Outlook for Russia’s downstream industry, infrastructure

development and evolving export strategy

September 2013

Brussels, Belgium

1

Russia’s crude oil production will continue to increase slightly due to new

basins getting up to speed, especially East Siberia and shelf

Source: IHS CERA, Wood Mackenzie

72 7949

0.4%

2020

536

9

107

302

38

2017

533

8

112

307

35

2012

518

5

120

317

27

Other

Volga-Urals

West Siberia

Timan-Pechora

East Siberia and Sakhalin

Sakhalin-2

Priobskoye Samotlorskoye

Orenburg

Vankorskoye

Yuganskneftegaz Fields

Urengoi

Romashkinskoye

Bashneft

LUKOIL-Perm

Malobalykskoye

Samara Tatneft fields Tomskneft

fields

LUKOIL-Komi

Megionneftegas

Fyodorovskoye

Salym Group

Prirazlomnoye

UVAT

Sakhalin-1

Verkhnechonskoye

Krasnoleninskoye

Talakan Fields

Tevlinsko-Russkinskoye

Udmurtneft

+6%

+4%

-1%

-1%

+XX%

Kuyumba

Urubcheno-Tohoma

Kovykta

Basins:

Lodochnoye

Suzunskoye Trebsa & Titova

Rosneft shelf

exploration licenses

CAGR, %

Crude production, MT:

Total recoverable resources in

Rosneft shelf licenses, bln TOE

1621

Oil Gas

2

Russia will continue to export more than 50% of its crude while refining

throughput can even slightly decrease following light yields improvement

incentivized by duty regime

Sources: IHS CERA, Petromarket, Ministry of Energy

Refining, mln. tn

Export, mln. tn

Oil production in Russia, mln. tn

• Increase of conversion is the

key focus of Russian refining

industry upgrades not

throughput increase

• Exports of crude will continue to

expand healthily with Russia

continuing to expand its export

optionality

536533518

0,4%

2020 2017 2012

146 156 168

-0,6%

2020

254

86

2017

260

104

2012

266

120

8981

1,4%

2020

282

2017

273

2012

252

193 192 202

50

Light Heavy

1,8%

East West

3

Government has proclaimed 3 key goals for Russian refining

industry upgrade campaign by 2020

• Increased motor fuel production

and Euro-5 compliance will remain

in focus in nearest years

Euro <5

Euro 5

2020

0%

100%

2012

70%

30%

• Minimal increase in crude units

capacities balanced by a closure

of simple refineries

• Key focus is on meeting demand

for gasoline and jet fuel

2020

66%

2012

55%

Source: Minenergo, Skolkovo business school, grandsmeta

• Some experts estimate that 70% of Russian refining units have already exceed

their expected lifetime

• Key replacement goals:

−High health, security and environment standards

−Operations continuity

−Maximization of refinery utilization

−Decrease in labor due to automation & technology

Lights yield

(conversion)

Fuel

Standards

Replacement

of old units

1

2

3

126

89

Lights yield, %

Diesel fuel and gasoline production,

Mt

4

Key focus of refining upgrades is to meet motor fuels and jet fuel demand

Source: Rosneft forecast, Petromarket

Gasoline

Diesel

Jet fuel

Fuel oil

Demand, mln. tn Supply, mln. tn

404033

+2%

2017 2012 2020

504536

+4%

2020 2012 2017

13129

+5%

2017 2012 2020

141416

2020 2012 2017

-1%

454535

2017 2012 2020

+3%

817354

+5%

2017 2020 2012

161510

2020

+6%

2017 2012

4054

76-8%

2020 2017 2012

• Mostly balanced with some

regional deficits

• Demand will be met through

secondary processes upgrades

• Always surplus export product

in Russia

• Overall demand growth will be

slightly above gasoline due to

increasing share of diesel

trucks

• The highest growing product

• Sufficient supply growth, since

most conversion upgrades are

middle distillates oriented

• New significant cracking

capacities

• Large export drop

• Growth in number of

passenger cars

• Growth in passenger

traffic

• Increase in fuel

efficiency of new

aircrafts

• Growth in number of

trucks

• Increase in fuel

efficiency

• Increase in fuel

efficiency

• Power generation

switching to natural gas

• Growth in bunker fuel

Demand level

5

In 2011 the tax regime was significantly tightened and tax incentives

were introduced for investments in conversion and quality

• Increased attractiveness of gasoline

sales on domestic market

• Refusal from gasoline oriented

conversion projects (FCC)

