein or otherwise to retained earnings.

EARNINGS PER SHAREBasic and diluted earnings per common share have been

determined by dividing the available income to common shareholders by the weighted average number of shares outstanding during the year. There are no potentially dilutive securities.

CONTINGENCIESCertain conditions may exist as of the date these financial

statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities. The assessment of loss contingencies necessarily involves an exercise of judgment and is a matter of opinion. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. If loss contingencies can not be reasonably estimated, management recognizes the loss when information becomes available.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. However, in some instances in which disclosure is not otherwise required, the Company may disclose contingent liabilities of an unusual nature which, in the judgment of management and its legal counsel, may be of interest to shareholders or others.

RETIREMENT AND OTHER BENEFIT OBLIGATIONSThe Company and its subsidiaries do not have any substantial

pension arrangements separate from the State pension scheme of the Russian Federation, which requires current contributions by the employer calculated as a percentage of current gross salary payments; such contributions are charged to expense as incurred. In addition, the Company has no post-retirement benefits or significant other compensated benefits requiring accrual.

RECOGNITION OF REVENUESRevenues from the production and sale of crude oil, petroleum

and chemical products and all other products are recognized when deliveries of products to final customers are made, title passes to the customer, collection is reasonably assured and sales price

to final customers is fixed or determinable. Specifically, domestic crude oil sales and petroleum product and materials sales are recognized when they are shipped to customers, which is generally when title passes. For export sales, title generally passes at the border of the Russian Federation and the Company is responsible for transportation, duties and taxes on those sales.

Other revenues consist primarily of sales of services such as transportation, construction, utilities and other services are recognized when goods are provided to customers and services are performed providing that the price for the service can be determined and no significant uncertainties regarding realization exist.

Revenues are presented net of VAT.

BUY/SELL TRANSACTIONSIn a typical matching buy/sell transaction, the Company enters

into a contract to sell a particular quantity of crude oil at a specified location and date to a particular counterparty, and simultaneously agrees to buy a particular quantity of crude oil at a specified location on the same or another specified date from the same counterparty. Prior to April 1, 2006, the Company recorded all matching buy/sell transactions in both revenues and cost of crude oil purchased as separate sale and purchase transactions. Effective April 1, 2006, upon adoption of the provisions of Emerging Issues Task Force (“EITF”) Issue No. 04-13, the Company accounts for matching buy/sell arrangements entered into as exchanges of inventory.

TRANSPORTATION COSTSTransportation expenses recognized in the consolidated

statements of income represent all expenses incurred in the transportation of crude oil and oil products through the Transneft pipeline network, as well as cost incurred by maritime vessel and railway. Transportation expenses also include all other shipping and handling costs.

RECENT ACCOUNTING STANDARDS In December 2008, the U.S. Securities and Exchange Commission

(SEC) announced that it had approved revisions to its oil and gas reporting disclosures. The new disclosure requirements include introducing a new definition of oil and gas producing activities, report oil and gas reserves using an unweighted arithmetic average of the price on the first day of each month during the prior 12-month, permit disclosures of probable and possible reserves and other maters. The SEC indicated they will communicate with the Financial Accounting Standards Board (FASB) staff to align their accounting standards with these new rules. The Company is currently evaluating what impact these new requirements may have on its financial position, results of operations or cash flows.

In November 2008, the FASB ratified EITF 08-6, “Equity Method Investment Accounting Considerations” which clarifies how to account for certain transactions and impairment considerations involving equity method investments. EITF 08-6 applies to all investments accounted for under the equity method, and among

other things, clarifies initial measurement, decreases in value and changes in the level of ownership in equity method investments. The standard is effective on a prospective basis for fiscal years beginning on or after December 15, 2008, and earlier adoption is prohibited. The Company does not believe EITF 08-6 will have an impact on its financial position, results of operations or cash flows.

In May 2008, FASB the issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which identifies a consistent framework for selecting accounting principles to be used in preparing financial statements for nongovernmental entities that are presented in conformity with United States generally accepted accounting principles generally accepted in the United States (US GAAP). The current GAAP hierarchy was criticized due to its complexity, ranking position of FASB Statements of Financial Accounting Concepts and the fact that it is directed at auditors rather than entities. SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The FASB does not expect that SFAS No. 162 will have a change in current practice, and the Company does not believe that SFAS No. 162 will have an impact on its financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP on SFAS 142-3, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142 No. 142, “Goodwill and Other Intangible Assets.” The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset and the period of expected flows used to measure fair value of the asset. FSP SFAS 142-3 is effective January 1, 2009, early adoption is prohibited. The provisions of FSP SFAS 142-3 are to be applied prospectively to intangible assets recognized as of, and subsequent to, the effective date. Any intangible assets recognized from the Company’s acquisition of NIS will be accounted for under these new requirements (refer to Note 21 Subsequent Events).

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Enhanced disclosures to improve financial reporting transparency are required and include disclosure about the location and amounts of derivative instruments in the financial statements, how derivative instruments are accounted for and how derivatives affect an entity’s financial position, financial performance and cash flows. A tabular format including the fair value of derivative instruments and their gains and losses, disclosure about credit risk-related derivative features and cross-referencing within the footnotes are also new requirements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application and comparative disclosures encouraged, but not required. The Company has not yet adopted SFAS No. 161. The Company does




not believe that SFAS No. 161 will have an impact on its financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) was issued in an effort to continue the movement toward the greater use of fair values in financial reporting and increased transparency through expanded disclosures. It changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods.

Certain of these changes will introduce more volatility into earnings. The acquirer must now record all assets and liabilities of the acquired business at fair value, and related transaction and restructuring costs will be expensed rather than the previous method of being capitalized as part of the acquisition. SFAS No. 141(R) also impacts the annual goodwill impairment test associated with acquisitions, including those that close before the effective date of SFAS No. 141(R).

The definitions of a “business” and a “business combination” have been expanded, resulting in more transactions qualifying as business combinations. SFAS No. 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 31, 2008 and earlier adoption is prohibited. The Company’s acquisition of NIS will be accounted for under these new requirements (refer to Note 21 Subsequent Events).

In April 2009, FASB) issued FSP FAS 141(R)-a, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” which amends the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination under SFAS 141(R).

FSP SFAS 141(R)-a provides additional guidance for the recognition and subsequent accounting for contingencies acquired in a business combination. FSP SFAS 141(R)-a will have the same effective date as FAS 141(R), and will therefore be effective for all business combinations for which the acquisition date is on or after January 1, 2009 and early adoption is prohibited. The Company’s acquisition of NIS will be accounted for under these new requirements (refer to Note 21 Subsequent Events).

In December 2007, the FASB issued SFAS No.160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (ARB) No. 51.” SFAS No. 160 clarifies that a noncontrolling interest (previously commonly referred to as a minority interest) in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity in the consolidated financial statements.

The presentation of the consolidated income statement has been changed by SFAS No. 160, and consolidated net income attributable to both the parent and the noncontrolling interest is now required to be reported separately. Previously, net income attributable to the noncontrolling interest was typically reported as an expense or other deduction in arriving at consolidated net

income and was often combined with other financial statement amounts. In addition, the ownership interests in subsidiaries held by parties other than the parent must be clearly identified, labeled, and presented in the equity in the consolidated financial statements separately from the parent’s equity. Subsequent changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary should be accounted for consistently, and when a subsidiary is deconsolidated, any retained noncontrolling equity interest in the former subsidiary must be initially measured at fair value.

Expanded disclosures, including a reconciliation of equity balances of the parent and noncontrolling interest are also required. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. Prospective application is required. At this time, the Company does not have any material noncontrolling interests in consolidated subsidiaries. The Company does not believe that the adoption of SFAS No. 160 will have a material impact on its financial position, results of operations or cash flows.

RECLASSIFICATIONS Certain reclassifications have been made to previously reported

amounts to conform with the current year’s presentation; such reclassifications have no effect on net income, net cash flow or shareholders’ equity.

CASH AND CASH EQUIVALENTSCash and cash equivalents as of December 31 comprise the following:

2008 2007Cash in bank – Rubles $424 $177Cash in bank – foreign currency 359 237Bank deposits and other cash equivalents 1,290 306Cash on hand 2 1Total cash and cash equivalents $2,075 $721

The majority of cash in bank is primarily represented by Rubles. As of December 31, 2008 the majority of bank deposits are

represented by US Dollars. As of December 31, 2007 the majority of bank deposits were represented by Rubles. Bank deposits represent deposits with original maturities of less than 90 days at the date of acquisition.

ACCOUNTS RECEIVABLEAccounts receivable as of December 31 consists of the

following:

2008 2007Trade receivables $818 $1,220Value added tax receivable 555 898Related party receivables 34 25Other receivables 518 136Less allowance for doubtful accounts (59) (15)Total accounts receivable $1,866 $2,264

Trade receivables represent amounts due from regular customers in the ordinary course of business, denominated primarily in US Dollars, and are short-term in nature.

