Changes to SeniorRoles at TNK�BP

In autumn of 2004, TNK�BP implemented a number of changes inthe structure and senior roles of the Company's top management.

Effective November 15, 2004, ViktorVekselberg has been appointedExecutive Director, Gas Develop�ment. In this role, Mr. Vekselberg isresponsible for development of TNK�BP's gas business, including commer�cial development, gas marketing, gasregulatory affairs, the Kovykta projectand ensuring the strategic viability ofthe Rospan project.

"Viktor's new responsibilities reflectthe growing importance of the gasbusiness in TNK�BP's asset portfo�lio," said Robert Dudley, President

and CEO of TNK�BP. "His strategic insights and innovativethinking will help ensure that our existing gas production isefficiently utilized and expanded. Viktor will also continue tohave a leading role in the Kovykta project, which will soonstart supplying Russia's regional demand."

Larry McVay has been appointed Chief Operating Officer theposition previously held by Mr. Vekselberg. Mr. McVay willlead the Technology, Upstream, Downstream and OilfieldServices streams. Supply Chain Management and Procurementwill transition to a direct reporting relationship to him by theend of 2004. Since the establishment of TNK�BP in 2003, Mr.McVay has been acting as Deputy Chief Operating Officer.

Tom Wright has succeeded Dave Cookas Executive Vice President,Planning and PerformanceManagement. Mr. Wright has heldsenior BP roles in CommercialAssurance, Finance, and Planning andPerformance Management. From1995 until 2002, he held general man�agement positions in BP's North Seaoperations. Dave Cook is returning toa senior position in the BP Group.

Felix Lyubashevsky, Executive VicePresident for Oilfield Services, plansto leave TNK�BP effective January 1,2005, to pursue other business interests. A successor to Mr.Lyubashevsky will be announced in due course.

Evgeny Romanov has joined TNK�BP as General Auditor. Hisbackground includes senior financial and general managementpositions in the energy industry and significant audit experi�ence as a senior manager at KPMG.

insi

de

december 2004

Management Structure

New Appointments in Senior Management (p. 1)

Feedback from Analyst Visit to TNK�BP Assets (p. 3)

Upstream Acquisitions (p. 5)

Interview with Tony Considine, Executive VicePresident, Downstream (p. 5)

Overview of TNK�BP's Refining (p. 9)

Viktor Vekselberg will headTNK�BP's growing gas business

Larry McVay has beenappointed Chief Operating Officer

Dmitry Manakov has joined TNK�BP as Chief of Staff. He hasworked for the past eight years with McKinsey & Co. consultinggroup, where he has gathered extensive experience in Russianand international projects across a number of major industries.

On behalf of the Company's management, President and CEORobert Dudley expressed gratitude for the contribution madeby Messrs. Cook and Lyubashevsky during TNK�BP's first year.

"These appointments optimize the Company's managementstructure and are a part of TNK�BP's healthy evolution from apost�merger environment to that of an increasingly mature andwell�managed organization," said Robert Dudley. "They arealso a part of our ongoing work to improve corporate gover�nance, increase transparency and closely tailor our manage�ment structure to the evolving needs of the business. I ampleased that these transitions are being managed smoothly."

Duke of York FormallyOpens TNK�BPHeadquarters

On October 27, 2004, His Royal Highness, the Duke of York,the United Kingdom's Special Representative forInternational Trade and Investment, formally opened TNK�BP's new corporate headquarters at 1 Arbat Street in Moscow.

Accompanied by a small number of distinguished guests, HisRoyal Highness met with Company shareholders and seniorrepresentatives and briefly toured part of the new building.

"The opening of the new office by such an international and

eminent figure is an honor for our company and demonstratesour role in strengthening Russia's international economic link�ages," said President and CEO Robert Dudley. "Workingtogether in the new corporate headquarters will move theCompany forward and further consolidate our team."

The new TNK�BP headquarters on Arbat Street in the heart ofMoscow consolidates staff from six different buildings inMoscow. It houses 1,200 people and coordinates the company'soperations in Russia and Ukraine.

2

HRH the Duke of York unveils plaque in the main lobby of 1 Arbat Street.

