TNK�BP Takes Part in SPE Moscow Conference

On October 3, 2006, the Society of PetroleumEngineers (SPE) held its first global conferencein Russia. Below is the text of TNK�BPPresident and CEO Robert Dudley's address tothe conference.

Mr. Chairman, ladies and gentlemen, dear industry colleagues,good morning. It is a great pleasure to see the Society ofPetroleum Engineers gathering here in Russia with an event ofthis large scale. It fits the size of Russia and its importance toour global industry.

I know the importance of the SPE first hand. I joined the SPEin 1982 and, as a young production engineer, read SPE papers

for ideas on the oil wells that I was responsible for, and throughthe association with the SPE became part of an informal net�work of engineers working in other countries and companieswith similar submersible pump problems. Through theexchange of ideas and experience, we all did our jobs better.

The SPE is one of the best examples that I know of an industri�al society that works to solve problems and uncover new oppor�tunities across borders and companies. As a fellow member of theSPE, I congratulate you for continuing to make this work.

I would like to cover two areas in my remarks: First – some factsand comments on Russia's role in the global oil industry. Andsecond — some comments on what may be the greatest challengefaced by our global industry: the demographic challenge and theimportance of professional development of people.

Global ContextRussia plays a vital role in the global energy balance. In thepast few years, the global economy has seen a severe demandshock, caused by unprecedented economic growth across allkey demand centers. After a decade of living and planning in a

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TNK�BP Takes Part in SPE Moscow Conference (p. 1)

TNK�BP Turns Three (p. 4)

BP Ultimate Fuel Launched in Russia (p. 5)

Major Projects University Opens at Corporate HQ (p. 6)

TNK�BP, Rosneft Agree New Pipeline Route fromVerkhnechonskoye Field (p. 7)

Rig Upgrade Program Implemented at Kovykta (p. 8)

Lisichansk Refinery Celebrates 30th Anniversary (p. 11)

Special Supplement: Focus on HSE

Autumn 2006

TNK�BP stand at the SPE Conference.

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$15�20/bbl environment, the global industry was not in theposition to quickly respond to such explosive growth indemand. As we all know well, oil fields cannot be 'turned on'with a switch, and we have seen upstream and downstreamcapacity shortages which resulted in oil prices touchinghistoric highs.

However, the markets are working, and investment in newcapacity is at a record high, and new projects are being broughton�stream around the world. Prices have been coming offsteadily — the oil price has declined by about 20% over the lasttwo months. Alternative fuels use still remains relatively low.Although it is growing, and will continue to grow over time,there is little doubt that hydrocarbons will remain the coreenergy source for the global economy in the foreseeable future.It will be our job in the industry to produce this energy. Andthe pressure is on for our industry to deliver reliable, steadysupplies to the global economy. We need to do this in an effi�cient, environmentally sound and sustainable manner. This isour responsibility and our long�term challenge as an industry.

Russia is playing an increasingly important rolein the global energy markets...Russia has been playing an increasingly important role in theglobal oil industry. It is a major reserve holder, with 6% ofglobal oil and, more importantly, 42% of non�OPEC oil, and30% of global gas reserves. It is the world's second largest oilproducer at 9.5 million barrels per day of oil. On occasion,Russia is the largest producer (although Saudi Arabia main�tains more than 1 million barrels per day of spare capacity).Current Russian exports amount to more than 4.4 millionbarrels per day.

Over the past few years, Russia has emerged as an ever moreimportant player in the global energy supply chain. It has beenfilling a critical role by providing supplies to the global market.In the most recent period of demand shock, it provided about40% of the global oil production growth between 2001 and2005. And while the new barrels did not physically travel toChina, this production growth was roughly equal to the newdemand from China during this period and helped ensure allmarket demands were met. I believe that this helped preventfurther imbalances in the global economy.

Russia currently exports primarily to Europe, but investmentsare being made to diversify exports to the growth markets ofthe Asia�Pacific. Construction of a 1 to 1.5 million barrel perday pipeline, from East Siberia to the Pacific Coast, is underway. TNK�BP believes this is a sound commercial decision, asit is crucial for Russia to have access to the world's mostdynamic market — Asia Pacific.