• Increased attractiveness of naphtha as

steam cracking feedstock

• Decrease of refining industry

attractiveness and available cash flow

for upgrades

• Decrease refining volumes growth

rates and closing of non-efficient

refineries with the introduction of 100%

tax

• Increased investments in conversion

projects

Key changes

«60-66»

tax regime

90% export duty for

gasoline

Differentiation of

gasoline and diesel

excise duty

Causes Product duty as a share of crude export duty Impact on industry

• Increased speed of investments in

gasoline and diesel quality projects

• Pressure on simple refineries

66%66%67%

100%

66%

47%

From 1 Jan.2015 Since Oct. 2011 Till Oct. 2011

• Increase in refining

throughput, not covered

by secondary processes

capacities

• Lack of investments in

conversion projects

• Necessity to stimulate

oil production

• 2011 gasoline shortage

crisis, caused by

gasoline exports in

conditions of unsatisfied

domestic demand

• Negative ecological

impact of low standard

motor fuels

• Growth of topping

refinery industry

focused on export

Heavy Light

90%

66%67%

From

May 2011

Expected from

Oct. 2011

Till May 2011

337306

249234171156

156207 195178

130124 14413190108

2014 2013 Till 31 Dec.

2012

Till 30 June

2012

Diesel < Euro 5

Gasoline Euro 5

Gasoline < Euro 5

Diesel Euro 5

Excises, USD/t

6

Tighter tax regime stimulates quicker conversion focused upgrades in

the industry with Rosneft leading the way

Key findings

• Anticipated fiscal regime tightening

(equalization of crude and dark products

export duties) stimulates VIOCs investmets

in conversion projects

• Middle distillates oriented upgrades

(hydrocracking) due to lower gasoline

netbacks

• Standalone refiners will face decreased cash

flows restricting upgrades and will gradually

lose competitiveness against VIOCs

refineries

• Rosneft has the most ambitious program of

modernization, which will bring its refineries

into profitability leaders

Increasing the depth of processing is essential to remain competitiveness in a tightening of the tax regime

1 Besides LTO and quality CAPEX

2 Conversion projects on existing refineries

Investments in

conversion projects1, $/tn

of 2012 refining vol. Key projects till 2021 Lights yield, %

• Catalytic Cracking (Kuibyshev, Syzran)

• VGO hydrocracking (Komsomolsk, Ryazan,

Tuapse, Novokuybyshevsk, Achinsk,

Saratov)

• Delayed coking (Tuapse,

Novokuybyshevsk, Achinsk)

• Catalytic Cracking (Nizhny Novgorod)

• VGO hydrocracking (Volgograd)

• Delayed coking (Perm)

• Vacuum residue hydrocracking (Nizhny

Novgorod)

• Catalytic cracking (Omsk, Moscow)

• VGO hydrocracking (Omsk)

• Delayed coking (Omsk, Moscow)

• VGO hydrocracking (Kirishi)

• VGO hydrocracking (Ufa)

• Delayed coking (Ufa)

80%

56%

66%53%

73%61%

2021 2012

55%39%

71%60%

Source: Petromarket, McKinsey

38

48

97

112

3362

7

2013 2014 2015 2016 2017

Key focus of refineries’ upgrade in mid-term is Euro-5 compliance

Company Quality projects

Gasoline: Isomerization, Reforming,

Alkylation, Hydrotreating (15 projects)

Diesel: Hydrotreating (6 projects)

Year when all production is fully complied with Euro-51 Current quality

Gasoline: Isomerization, Reforming,

Alkylation, Hydrotreating (4 projects)

Diesel: Hydrotreating (3 projects)

Gasoline: Isomerization, Reforming,

Alkylation, Hydrotreating (5 projects)

Diesel: Hydrotreating (3 project)

Gasoline: Isomerization, Reforming (2

projects)

Diesel: Hydrotreating (1 project)

Gasoline: Alkylation, Hydrotreating (2

projects)

Diesel: nothing

1 Some companies will continue to produce non Euro-5 compliant product for export. In this case, the tick shows a year of completion of latest quality project