Government officials, TNK�BP shareholders and executives attending at the building opening ceremony (left to right): Member of the Board of Directors LenBlavatnik, President and CEO Robert Dudley, HRH the Duke of York, RF Deputy Foreign Minister Yuri Fedotov, Chairman of the Board Mikhail Fridman, DeputyChairman of the Board Richard Olver, Executive Director German Khan.

Analyst TripShowcases TNK�BPAssets andOperations

Analysts who participated in TNK�BP'sSeptember 2004 presentation to thefinancial community and the visit to TNK�BP assets share their impressions withInsight TNK�BP

On September 12, 2004, a group of senior investment analystsand fund managers landed in Moscow to begin a three�dayvisit to TNK�BP. Most represented investors in BP who wereeager to understand more about the potential of the interna�tional major's Russian investment.

The analysts attended an evening reception at Moscow's HotelMetropole. The formal proceedings began the next morning,with a presentation and webcast by TNK�BP's senior manage�ment. President and CEO Bob Dudley provided an overviewof TNK�BP's progress to date and outlined the Company'sobjectives going forward.

Executive Vice Presidents Tony Considine and Igor Dibtsevdetailed plans for the Downstream and Upstream businesses,respectively. James Dupree, Executive Vice President ofTechnology, explained how the implementation of new tech�nology would affect the growth in output and efficiency of theCompany's core operations.

Viktor Vekselberg offered his views on TNK�BP's expandinggas portfolio, and CFO Kent Potter discussed the Company'sfinancial framework, the current tax regime and the proposedcorporate restructuring. Bob Dudley then concluded with adiscussion of the Slavneft acquisition and a summary of theCompany's potential opportunities.

The analysts were also offered the chance to corroborate whatthey had heard by seeing the asset base first hand and by talk�ing to individuals within TNK�BP. After the presentation inMoscow, the group flew to Nizhnevartovsk, West Siberia, tospend a day at TNK�BP's West Siberian branch and take a fieldtrip to the Samotlor field.

Having heard from TNK�BP executives about the enormouspotential upside of applying technology to TNK�BP's upstreambase, this was an opportunity for the analysts to form their ownopinions. Fred Lucas from Cazenove summed up the rationalefor the trip, noting that "the visit has provided a fuller descrip�tion of the opportunity, with real examples of field�specific ben�efits, raising the credibility of the upside potential."

Other analysts' comments ranged from general assessments ofthe overall upside potential to more specific understanding ofindividual assets. Gordon Gray from JP Morgan was impressedoverall by the fact that "…a 1% improvement in recovery at thelargest five fields would add almost 750 million barrels to its[TNK�BP's] total reserves…". Mark Ianotti from MerrillLynch noted that "…the ability to turn identified resourcesinto bookable reserves and production to the end of the decade

looks well underpinned by the identified infield and brown�field opportunities."

On the visit to Samotlor itself, Gordon Gray noted that "thedetails on Samotlor provided a high degree of comfort on theupside from mature fields," a point reiterated by Colin Smith ofCSFB, who remarked that "in the upstream, there were clearexamples of the brownfield opportunity from reworking oldfields such as the super giant Samotlor."

All the analysts noted with interest the company's 12% pro�duction target for 2004 and the 7% per annum goal out to2007. David Stedman from the Daiwa Institute of Researchnoted that operational risk of not meeting production targetsappears manageable, because "TNK�BP is applying standardand proven international technology."

Commerzbank's AndrewArcher agreed, saying "the probabilityis high that the growth commitments given will be deliveredand potentially exceeded." However, he and many other ana�lysts noted that pipeline capacity could be the major constrainton production growth, commenting that "the risk remains thatthe planned pipeline additions [from Transneft] could slipbehind and that, as a result, output growth for Russia andTNK�BP will be restricted."

Another concern, highlighted by David Stedman, was that"TNK�BP seems to have incomplete data on this very importantfield [Samotlor]," and that this could undermine future develop�ment plans. Nevertheless, analysts appeared generally impressedwith the good condition in which they found the Siberian assets."I expected it to be in much worse shape than this," said oneanonymously, while Stedman acknowledged that Samotlor is "afield being well managed from an environmental standpoint."

