TNK BP Takes Part in SPE Moscow Conference

Autumn 2006 TNK BP Takes Part in SPE Moscow Conference (p. 1) TNK BP, Rosneft Agree New Pipeline Route from Verkhnechonskoye Field (p. 7) inside TNK BP Turns Three (p. 4) Rig Upgrade Program Implemented at Kovykta (p. 8) BP Ultimate Fuel Launched in Russia (p. 5) Lisichansk Refinery Celebrates 30th Anniversary (p. 11) Major Projects University Opens at Corporate HQ (p. 6) Special Supplement: Focus on HSE TNK BP Takes Part for ideas on the oil wells that I was responsible for, and through the association with the SPE became part of an informal net in SPE Moscow work of engineers working in other countries and companies with similar submersible pump problems. Through the Conference exchange 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 the On October 3, 2006, the Society of Petroleum SPE, I congratulate you for continuing to make this work. Engineers (SPE) held its first global conference in Russia. Below is the text of TNK BP I would like to cover two areas in my remarks: First – some facts President and CEO Robert Dudley's address to and comments on Russia's role in the global oil industry. And the conference. second — some comments on what may be the greatest challenge faced by our global industry: the demographic challenge and the Mr. Chairman, ladies and gentlemen, dear industry colleagues, importance of professional development of people. good morning. It is a great pleasure to see the Society of Petroleum Engineers gathering here in Russia with an event of this large scale. It fits the size of Russia and its importance to Global Context our global industry. Russia plays a vital role in the global energy balance. In the past few years, the global economy has seen a severe demand I know the importance of the SPE first hand. I joined the SPE shock, caused by unprecedented economic growth across all in 1982 and, as a young production engineer, read SPE papers key demand centers. After a decade of living and planning in a TNK BP stand at the SPE Conference.

$15 20/bbl environment, the global industry was not in the Russia currently exports primarily to Europe, but investments position to quickly respond to such explosive growth in are being made to diversify exports to the growth markets of demand. As we all know well, oil fields cannot be 'turned on' the Asia Pacific. Construction of a 1 to 1.5 million barrel per with a switch, and we have seen upstream and downstream day pipeline, from East Siberia to the Pacific Coast, is under capacity shortages which resulted in oil prices touching way. TNK BP believes this is a sound commercial decision, as historic highs. it is crucial for Russia to have access to the world's most dynamic market — Asia Pacific. However, the markets are working, and investment in new capacity is at a record high, and new projects are being brought on stream around the world. Prices have been coming off … but the path forward is challenging steadily — the oil price has declined by about 20% over the last But Russia also faces its share of challenges to sustain its glob two months. Alternative fuels use still remains relatively low. al role. These challenges include: Although it is growing, and will continue to grow over time, • Sustaining and extending the productive potential of there is little doubt that hydrocarbons will remain the core Russian brownfields. In the foreseeable future, most of energy source for the global economy in the foreseeable future. Russia's production will continue to come from the brown It will be our job in the industry to produce this energy. And field assets of West Siberia. We know that these fields still the pressure is on for our industry to deliver reliable, steady have many years of productive life ahead. But this produc supplies to the global economy. We need to do this in an effi tion will not come easy. Following the 'brownfield miracle' cient, environmentally sound and sustainable manner. This is of 2000 2005, there is now a slowing growth rate on the our responsibility and our long term challenge as an industry. core West Siberian fields and other brownfield areas across the industry. Going forward, fully utilizing the potential of Russia is playing an increasingly important role these fields will require increasingly sophisticated produc in the global energy markets... tion techniques and increasingly efficient reservoir man Russia has been playing an increasingly important role in the agement and waterflooding techniques. global oil industry. It is a major reserve holder, with 6% of global oil and, more importantly, 42% of non OPEC oil, and • I recently read one analysis by CERA that estimated that, 30% of global gas reserves. It is the world's second largest oil in order to meet these goals, the Russian oil and gas indus producer at 9.5 million barrels per day of oil. On occasion, try will need to make capital investments of no less than Russia is the largest producer (although Saudi Arabia main $13 billion to $14 billion per year — and that is before the tains more than 1 million barrels per day of spare capacity). development of the major Arctic Offshore projects begins. Current Russian exports amount to more than 4.4 million These are challenging tasks — and I would argue that barrels per day. Russia's continued status as a global energy supplier to a large degree rests on our ability — the ability of our indus Over the past few years, Russia has emerged as an ever more try — to rise to these challenges. important player in the global energy supply chain. It has been filling a critical role by providing supplies to the global market. In the most recent period of demand shock, it provided about The energy industry's demographic challenge But capital (or money) is not the only challenge — and I would 40% of the global oil production growth between 2001 and argue that this is a lesser challenge. In my view, the real chal 2005. And while the new barrels did not physically travel to lenge for us is technology and skills. And the two are closely China, this production growth was roughly equal to the new demand from China during this period and helped ensure all related. market demands were met. I believe that this helped prevent Technology is a key success factor that can help us deliver further imbalances in the global economy. increased recovery rates, improved drilling, advanced reservoir management and waterflooding, and improved pipelines and surface facilities. Technology will play a major role in commercializing projects that are not commercially viable without its applica tion, and reduce the development cycle time. Yet technology is not just about hardware. First and foremost, its effective application depends upon the knowledge and skill of the people who steer 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 of qualified professionals. This may be described as the industry's “demographic crisis” — the rapid aging of technical professionals, and shortage of new professionals required to drive the industry forward. TNK BP President and CEO Robert Dudley addresses the audience at the SPE conference. 2