Other receivables consist primarily of profits taxes receivable and other receivables.

INVENTORIES

Inventories as of December 31 consist of the following:

2008 2007Crude oil $106 $121Petroleum products 295 356Materials and supplies 820 577Other 35 29Total inventories $1,256 $1,083

OTHER CURRENT ASSETS

Other current assets as of December 31 consist of the following:

2008 2007Prepaid customs duties $216 $407Advances paid 334 232Prepaid expenses 22 22Current deferred tax assets (See Note 17) 8 19Total other current assets $580 $680

LONG-TERM INVESTMENTS

None of the companies listed below are publicly traded in Russia and due to the nature of the financial markets it is not possible to obtain current market price for these investments. The significant equity and other long-term investments as of December 31 are summarized below:

Ownership Percentage

Net book value as of

2008 2008 2007Investments in equity affiliates:JSC Slavneft 49.9 $2,710 $2,534JSC Tomskneft VNK 50.0 1,458 1,419JSC Moscow Oil Refinery 38.6 331 316Total investments in equity affiliates 4,499 4,269

Long-term investments, at cost:

JSC Mosnefteprodukt 14 56Other various marketing entities 115 129Other entities 96 231Total long-term investments, at cost 225 416Total long-term investments $4,724 $4,685

The Company’s share of income in equity affiliates consist of the following as of December 31:

2008 2007 2006Equity affiliates: JSC Slavneft $ 353 $ 392 $ 503 JSC Tomskneft VNK 39 5 - JSC Moscow Oil Refinery 15 11 4Total share of income in equity affiliates $407 $408 $507

The Company’s investment in JSC Slavneft and various minority stakes in Slavneft’ subsidiaries (“Slavneft”) are held through a series of off-shore entities and an investment trust. During 2005, the Company and TNK-BP agreed to jointly manage the refineries of the Slavneft group with each party purchasing its share of production, refer also to Note 19 Related Party Transactions. During 2008, Slavneft paid dividends to the Company of US$ 177 million (US$ 77 million in 2007 and US$ 287 million in 2006 ).

The following table summarizes the financial information of Slavneft as of December 31:

2008 2007Current assets $1,002 $1,363Long-term assets 6,453 5,443Total liabilities 2,051 1,897Revenues 7,378 6,239Net income including minority interest 708 785

In December 2007 the Company acquired a 50% equity interest in JSC Tomskneft VNK (“Tomskneft”) and its subsidiaries from




a subsidiary of JSC Oil Company Rosneft (“Rosneft”) for US$ 3,567 million. The purchase price was based on the fair value of Tomskneft, which amounted to US$ 3,670 million as determined by an independent appraiser. As part of this transaction, the Company and Rosneft agreed to jointly manage the business operations of Tomskneft and to each purchase their respective share of Tomskneft’s annual production. As both the Company and Rosneft are ultimately controlled by the Russian Federation, the transaction was deemed to have occurred between entities under common control and therefore was accounted for at Rosneft’s historical cost. Accordingly, the difference of US$ 2,154 million between the purchase price and historical cost was charged to additional-paid-in-capital in shareholders’ equity for the year ended December 31, 2007.

The following table summarizes the financial information of Tomskneft as of December 31:

2008 2007Current assets 881 1 029Long-term assets 3 880 4 256Total liabilities 2 496 3 344Net income 78 10

The investment in Tomskneft includes goodwill of US$ 325 million.During 2008 Gazprom Neft and MNGK created a joint-venture

– Moscow NPZ Holding B. V., into which both parties agreed to contribute their respective interests in JSC Moscow Oil Refinery (“Moscow Refinery”). In August 2008, the Company transferred its 38.8% interest in the Moscow Refinery to Moscow NPZ Holding B. V. As a result, Moscow NPZ Holding B. V. controls 77.2% of the Moscow Refinery. The Company and MNGK have agreed to jointly manage the Moscow Refinery.

The following table summarizes the financial information of JSC Moscow Oil Refinery as of December 31:

2008 2007Current assets $197 $158Long-term assets 310 300Total liabilities 144 13 Revenues 432 376Net income 39 28

OIL AND GAS PROPERTIES

Oil and gas properties as of December 31 consist of the following:

2008 2007Oil and gas properties $15,181 $12,599Less: Depreciation, depletion and amortization (7,622) (6,797)Total oil and gas properties, net $7,559 $5,802

The Company’s oil and gas fields and related hydrocarbons belong to government authorities. The Company obtains licenses from such government authorities and pays royalties to explore and produce from these fields. These licenses expire between 2013 and 2050. During 2007 and 2008 management was successful in extending several licences and believes the remaining licences may be extended at the initiative of the Company and management intends to extend such licenses for properties expected to produce subsequent to their original license expiry dates.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31 consist of the following:

2008 2007Buildings 3 663 3 352Machiner and equipment 1 561 1 393Vehicles and other equipment 161 81

5 385 4 826Less: Accumulated depreciation (4 353) (3 994)Total property, plant and equipment, net 1 032 832

CONSTRUCTION-IN-PROGRESS

Construction-in-progress includes various construction projects and machinery and equipment delivered but not installed yet. As of December 31, 2008 construction-in-progress comprises the following:

Construction Work in

Progress

Machinery & Equipment To be installed Total

Buildings 398 - 398Plant and machinery 65 - 65Vehicles and other equipment 57 58 115

Total 520 58 578Comparative balance at December 31, 2007 195 35 230

SHORT-TERM LOANS

As of December 31 the Company has short-term loans outstanding as follows:

2008 2007Banks 302 165Related parties 306 60Other 5 16Total short-term loans 613 241

In general, short-term loans are used for the provision of working capital needs.

As of December 31, 2008 the Company has a US$ 50 million loan outstanding from BBVA Bank repayable in US Dollars. The loan bears a floating interest rate of LIBOR plus 0.55% and matures in January 2009.

As of December 31, 2008 the Company has a US$ 100 million loan outstanding from Raiffeisenbank repayable in US Dollars. The loan bears a floating interest rate of LIBOR plus 4.75% and matures in November 2009.

In December 2008 the Company obtained the first tranche of US$ 150 million from a US$ 750 million loan facility from the State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank) repayable in US Dollars. The tranche bears a floating interest rate of LIBOR plus 5.00% and matures in December 2009.

As of December 31, 2008 the Company has an interest-free loan from Tomskneft of US$ 289 million, repayable in Rubles which matures in August 2009. Tomskneft is a related party to the Company.

As of December 31, 2008 the Company has a series of loans from MNPZ for US$ 17 million, repayable in Rubles, which bears interest at a rate between 3,5% to 5% and matures in January 2009. MNPZ is a related party to the Company.

As of December 31, 2007 the Company has a US$ 50 million loan outstanding from ING Bank repayable in US Dollars. The loan bears a floating interest rate of LIBOR plus 0.55%, which was repaid during the year ended December 2008.

As of December 31, 2007 the Company had a US$ 75 million loan from Sumitomo Mitsui Banking Corporation repayable in US Dollars which bore interest at LIBOR plus 0.55%, which was repaid during the year ended December 31, 2008.

As of December 31, 2007 the Company had a US$ 40 million loan outstanding from Raiffeisenbank repayable in US Dollars which bore interest rate of LIBOR plus 0.5%, which was repaid during the year ended December 31, 2008.

As of December 31, 2007 the Company had a loan from Slavneft of US$ 59 million repayable in Rubles which bore interest at a rate of 6%, which was repaid during the year ended December 31, 2008. Slavneft is a related party to the Company.

Weighted average interest rates related to the short-term loans outstanding as of December 31, 2008 for US Dollar and Ruble denominated loans equal 5.6% and 0.3%, respectively. Weighted average interest rates related to the short-term loans outstanding as of December 31, 2007 for US Dollar and Ruble denominated loans equaled 5.2% and 4.9%, respectively.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31 comprise the following:

2008 2007Trade accounts payable 511 523Advances received from customers 165 272Related party accounts payable 87 225Deferred income 64 -Accrued interest 40 39Other payables 244 112Total accounts payable 1 111 1 171

INCOME AND OTHER TAXES PAYABLE

Income and other taxes payable as of December 31 comprise the following:

2008 2007 2006Mineral extraction tax 114 346Value added tax 53 230Excise tax 51 67Income tax 37 57Property tax5 31 25Other taxes 13 9Total income and other taxes payable 299 734

Taxes other than income taxes expense as of December 31 comprise the following:

2008 2007 2006Mineral resource extraction tax 4 202 3 139 2 719Excise duties 828 681 138Property tax 107 87 70Other taxes 85 91 13Total taxes other than income taxes expense 5 222 3 998 2 940

LONG-TERM DEBT

As of December 31, the Company has long-term outstanding loans as follows:

2008 2007Bonds 500 500Bank loans outstanding 2 564 2 662Other borrowings 16 19Less current portion of long- term debt (1 472) (1 098)Total long-term debt 1 608 2 083

Bank loans are comprised of loan facilities primarily in US Dollars from major western banks and their affiliates.