… but the path forward is challengingBut Russia also faces its share of challenges to sustain its glob�al role. These challenges include:

• Sustaining and extending the productive potential ofRussian brownfields. In the foreseeable future, most ofRussia's production will continue to come from the brown�field assets of West Siberia. We know that these fields stillhave many years of productive life ahead. But this produc�tion will not come easy. Following the 'brownfield miracle'of 2000�2005, there is now a slowing growth rate on thecore West Siberian fields and other brownfield areas acrossthe industry. Going forward, fully utilizing the potential ofthese fields will require increasingly sophisticated produc�tion techniques and increasingly efficient reservoir man�agement and waterflooding techniques.

• I recently read one analysis by CERA that estimated that,in order to meet these goals, the Russian oil and gas indus�try will need to make capital investments of no less than$13 billion to $14 billion per year — and that is before thedevelopment of the major Arctic Offshore projects begins.These are challenging tasks — and I would argue thatRussia's continued status as a global energy supplier to alarge degree rests on our ability — the ability of our indus�try — to rise to these challenges.

The energy industry's demographic challengeBut capital (or money) is not the only challenge — and I wouldargue that this is a lesser challenge. In my view, the real chal�lenge for us is technology and skills. And the two are closelyrelated.

Technology is a key success factor that can help us deliverincreased recovery rates, improved drilling, advanced reservoir

management and waterflooding, and improvedpipelines and surface facilities. Technology willplay a major role in commercializing projects thatare not commercially viable without its applica�tion, and reduce the development cycle time.

Yet technology is not just about hardware. Firstand foremost, its effective application dependsupon the knowledge and skill of the people whosteer and implement it. One does not work with�out the other. But, as you no doubt see, the glob�al industry is increasingly facing a shortage ofqualified professionals. This may be described asthe industry's “demographic crisis” — the rapidaging of technical professionals, and shortage ofnew professionals required to drive the industryforward.

TNK�BP President and CEO Robert Dudley addresses the audience at the SPE conference.

This trend is alarming. SPE membership statistics are alsoindicative. While in 1989 the largest age group among SPEmembers (c. 20%) were in the 30�34 year�old age range, in2004 the largest group was in the 45�49 age range. While thereturn of university students to petroleum engineering isbeginning in places, it is not sufficient. A stark example is thatin the United States, enrollment in petroleum engineering pro�grams is down by 85% compared to its peak in 1982.

Overall, technical professionals are aging, and the industrydoes not yet have the influx of young talent to replace them.One expert has described the 1990s as a “lost generation oflawyers and bankers,” reflecting the preference of young uni�versity graduates to go into the legal and banking professionsrather than technical disciplines.

This trend is also evident in Russia, which has always been anation with a strong engineering tradition, a country capableof developing very effective technical solutions in many indus�tries. We rely on many of these technologies today in our dailywork. But the difficulty of the economic transition in the 1990sand the reduction of Russia's industrial potential drove manyengineers into other sectors of the economy. And today, asRussia regains its industrial strength, in particular in the ener�gy sector, Russian oil companies also face a challenge of hiring,

training and retaining a competitive cadre ofhigh�class technical professionals.

Importance of educationand professional developmentThis is why we at TNK�BP focus muchattention on staff training and development.Much like this great country, we have theright physical resources; but we need todevelop our human capital to harness themin the right way. The Russian Federationrecognizes the need to train a new genera�tion of people for a competitive economy andthe President has designated education asone of the National Projects. It was also oneof the three key themes of Russia's G8 chair�manship. Our approach is firmly linked withthat agenda.

I believe companies with international roots,such as TNK�BP, have a role, even an obliga�tion, to make a contribution in terms oftransferring skills and knowledge into thenational industry.