training and retaining a competitive cadre of high class technical professionals. Importance of education and professional development This is why we at TNK BP focus much attention on staff training and development. Much like this great country, we have the right physical resources; but we need to develop our human capital to harness them in the right way. The Russian Federation recognizes the need to train a new genera tion of people for a competitive economy and the President has designated education as one of the National Projects. It was also one of the three key themes of Russia's G8 chair manship. Our approach is firmly linked with that agenda. I believe companies with international roots, such as TNK BP, have a role, even an obliga tion, to make a contribution in terms of transferring skills and knowledge into the national industry. Within the company, TNK BP has built a comprehensive training and development program to ensure the transfer of knowledge, technology and best international practices across this Russian company. Since the for mation of the Company, we have conducted more than 130,000 man days of professional training. We have established partnerships with key Russian institutions of higher edu cation, where we support the development of This trend is alarming. SPE membership statistics are also modern curricula and new facilities designed to train and indicative. While in 1989 the largest age group among SPE develop a new generation of Russian technical experts. We are members (c. 20%) were in the 30 34 year old age range, in also working on effectively integrating commercial and techni 2004 the largest group was in the 45 49 age range. While the cal skills of our people, which is a core requirement in today's return of university students to petroleum engineering is oil and gas industry. beginning in places, it is not sufficient. A stark example is that I know that we are not alone in this work, as the other compa in the United States, enrollment in petroleum engineering pro nies represented here also recognize these needs and are acting grams is down by 85% compared to its peak in 1982. to help develop these industry skills. Overall, technical professionals are aging, and the industry For TNK BP, I believe we are building our own capacity to does not yet have the influx of young talent to replace them. realize our strategy and aspirations over the long term. And One expert has described the 1990s as a “lost generation of this way we are also making a contribution to Russia's capaci lawyers and bankers,” reflecting the preference of young uni ty to realize its aspirations as a modern economy, a prosperous versity graduates to go into the legal and banking professions nation, and a key energy supplier that is well integrated into rather than technical disciplines. the global economic system. Naturally, as part of this approach, we give our wholehearted This trend is also evident in Russia, which has always been a support to the SPE and its activities here. Once again, my sin nation with a strong engineering tradition, a country capable cere congratulations to the organizers of this event — SPE's of developing very effective technical solutions in many indus first global conference in Russia. Events like this are such tries. We rely on many of these technologies today in our daily important forums for the exchange of technical knowledge, work. But the difficulty of the economic transition in the 1990s and professional development of our industry's technical and the reduction of Russia's industrial potential drove many experts. I wish you all a fruitful and productive conference, and engineers into other sectors of the economy. And today, as hope that soon all of our companies will begin to apply some of Russia regains its industrial strength, in particular in the ener the innovative solutions that we will no doubt learn about over gy sector, Russian oil companies also face a challenge of hiring, the next two days. Thank you. Autumn 2006 3