With regard to upstream operations, TNK�BP's message onthe Kovykta project and the recent Rospan acquisition werealso noted. Pascal Menges from Exane BNP Paribas comment�ed, "…the message on developing gas prospects received greateremphasis than in previous presentations."

3december 2004

Drilling on Samotlor

Mark Ianotti was positive with regard to the Company's gasprospects, saying that "high optionality in TNK�BP's portfolioalso comes from the Kovykta field," although others were morecautious on the timelines involved. Gordon Gray noted that"the project is unlikely to move off the drawing board untilGazprom … gains an important role."

Following the site visit to Samotlor, analysts flew back for atrip to the Ryazan refinery and a BP retail site. TonyConsidine's presentation had focused on the vital role that theDownstream Business plays in monetizing TNK�BP's crudeproduction, and as Thierry Baudin from SG Equity Researchcommented "… one of the group's strengths lies in TNK�BP'sintegration with the downstream oil business."

The Ryazan refinery visit centered on the modernizationproject, being carried out at the plant. Vice President ofRefining, Doug Harris, made a detailed presentation of theimprovements being made at Ryazan and across theCompany's refining operations, after which Andrew Archerwas interested to observe that "TNK�BP … will be able toproduce more diesel instead of (much) lower value heatingoil and to produce high spec gasoline for which there isgreater and increasing export demand."

Following the visit, analysts appeared similarly impressed bythe condition of the Ryazan plant, commenting that it looked"much better than I had expected," "I was pleasantly surprisedby the cleanliness and efficiency" and that "an awful lot ofwork had clearly been done on safety." David Stedman didnote that "TNK�BP refineries face the twin challenges of man�power optimisation and rising energy costs," but the overallconsensus on the refining business was expressed by GordonGray. He summarized his view, by noting, "TNK�BP's refinerynetwork is allowing it to take advantage of strong productdemand growth … and it gives TNK�BP [the ability] to opti�mise product flows in order to maximize netbacks."

A visit to a BP retail site on the outskirts of Moscow rein�forced the impression of TNK�BP as a company increasinglyadopting global standards. As one analyst commented, "the

BP site we visited … could have been a BP site on the outskirtsof London." Discussion of the margins generated by the on�site convenience stores as well as at the gasoline pump alsoimpressed the analysts, with Robert Kessler from Simmons &Company writing in a research note "The 42 Moscow area BPsites … earn an average rate of return of 20% on investment.No wonder TNK�BP wants to more than double the numberof BP�branded sites over the next five years." MeanwhileDavid Stedman stated that BP service stations in Russia areone of the "best performing retail networks" when comparedto BP's global system.

The visit achieved its goal of providing analysts and investorswith insights into the quality of TNK�BP's asset base and asense of the growth opportunities. As Fred Lucas fromCazenove put it "… one year on, the TNK�BP story is evolvingnicely – the base case is turning into reality, the upside caselooks more credible." From a BP perspective, the analysts alsoappreciated the position that the company now has in Russia."BP wanted to let investors get a feel for the breadth of theopportunity and the capability of the people at TNK�BP:These were more than confirmed by the field trip," CSFB'sColin Smith commented. Angus McPhail from ING noted that"TNK�BP's presentation highlighted the strong base that BPhas established in Russia."

The theme of the quality of TNK�BP's personnel was also pickedup by Andrew Archer, who offered the following compliment:"The analysts' trip … showcased the pride, the passion and theprofessionalism of the people in place within the joint venture."Many other analysts commented on the quality of both thedomestic and expatriate staff they had met during the visit.

Having said this, the analysts were in no way blind to the risksinherent in operating in Russia. Andrew Archer again com�mented that "high taxation and increasing state influencethrough Gazprom suggest that risks are rising." Gordon Grayadded that "… the key risks remain political as illustrated bythe Russian Government's recent comments threatening thelicense in the Kovykta gas field." The impact of taxation onprofits at higher oil prices was also noted.