Within the company, TNK�BP has built acomprehensive training and developmentprogram to ensure the transfer of knowledge,technology and best international practicesacross this Russian company. Since the for�mation of the Company, we have conductedmore than 130,000 man�days of professionaltraining. We have established partnershipswith key Russian institutions of higher edu�cation, where we support the development of

modern curricula and new facilities designed to train anddevelop a new generation of Russian technical experts. We arealso working on effectively integrating commercial and techni�cal skills of our people, which is a core requirement in today'soil and gas industry.

I know that we are not alone in this work, as the other compa�nies represented here also recognize these needs and are actingto help develop these industry skills.

For TNK�BP, I believe we are building our own capacity torealize our strategy and aspirations over the long term. Andthis way we are also making a contribution to Russia's capaci�ty to realize its aspirations as a modern economy, a prosperousnation, and a key energy supplier that is well integrated intothe global economic system.

Naturally, as part of this approach, we give our wholeheartedsupport to the SPE and its activities here. Once again, my sin�cere congratulations to the organizers of this event — SPE'sfirst global conference in Russia. Events like this are suchimportant forums for the exchange of technical knowledge,and professional development of our industry's technicalexperts. I wish you all a fruitful and productive conference, andhope that soon all of our companies will begin to apply some ofthe innovative solutions that we will no doubt learn about overthe next two days. Thank you.

3Autumn 2006

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TNK�BP CelebratesThird Anniversary

On September 1, 2006, TNK�BP celebrated its third anniversary. Presidentand CEO Robert Dudley addressed staffwith an anniversary message, summingup the results of TNK�BP's first threeyears and offering a look at thechallenges ahead.

The TNK�BP CEO said: “As we embarked upon the launchof Russia's newest oil and gas major three years ago, weknew that unifying and aligning the various componentsand cultures would be tough and risky. But we also knewwe had inherited a unique blend of Russian and interna�tional talent with a vast store of experience, KnowHow andresolve. Today we have outgrown our prejudices, overcomethe doubts, accepted the challenges and demonstrated thatour unique model works. We compete successfully everyday with the best in the industry, we deliver outstandingresults and we make our own special contribution to Russiaand Ukraine.”

Dudley continued: “TNK�BP is no longer a “grand experi�ment,” a disparate collection of people and assets trying to findcommon ground and new direction. I believe we have nowmatured into a unique and robust�performance company, builton the diverse strengths of our past and our commitment tocommon goals and values. We have delivered the strategy —consistently and unwaveringly for three years running.”

“Today we are a leaner, more efficient company — we have fewerbut better assets and people, all performing at a higher level than

before. We have streamlined our operations, invested in those wehave retained and laid a firm foundation for the future.”

“Our enduring goal is ultimately to create a world�class oil andgas company, designed, engineered and equipped for long�termcompetitive success. Our first three years have taken us welldown that road.”

TNK�BP's first three years: performance highlights at a glance

• Oil production 45% higher than at the start of operations (includ�ing share in Slavneft)

• During its first three years, TNK�BP produced more than 1.8 billlionbarrels of crude, more than the entire oil production of Kazakhstanduring the same period

• 2.1 million barrels of new proved reserves added — more thanreplacing production

• Extraordinary exploration drilling success rate delivered (65%)

• Samotlor licenses crucial to the Company's upstream operationsextended to 2038

• More than 700 million barrels of oil refined

• Modernization programs implemented at three refineries

• More than 500 million retail transactions executed

• Capital investment tripled from $800 million in 2003 to $2.6 bil�lion in 2006; further increase budgeted in 2007, reflecting astrong opportunity set

• From 2003 through end H1 2006, paid in excess of $32 billion induties, taxes and excises; expecting to pay $21 billion in 2006alone

• Debt portfolio rationalized; investment�grade rating obtained fromMoody's

• Corporate restructuring project delivered; largest dividend pay�ment delivered to minority shareholders

• More than 1,500 kilometers of pipelines replaced, 2,400 hectaresof legacy pollution remediated

• 130,000 man�days of staff training delivered

TNK�BP Begins Salesof BP Ultimate Fuel toRussian Customers

On September 14, 2006, TNK�BPlaunched a new premium brand of fuel �BP Ultimate. The fuel sets a new standardin Russia and recognizes the increasingdemand for high�quality fuels on theRussian market.