13% 38% 28% 21%

Euro-3 Euro-4 Euro-5 lower than Euro-3

53% 21%

13% 13%

50% 50%

32%

2%

18% 48%

15% 78% 7%

47% 21% 22%

83% 17%

85% 13%

2%

4% 96%

79% 19%

11% Source: Petromarket

8

Rosneft leads the way in Russia’s strive for crude export diversification and

secured end-consumer monetization via long-term contracting

Kozmino

Ust-Luga

Saras

Ruhr Oel

1 Rosneft share; 2 volumes may vary year-to-year

JV for sale of

crude oil and oil

products

Skovorodino

Shipments to China

via ESPO will

increase to

30 mln. tn./year Tianjin Refinery

construction

plans 13 mln. tn

Mozyr

Crude oil shipments to

direct consumers via

Druzhba pipeline

Lisichansk

Tuapse

Taganrog

Ventspils

Nakhodka

Vanino

Primorsk

Oil field

Druzhba

Crude oil long-term contracts

Ukraine

Direction Counterparties Volume,

mln. tn

Annual average

volume2, mln. tn

Term, years

China CNPC, Transneft 625 28 - 30 20-25

Novorossiysk /

Primorsk / Ust-Luga

Glencore, Vitol, Trafigura 74 15 5

Germany Total, RTSA, Sunimex 49 12 3-5

Poland Orlen, Mercuria 34 11 3

Belarus Mozyr refinery, Naftan 23 8 3

Czech Republic Orlen 6 2 3

Novorossiysk

Crude oil distribution, mln. tn

Volume 2012

Production in Russia 206,7

Refining 83,7

Domestic sales 16,1

Export sales 106,9

Volume 2012

Domestic market 37,7

Export 44,9

Sales of oil products, mln. tn

Port

Total 73 mln tn./year2

Main pipelines

9

Kozmino

Vladivostok Nakhodka

Murmansk

Kaliningrad

Saint

Petersburg

Primorsk

Ust-Luga

Vysotsk

Novorossiysk Tuapse

China Mongolia

Kazakhstan Ukraine

Finland

Japan

Possible direct crude

supplies to Southern

Germany via Druzhba

and IKL-MERO

pipeline in Czech

Republic

Projected export

oriented petroleum

products pipeline in

South Russia «Syzran -

Tuapse»

Expansion of crude export

pipeline system to Far

Eastern markets, also

allowing East Siberian

fields development

Increased supplies to

China on long-term

contracts basis

Tianjin

refinery

Planned 13 mtpa new

refinery partially

supplied from ESPO

Pipeline to projected

VNHK petrochemical

plant VNHK

Komsomolsk

Projected feed

crude pipeline

from ESPO to

Komsomolsk

refinery

Russia is investing in infrastructure for export of crude and

petroleum products

Crude terminals

Oil products terminals

Existing crude pipeline

Planned crude pipeline

Existing oil products pipeline

Planned oil products pipeline

Construction of most modern deep

water Russian Baltic port (44 mtpa

crude, 34 mtpa refined products,

full capacity expected in 2016)

Expansion of Tuapse

refined products

terminal Reconstruction of

Nahodka terminal

Samara

Perm

Tyumen

Tayshet Kemerovo

Vankor

Expansion of

ESPO pipeline to

80 mtpa

Vitino

Arkhangelsk

Ventspils

Gdansk

Kavkaz

Baku

Atyrau

Kuyumba and

Yurubcheno-

Tohomsk

fields

Adamova

Fenyeslitke

Budkovce

10

A new paradigm is evolving with new crude channel to East and the

substitution of export of fuel oil by diesel fuel

Export flows from Russia, mln.tn

Source: Rosneft forecast based on IHS CERA and Petromarket

West

Crude oil

Diesel

Fuel Oil

Crude oil

Diesel

Fuel Oil

193192202

2017 2012

-1%

2020

898150

2020 2017

+7%

2012

312817

2020

+8%

2012 2017

172436

-9%

2020 2017 2012

001

2012 2017 2020

91624

2012 2017

-12%

2020

11

Rosneft – TNK-BP refining assets

ROSNEFT refining post-acquisition position

Comparison of Rosneft and TNK-ВР assets

2012 production, mln tn

Achinsk

(8 Mtpa,HSK)