4

Ryazan refinery

Nevertheless, the most lasting impression left by the visitseemed to be of the scope of the opportunity, and the substantialupside potential it offers. Mark Fletcher from Goldman Sachsconcluded that "the most interesting points … were a reiterationof the company's great growth potential and cost control, upliftin capex and more visibility on the potential of the company'sassets." He also noted the uniqueness of TNK�BP as a company,writing "while the industry globally is striving to find new proj�ects with a positive net asset value, TNK�BP management reit�erated that it has plenty of projects to develop with positiveNAV." Gordon Gray also noted, "the magnitude of the long termupside … looks considerable," while Angus McPhail confirmed inconclusion that the results of the trip would give investors "con�fidence that BP's investment in Russia will pay dividends."

The presentation to the financial community is available forviewing at TNK�BP's website.

TNK�BP Signs Three�Year Software Deal

In autumn 2004, TNK�BP concluded a three�year licenseagreement with authorized Microsoft reseller ZAO�I Teco forthe use of Microsoft software.

The agreement covers all TNK�BP Group activities and normal�izes Microsoft product usage across all of the Group's companies.TNK�BP's Vice President of Information Technology, RichardAmes said, "I'm very pleased we now have a unified up�to�datelicense agreement for our Microsoft usage. We have brought our�selves into full usage compliance and we are working towardstaking similar steps forward with our other key suppliers."

Upstream AssetsAcquired

In October 2004, TNK�BP announced the acquisition of fourcompanies that hold licenses for appraisal and production ofhydrocarbons in the Bolshekhetskaya depression located inthe Krasnoyarsk Region, the Yamalo�Nenets AutonomousDistrict and the Taimyr Autonomous District.

The assets had been acquired from Slavneft.

Tagulskoye and Suzunskoye fields are located to the north andto the south of the Vankor deposit and are rich in light crudeand gas. The Russko�Rechenskoye field lies to the southwest ofthe Vankor field and harbors mainly gas and condensate.

The fourth oil field, Payakhskoye, is remote from the maingroup of acquired assets. It is located near the port of Dudinka,which is open year�round.

The fields are estimated to hold significant A, B, C1 + C2 oiland gas resources, including 115 million metric tons of oil andcondensate (830 million barrels), and 117 billion cubic metersof gas (4,120 billion cubic feet).

TNK�BP plans to invest $6 million into exploration of theseblocks by the end of 2004. Total investment prior to the com�mencement of pilot production in 2007 is expected to reach$35 million. As stipulated by the terms of the license agree�ments, the Company will cover about 1,200 line kilometers by2D seismic and 1,100 square kilometers by 3D seismic, and willdrill nine exploration and appraisal wells.

TNK�BP plans to implement large�scale development of theBolshekhetskaya depression in cooperation with Rosneft andLUKOIL, which also have upstream assets in the area.Commercial development in the Bolshekhetskaya depressionshould begin in 2008, with gross peak production reaching 13million metric tons per year or 250,000 barrels per day.

Tony Considine: "Eachyear the Upstreambusiness presents uswith a greater challenge."

Interview with Tony Considine, ExecutiveVice President, Downstream

Q: How would you describe the role of TNK�BP's down�stream business?

TC: The unique nature of the Russian market gives the down�stream business a particularly important role in TNK�BP.Today Russia is the only country that is both a large crudeexporter with significant domestic capacity constraints and arelatively illiquid domestic crude and products market. Thismeans that TNK�BP needs to be managed as an integratedvalue chain in order to fully capture the available margin. Thevalue of integration is very significant.

The role of the downstream business is to optimize the marginsby managing the value chain from the wellhead all the way toour domestic and international customers. We are responsiblefor developing the crude export business, for the refining of ourremaining crude output, and for the sale and distribution ofproducts. The latter are distributed through the domesticretail network, as well as exported to customers outside Russia.Our overarching objective is to monetize the Company's crudeoil production in the most optimal way by balancing sales onthe various markets we serve and achieving the highest possi�ble average netback price.

Q: What is of the scale of the Company's downstream business?

TC: In the first half of 2004, TNK�BP produced 1.38 million bar�rels per day, and our responsibility is to monetize this production.Our Supply, Trading and Logistics organization sold around900,000 barrels per day as crude on the international and domes�tic market. We refined a further 530,000 barrels per day, of which60,000 barrels per day were purchased from the domestic market.Of the products refined, 220,000 barrels per day were then export�ed, while the rest was sold domestically in Russia and Ukraine.