TNK BP Celebrates Third Anniversary On September 1, 2006, TNK BP celebrated its third anniversary. President and CEO Robert Dudley addressed staff with an anniversary message, summing up the results of TNK BP's first three years and offering a look at the challenges ahead. The TNK BP CEO said: “As we embarked upon the launch of Russia's newest oil and gas major three years ago, we knew that unifying and aligning the various components and cultures would be tough and risky. But we also knew we had inherited a unique blend of Russian and interna tional talent with a vast store of experience, KnowHow and resolve. Today we have outgrown our prejudices, overcome the doubts, accepted the challenges and demonstrated that our unique model works. We compete successfully every day with the best in the industry, we deliver outstanding results and we make our own special contribution to Russia and Ukraine.” Dudley continued: “TNK BP is no longer a “grand experi ment,” a disparate collection of people and assets trying to find common ground and new direction. I believe we have now matured into a unique and robust performance company, built before. We have streamlined our operations, invested in those we on the diverse strengths of our past and our commitment to have retained and laid a firm foundation for the future.” common goals and values. We have delivered the strategy — consistently and unwaveringly for three years running.” “Our enduring goal is ultimately to create a world class oil and gas company, designed, engineered and equipped for long term “Today we are a leaner, more efficient company — we have fewer competitive success. Our first three years have taken us well but better assets and people, all performing at a higher level than down that road.” TNK BP's first three years: performance highlights at a glance • Oil production 45% higher than at the start of operations (includ • Capital investment tripled from $800 million in 2003 to $2.6 bil ing share in Slavneft) lion in 2006; further increase budgeted in 2007, reflecting a • During its first three years, TNK BP produced more than 1.8 billlion strong opportunity set barrels of crude, more than the entire oil production of Kazakhstan • From 2003 through end H1 2006, paid in excess of $32 billion in during the same period duties, taxes and excises; expecting to pay $21 billion in 2006 • 2.1 million barrels of new proved reserves added — more than alone replacing production • Debt portfolio rationalized; investment grade rating obtained from • Extraordinary exploration drilling success rate delivered (65%) Moody's • Samotlor licenses crucial to the Company's upstream operations • Corporate restructuring project delivered; largest dividend pay extended to 2038 ment delivered to minority shareholders • More than 700 million barrels of oil refined • More than 1,500 kilometers of pipelines replaced, 2,400 hectares • Modernization programs implemented at three refineries of legacy pollution remediated • More than 500 million retail transactions executed • 130,000 man days of staff training delivered 4

TNK BP Begins Sales of BP Ultimate Fuel to Russian Customers On September 14, 2006, TNK BP launched a new premium brand of fuel BP Ultimate. The fuel sets a new standard in Russia and recognizes the increasing demand for high quality fuels on the President, TNK BP, Downstream. “The main strategic Russian market. objectives of this launch are to allow the target customers of the BP brand to reconsider our offer, to meet the needs of Unleaded gasoline A95 and A98 appeared at all of the our core customers, to align the fuel category with the pre mium shop offer at BP Connect and, finally, to differentiate Company's BP service stations in Moscow and the Moscow us from other fuel offers launched in Russia.” region on September 14. BP Ultimate is now sold in 14 countries worldwide. Its BP Ultimate was first offered to UK motorists in 2003 after launch in Russia supports TNK BP's commitment to rein an extensive 18 month research program to test and develop force its retail presence in the country by leading in the its unique properties, and was introduced in Russia in recog development of premium quality fuels. This offer is aimed at nition of increasing demand for high quality motor fuels. providing both the best customer benefits and more envi The basic fuel for the new BP Ultimate will be produced at ronmentally friendly products. the Ryazan Refinery. All the additives will be imported from BP enterprises in Germany. “We are very proud that BP Ultimate joins TNK BP's range of fuels. These are premium quality fuels for drivers who “BP Ultimate is our new, technologically advanced perform care about their cars,” said Alexander Kaplan, Vice ance fuel,” said Anthony Considine, Executive Vice President Marketing, TNK BP, Downstream. “Whether "Split engine" Audi demonstrates advantages of BP Ultimate over the ordinary fuel. Autumn 2006 5