In December 2002, the Company placed US$ 500 million in 7-year Eurobonds on the Luxemburg Stock Exchange (all current as of December 31, 2008). The bonds bear interest of 10.75% per year and have semi-annual coupon payments due on January 15




and July 15 of each year. These Eurobonds matured and were repaid in full on January 15, 2009.

During 2006 the Company obtained US$ 630 million syndicated loan from Citibank and ABN-AMRO Bank maturing in July 2009, bearing a floating interest of LIBOR plus 0.6%. As of December 31, 2008, the amount outstanding under this syndicated loan is US$ 163 million (all current). As of December 31, 2007 the amount outstanding under the loan was US$ 443 million (including current portion of US$ 280 million).

During 2007 the Company obtained US$ 2.2 billion syndicated loan from Calyon, ABN-AMRO, Commerzbank and Citibank maturing in September 2010, bearing a floating interest rate of LIBOR plus 0.75%. As of December 31, 2008, the amount outstanding under this syndicated loan is US$ 1.4 billion (including current portion of US$ 800 million). As of December 31, 2007 the amount outstanding under the loan was US$ 2.2 billion (including current portion of US$ 800 million).

During 2008 the Company obtained US$ 1 billion in syndicated loan in two tranches from BBVA Bank, BTMU Bank, Barclays Capital, Sumitomo Mutsui Banking Corporation and WestLB Bank. First tranche in amount of US$ 315 million bears a floating interest rate of LIBOR plus 1.5% and matures in May 2011. Second tranche in amount of US$ 685 millions bears a floating interest rate of LIBOR plus 1.75% and matures in May 2013.

As of December 31, 2007 the Company had US$ 17 million (all in current) loan from Gazprombank, bearing interest rate of 9.60%, which was repaid during the year ended December 31, 2008.

The loan agreements contain financial covenants that require the Company’s ratios of Consolidated EBITDA to Consolidated Interest Payable, Consolidated Indebtedness to Consolidated Tangible Net Worth and Consolidated Indebtedness to Consolidated EBITDA. Management believes the Company is in compliance with these covenants as of December 31, 2008 and 2007, respectively.

Maturities of long-term loans as of December 31, 2008 are as follows:

Year due Amount due2009 1 4722010 7582011 5292012 2112013 110

3 080

ASSET RETIREMENT OBLIGATIONSThe following summarizes the activity of the Company’s asset

retirement obligations:

2008 2007Beginning balance as of January 1 324 288Change in estimate (15) 13New obligations incurred 8 1Spending on existing obligations (12) (1) Accretion expense 25 23Ending balance as of December 31 330 324

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUESThe estimated fair values of financial instruments are determined

with reference to various market information and other valuation methodologies as considered appropriate, however considerable judgment is required in interpreting market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market situation. Certain of these financial instruments are with major financial institutions and expose the Company to market and credit risk. The creditworthiness of these institutions is routinely reviewed and full performance is anticipated.

The net carrying values of cash and cash equivalents, short-term investments, short-term loans receivable, accounts receivable and payable approximate their fair values because of the short maturities of these instruments.

Long-term loans receivables of US$ 88 million and US$ 51 million are mostly due from related parties as of December 31, 2008 and 2007, respectively. These loans bear no interest and mature between 2010 and 2018. The fair value of these loans is approximately US$ 52 million and US$ 37 million as of December 31, 2008 and 2007 assuming a discount rate of 13.0% and 10.0% as of December 31, 2008 and 2007, respectively (CBR interbank refinancing rate).

As discussed in Note 7, the Company has investments in certain Russian and CIS companies. There are no quoted market prices for these instruments and a precise estimate of fair value could not be made without incurring excessive costs.

Loan arrangements on short-term and long-term debt have both fixed and variable interest rates that reflect the currently available terms for similar debt. Management believes the carrying values of short-term and long-term debt are not materially different from their fair values.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by US GAAP to be measured at fair value.

SFAS No. 157 establishes a formal fair value hierarchy based on the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1: Valuations utilizing quoted, unadjusted prices for identical assets or liabilities in active markets that the Company has the ability to access. This is the most reliable evidence of fair value and does not require a significant degree of judgment.

Level 2: Valuations utilizing quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability.

Level 3: Valuations utilizing significant, unobservable inputs. This provides the least objective evidence of fair value and requires a significant degree of judgment.

The Company’s only assets and liabilities measured at fair value on a recurring basis are its derivative financial instruments, which have been valued using Level 2 inputs under the fair value hierarchy.

The Company uses derivative financial instruments to manage its exposure to changes in foreign currency exchange rates. A majority of Company’s revenues are received in US Dollars, a growth or a decline in the value of the US Dollar against the Russian Ruble impacts the Company’s operating results and cash flows. During 2008 the Company entered into a number of foreign currency forwards with maturities between September 2008 and January 2009 for a total notional value of US$ 1.7 billion to manage its future exposures to the variability in foreign currency rates under this program.

As of December 31, 2008, the Company has only one open derivative contract, with a fair value (loss) of US$ 9 million, which is included in other accrued liabilities on the consolidated balance sheet. During the year ended December 31, 2008, the Company recognized US$ 179 million in realized losses in foreign exchange loss, net in the consolidated statement of income.

The Company does not purchase, hold or sell derivative financial instruments unless it has an existing asset or obligation or anticipates a future activity that is likely to occur that will result in an exposure to foreign exchange risk. The Company does not enter into any derivative instruments for speculative purposes.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115, “ which permits companies to measure certain assets and liabilities at fair value. The standard was effective on January 1, 2008; however, the Company elected to not apply the fair value option for any eligible assets or liabilities. Accordingly, the adoption of this standard had no impact on the Company’s financial position, results of operations, or cash flows.

CREDIT RISKCompany’s financial instruments that are potentially exposed to

concentrations of credit risk consist primarily of accounts receivable, cash and cash equivalents, as well as prepaid VAT, loans receivable and

advances. A significant portion of the Company’s accounts receivable is due from domestic and export trading companies. The Company does not generally require collateral to limit the exposure to loss; however, letters of credit and prepayments may be used. Although collection of these receivables could be influenced by economic factors affecting these entities, management believes there is no significant risk of loss to the Company beyond provisions already recorded.

The Company deposits available cash mostly with a variety of Russian banks and Russian affiliates of international banks. Management periodically reviews the creditworthiness of the banks in which it deposits cash.

Prepaid VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax authorities on the Company’s revenue or direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the balance of prepaid VAT and believes it is fully recoverable within one year.

INCOME TAXES

The Company’s provision for income taxes as reported in the accompanying consolidated statements of income for the years ended December 31 is as follows:

2008 2007 2006Current income taxes expense 1 425 1 342 1 113Deferred income taxes expense (benefit) 39 (27) 80Total provision for income taxes 1 464 1 315 1 193

The current portion of income taxes represents the total income tax expense for the Company and each of its subsidiaries. Although the Company does not pay tax on a consolidated basis, a reconciliation of expected income tax expense to the actual tax expense for the years ended December 31 is as follows:

2008 2007 2006Income before income taxes 6 122 5 458 4 854Statutory income tax rate 24,0% 24,0% 24,0%“Expected” income tax expense 1 469 1 310 1 165Add (deduct) tax effect of:Foreign income taxed at different rates 5 (8) (1)Difference between enacted tax rate and taxes to be withheld from dividends (1) (10) (20)

Non-deductible expenses and other permanent accounting (9) 23 49

differences Income taxes 1 464 1 315 1 193 Effective tax rate 23,9% 24,1% 24,6%

Effective January 1, 2009 the income tax rate in Russia has been reduced to 20%. This rate change did not have a significant impact on the Company’s deferred taxes.




Temporary differences between the Russian statutory accounts and these financial statements give rise to the following deferred income tax assets and liabilities as of December 31:

2008 2007Assets arising from the tax effect of:Allowance for doubtful accounts 2 5Inventories - 9Prepaid expenses 6 5Current deferred income tax assets 8 19Asset retirement obligation 66 78Tax loss carryforward 27 17Fixed assets 22 42Non-current deferred income tax assets 115 137Equity Investment and other investments (22) (17)Fixed assets (125) (124)Deferred income tax liability (147) (141)Net deferred income tax asset (liability) (24) 15

For Russian income tax purposes, certain subsidiaries of the Company have accumulated tax losses totaling US$ 135 million as of December 31, 2008 (US$ 73 million as of December 31, 2007), resulting in associated deferred income tax assets of US$ 27 and US$ 17 million, respectively. Tax losses carried forward as of December 31, 2008 expire between 2012 and 2017.