5december 2004

TNK�BP is the third largest of the Russian majors in terms ofrefining capacity and retail assets. In Ukraine we are the num�ber one retailer and the second�largest refiner.

Q: Is it correct to assume then that export of crude oil isalways the most profitable option, and if so, what is beingdone to maximize export opportunities?

TC: Russia produces around 9.4 million barrels per day ofcrude oil, but only consumes around 2.5 million barrels per dayof oil products. Therefore exports are obviously an essentialpart of every Russian oil company's sales. In common with therest of the industry, TNK�BP is allocated its share of capacityin the Transneft system, equating to around 35% of our totalproduction, and we always aim to fill this quota.

The opportunity to expand our crude export sales will comethrough two different routes. First, Transneft itself is notstanding still. It has added a total of one million barrels per dayof extra capacity since 2001, and is still engaged in increasingthe size of the Baltic Pipeline System to its ultimate capacityof 1.2 million barrels per day in 2006. However, at this time,Transneft has no other major capacity expansion programs thathave gone beyond the feasibility stage. So we are taking proac�tive steps to maximize our export capacity using existing infra�structure. We have been involved, with other companies, in thereversal of the Odessa�Brody pipeline, which should add150,000 barrels per day of capacity to the export system. Inaddition, we are looking at participating in expanding capaci�ty at various port facilities and the potential for adding capac�ity to our rail�loading facilities.

Q: If maximizing exports is a priority, how does theCompany balance the needs of the refining and domesticmarketing businesses?

TC: TNK�BP has spent considerable time and effort develop�ing a detailed model to identify what the Company's short andlong�term sales priorities and strategy should be. This opti�mization model provides us with a fully integrated view of thedownstream business and its associated value chain, and isconstantly updated with current logistical, operational, costand pricing data. This allows us to constantly monitor the net�backs available from 500 different monetization routes. And, it

is thanks to this model that we understand the changing net�back picture in terms of various parameters, for example byseason. As a result the prioritization by channel, crude oilexports by rail or barge, domestic crude sales, domestic prod�uct sales and export product sales can be shifted according tomarket conditions.

Q: How flexible is thedownstream business inadjusting its flow of salesaccording to the optimalnetback situation?

TC: At the margin, we canbe very flexible on a month�ly basis thanks to the flexiblestructure of our contractsand infrastructure invest�ments that have been made,for example, in rail loadingfacilities both at our produc�tion sites and at our refiner�ies. As a result, we have beenable to export around 55% ofour crude output in 2004,well above the pipelinequota. We also use optimiza�tion models to help us thinkabout the longer term and tomake portfolio decisionsabout the overall direction

of our business. In this

6

Tony Considine began his profes�sional career in Australia, where heheld a number of commercial andoperational posts in the miningand oil industries. Beginning in1986, he completed a series ofinternational leadership assign�ments in refining and marketing inAustralia, South Africa and Europe.

Prior to joining TNK�BP, Mr. Considinewas chief executive officer ofInternational Marine, a global salesand marketing subsidiary of BP thatsells products and services to theshipping industry. InternationalMarine operates in 45 countries andhas an annual turnover of $3 billion.

Mr. Considine's experienceincludes developing integratedcommercial opportunities invarious countries. During hiscareer, he has been involved instrategic development and hasplayed a leading role in varioustransformation processes. Hehas negotiated and implement�ed major joint venture projectsand transactions involvingmergers and acquisitions,including BP's acquisition ofBurmah Castrol in 2000, forwhich he served as integrationdirector. Immediately prior toundertaking his current assign�ment, Mr. Considine also ledthe integration planning forTNK�BP's downstream portfolioduring the company's estab�lishment.

Mr. Considine holds an engineer�ing degree from the University ofLondon with a specialization inrefining natural fuels. He alsocompleted an international man�agement�training course atINSEAD University.

Tony ConsidineExecutive Vice President,Downstream

Downstream Optimization Model

regard, we aim to make fundamental decisions about invest�ment in our refining and marketing businesses that will posi�tion TNK�BP to exploit anticipated developments in thedomestic marketplace and optimize its exposure there.