you drive a budget car or a luxury model, BP Ultimate can help you to get more out of your car and less out of your TNK BP Launches exhaust.” Major Projects BP Ultimate A new generation fuel, BP Ultimate delivers improved engine University power and acceleration. Engines using BP Ultimate 98 can experience up to 14.7% more power and up to a 9.9% improve A new center of excellence to develop ment in acceleration versus ordinary A95 fuels. world class project management capabili ty opens doors at TNK BP's corporate headquarters. In summer 2006, TNK BP launched its first “corporate uni versity.” The university is one of the key elements of the Company's current initiative to expand organizational capability to deliver major world class projects. Named the Major Projects University, the center seeks to develop a cadre of project management professionals who will lead the execution of the Company's major projects portfolio. This portfolio currently comprises 18 major projects which are being 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. Anthony Considine, EVP Downstream, left, Linked to the Company's strategy to responsibly build and Alexander Kaplan, VP Marketing Operations, at the press briefing. upstream production and balance field depletion with robust reserve replacement, many of the projects in this “BP Ultimate has two and a half times more cleaning power portfolio will secure TNK BP's transition from brownfield than ordinary fuels. It not only prevents formation of engine to greenfield development. deposits but also removes existing deposits over time," said Alexander Kaplan, VP Marketing Operations. "In addition, “TNK BP has large brownfield operations which will remain BP Ultimate significantly reduces key environmental pollu important to us for a very long time, but the real growth will tants. It contains less sulphur than ordinary fuel, resulting in come from new areas and new projects,” said Lewis Jeffery, reductions of sulphur emissions by up to 66%.” Vice President Projects and Engineering at TNK BP. Citing Robert Dudley's com ments at the launch, Major Projects University curriculum he reiterated that four of the greenfield proj ects currently under development contain more than 50% of the company's resources. “Their reserves are greater than 7.5 bil lion barrels of oil equivalent (SEC) and the capital expendi ture on them will be greater than $16 bil lion ($9.4 billion for oil projects and $6.7 billion for gas). “To be successful in these projects, we need access to people with the best skills and the best experience,” said 6

Jeffery. “The Major Projects University is one of the most TNK BP and Rosneft are the major shareholders of VCNG, important ways we can pass on these skills and experience and which holds the license for development of VC, the largest oil build a new company.” field in the Irkutsk region. Both companies have agreed to revise their earlier oil transportation project plan for pilot pro Commenting on the challenges ahead, Jeffery said, “The duction from this field, which had envisaged building and scope of these projects is immense; they are extremely com operating a much longer and temporary pipeline from VC to a plex, often located in remote regions, presenting considerable new rail terminal at Ust Kut for the first three to five years of logistical and development challenges. To develop these field development. resources appropriately and sustainably — balancing the opposing agendas of different stakeholders — we'll be pushing The change from the original plans was enabled by the re rout the boundaries further and further. Doing this successfully ing and confirming the timing of work on the ESPO, plus and to a standard considered ”best in class” will require inte Transneft's stated intention to commission reversal of the Ust grated project management skills,” he explained. Kut Talakan pipeline section. TNK BP signaled its intention to accelerate the construction The MPU will tackle this challenge by offering on the job of the supply pipeline from Verkhnechonskoye to align with training as well as classroom based learning. “At the Transneft plans. Verkhnechonskneftegaz has already begun moment, our project management community is quite small, surveys along the proposed pipeline route. In the near future, but we anticipate it will increase threefold in the next 18 the company will hold a tender among Russian design insti months,” said Jeffery. “My colleagues and I envisage the cre tutes for the right to develop the feasibility study for construc ation of a network of like minded professionals who can tion of the 120 kilometer line to the cut in point of the main share the best practices with each other and cultivate our ESPO. own tried and tested project management methodology. We are 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 networks New pipeline route can build on the experience gained on one project and trans fer that to another.” TNK BP, Rosneft Agree on a New Pipeline Route from Verkhnechonskoye Field In September 2006, TNK BP announced it reached an agreement with Rosneft to construct a permanent oil pipeline from the Verkhnechonskoye (VC) oilfield in East Siberia to Surgutneftegaz's Talakanskoye field whence oil from both fields will be supplied into the East Siberia Pacific Ocean pipeline system (ESPO). Discussions with Surgurtneftegaz are being conducted through OJSC Verkhnechonskneftegaz (VCNG), the operat ing company for the VC field, pursuant to the terms of a Memorandum of Understanding signed by these companies. Agreement in principle with Transneft, operator of the ESPO, has also been reached. Autumn 2006 7