Unleaded gasoline A95 and A98 appeared at all of theCompany's BP service stations in Moscow and the Moscowregion on September 14.

BP Ultimate was first offered to UK motorists in 2003 afteran extensive 18�month research program to test and developits unique properties, and was introduced in Russia in recog�nition of increasing demand for high�quality motor fuels.The basic fuel for the new BP Ultimate will be produced atthe Ryazan Refinery. All the additives will be imported fromBP enterprises in Germany.

“BP Ultimate is our new, technologically advanced perform�ance fuel,” said Anthony Considine, Executive Vice

President, TNK�BP, Downstream. “The main strategicobjectives of this launch are to allow the target customers ofthe BP brand to reconsider our offer, to meet the needs ofour core customers, to align the fuel category with the pre�mium shop offer at BP Connect and, finally, to differentiateus from other fuel offers launched in Russia.”

BP Ultimate is now sold in 14 countries worldwide. Itslaunch in Russia supports TNK�BP's commitment to rein�force its retail presence in the country by leading in thedevelopment of premium�quality fuels. This offer is aimed atproviding both the best customer benefits and more envi�ronmentally friendly products.

“We are very proud that BP Ultimate joins TNK�BP's rangeof fuels. These are premium�quality fuels for drivers whocare about their cars,” said Alexander Kaplan, VicePresident Marketing, TNK�BP, Downstream. “Whether

5Autumn 2006

"Split engine" Audi demonstrates advantages of BP Ultimate over the ordinary fuel.

you drive a budget car or a luxury model, BP Ultimate canhelp you to get more out of your car and less out of yourexhaust.”

BP UltimateA new generation fuel, BP Ultimate delivers improved enginepower and acceleration. Engines using BP Ultimate 98 canexperience up to 14.7% more power and up to a 9.9% improve�ment in acceleration versus ordinary A95 fuels.

“BP Ultimate has two and a half times more cleaning powerthan ordinary fuels. It not only prevents formation of enginedeposits but also removes existing deposits over time," saidAlexander Kaplan, VP Marketing Operations. "In addition,BP Ultimate significantly reduces key environmental pollu�tants. It contains less sulphur than ordinary fuel, resulting inreductions of sulphur emissions by up to 66%.”

TNK�BP LaunchesMajor ProjectsUniversity

A new center of excellence to developworld�class project management capabili�ty opens doors at TNK�BP's corporateheadquarters.

In summer 2006, TNK�BP launched its first “corporate uni�versity.” The university is one of the key elements of theCompany's current initiative to expand organizationalcapability to deliver major world�class projects. Named theMajor Projects University, the center seeks to develop acadre of project management professionals who will lead theexecution of the Company's major projects portfolio. Thisportfolio currently comprises 18 major projects which arebeing implemented in the upstream and downstream busi�nesses. Each project has a multi�year budget of more than$100 million and each one is significant enough to be con�sidered strategically important to TNK�BP.

Linked to the Company's strategy to responsibly buildupstream production and balance field depletion withrobust reserve replacement, many of the projects in thisportfolio will secure TNK�BP's transition from brownfieldto greenfield development.

“TNK�BP has large brownfield operations which will remainimportant to us for a very long time, but the real growth willcome from new areas and new projects,” said Lewis Jeffery,Vice President Projects and Engineering at TNK�BP. Citing

Robert Dudley's com�ments at the launch,he reiterated that fourof the greenfield proj�ects currently underdevelopment containmore than 50% of thecompany's resources.“Their reserves aregreater than 7.5 bil�lion barrels of oilequivalent (SEC) andthe capital expendi�ture on them will begreater than $16 bil�lion ($9.4 billion foroil projects and $6.7billion for gas).

“To be successful inthese projects, we needaccess to people withthe best skills and thebest experience,” said

6

Major Projects University curriculum

Anthony Considine, EVP Downstream, left, and Alexander Kaplan, VP Marketing Operations, at the press briefing.