Q: So how do you see the domestic market developing?

TC: First of all, let me emphasize that TNK�BP's domesticmarket is not only Russia but Ukraine as well. The size of thesetwo markets (145 million and 48 million people respectively)and their forecast fuel demand growth (3.5% and 5% respec�tively) make them very attractive in a European context. Ouranalysis suggests that TNK�BP can create significant valueworking in these two markets, and benefit from the majorgrowth potential in the retail sectors of both countries.

In particular, two features of both markets stand out. Firstly,demand is mainly concentrated in major metropolitan areas,dominated by Moscow, St. Petersburg, Kiev and Ekaterinburg.Secondly, as the car fleet moves away from older Soviet�eramodels towards newer domestic and foreign models, demandfor higher�quality, higher�octane fuel is set to increase.

Q: And how is the downstream business responding to theseprospects?

TC: I have mentioned that we see increased netbacks from thesale of higher quality oil products and that, as a result, we areinvesting in our refining business to deliver these. TNK�BPowns five refineries, four in Russia and one in Ukraine. Ofthese Ryazan, Saratov and Orsk in Russia, and Lisichansk inUkraine are the main plants, with the two smaller topping

plants close to production assets in West Siberia. In addition,we also have a 50% interest in the Yaroslavl refinery thanks toour interest in Slavneft.

Our major refineries have been or are being upgraded in linewith our strategic view of the refining business in Russia andUkraine. We believe that, over time, more highly upgradedrefineries will increasingly dominate the market place, whileplants with less upgrading potential will gradually be squeezedout. Our key refineries will be positioned to produce morehigh�quality gasoline and potentially desulphurized diesel,while reducing their output of fuel oil, where supply is alreadysignificantly in excess of demand. Lisichansk, for instance, isalready the most sophisticated refinery in Ukraine. The recent�ly completed visbreaker at Saratov has improved the lightproduct yield there. A major project to upgrade Ryazan is wellunder way and, upon completion, will make Ryazan one of themost complex refineries in Russia (for details on this project,see article on TNK�BP refining on page 9).

The Yaroslavl refinery, which we do not operate, but in which weare a shareholder, is also undergoing a major upgrade. Thismeans that TNK�BP will soon have an interest in two of the bestrefineries in Russia, both located near big metropolitan markets.

Q: How does TNK�BP's marketing strategy aim to make bestuse of the improving output from the Company's refineries?

TC: The location of our main refineries close to the coremarkets of Moscow, St. Petersburg and Kiev is already amajor advantage. However, we have also been developing amarketing strategy aimed at exploiting the strength of the

TNK�BP Refineries

7december 2004

Company's two main brands, namely TNK and BP. TheTNK brand already has a major position in the regions anda number of large metropolitan areas, while the BP brandhas been focused just on the Moscow market. We haveidentified a number of areas for expansion of both, and wehave significant plans for extending our network of servicestations and distribution depots, as well as for enhancingthe branding of our retail outlets. Importantly, we will alsobe aiming to increase our convenience retailing business(sales from service station shops), as we see the potentialfor 10% to 15% annual growth from this market segmentover the next few years.

Q: With all of this business expansion, isn't there a riskthat efficiency could be undermined or that costs couldincrease sharply?

TC: A very good question. We certainly need to maintain ourfocus on efficiency, and we are doing this by ensuring that weunderstand the value generated by each refinery and each mar�keting business. We can then set performance management tar�gets concentrated on key drivers that can be benchmarkedagainst other domestic and foreign assets. This way, we can tar�get operational improvements that will enable us to generatethe maximum value from each asset, even as we upgrade andgrow the business overall.

An important part of this benchmarking process has beenTNK�BP's recent participation in the annual Solomon study,which ranks refineries in Europe, Africa and the Middle Eastrelative to each other. We were the first Russian company totake part in the survey, and the results have already allowed usto target efficiency improvements that will enhance our long�term competitive position.

Q: What are the plans for the marketing business?