Rig Upgrade Program “The concept for the rig upgrade Implemented program was devel oped in the apprais at Kovykta al phase of the Kovykta project and was largely driven by two key RUSIA Petroleum, TNK BP subsidiary and factors,” said the operator of Kovykta, a giant gas field RUSIA Petroleum First Deputy in East Siberia, is implementing a pioneer Director Thomas ing rig upgrade program utilizing Russian Toyota Articulating Forklift Zimmer. "Firstly, and international suppliers and expertise. the results of the tests of the 32 wells in Kovykta showed that extended reach (ERD) horizontal wells would get higher production rates as RUSIA Petroleum is in the process of completing the field's opposed to vertical wells or short horizontal ones. We estimate first two high technology wells that will begin producing first there will be a 50% increase in production rates from ERD gas for delivery to customers in the Irkutsk Region. To meet wells. Secondly, under the license requirements, we had to the license requirements, RUSIA Petroleum has engineered start the first two wells by the end of 2005. Business needs led and realized a new approach to drilling wells in the field. us to a limited set of options: we had to either bring in a new Successfully and within record time for the Russian oil and gas rig or upgrade the existing ones to be able to drill ERD. To industry, it implemented a sophisticated rig upgrade program bring a new rig to the remote areas of Eastern Siberia would to drill extended reach drilling wells (ERD). The benefits have been time consuming, and the industry did not have expected from the program include higher production rates available rigs; therefore, the initiative to upgrade the rigs was from fewer wells, safer and cleaner operations and smaller put forward and implemented.” development CAPEX. The upgrade project is also expected to deliver valuable experience and lessons learned for the devel opment of other projects, including the export phase of the Technology Kovykta project. Engineers, specialists, and managers from The new design of the horizontal wells approved for this proj seven countries are participating in this pioneering project. ect is the first attempt to drill ERD wells for this field with up to 2,500 meter step outs (horizontal) at approximately 3,300 meters vertical depth. This means that RUSIA Petroleum drills to Kovykta Project at a Glance 3,300 meters in vertical depth, including a gradual turn to 90 degrees, and then drills 700 meters horizontally for a total measured The project foresees development Irkutsk, as well as gas and conden depth of 4,500 meters. of the Kovykta gas and condensate sate processing infrastructure. field in the Irkutsk Region, East Production is set to begin in 2006 Prikaspiyburneft (PBN) and Baker Hughes Siberia. The field is one of the at the rate of 300 million cubic Oasis Group were contracted to work with largest in Russia, with estimated meters per year. It is expected that the RUSIA Petroleum Engineering Group to reserves close to 2 trillion cubic the project will supply 2 billion conduct a feasibility study into ERD utiliz meters of gas. TNK BP owns a 62% cubic meters to the regional market ing the two drilling rigs PBN had available at interest in RUSIA Petroleum, which in 2007. Kovykta. The objective of both joint studies holds the license to the Kovykta T h e e x p o r t p h a s e of the project was to assess the technical requirements in field. RUSIA Petroleum's other shareholders are Interros (26%) foresees exporting gas from terms of drilling rig equipment specifications, and the Irkutsk Region Kovykta to customers in the Asia downhole tool technology, and operational Administration (12%). Pacific region, primarily in China practices to drill ERD wells. and South Korea. The International The project consists of two key Feasibility Study, endorsed in The results of the studies showed that tech components: a domestic project to November 2003 by TNK BP, nical requirements for drilling these ERD deliver gas supplies to regional Chinese National Petroleum wells exceeded the capabilities of the two customers in the Irkutsk Region, Corporation (CNPC) and Korea's existing rigs. Another issue was that, accord and a proposed export develop Kogas, stipulates annual supplies of 20 billion cubic meters per year ing to Russian regulations, if the drilling is ment. to China and 10 billion cubic longer than a 300 meter horizontal at this T h e r e g i o n a l p h a s e of the project meters to South Korea. The date for depth, a topdrive should be employed. foresees construction of a 550 commencement of the internation kilometer gas pipeline from al project will be determined in the In April 2005, RUSIA Petroleum put for Kovykta to Sayansk Angarsk future. ward an initiative to upgrade the rigs. This solution found support at TNK BP. “There has been an ongoing dialogue with the drilling technology groups in TNK BP in 8