COMMITMENTS AND CONTINGENCIES

TAXESDuring 2008, tax authorities completed reviews over the

operations of the Company and its subsidiaries for the year ended December 31, 2006. There were no significant findings as a result of these reviews.

Russian tax and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation, including the allocation of tax payments to the Federal and Regional budgets, as applied to the transactions and activity of the Group may be challenged by the relevant authorities.

The Russian tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. The Supreme Arbitration Court issued guidance to lower courts on reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and it is possible that this will significantly increase the level and frequency of tax authorities scrutiny. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for the preceding three calendar years. Under certain circumstances reviews by tax authorities may cover longer

periods. The years 2007 and 2008 are currently open for review. Management believes it has adequately provided for any probable losses that might arise from these maters.

OPERATING ENVIRONMENTWhile there have been improvements in the economic situation

in the Russian Federation in recent years, the country continues to display some characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible in any countries outside of the Russian Federation, restrictive currency controls, and a level of inflation. The prospects for future economic stability in the Russian Federation are largely dependent upon the effectiveness of economic measures undertaken by the government, together with legal, regulatory, and political developments.

The ongoing global liquidity crisis has resulted in, among other things, a lower level of capital market funding and lower liquidity levels across the Russian Federation. The uncertainties in the global financial market, has also led to bank failures and or bank rescues. While the Russian government has introduced a range of stabilization measures aimed at providing liquidity and supporting debt refinancing for Russian banks and companies, such circumstances could affect the ability of the Company to obtain new borrowings and re-finance its existing borrowings at terms and conditions similar to those applied to earlier transactions. Additionally, the uncertainty in the global markets combined with other local factors has led to very high volatility in the Russian Stock Markets during 2008.

Management is unable to reliably determine the effects on the Company’s future financial position, results of operations or cash flows as a result of the ongoing crisis. Management believes the Company’s current and long-term investment and capital expenditures program can be funded through cash generated from existing operations. Management also believes the Company has the ability to obtain syndicated loans and other financings as needed to fund business acquisitions and other transactions that may arise in the future (Refer to Note 21 Subsequent Events).

ENVIRONMENTAL MATTERSThe enforcement of environmental regulation in the Russian

Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Company periodically evaluates its potential obligations under environmental regulation. Management is of the opinion that the Company has met the government’s requirements concerning environmental matters, and therefore believes that the Company does not have any material current environmental liabilities.

RELATED PARTY TRANSACTIONS

JSC MOSCOW OIL REFINERY (MOSCOW REFINERY)During 2008 the Company processed crude oil based on

processing agreements and conducted other transactions with

Moscow Refinery. Such transactions are in the ordinary course of business and on terms available to other suppliers. The information on transactions with Moscow Refinery for the years ended December 31 is presented below:

2008 2007 2006

Processing fees 100 95 65Oil products purchased 8 7 -Oil products sales 10 9 5

As of December 31, 2008 the Company has US$ 14 million in payables to Moscow Refinery. As of December 31, 2007 the Company had US$ 14 million in payables to Moscow Refinery and US$ 2 million in receivables from Moscow Refinery.

SLAVNEFT GROUP (SLAVNEFT)During 2008 the Company conducted numerous transactions

with Slavneft or its subsidiaries. The Company and TNK-BP have in principle agreed to split Slavneft’s production based on each party’s respective interest. The information on transactions with Slavneft for the years ended December 31 is presented below:

2008 2007 2006Processing fees 234 196 130Crude, gas and oil products purchased 3 199 2 510 2 855Crude and oil products sales 609 555 644

As of December 31, 2008 the Company has US$ 54 million in payables to Slavneft and US$ 16 million in receivables from Slavneft. As of December 31, 2007 the Company had US$ 173 million in payables to Slavneft and US$ 17 million in receivables from Slavneft.

GAZPROM GROUP (GAZPROM)During 2008 the Company conducted numerous transactions

with Gazprom, its primary shareholder, or its subsidiaries. The information on transactions with Gazprom for the years ended December 31 is presented below:

2008 2007 2006Gas and oil products purchased $64 $36 $16Gas and oil products sales 67 17 14

As of December 31, 2008 the Company has US$ 9 million in payables to Gazprom and US$ 11 million in receivables from Gazprom. As of December 31, 2007 the Company had US$ 38 million in payables to Gazprom and US$ 6 million in receivables from Gazprom.

TOMSKNEFT GROUP (TOMSKNEFT)For the year ended December 31, 2008 the Company purchased

crude and gas from Tomskneft or its subsidiaries amounting to US$ 1,326 million. The Company and Rosneft have in principle agreed

to split Tomskneft’s production based on each party’s respective 50% interest. As of December 31, 2008 the Company has US$ 10 million in payables to Tomskneft and US$ 7 million in receivables from Tomskneft.

Substantially all of the Company’s short-term and long-term loans receivable are due from related party balances.

SEGMENT INFORMATION

Presented below is information about the Company’s operating segments for the years ended December 31, 2008, 2007 and 2006. The Company determined its operating segments based on differences in the nature of their operations considering the regular review by the chief operating decision maker to make decisions about resources to be allocated and to assess performance of the Company.

The exploration and production segment explores, develops and produces crude oil and natural gas and sells its production to the refining, marketing and distribution segment. The refining, marketing and distribution segment processes crude oil into refined products and purchases, sells and transports crude oil and refined petroleum products.

Operating Segments as of and for the year ended December 31, 2008:

Revenues Exp

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Revenues from external customers 127 32 948 - 33 075Inter-segment revenues 7 899 102 (8 001) -Total 8 026 33 050 (8 001) 33 075Operating income 828 5 421 - 6 249Capital expenditures 2 979 348 - 3 327Depreciation, depletion and amortization 1 193 116 - 1 309Income tax expense 281 1 183 - 1 464Segment assets as of December 31, 2008

13 086 15 868 (8 749) 20 205





Revenues Exp

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Revenues from external customers 86 21 681 - 21 767Inter-segment revenues 6 474 21 (6 495) -Operating income 6 560 21 702 (6 495) 21 767Capital expenditures 814 4 085 - 4 899Depreciation, depletion and amortization

2 045 167 - 2 212

Income tax expense 838 91 - 929Segment assets as of December 31, 2007

281 1 034 - 1 315

Сементные активы по состоянию на 31 декабря 2007 .

11 074 15 025 (9 490) 16 609


Revenues Exp

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Revenues from external customers 79 20 097 - 20 176Inter-segment revenues 5 415 18 (5 433) -Total 5 494 20 115 (5 433) 20 176Operating income 714 3 652 - 4 366Capital expenditures 1 394 131 - 1 525Depreciation, depletion and amortization

713 90 - 803

Income tax expense 270 923 - 1 193Segment assets as of December 31, 2006

7 717 9 721 (3 336) 14 102

For the years ended December 31, 2008, 2007 and 2006 the Company had one customer which accounted for approximately 20.4%, 27.1% and 26.6% of the Company’s sales, respectively. Management does not believe the Company is reliant on any particular customer.

The geographical segmentation of the Company’s revenue for the years ended December 31 is presented below:

2008 2007 2006Export $ 19 372 $ 13 071 $ 14 021Domestic 11 320 7 110 4 923CIS 2 383 1 586 1 232Total revenues from external customers $ 33 075 $ 21 767 $ 20 176

Преимущественно все долосрочные активы Компании рас-положены в Российской Федерации.

Substantially all of the Company’s long-lived assets are located in the Russian Federation.

SUBSEQUENT EVENTSOn January 14, 2009 the Company obtained a US$ 375 million

loan from Vnesheconombank. The loan bears interest at 10.75% and matures in January 2010.

On February 03, 2009 the Company completed its acquisition of a 51% interest in Serbia’s Serbia’s Naftna Industrija Srbije (NIS) for € 400 million (approximately US$ 564 million). As part of the purchase agreement the Company pledged to invest € 500 million (approximately US$ 705 million) to rebuild and upgrade NIS’s refining facilities. NIS is one of the largest vertically integrated oil companies in central Europe, with oil production of approximately 0.7 million tones per year from its oil and gas exploration and production operations in Serbia and Angola. NIS also operates two oil refineries in Pancevo and Novi Sad, Serbia, with a total processing capacity of 7.3 million tones per year and operates a network of retail stations throughout Serbia.

On February 13, 2009 the Company obtained a US$ 724 million from Sberbank. The loan is repayable in 18 months and bears interest at 10.25%.

On March 16, 2009 the Company obtained the second tranche of US$ 150 million from the US$ 750 million loan facility from Vnesheconombank. The tranche bears a floating interest rate of LIBOR plus 5.00% and matures in March 2010.