Komsomolsk

(8 Mtpa, DCU)

50% Yaroslavl (15 Mtpa,

FCC, VGO HCK)

Saratov (7 MTpa,

HSK)

Samara group (25 Mtpa,

3 FCC, DCU)

Tuapse

(12 Mtpa, HSK)

Ryazan (17 Mtpa,

FCC)

Rosneft

TNK-BP

fuel oil

jet

diesel

gasoline

24,4

10,1

1,5

7,5

5,4

39,1

17,0

1,5

14,9

5,7

63,5

27,1

3,0

22,4

11,0

Angarsk

(10 Mtpa, FCC)

• TNK BP refineries fit ideally in the central region where the most of demand is and Rosneft

has had lower supplies for its own channels (e.g. retail sites and jet fuel in Moscow airports)

• Another synergy will come through “best of both” practices exchange in refinery operations

(e.g. Lean program roll out in TNK BP, energy efficiency in Rosneft, etc)

12

Rosneft in the years 2008-2013 successfully implemented more than

20 projects for new construction and revamping of units and facilities

2008 2009 2010 2011 2012 2013 Refinery

Achinsk

Angarsk

Komsomolsk

Novokuibishevsk

Syzran

TNK-BP Refineries

Kuibyshev

Tuapse

• Isomerization

• Sulfur

production

• Hydrogen

production

• Hydrogen

production

• Isomerization

• Isomerization

(revamping)

• Reforming

• Isomerization

• Reforming

(revamping)

• Visbreaker

(revamping)

• Reforming

(revamping)

• Reforming

(revamping)

• Gasoline

blending

• Delayed coking

• «Wet

catalysis»

(revamping)

• Reforming

(revamping)

• LPG gantry

• Gasoline blending

• Visbreaking

(revamping)

• Revamping of

furnaces to gas

• Water supply

system

• Saratov isomerization

• Saratov crude unit

(revamping)

Integration of TNK-BP

• Crude unit

Total • New: 2 • New: 2 • New: 2

• Revamped: 3

• New: 2

• Revamped: 3

• New: 4

• Revamped: 2

• New 2

• Reforming

• Saratov diesel

HT

• Ryazan diesel

HT (revamping)

13

Tuapse refinery – from topping to a new leader in Russia

Key success factors for Tuapse refinery:

• Strategic location:

Immediate proximity to large Southern Russian markets with growing demand

Close to Tuapse oil products terminal

which enables to flexibly distribute sales between export and internal trade channels

• Complete re-equipment of refinery, including:

Increase throughput from 5 to 12 mln. t./year

Achieve 90% lights yield

Achieve Nelson index of 8

3rd construction

stage 2018

11,4

0,7 0,0

6,5

4,4

0,1 2,0

1,4

0,9

0,4

2,2

0,8

4,3

3,7

0,5

11,9

2nd construction

stage 2017

0,7

2,4

1,0

Current

production 2012

Tuapse refinery production structure, mln.t

Tuapse

Saratov

Export to MED: Naphta,

Jet, Diesel, Fuel oil, etc.

Grozny

Filling stations

South Russia

LINIK

BATO TZK

Tuapse refinery in Rosneft portfolio

Bunker

Gasoline

Naphtha

Other

Fuel oil

Diesel

Jet

14

Achinsk

Angarsk Koltsovo

Irkutsk

Krasnoyarsk Samara

Saratov

Komsomolsk VKO

SVO

Ryazan

Tuapse

Vladivostok

1

YANIOS

Rosneft assets map

Key aspects

Asia-Pacific &

China

Black sea

Baltic states

Refining:

Retail (>10 stations):

Jet fuel sales:

Not covered

Bunker

Export directions:

28

7

8 5

15 19

15

5

7

10

4

…

…

Oil

Petroleum

products

(export

directions)

11

3

1

2

Europe

• Refineries are located

across all Russia, and

could support development

of almost all main retail and

B2B markets

• Retail assets and Jet fueling

complexes are located

across all country and can

ensure significant network

synergies

• Presence on all oil and

petroleum products export

direction ensures additional

flexibility for value creation

by arbitrage Mongolia & China

Rosneft covers all export directions and is present across all value

chain in Russia; trade channels will cover most attractive cities and

regions from a demand point of view