reviewing the results of the study. We also held regular technical reviews before the project started and throughout its imple mentation phase,” said Zimmer. The $15.5 million upgrade program was the fastest rig upgrade program of this scale implemented in Russia. “This complex project was a major chal lenge for us,” said Kurt Unger, RUSIA Wells and Drilling Manager for the rig upgrade program. “Normally, it takes 1.5 years to complete upgrades of such a scale, but because of the approach we took, we were able to finish the upgrades under the best original estimated time for such a proj ect, and thus meet our license commit ments. Ninety percent of the upgrades were completed in less than six months by December 2005. Installation of the top drive on the first rig was fully completed in Mud pit system April 2006. Now, with the second rig's top drive installed in September, the upgrade project is fully com HSE pleted and operational.” Involving technology that was new to TNK BP and relatively new to Russia, the topdrive was brought in to enhance efficien The rigs were upgraded with new equipment and systems cy and safety of the rigs. In conventional wells, the rotary tables that allow efficient performance of operations, but also in a were designed to be operated manually. With topdrive, the same safer manner with less impact on the environment. operations are performed with less exposure to people. A Prikaspiyburneft driller during a topdrive drilling job. Autumn 2006 9

Other advances that significantly improve the safety of opera tions include the rig instrumentation. It monitors and measures Lisichansk Refinery all drilling parameters and displays them to the driller. This improves control, provides for better reaction time, improves Marks 30th record keeping and, most importantly, it eliminates safety risks (before, all the measures were taken down manually). Anniversary “As for the environment, the ERD method enables drilling of multiple wells from one well pad to reduce impact on the area," said Unger. "We managed to save one pad and a total of seven In September 2006, the Lisichansk wells by implementing the upgrade program for the regional Refinery, TNK BP's largest asset in gasification project. Results were very good.” Ukraine, marked its 30th anniversary. Senior TNK BP executives, including International team More than 150 people worked on site to complete the project. Chief Operating Officer Tim Summers The Upgrade Project Team relied on Russian and internation and Executive Vice President, al equipment and expertise. Suppliers included companies Downstream, Tony Considine attended from Russia, Ukraine, United States, Britain, Canada, the anniversary celebration. Russia's Australia, China and Colombia. Ambassador to Ukraine, Viktor “The true value of the upgrade project is not only in the reduc Chernomyrdin, and representatives tion of the overall drilling cost and increased production rates of the Lugansk regional administration for the regional gasification project, but also we learned and built experience for the export phase of the project. If we can were also present. demonstrate that, through this new well design and through this technology, we have the ability to reduce the number of Addressing the gathering, TNK BP COO Tim Summers said: well pads, wells and gathering system infrastructure, then "Even in an industry as long term as ours, 30 years of refining reduction of 10 to 20% of the $2 billion drilling CAPEX operations is no small achievement. During this period, the would be a great outcome. That's why it is so important that refinery has seen its share of ups and downs. Many of you we learn how to drill ERD wells and optimize this drilling to remember 2000, when the plant stood on the verge of bank have an impact on the whole project,” concluded Zimmer. ruptcy. I take particular pride in saying that the period since Well bore designs 10

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. that time – after the refinery became part of TNK, and subse Lisichansk is TNK BP's most important asset in this country. quently the TNK BP Group – has been a period of achieve We are committed to continuing investment here, further ment and success." enhancing our leadership position in Ukraine and ultimately transforming this refinery into a competitive, world class facil The Lisichansk Refinery is currently considered to be one the ity. Over the next five years, TNK BP will invest around $220 two top refineries based in Ukraine, on its configuration and million in this refinery. Going forward, our goal is to continue performance. "Personally, I like to think of it as Ukraine's best providing the high quality products required to fuel the refinery," said Tim Summers. "In an industry as competitive as growth of Ukraine's economy and to enhance the country's ours, leadership is won by a constant drive for excellence and export potential." innovation. And these are exactly the qualities demonstrated by your team." TNK BP's COO noted that the refinery team has been working to modernize the plant and its facilities. Recent additions have included 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 turnaround in October 2006, the refinery will begin to produce 50ppm diesel, meeting European specifications. New flexibility is being introduced in feedstock supply to the refinery: by importing VGO to feed the cat cracker, the refinery avoids paying high prices for crude while still delivering the products to the mar ket. Other innovative ways to be flexible with the feedstock are being considered, including using Ukrainian crude oil. Tim Summers emphasized that all TNK BP Group companies aspire to work to high HSE standards, and commended the refinery's team for their advances in the field of HSE – which include the new biochemical wastewater treatment plant and purification of cat cracker condensate. Tim Summers concluded: "Ukraine has been a challenging environment for refiners, but I believe the future is bright for this refinery. TNK BP is a long term investor in Ukraine, and Autumn 2006 11