TC: TNK�BP's retail network currently consists of over 2,100branded service stations in Russia and Ukraine, which sellmore than 8 billion liters of fuel every year. Six hundred ofthese are operated by our marketing subsidiaries, while theremaining sites are operated by TNK's jobbers, which own thestations independently. There may be some growth in theoverall size of the network, but we expect the major changes tocome from the stations' increased efficiency and effectiveness.In order to ensure consistent quality across its network, theCompany, over time, may seek to increase the share of outletsthat it directly owns.

More importantly, though, we will be measuring the marketeffectiveness ratio in each region. This looks at the volumeswe sell in a particular region as a share of total sales divid�ed by the number of sites we own there as a share of thetotal number of sites. We will clearly be aiming to increase

our share of the volumes in each area faster than our shareof the sites by upgrading our network to improve efficiencyand throughput per site.

Q: HSE is a major focus for the company as a whole. Howare you addressing this issue in the downstream business?

TC: Like other business streams of TNK�BP, we are givingHSE high priority from the most senior levels of the organ�ization. Since the inception of the Company, 400 seniormanagers have taken part in an HSE leadership awarenessprogram. We have focused on identifying the highest�riskareas across the business and have already started to applyglobal standards with targets set for mitigating the majorrisks. We are also encouraging greater transparency inreporting incidents in order to identify problem areas aswell as to develop solutions in order of priority. We havestarted implementing systematic root cause analysis proce�dures for all incidents and near�misses. This will enable usto get a fundamental understanding of HSE risks ratherthan just reacting to individual events.

Q: What are some examples of these procedures in action?

TC: One of the biggest risks we face is that of an oil spill onwater as we transport our crude oil or products to market. Inorder to minimize this risk, we have adopted a set of minimumstandards that we apply to any vessels we charter. We nowhave an agreement with BP Shipping that it will vet any ves�sel sailing on international seas, and we will not use any vesselthat does not pass this screening.

As far as inland waters are concerned, we have developed aninterim shipping fleet standard, again using advice from BPShipping, as no domestic vessels can yet meet the highestinternational standards. All 34 vessels hired for this seasonhave achieved this standard, and the plan is that each year wewill raise the bar of the minimum requirements until, overtime, they ultimately reach global levels.

We have conducted workshops with all the major vessel own�ers to explain our objectives and to help them plan theirimprovement programs. And we are also planning a seminar forthe terminal operators to address key issues such as increasingstandards in the ship�to�shore interface. Many of the problemsthat we have identified have less to do with equipment, andmore to do with management procedures. We have also beendeveloping emergency�response and crisis management plansto cope with any significant incidents. It is very gratifying tosee these practices being adopted not only by our own employ�ees but also by our contractors, who have now started to usethe HSE standards introduced by TNK�BP even when theyare not working for us.

8

BP retail site

TNK retail site

Q: Finally, what, in your opinion, is the outlook for TNK�BP's downstream business?

TC: Every year the upstream business presents us with a big�ger challenge as it continues to deliver production growth.Going forward, our job will be to continue finding optimalways to monetize this production and to maximize the net�backs earned by the Company. It is as challenging a task asever, but we have the right people, the right assets and theright strategy to complete this task. Our optimization modelgives us flexibility in a very dynamic market. Our refiningassets will provide us with an increasingly high�quality prod�uct to sell into the expanding and upgrading Russian andUkrainian markets, as well as for export to Europe. And ourmarketing business is increasingly focused on maximizing theretail margin in the core metropolitan markets, utilizing thevery strong brands within our portfolio.

I believe that TNK�BP is well on track to achieving itsstrategic goal of becoming a world�class Russian company,with Downstream making a major contribution to thisresult. As we move toward that goal, I am also determined toensure that its achievement does not undermine the healthand safety of our employees, our environment and the com�munities where we operate. And we will continue to demon�strate our commitment in this area. Overall, I personally amvery pleased with the quality of the people and the team,which we have built here in TNK�BP's Downstream. Wehave demonstrated that together we can meet the challengesand deliver the results the Company seeks.

TNK�BP RefiningOverview

The TNK�BP refining portfolio consists of five refineries inRussia, which include two topping plants in West Siberia, andone major refinery in Ukraine. Today the Company is thethird�largest refiner in Russia, and accounts for about 14% ofRussia's current gasoline and diesel output.