Jeffery. “The Major Projects University is one of the mostimportant ways we can pass on these skills and experience andbuild a new company.”

Commenting on the challenges ahead, Jeffery said, “Thescope of these projects is immense; they are extremely com�plex, often located in remote regions, presenting considerablelogistical and development challenges. To develop theseresources appropriately and sustainably — balancing theopposing agendas of different stakeholders — we'll be pushingthe boundaries further and further. Doing this successfullyand to a standard considered ”best in class” will require inte�grated project management skills,” he explained.

The MPU will tackle this challenge by offering on�the�jobtraining as well as classroom�based learning. “At themoment, our project management community is quite small,but we anticipate it will increase threefold in the next 18months,” said Jeffery. “My colleagues and I envisage the cre�ation of a network of like�minded professionals who canshare the best practices with each other and cultivate ourown tried and tested project management methodology. Weare shaping the next generation of project managers and put�ting a structure in place to create a community where knowl�edge and skills are shared and transferred, where networkscan build on the experience gained on one project and trans�fer that to another.”

TNK�BP, RosneftAgree on a NewPipeline Route fromVerkhnechonskoyeField

In September 2006, TNK�BP announced itreached an agreement with Rosneft toconstruct a permanent oil pipeline fromthe Verkhnechonskoye (VC) oilfield in EastSiberia to Surgutneftegaz's Talakanskoyefield whence oil from both fields will besupplied into the East Siberia�PacificOcean pipeline system (ESPO).

Discussions with Surgurtneftegaz are being conductedthrough OJSC Verkhnechonskneftegaz (VCNG), the operat�ing company for the VC field, pursuant to the terms of aMemorandum of Understanding signed by these companies.Agreement in principle with Transneft, operator of the ESPO,has also been reached.

TNK�BP and Rosneft are the major shareholders of VCNG,which holds the license for development of VC, the largest oil�field in the Irkutsk region. Both companies have agreed torevise their earlier oil transportation project plan for pilot pro�duction from this field, which had envisaged building andoperating a much longer and temporary pipeline from VC to anew rail terminal at Ust�Kut for the first three to five years offield development.

The change from the original plans was enabled by the re�rout�ing and confirming the timing of work on the ESPO, plusTransneft's stated intention to commission reversal of the Ust�Kut�Talakan pipeline section.

TNK�BP signaled its intention to accelerate the constructionof the supply pipeline from Verkhnechonskoye to align withTransneft plans. Verkhnechonskneftegaz has already begunsurveys along the proposed pipeline route. In the near future,the company will hold a tender among Russian design insti�tutes for the right to develop the feasibility study for construc�tion of the 120�kilometer line to the cut�in point of the mainESPO.

7Autumn 2006

New pipeline route

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Rig Upgrade ProgramImplemented at Kovykta

RUSIA Petroleum, TNK�BP subsidiary andthe operator of Kovykta, a giant gas fieldin East Siberia, is implementing a pioneer�ing rig upgrade program utilizing Russianand international suppliers and expertise.

RUSIA Petroleum is in the process of completing the field'sfirst two high�technology wells that will begin producing firstgas for delivery to customers in the Irkutsk Region. To meetthe license requirements, RUSIA Petroleum has engineeredand realized a new approach to drilling wells in the field.Successfully and within record time for the Russian oil and gasindustry, it implemented a sophisticated rig upgrade programto drill extended reach drilling wells (ERD). The benefitsexpected from the program include higher production ratesfrom fewer wells, safer and cleaner operations and smallerdevelopment CAPEX. The upgrade project is also expected todeliver valuable experience and lessons learned for the devel�opment of other projects, including the export phase of theKovykta project. Engineers, specialists, and managers fromseven countries are participating in this pioneering project.