Russian Oil and Gas The official government forecast for 2006 is that GDP growth will be 6.6%. In 2005, Russia's economy grew by 6.4%. Industry News Russia Raises Oil Export Duty to Record High Effective October 1, 2006, the oil export duty will rise to an all time high of $237.60 per ton of oil. Prime Minister Mikhail Russian Production and Export Data Fradkov signed the relevant government resolution on Russia's oil and gas condensate production in January September 16. The current export duty, in effect since August September was 358.17 million tons (9.58 million barrels per 1, is $216.40 per ton. day), an increase of 2.5% over the same period in 2005. Production in September was 39.91 million tons (9.71 million The Russian Government reviews the export duty bimonthly barrels per day), 2.4% above production in September 2005. using as a benchmark the prices at which the Urals brand has traded in world markets during the previous period. From January through September, Russia exported 157.13 mil lion tons (4.20 million barrels per day) of crude to non FSU The export duty for light and medium petroleum distillates, countries, a 3.2% increase over the same period in 2005. gasoils, benzene, toluene, xylols, propane, butanes, ethylene, According to official data, Russian oil companies shipped propylene, butylene, butadiene and other natural gas liquids 149.68 million tons of oil to foreign markets via the Transneft will be set at $172.4 per ton starting October 1. operated oil pipeline grid; they delivered 7.49 million tons bypassing Transneft's network. Before the increase, the duty stood at $158.10 per ton. Russia's gas production in January September 2006 totaled The export duty for liquid fuels (heavy fuel oil), lubricants and 483.76 billion cubic meters (62.71 billion cubic feet per day), a spent petroleum products will be increased from $85.20 per 3.2% increase over the same period in 2005. In September tons to $92.90 per ton. Russia produced 50.74 billion cubic meters (59.20 billion cubic feet per day). Oil and Gas Sector Share in Russia's Economic Growth to Drop Russian oil and gas production and exports, At a press briefing, Andrei Klepach, director of the Economic January September 2006 Development and Trade Ministry's Department for Macro economic Forecasting, said that the contribution of the oil and gas sector to Russia's economic growth is expected to decrease over 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 boost its energy resource exports to the Asia Pacific region to 30% of its total energy exports. "We plan and anticipate that compared to today's 3% of Russian oil exports to the APR countries, within 10 years we Russia's GDP Rises 7.4% in Q2 2006 will be exporting to this region at least 30% of total exports," Russia's GDP in the second quarter of 2006 rose by 7.4%, Putin said at a meeting with G8 parliament leaders in Sochi. Russia's Statistics Agency has reported. In the same period of He noted that Russia was "consistently implementing the pol the previous year economic growth was 5.7%. icy of diversifying energy supply routes, and, consequently, increasing these routes' reliability." According to Russia's Ministry of Economic Development and Trade (MERT), the economy grew by 7.1% in the second quar The President said this policy is already being implemented ter of 2006. For the first six months, MERT figures say, GDP through the construction of the North European pipeline and increased by 6.3%. the East Siberia Pacific Ocean oil pipeline. Insight TNK-BP is published by the Communications and Public Affairs Division 1 Arbat Street, Moscow, Russia 119019 www.tnk-bp.com For additional information please contact: Communications and Public Affairs Investor Relations Alexander Mikhailiants Ruslan Nickolov Phone: +7 (495) 363 2757 Phone: +7 (495) 787 9630 Fax: +7 (495) 787 8837 Fax: +7 (495) 787 8837 E-mail: agmikhailiants@tnk-bp.com E-mail: rznickolov@tnk-bp.com 12

TNK BP Takes Part in SPE Moscow Conference

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TNK BP Takes Part in SPE Moscow Conference Document Transcript