SUPPLEMENTARY INFORMATION ON OILAND GAS ACTIVITIES (UNAUDITED)(IN MILLIONS OF US DOLLARS)

As required by SFAS No. 69, “Disclosures about Oil and Gas Producing Activities”, the Company is making certain supplemental disclosures about its oil and gas exploration and production operations. While this information was developed with reasonable care and disclosed in good faith, it is emphasized that some of the data is necessarily imprecise and represents only approximate amounts because of the subjective judgments involved in developing such information. Accordingly, this information may not necessarily represent the current financial condition of the Company or its expected future results.

The Company’s exploration and development activities are exclusively within the Russian Federation; therefore, all of the information provided in this section pertains entirely to this region.

CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIESThe following tables set forth information regarding oil and

gas exploration and development costs. The amounts reported as costs incurred include both capitalized costs and costs charged to expense during the period ended December 31:

2008 2007 2006Total capitalized costs of oil and gas properties

$ 15 181 $ 12 599 10 870

Less: Accumulated depreciation, depletion and amortization

(7 622) (6 797) (6 301)

Total net capitalized costs of oil and gas properties

$ 7 559 $ 5 802 4 569

The Company’s share in the net capitalized costs of equity investees as of December 31, 2008, 2007 and 2006 was US$ 3,949 million, US$ 3,883 million and US$ 1,723 million, respectively.

2008 2007 2006Costs incurred in oil and gas properties acquisitions, exploration and development activitiesProperty acquisition costs - $ 51 -Exploration costs 193 184 107Development costs 2 582 1 729 1 127Total costs incurred in oil and gas properties acquisitions, exploration and development activities

$ 2 775 $ 1 964 $ 1 234

The Company’s share in acquisitions, exploration and development costs of its equity investees was US$ 800 million, US$ 682 million and US$ 375 million in 2008, 2007 and 2006, respectively.

RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIESThe Company’s results of operations from oil and gas producing

activities are shown below. Natural gas production does not represent a material portion of the Company’s total oil and gas production.

Sales are derived from realized prices applicable to third party crude oil sales to the Company’s various markets (export, domestic and CIS). Transfers to the Company’s refining operations represent prices equivalent to those that could be obtained in an arm’s-length transaction.

Results of operations for oil and gas producing activities do not include general corporate overhead and monetary effects, or their associated tax effects. Income tax is based on statutory rates for the years ended, respectively, adjusted for tax deductions, tax credits and allowances. For the period ended December 31 results of operations are as follow:

2008 2007 2006

Revenues from net production

Sales 10 262 6 687 7 019

Transfers 4 713 4 540 3 446

Total revenues 14 975 11 227 10 465

Production costs (1 602) (1 590) (1 080)

Accretion expenses (25) (23) (21)

Depreciation, depletion and amortization (1 193) (838) (713)

Taxes, other than income tax (9 187) (5 578) (5 729)

Pretax income from producing activities 2 968 3 198 2 922

Income tax expenses (637) (659) (614)

Results of oil and gas producing activities 2 331 2 539 2 308

The Company’s share in the results of operations for oil and gas production of equity investees was US$ 992 million, US$ 743 million and US$ 281 million in 2008, 2007 and 2006, respectively.




PROVED OIL AND GAS RESERVE QUANTITIES Proved reserves are defined as the estimated quantities of oil

and gas, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. In some cases, substantial new investment in additional wells and related support facilities and equipment will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available.

Management believes that proved reserves should include quantities, which are expected to be produced after the expiry dates of the Company’s production licenses. These licenses expire between 2013 and 2050, with the most significant licenses expiring in 2013 and 2014. Management believes the licences may be extended at the initiative of the Company and management intends to extend such licenses for properties expected to produce subsequent to their license expiry dates. The Company has disclosed information on total proved oil and condensate and gas reserve quantities and standardized measure of discounted future net cash flows.

Proved developed reserves are those reserves, which are expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those reserves which are expected to be recovered as a result of future investments to drill new wells, to recomplete existing wells and/or install facilities to collect and deliver the production from existing and future wells.

The reserve quantities shown below include 100 percent of the net reserve quantities attributable to the Company’s consolidated subsidiaries.

As determined by the Company’s independent reservoir engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 and 2006), the following information presents the balances of proved oil and gas reserve quantities as of December 31.

Total net proved reserves of crude oil and gas condensate are presented below (in millions barrels of oil equivalent):

2008 2007 2006

Proved reserves at January 1, 4 203 3 963 3 530

Production (234) (253) (255)

Revision of previous estimates and improved recovery

(722) 493 688

Proved reserves at December 31, 3 247 4 203 3 963

Minority’s share included in the above proved reserves

10 30 26

Proved developed reserves 2 281 2 923 2 857

The Company’s share in the proved reserves of equity investees was 1,676 million BOE, 1,874 million BOE and 1,325 million BOE in 2008, 2007 and 2006, respectively. The Company’s share in the proved developed reserves of equity investees was 1,278 million BOE, 1,441 million BOE and 1,064 million BOE in 2008, 2007 and 2006, respectively.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVESThe standardized measure of discounted future net cash flows,

related to the above oil and gas reserves, is calculated in accordance with the requirements of SFAS No.69. Estimated future cash inflows from production are computed by applying year-end prices for oil and gas to year-end quantities of estimated proved reserves. Adjustment in this calculation for future price changes is limited to those required by contractual arrangements in existence at the end of each reporting period. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end proved reserves based on year-end cost indices,

assuming continuation of year end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to estimated future pre-tax cash flows, less the tax bases of related assets. Discounted future net cash flows have been calculated using a 10% discount factor. Discounting requires a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.

The information provided in tables set out below does not represent management’s estimate of the Company’s expected future cash flows or of the value Company’s proved oil and gas reserves. Estimates of proved reserves quantities are imprecise and change over time, as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The valuation prescribed under SFAS No.69 requires assumptions as to the timing and the amount of future development and production costs. The calculations should not be relied upon as an indication of the Company’s future cash flows or of the value of its oil and gas reserves.

2008 2007 2006

Future cash inflows $ 64 610 $ 206 836 $ 119 470

Future production costs) (32 607) (101 112) (59 940)

Future development costs (3 992) (7 770) (7 212)

Future income tax expenses (4 515) (24 351) (12 860)

Future net cash flows 23 496 73 603 39 458

Future net cash flow 10% annual discount for estimated timing of cash flow

(11 411) (39 338) (21 286)

Standardized measure of discounted future net cash flows

$ 12 085 $ 34 265 $ 18 172

The Company’s share in the discounted value of future cash flows related to the oil and gas reserves of equity investees was US$ 3,553 million, US$ 16,365 million and US$ 4,917 million in 2008, 2007 and 2006, respectively.

PRINCIPAL SOURCES OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

2008 2007 2006

Discounted present value as of beginning of year

34 265 18 172 18 208

Sales and transfers of oil produced, net of production costs and other operating expenses

(4 186) (4 058) (3 656)

Net change in prices received per barrel, net of production costs and other operating expenses

(31 333) 17 885 679

Changes in future development costs (115) (2 167) (1 701)

Development costs incurred during the period

2 975 2 044 1 397

Revisions of previous quantity estimates (838) 5 595 5 629

Net change in income taxes 8 687 (5 414) (204)

Accretion of discount 1,780 2 252 2 296

Other 850 (44) (4 476)

Discounted present value as of end of year 12 085 34 265 18 172

The other change in discounted future net cash flows in the table above represents a change in the expected timing of cash flows due to corresponding changes in production from year to year.



CONTENT210 INDEPENDENT AUDITORS’ REPORT

211 CONSOLIDATED ACCOUNTING BALANCE SHEET

214 CONSOLIDATED PROFIT AND LOSS REPORT

215 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

218 CONSOLIDATED STATEMENT OF CASH FLOW

219 ACCOUNTING BALANCE SHEET SUPPLEMENT

SUPPLEMENT 2



Auditor’s Report on Financial Statement of the Joint-Stock Company “Gazprom Neft”

To the shareholders of the joint-stock company “Gazprom Neft”:We conducted an audit of the attached financial statement (hereinafter referred to as the Company) for the period from January 1 to

December 31, 2009, inclusive. The financial statement of the Company consists of Accounting Balance Sheet, Profit and Loss Report, Statement of Changes in Stockholder’s Equity, Statement of Cash Flow, Accounting Balance Sheet Supplement, Executive Summary (hereinafter all reports are referred collectively as “financial statement”). Financial statement is prepared by the administration of the Company on the basis of the legislation of the Russian Federation in part of financial statement preparation. The statement prepared on the basis of the mentioned legislation substantially differs from the statement drawn up in accordance with the International Accounting Standards.

The executive body of the Company is responsible for preparation and presentation of the financial statement. Our obligation is to express an opinion on credibility of such financial statement in all material respects on the basis of the conducted audit.