“The concept forthe rig upgradeprogram was devel�oped in the apprais�al phase of theKovykta projectand was largelydriven by two keyfactors,” saidRUSIA PetroleumFirst DeputyDirector ThomasZimmer. "Firstly,the results of the

tests of the 32 wells in Kovykta showed that extended reach(ERD) horizontal wells would get higher production rates asopposed to vertical wells or short horizontal ones. We estimatethere will be a 50% increase in production rates from ERDwells. Secondly, under the license requirements, we had tostart the first two wells by the end of 2005. Business needs ledus to a limited set of options: we had to either bring in a newrig or upgrade the existing ones to be able to drill ERD. Tobring a new rig to the remote areas of Eastern Siberia wouldhave been time�consuming, and the industry did not haveavailable rigs; therefore, the initiative to upgrade the rigs wasput forward and implemented.”

TechnologyThe new design of the horizontal wells approved for this proj�ect is the first attempt to drill ERD wells for this field with up

to 2,500�meter step�outs (horizontal) atapproximately 3,300 meters vertical depth.This means that RUSIA Petroleum drills to3,300 meters in vertical depth, including agradual turn to 90 degrees, and then drills700 meters horizontally for a total measureddepth of 4,500 meters.

Prikaspiyburneft (PBN) and Baker HughesOasis Group were contracted to work withthe RUSIA Petroleum Engineering Group toconduct a feasibility study into ERD utiliz�ing the two drilling rigs PBN had available atKovykta. The objective of both joint studieswas to assess the technical requirements interms of drilling rig equipment specifications,downhole tool technology, and operationalpractices to drill ERD wells.

The results of the studies showed that tech�nical requirements for drilling these ERDwells exceeded the capabilities of the twoexisting rigs. Another issue was that, accord�ing to Russian regulations, if the drilling islonger than a 300�meter horizontal at thisdepth, a topdrive should be employed.

In April 2005, RUSIA Petroleum put for�ward an initiative to upgrade the rigs. Thissolution found support at TNK�BP. “Therehas been an ongoing dialogue with thedrilling technology groups in TNK�BP in

Kovykta Project at a Glance

The project foresees developmentof the Kovykta gas and condensatefield in the Irkutsk Region, EastSiberia. The field is one of thelargest in Russia, with estimatedreserves close to 2 trillion cubicmeters of gas. TNK�BP owns a 62%interest in RUSIA Petroleum, whichholds the license to the Kovyktafield. RUSIA Petroleum's othershareholders are Interros (26%)and the Irkutsk RegionAdministration (12%).

The project consists of two keycomponents: a domestic project todeliver gas supplies to regionalcustomers in the Irkutsk Region,and a proposed export develop�ment.

TThhee rreeggiioonnaall pphhaassee of the projectforesees construction of a 550�kilometer gas pipeline fromKovykta to Sayansk�Angarsk�

Irkutsk, as well as gas and conden�sate processing infrastructure.Production is set to begin in 2006at the rate of 300 million cubicmeters per year. It is expected thatthe project wil l supply 2 bil l ioncubic meters to the regional marketin 2007.

TThhee eexxppoorrtt pphhaassee of the projectforesees exporting gas fromKovykta to customers in the AsiaPacific region, primarily in Chinaand South Korea. The InternationalFeasibil ity Study, endorsed inNovember 2003 by TNK�BP,Chinese National PetroleumCorporation (CNPC) and Korea'sKogas, stipulates annual suppliesof 20 billion cubic meters per yearto China and 10 bil l ion cubicmeters to South Korea. The date forcommencement of the internation�al project will be determined in thefuture.

Toyota Articulating Forklift

reviewing the results of the study. We alsoheld regular technical reviews before theproject started and throughout its imple�mentation phase,” said Zimmer.

The $15.5�million upgrade program was thefastest rig upgrade program of this scaleimplemented in Russia.

“This complex project was a major chal�lenge for us,” said Kurt Unger, RUSIAWells and Drilling Manager for the rigupgrade program. “Normally, it takes 1.5years to complete upgrades of such a scale,but because of the approach we took, wewere able to finish the upgrades under thebest original estimated time for such a proj�ect, and thus meet our license commit�ments. Ninety percent of the upgrades werecompleted in less than six months byDecember 2005. Installation of the topdrive on the first rig was fully completed inApril 2006. Now, with the second rig's top�drive installed in September, the upgrade project is fully com�pleted and operational.”

The rigs were upgraded with new equipment and systemsthat allow efficient performance of operations, but also in asafer manner with less impact on the environment.

HSEInvolving technology that was new to TNK�BP and relativelynew to Russia, the topdrive was brought in to enhance efficien�cy and safety of the rigs. In conventional wells, the rotary tableswere designed to be operated manually. With topdrive, the sameoperations are performed with less exposure to people.

9Autumn 2006

A Prikaspiyburneft driller during a topdrive drilling job.

Mud pit system

Other advances that significantly improve the safety of opera�tions include the rig instrumentation. It monitors and measuresall drilling parameters and displays them to the driller. Thisimproves control, provides for better reaction time, improvesrecord�keeping and, most importantly, it eliminates safety risks(before, all the measures were taken down manually).

“As for the environment, the ERD method enables drilling ofmultiple wells from one well pad to reduce impact on the area,"said Unger. "We managed to save one pad and a total of sevenwells by implementing the upgrade program for the regionalgasification project. Results were very good.”

International teamMore than 150 people worked on�site to complete the project.The Upgrade Project Team relied on Russian and internation�al equipment and expertise. Suppliers included companiesfrom Russia, Ukraine, United States, Britain, Canada,Australia, China and Colombia.

“The true value of the upgrade project is not only in the reduc�tion of the overall drilling cost and increased production ratesfor the regional gasification project, but also we learned andbuilt experience for the export phase of the project. If we candemonstrate that, through this new well design and throughthis technology, we have the ability to reduce the number ofwell pads, wells and gathering system infrastructure, thenreduction of 10 to 20% of the $2�billion drilling CAPEXwould be a great outcome. That's why it is so important thatwe learn how to drill ERD wells and optimize this drilling tohave an impact on the whole project,” concluded Zimmer.

Lisichansk RefineryMarks 30th

Anniversary

In September 2006, the LisichanskRefinery, TNK�BP's largest asset inUkraine, marked its 30th anniversary.Senior TNK�BP executives, including Chief Operating Officer Tim Summers and Executive Vice President,Downstream, Tony Considine attended the anniversary celebration. Russia'sAmbassador to Ukraine, ViktorChernomyrdin, and representatives of the Lugansk regional administrationwere also present.

Addressing the gathering, TNK�BP COO Tim Summers said:"Even in an industry as long term as ours, 30 years of refiningoperations is no small achievement. During this period, therefinery has seen its share of ups and downs. Many of youremember 2000, when the plant stood on the verge of bank�ruptcy. I take particular pride in saying that the period since

10

Well bore designs

that time – after the refinery became part of TNK, and subse�quently the TNK�BP Group – has been a period of achieve�ment and success."

The Lisichansk Refinery is currently considered to be one thetwo top refineries based in Ukraine, on its configuration andperformance. "Personally, I like to think of it as Ukraine's bestrefinery," said Tim Summers. "In an industry as competitive asours, leadership is won by a constant drive for excellence andinnovation. And these are exactly the qualities demonstratedby your team."

TNK�BP's COO noted that the refinery team has been workingto modernize the plant and its facilities. Recent additions haveincluded the isomerization unit, launched in March of 2006,and the bitumen unit launched in August 2004. Other pioneer�ing initiatives are under way. Production and export of US�grade gasoline commenced this year. Following the turnaroundin October 2006, the refinery will begin to produce 50ppmdiesel, meeting European specifications. New flexibility is beingintroduced in feedstock supply to the refinery: by importingVGO to feed the cat cracker, the refinery avoids paying highprices for crude while still delivering the products to the mar�ket. Other innovative ways to be flexible with the feedstock arebeing considered, including using Ukrainian crude oil.

Tim Summers emphasized that all TNK�BP Group companiesaspire to work to high HSE standards, and commended therefinery's team for their advances in the field of HSE – whichinclude the new biochemical wastewater treatment plant andpurification of cat�cracker condensate.