We conducted an audit in accordance with the Federal Law “On Auditing Activities”, Federal Rules (standards) of Auditing activities, International Accounting Standards as well as with our internal standards.

The audit was planned and carried out in the manner that allowed to acquire reasonable confidence in the fact that the financial statement does not have any falsifications. The audit was conducted on sample basis and included the study of evidence proving index numbers in the financial statement on test basis and the disclosure of information on financing and operating activities, the evaluation of the observance of principles and accountancy regulations used for financial statement preparation in the statement, the examination of the main performance measures received by the administration of the Company as well as the evaluation of financial statement presentation. We believe that the conducted audit presents good reasons for the expression of our opinion on credibility of the financial statement.

It is our opinion that the financial statement of the Company attached to this Auditor’s report reliably reflects in all material respects financial situation of the Company of December 31, 2008, and the results of its financing and operating activities over a period from January 1 till December 31, 2008, inclusive in accordance with the requirements of the legislation of the Russian Federation in part of financial statement preparation.

March 02, 2008 Joint-Stock Company Director R. JusticeAuditor S. Blokhin

Qualification Certificate # K 008770 in the field of general audit (perpetual)

AUDITOR’S REPORT FINANCIAL STATEMENT BY RAS FOR 2008

AUDITORClosed joint-stock company “PriceWaterHouseCooper Audit” (CJSC “PwC Audit”).State Registration Certificate of joint-stock company #008.890 issued by Moscow Chamber of Registration date 28 February 1992Certificate of Registration in the Unified State Register of Legal Entities of the Record about the Legal Entity registered before July 1, 2002 under #1027700148431 dated 22 August 2002 issued by Moscow Inter-district Inspection of Ministry for Taxes and Levies of the Russian Federation #39 License to carry out auditing activities #E000376 issued by Ministry of Finance of the Russian Federation dated May 20, 2002, valid until May 20, 2012Is a member of the Institute of Professional Accountants and Auditors of the Russian Federation and the Chamber of Auditor’s of the Russian Federation

AUDITEEJoint-stock company “Gazprom neft”Location: 190000, the Russian Federation, St. Petersburg, Galernaya street 5, litera AState Registration Certificate of joint-stock company #38606450 issued by Omsk City Registration Chamber dated October 6, 1995Certificate of Registration in the Unified State Register of Legal Entities of the Record about the Legal Entity registered before July 1, 2002 under #1025501701686 dated August 21 2002 issued by the Inspection of Ministry for Taxes and Levies of the Russian Federation of Lubinsky Region of Omskaya Oblast.

BALANCE SHEET AS OF DECEMBER 31, 2008

OKUD Form № 1CODES0710001

Date (year, month, day) 2008.12.31Organization JSC Gazprom Neft OKPO 42045241Taxpayer Identification Number INN 5504036333Type of Business wholesale trade in oil and oil products OKVED 51.51Form of Incorporation/ Form of OwnershipOpen Joint Stock Company / Joint Private and Foreign Ownership

OKOPF/OKFS 47/34

Unit of Measure: thou. rub. OKEI 384Location (Address) 5A Galernaya St., Saint-Petersburg, 190000

ASSETS

Line Code At the Beginning

of Reporting Period

At the End of Reporting

Period

1 2 3 4

I. NON-CURRENT ASSETS• Intangible assets 110 8 364 6 197

including: patents, licenses, trademarks, other similar rights and assets 111 982 878organizational expenses 112 – – goodwill 113 – –

• Fixed assets 120 7 344 284 7 361 503 including: land plots and environmental facilities 121 38 235 37 190

buildings, structures, plant and equipment 122 7 230 402 7 082 630• Construction in progress 130 5 204 538 8 360 633• Income-bearing investment in tangible assets 135 – – • Long-term financial investment 140 30 085 687 37 073 725

including:investment in subsidiaries 141 24 241 338 28 101 160

investment in associates 142 36 008 6 923 553

investment in other organizations 143 1 633 923 163 501Loans to organizations due within 12 months 144 4 017 427 1 826 750

• Deferred tax assets 145 211 853 28 219• Other non-current assets 150 2 694 764 3 175 387

including: VAT refundable from the budget 151 657 888 482 850 • TOTAL for Section I 190 45 549 490 56 005 664

II. CURRENT ASSETS• Inventory 210 7 064 933 5 563 888

including: raw material, materials, and other similar assets 211 1 569 192 1 075 796livestock 212 - -work in process costs 213 469 194 182 896

finished products and goods for resale 214 2 032 379 1 111 367goods shipped 215 2 250 393 1 499 904deferred expenses 216 743 775 1 693 925

• Value-added tax on acquired assets 220 8 996 500 4 061 313• Receivables (due beyond 12 months after reporting date) 230 12 099 357 98 165 561


CJSC PricewaterhouseCoopers Audit52 Kosmodamianskaya Emb., Bldg. 5, 115054, Moscow. Tel: (495) 967-60-00. Fax: (495) 976-60-01



including: buyers and customers 231 - -notes receivable 232 - -advances receivable 234 - -other debtors 235 12 099 357

• Receivables (due within 12 months after reporting date) 240 240 959 722 182 739 601including: buyers and customers 241 6 673 491 88 900 406

notes receivable 242 71 528«due from founders to authorized capital» 244 - -advances receivable 245 5 046 100 8 954 958other debtors 246 159 168 603 84 884 237

• Short-term financial investment 250 4 500 000 37 970 017including: loans to organizations due within 12 months 251

other short-term financial investment 252 4 500 000 37 970 017• Cash 260 9 303 824 15 108 340

including: cash in hand 547 841settlement accounts 262 3 623 939 9 029 283currency accounts 263 5 677 792 6 076 633other cash 264 1 546 1 583

• Other current assets 270• TOTAL for Section II 290 282 924 336 343 608 720BALANCE 300 328 473 826 399 614 384

LIABILITIES

Line Code At the Beginning

of Reporting Period


Period

1 2 3 4

III. EQUITY AND RESERVES• Authorized capital 410 7 586 7 586• Treasury stock 411• Surplus capital 420 7 807 598 7 807 598• Reserve capital: 430 379 379

including: statutory reserves 431 379 379• Retained earnings (uncovered loss) 470 113 291 387 157 793 242• Government social fund 480• TOTAL for Section III 490 121 106 950

IV. LONG-TERM LIABILITIES• Borrowings 510 53 521 319 51 482 033

including: bank loans maturing beyond 12 months after reporting date 511 50 646 993 47 008 640loans maturing within 12 months after reporting date 512 2 874 326 4 473 393

• Deferred tax liabilities 515 40 515 63 723• Other long-term liabilities 520• TOTAL for Section IV 590 53 561 834 51 545 756

V. SHORT-TERM LIABILITIES• Borrowings 610 74 079 826 101 346 423

including: bank loans maturing beyond 12 months after reporting date 611 4 055 061 8 840 297loans maturing within 12 months after reporting date 612 42 571 296 48 080 263current maturity of long-term debt 613 27 453 469 44 425 863

• Payables 620 69 451 400 63 313 11including: suppliers and contractors 621 57 708 440 46 756 670

due to employees 622 51 565 56 680due to state extra-budgetary funds 623 7 069taxes payable 624 1 795 183 328 212other creditors 625 9 889 143 16 158 86including: notes payable 626 726 146 902

advances received 627 8 782 662 8 202 581other creditors 628 1 105 755 7 809 379

• Income due to shareholders (founders) 630 9 345 792 15 418 841• Deferred income 640 9 928 6 244• Provisions for future expenses 650 918 096 2 375 205• Other short-term liabilities 660• TOTAL for Section V 690 153 805 042 182 459 823BALANCE 700 328 473 826 399 614 384

Off-Balance Sheet Statement• Leased fixed assets 910 189 471 978 628

Including under leasing arrangements 911 45 837 79 745• Inventory in safe custody 920• Goods on commission• Bad debt written off to losses 940 90 037 238 801• Security for obligations and payments received 950 4 657 431 862 286• Security for obligations and payments granted 960 6 763 079 9 629 349• Housing stock depreciation 970• Depreciation of land improvements and other similar assets 980 1 368 1 587• Intangible assets received for use 990 47 810 267 225






OKOPF/OKFS 47/34


Item For Reporting Period

For Same Period of Previous Year

Name Code 1 2 3 4

Operating Income and Expenses• Earnings (net) from sales of goods, products, works, services

(net of VAT, excise taxes, and similar mandatory payments)010 584 497 934 439 388 218

including from sale of: oil and oil products 11 563 533 530 427 405 525other 16 20 964 404 11 982 693

• Cost of goods, products, works, and services sold 020 (430 832 028( (304 970 360(including from sale of: oil and oil products 21 (410 061 303 ) (289 772 299 )

other 26 (20 770 725 ) (15 198 061 )• Gross profit 153 665 906 134 417 858• Commercial expenses 030 (35 249 690( (28 767 644(• Administrative expenses 040 (-) (-)• Gain (loss) on sales 050 118 416 216 105 650 214Other Income and Expenses• Interest receivable 060 2 180 638 3 079 135• Interest payable 070 ( 4 414 094) ( 3 920 374 )• Income from interests in other organizations 080 5 249 3 662• Other income 090 451 174 922 435 497 990• Other expenses 100 ( 473 067 338 ) ( 434 111 996 )Profit (Loss) before Tax 140 94 295 593 106 198 631• Deferred tax assets 141 28 219 211 853• Deferred tax liabilities 142 (63 723) (40 515(• Current income tax 50 ( 23 180 323 ) ( 26 291 781 )• Other expenses out of profit 151 ( 566 897 ) ( 596 866 )Net Profit (Loss) for Reporting Period 190 70 512 869 79 481 322FOR REFERENCE• Fixed tax liabilities (assets) 200 ( 584 884 ) ( 632 772 )• Basic earnings (loss) per share 201 15 17• Diluted earnings (loss) per share 202

ItemFor Reporting Period For Same Period of

Previous YearName код Profit Loss Profit Loss

1 2 3 4 5 6• Penalties, fines, forfeits recognized or subject to collection by court ruling (arbitration award)

210 54 292 153 247 2 097 909 222 951

• Profit (loss) of previous years 220 32 018 237 978 277 688 405 321• Payment of damages caused by non-performance or improper performance of obligations

230 80 15 - 3

• Foreign exchange rate differences 240 5 351 378 20 385 203 9 495 402 7 803 708• Deductions to valuation reserves 250 Х ( 94 839 ) Х 734 151• Write-off of statute-barred receivables and payables 260 329 842 148 451 5 266 32 751

BREAKDOWN OF SOME PROFITS AND LOSSESPROFIT AND LOSS STATEMENT FOR 2008

I. CHANGES IN EQUITYItem Authorized

CapitalTreasure Stock Surplus

CapitalReserve Capital

Retained Earnings

Uncovered Loss

TotalName Code

1 2 3 4 5 6 7 8 9• Balance of December 31, 00 7 586 (-) 7 807 598 379 73 244 926 (-) 81 060 489• Changes in Accounting Policy 01 Х Х Х Х (1 165 089) – (1 165 089)

2007 • Revaluation of fixed assets 02 Х Х - Х - - -• Balance as of January 1, 2006 03 7 586 (-) 7 807 598 379 72 079 837 (-) 79 895 400• Exchange rate differences 04 Х - Х Х Х - • Net profit 05 Х - Х Х 79 479 413 - 79 479 413• Dividends 06 Х Х Х (38 320 132) Х (38 320 132)

STATEMENT OF CHANGES IN EQUITY FOR 2008



OKOPF/OKFS 47/34





II. RESERVES AND PROVISIONSItem Balance Received Used BalanceName Code

1 2 3 4 5 6Statutory Reserves:• Reserve Capital (name of reserve)

previous year 151 379 - (-) 379

reporting year 152 379 - (-) 379(name of reserve)

previous year 153 - - (-) -reporting year 154 - - (-) -

Reserves set up under Constituent Documents: (name of reserve)


(name of reserve)


REFERENCESItem At the Beginning of Reporting Year

отчетноо одаAt the End of Reporting Yearа

Name Code1 2 3 4

1) Net assets 200 121 116 878 165 615 049From Budget From Extra-Budgetary Funds

for reporting year

for previous year for reporting year for previous year

3 4 5 62) Received for: operating expenses - total 210 - - - -

including: capital investment in non-current assets 220 - - - -including: Minerals base recovery - - - -

• Deductions to the Reserve Fund 07 Х Х Х ( – ) – (-) – • Increase in equity due to:

additional issue of shares 08 - Х Х Х Х -increase in par value of shares 09 - Х Х Х Х - reorganization of legal entity 10 - - Х Х - (-) -

• Decrease in equity due to:decrease in par value of shares 11 (-) - Х Х Х Х (-)decrase in number of shares 12 (-) - Х Х Х Х (-)reorganization of legal entity 13 (-) - Х Х (-) (-) (-)

• Treasure stock 131 - - - - - - -• Balance as of December 31 of the previous

year14 7 586 (-) 7 807 598 379 13 239 118 (-) 121 054 681

2008 (reporting year)• Changes in Accounting Policy 70 - - Х Х 52 269 - 52 269• Revaluation of fixed assets 80 Х Х - Х - - -• Balance as of January 1, 2008 100 7 586 (-) 7 807 598 379 113 291 387 (-) 121 106 950• Exchange rate differences 101 Х Х - Х Х Х -• Net profit 102 Х Х Х Х 70 512 869 - 70 512 869• Dividends 103 Х Х Х Х (26 011 014) Х (26 011 014)• Deductions to the Reserve Fund 110 Х Х (-) - (-) -• Increase in equity due to:

additional issue of shares 121 - - Х Х Х Х -increase in par value of shares 122 - - Х Х - - -reorganization of legal entity 123 - - Х Х - (-) -

• Decrease in equity due to:decrease in par value of shares 131 (-) - Х Х Х Х (-)decrase in number of shares 132 (-) - Х Х Х Х -reorganization of legal entity 133 (-) - Х Х (-) Х (-)

• Treasure stock 134 - - - - - - -• Balance as of December 31, 2008 140 7 586 (-) 7 807 598 379 157 793 242 (-) 165 608 805

Valuation ReservesProvsion for investment impairment (name of reserve)

previous year 165 188 901 - (188 901) -reporting year 166 - 152 (-) 152

Provision for doubtful debts (name of reserve)

previous year 167 1 416 171 661 230 (1 416 171) 661 230reporting year 168 661 230 609 775 (661 230)

(name of reserve)


Provisions for Future Expenses:• Contingency reserve (name of reserve)

previous year 171 - 468 096 - 468 096reporting year 172 468 096 1 776 149 (468 096) 1 776 149

• Remuneration reserve (name of reserve)

previous year 174 450 000 708 221 (559 165 599 056




Item For Reporting Period For Same Period of Previous YearName Code

1 2 3 4Beginning Cash Balance 100 10 387 790 14 912 051Cash flow from operating activities• Cash received from buyers and customers 110 938 117 586 574 199 430• Other income 120 503 593 122 468 059 229• Cash disbursements (total):: 130 (1 392 583 243) (1 012 209 677)

including: payments of goods, works, services, raw materials, and other current assets acquired 150 (579 702 252) (395 564 509)

salaries and wages 160 (2 340 574) (1 538 029)repayment of dividend and interest 170 (18 642 481) (46 954 976)

taxes 180 (223 833 630) (147 636 315)repaymen of interest on borrowings 181 (5 011 720) (4 012 639)other expenses 190 (563 052 586) (416 503 209)

• Net cash from operating activities 200 49 127 465 30 048 982Cash flow from investing activities• Revenue from sale of fixed and other non-current assets 210 1 640 312 90 037• Revenue from sale of securities and other financial investments 220 466 454 022 190 530 264• Dividend received 230 5 925 3 501• Interest received 240 2 085 822 2 179 999• Repayment of loans to other organizations 250 17 254 414 5 347 065

260 - -• Cash disbursements (total): 270 270 (536 480 661)

including: Acquisition of subsidiaries 280 (3 697 844) (3 461 501)Acquisition of fixed assets, income-bearing investment in tangible and intangible assets

290 (5 158 794) (3 658 169)

Acquisition of securities and other financial investments 300 (500 287 196) (175 349 573)Loans to other organzations 310 (27 336 827) (94 208 269)Transfers under investment agreements 320 - -

330 - -• Net cash from investing activities 340 (49 040 166) (78 526 646)Cash flow from financing activities• Proceeds from issue of shares and other securities 350 - -• Proceeds from borrowings to other organizations 360 45 095 534 120 440 600

CASH FLOW STATEMENT FOR 2008

370 - -• Cash disbursements (total): 380 (40 462 282) (77 571 163)

including: Repayment of borrowings (with interest) 390 (-) (-)Repayment of borrowings (less interest) 391 (40 431 635) (77 550 665)Repayment of finance lease 400 (30 647) (20 498)Repayment of interest on borrowings 410 (-) (-)

420 (-) (-)• Net cash from financing activities 430 4 633 252 42 869 437• Net increase (decrease) in cash and cash equivalents 40 4 720 551 (5 608 227)• Ending cash balance 450 15 108 341 9 303 824• Exchange rate differences balance 460 1 083 966 (442 132)

SUPPLEMENT TO THE BALANCE SHEET FOR 2008»


Date (year, month, day) 2008.12.31

Organization JSC Gazprom Neft OKPO 42045241Taxpayer Identification Number INN 5504036333Type of Business wholesale trade in oil and oil products OKVED 51.51Form of Incorporation/ Form of OwnershipOpen Joint Stock Company / Joint Private and Foreign Ownership