Tim Summers concluded: "Ukraine has been a challengingenvironment for refiners, but I believe the future is bright forthis refinery. TNK�BP is a long�term investor in Ukraine, and

Lisichansk is TNK�BP's most important asset in this country.We are committed to continuing investment here, furtherenhancing our leadership position in Ukraine and ultimatelytransforming this refinery into a competitive, world�class facil�ity. Over the next five years, TNK�BP will invest around $220million in this refinery. Going forward, our goal is to continueproviding the high�quality products required to fuel thegrowth of Ukraine's economy and to enhance the country'sexport potential."

11Autumn 2006

Tim Summers, TNK�BP COO, greeting Viktor Chernomyrdin, Russia’s Ambassador to Ukraine, during the 30th anniversary celebration of the Lisichansk Refinery.Seated is Sergei Lizunov, TNK�BP Ukraine President.

Russian Oil and GasIndustry News

Russian Production and Export Data

Russia's oil and gas condensate production in January�September was 358.17 million tons (9.58 million barrels perday), an increase of 2.5% over the same period in 2005.Production in September was 39.91 million tons (9.71 millionbarrels per day), 2.4% above production in September 2005.

From January through September, Russia exported 157.13 mil�lion tons (4.20 million barrels per day) of crude to non�FSUcountries, a 3.2% increase over the same period in 2005.According to official data, Russian oil companies shipped149.68 million tons of oil to foreign markets via the Transneft�operated oil pipeline grid; they delivered 7.49 million tonsbypassing Transneft's network.

Russia's gas production in January�September 2006 totaled483.76 billion cubic meters (62.71 billion cubic feet per day), a3.2% increase over the same period in 2005. In SeptemberRussia produced 50.74 billion cubic meters (59.20 billion cubicfeet per day).

Russia's GDP Rises 7.4% in Q2 2006Russia's GDP in the second quarter of 2006 rose by 7.4%,Russia's Statistics Agency has reported. In the same period ofthe previous year economic growth was 5.7%.

According to Russia's Ministry of Economic Development andTrade (MERT), the economy grew by 7.1% in the second quar�ter of 2006. For the first six months, MERT figures say, GDPincreased by 6.3%.

The official government forecast for 2006 is that GDP growthwill be 6.6%. In 2005, Russia's economy grew by 6.4%.

Russia Raises Oil Export Duty to Record High Effective October 1, 2006, the oil export duty will rise to anall�time high of $237.60 per ton of oil. Prime Minister MikhailFradkov signed the relevant government resolution onSeptember 16. The current export duty, in effect since August1, is $216.40 per ton.

The Russian Government reviews the export duty bimonthlyusing as a benchmark the prices at which the Urals brand hastraded in world markets during the previous period.

The export duty for light and medium petroleum distillates,gasoils, benzene, toluene, xylols, propane, butanes, ethylene,propylene, butylene, butadiene and other natural gas liquidswill be set at $172.4 per ton starting October 1.

Before the increase, the duty stood at $158.10 per ton.

The export duty for liquid fuels (heavy fuel oil), lubricants andspent petroleum products will be increased from $85.20 pertons to $92.90 per ton.

Oil and Gas Sector Share in Russia's EconomicGrowth to DropAt a press briefing, Andrei Klepach, director of the EconomicDevelopment and Trade Ministry's Department for Macro�economic Forecasting, said that the contribution of the oil andgas sector to Russia's economic growth is expected to decreaseover the next few years from 35% to 25%.

Putin: Russia to Boost Energy Exports to Asia Pacific RF President Vladimir Putin said that Russia hopes to boostits energy resource exports to the Asia Pacific region to 30% ofits total energy exports.

"We plan and anticipate that compared to today's 3% ofRussian oil exports to the APR countries, within 10 years wewill be exporting to this region at least 30% of total exports,"Putin said at a meeting with G8 parliament leaders in Sochi.He noted that Russia was "consistently implementing the pol�icy of diversifying energy supply routes, and, consequently,increasing these routes' reliability."

The President said this policy is already being implementedthrough the construction of the North European pipeline andthe East Siberia�Pacific Ocean oil pipeline.

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Russian oil and gas production and exports,

January�September 2006