OKOPF/OKFS 47/34


INTANGIBLE ASSETSItem At the Beginning

of Reporting Year

Additions Disposals At the End of Reporting YearName Code

• Intellectual property items (exclusive rights to intellectual property) 010 14 734 - (-) 14 734including the rights of: patent holder to invention, industiral design, useful model 011 1 - (-) 1

right holder to computer software, databases 012 13 113 - (-) 13 113right holder to microchip technologies 013 - - (-) -owner to trademark and service mark, name of the place of goods origin

014 1 620 - (-) 1 620

patent holder to achievements in selection 015 - - (-) -• Organizational expenses 020 - - (-) -• Goodwill 030 - - (-) -• Other 040 15 512 - (-) 15 512



OKOPF/OKFS 47/34





FIXED ASSETSItem At the Beginning of

Reporting YearAdditions Disposals At the End of

Reporting YearName Code• Buildings 060 1 270 458 30 105 (767 146) 533 41• Structures and transfer mechanisms 070 7 736 087 1 229 980 (249 337) 8 716 730

• Machinery and equipment 080 793 587 207 132 (72 495) 928 224• Vehicles 090 17 638 - (13 791) 3 847• Tools and utensils 100 88 432 257 733 (9 153) 337 012• Working livestock 110 - - (-) -• Productive livestock 111 - - (-) -• Perennial plants 112 7 459 21 (1 795) 5 685• Other types of fixed assets 120 5 436 - (243) 5 193• Land plots and natural resources 130 38 235 611 (1 656) 37 190• Capital investment in land reclamation 131 - - (- -• Total 9 957 332 1 725 582 (1 115 616) 10 567 298

Item At the Beginning of Reporting Year

At the End of Reporting YearName Code• Total depreciation of fixed assets: 140 2 613 048 3 205 795

including: buildings and structures 141 2 231 707 2 709 838machinery, equipment, and vehicles 142 351 503 450 072other 143 29 83 45 885

• Total fixed assets leased out 150 2 379 098 1 336 149including: buildings 151 1 224 853 457 798

structures 152 972 083 759 183

machinery, equipment, and vehicles 153 167 117 108 923other 154 15 045 10 245

• Suspended fixed assets 155 - -• Total fixed assets taken on lease: 156 189 471 978 628

including: buildings 157 133 805 874 340structures 158 - -plant 159 964 1 041transport 160 54 702 100 207

• Real properties in use and in the process of state registration 161 628 138 856 900Revaluation of fixed assets:

historical (replacement) cost 171 - -depreciation 172 - -

• Change in value of fixed assets due to completion of construction, additional equipment installation, reconstruction, partial liquidation

173 6 861 3 314

RESEARCH, DEVELOPMENT, DESIGN AND TESTING EXPENSESType of Work At the Beginning of


Reporting YearName Code• Total 310 - - (-) -

including: audit of reserves 311 - - (-) -FOR REFERENCE код At the Beginning of Reporting

YearAt the End of Reporting Year

• Total expenses on research, development, design and testing in progress 320 1 714 1 090Code For Reporting Period For Same Period of Previous

Year• Total expenses on failed research, development, design and testing included

in non-operating expenses321 - -

NATURAL RESOURCE DEVELOPMENT COSTSItem At the Beginning of


Reporting YearName Code• Total expenses on natural resource development 410 597 666 1 157 760 (373 681) 1 381 745

including: audit of reserves 411 6 587 7 522 (4 487) 9 622replacement of forest loss 412 30 130 23 062 (19 729) 33 463seismic survey 413 484 898 942 472 (330 097) 1 097 273other 414 76 051 184 704 (19 368) 241 387

FOR REFERENCE код At the Beginning of Reporting Year

At the End of Reporting Year

• Total expenses on subsoil plots where field exploration and evaluation, prospecting and (or) hydrological survey, and other similar works are not completed

420 568 598 1 147 990

• Total expenses on failed natural resource development recognized in the reporting period as non-operating expenses

430 - -

INTEREST-BEARING INVESTMENT IN TANGIBLE ASSETSItem At the Beginning of


Reporting YearName Code• Assets for leasing 200 - - (-) -• Assets for hire 210 - - (-) -• Other 220 - - (-) -Total 230 - - (-) -

At the Beginning of Reporting Year

At the End of Reporting Year

Amortization of interest-bearing investment in tangible assets 240 - -

Item At the Beginning of Reporting Year

At the End of Reporting YearName Code• Total amortization of intangible assets: 050 21 882 24 049

including the rights of: patent holder to invention, industrial design, useful model 051 1 1right holder to computer software, database 052 9 764 10 289owner to trademark and service mark, name of the place of goods origin

054 638 742

• Other 055 11 479 13 017




FINANCIAL INVESTMENTItem Long-Term Short-TermName Code At the

Beginning of Reporting

Year


Year

At the Beginning

of Reporting Year


Year

• Total investment in third party authorized (share) capital 510 25 911 269 35 188 366 - -of which: in subsidiaries and affiliates 511 24 277 346 34 283 341 - -• Government and municipal securities 515 108 126 58 761 - -• Total third-party securities 520 - - - 2 938 040of which: debt securities (bonds, notes) 521 - - - 2 938 040• Loans extended 525 4 017 427 1 826 750 - -• Deposits 530 - - 4 500 000 35 031 977• Other 535 48 865 - - -Total 540 30 085 687 37 073 877 4 500 000 37 970 017Investment carried at market value, of the total financial investment:• Total investment in third-party authorized (share) capital 550 - 86 330 - -

of which: in subsidiaries and affiliates 551 - - - -• Government and municipal securities 555 - - - -• Total third-party securities 560 - - - -

of which: debt securities (bonds, notes) 560 - - - -• Other 561 - - - -Total 570 - 86 330 - -FOR REFERENCE• For financial investment carried at current market value, value changes due to appraisal adjustment

580 - (270 305) - -

• For debt securities, the difference between historical cost and par value is recognized in the financial result of reporting period

590 - - - -

RECEIVABLES AND PAYABLESItem At the Beginning of

Reporting YearAt the End of Reporting

YearName Code1 2 3 4

Receivables: • short-term total: 610 241 620 952 183 349 376

including: from buyers and customers 611 76 673 491 88 900 632advances extended 612 5 099 597 8 956 761other 613 159 847 864 85 491 983

• long-term total 620 12 099 357 98 165 561including: from buyers and customers 621 - -

advances extended 622 - -other 623 12 099 357 98 165 561

Total 630 253 720 309 281 514 937Payables: • short-term total: 640 143 531 226 164 659 533

including: due to suppliers and contractors 641 57 708 440 46 756 670advances received 642 8 782 662 8 202 581 taxes due to government extra-budgetary funds 643 1 802 252 340 898credits 644 31 508 530 53 013 356

OPERATING EXPENSES (BY COST ELEMENT)Item For Reporting Period For Previous PeriodName Code• Material costs 710 433 008 347 305 063 105• Salaries and wages 720 2 363 863 1 973 865• Social payments 730 180 681 171 866• Depreciation 740 852 256 713 756• Other costs 750 31 501 021 24 765 643• Total by cost element 760 467 906 169 32 688 235• Changes in balances (increase [+], decrease [-]):

work in process 765 - 286 298 169 121deferred expenses 766 1 663 648 27 877provisions for future expenses 767 1 457 109 918 096

COLLATERALSItem At the Beginning of Reporting

YearAt the End of Reporting Year

Name Code• Received - total: 810 4 657 431 862 286

including: notes 811 - -• Pledged assets 820 - -

of which: fixed assets 821 - -securities and other financial investments 822 - -other 823 - -

• Issued - total: 830 6 763 079 9 629 349including: notes 831 - -

• Pledged assets: 840 - -of which: fixed assets 841 - -

securities and other financial investments 842 - -other 843 - -

1 2 3 4loans 645 42 571 296 48 333 067other 646 1 158 046 8 012 961

• long-term total 650 53 521 319 51 482 033

including: credits 651 50 646 993 47 008 640loans 652 2 874 326 4 473 393other 653 - -deferred tax liabilities 654 40 515 63 723

Total 660 197 093 060 216 205 289

GOVERNMENT ASSISTANCEItem For Reporting Period For Same Period of Previous YearName Code• Total budget appropriations received in reporting year 910 - -

including:At the Beginning of Reporting Period

Received for Reporting Period

Returned for Reporting Period

At the End of Reporting Period

• Total budget loans 920 - - - -including:


JSC Gazprom Nef125A Profsoyuznaya St., Moscow, 117647, Russit

Tel: +7 (495) 777-3152; fax: +7 (495) 777-3151http://www.gazprom-neft.ru/

http://www.gazprom-neft.ru/