TNK�BP's two main refining assets in Russia are the Ryazanrefinery and the Yaroslavl refinery, in which TNK�BP is ashareholder through its 50% stake in Slavneft. Both refiner�ies are important because they are located in direct proximi�ty to the large and dynamic Moscow market. Both are wellpositioned to supply Moscow and to serve as transshipmentpoints for exports. Modernization programs currently inprogress at both refineries will move them to the top quartileamong Russian plants.

The Saratov refinery is located on the Volga River. This plantprovides access to southern Russia markets, as well as trans�shipment opportunities to export crude and products by bothrail and river. This plant recently received a new visbreaker unitunder a program begun by the heritage company SIDANCO.

The Orsk refinery is a relatively small (130,000 barrels perday) plant close to the Kazakhstan border, which is importantto TNK�BP's retail position in that area. In addition, the twotopping units mentioned above (Krasnoleninsk andNizhnevartovsk) take advantage of the quality of crude pro�duced in West Siberia to supply products to the local market.

Lisichansk is TNK�BP's most important asset in Ukraine. It isUkraine's most modern refinery, and is well positioned to meetlocal market demand. Lisichansk is a cracking plant, equippedwith a large FCC unit with a gasoline yield of 28.6% – sub�stantially higher than the Russian average of 16%.

Facing the industry's challenges "As a major refiner, we need to address a number of challengesthat face the industry as a whole," says Doug Harris, TNK�BP's Vice President of Refining. "These include a general over�capacity of crude distillation, a lack of upgrading units, and astructural surplus of fuel oil and diesel in a marketplace wherethe major trend is the growth in demand for high�octane gaso�line. We expect the market to continue to demand an increas�ing amount of higher�quality products over the coming years.The graph on page 10 clearly demonstrates our estimate forgrowing gasoline demand combined with an increasing fuel oilsurplus. This illustrates the commercial importance of ensuringthat our refineries are sufficiently upgraded to meet thischanging demand pattern."

TNK�BP's three largest refineries – Ryazan, Yaroslavl andLisichansk – are well positioned for the markets they serve,and are ahead of most of the Russian refineries in terms ofupgrade capability and technology. Modernization programscurrently in progress will bring these three into the top quar�tile of the Russian industry in terms of their technology, loca�tion, logistics and product quality.

The Ryazan refinery has been the focal point of a large�scalemodernization program since 1998. Begun under heritagecompany TNK, the modernization program is set for comple�tion in 2005. The Yaroslavl refinery, currently operated bySlavneft, is also benefiting from a major modernization pro�gram (see insets on Ryazan and Yaroslavl).

Investment is being made into upgrading the Lisichansk refin�ery, which plays a vital role in supporting TNK�BP's majorretail presence in Ukraine. With its fluid catalytic cracker unit(FCC), this refinery is the most modern plant in Ukraine. Anew bitumen unit was commissioned in 2004, and a new iso�merization unit is to be commissioned in 2005. As TNK�BPevaluates plans to optimize asset utilization at Lisichansk, low�cost de�bottlenecking investments are already yielding impres�sive results that will generate further value from sales both tothe domestic and European export markets.

9december 2004

As in other countries, Russia'srefineries exist to monetize crudeproduced by upstream compa�nies. However, in Russia they arealso used to transship crude oilfor export. This situation reflectsthe specifics of Russia's pipelineregulations, which use quotas torestrict pipeline throughput toexport destinations, but do notrestrict domestic pipelinethroughput. Crude oil from pro�duction regions can be deliveredby pipeline to refineries, and sub�sequently reloaded and trans�ported by rail to export markets.Such exports have proved to beeconomically feasible.

The industry as a whole is charac�terized by an overcapacity ofcrude distillation, and lack ofupgrading units. This leads to astructural surplus of fuel oil anddiesel. Diesel produced byRussian refineries may find anattractive market in Europe, butits quality must improve first – forexample, sulfur content mustdecrease, and the fuel must meetthe EU's clean fuels requirementsto access these markets. AnyRussian refiner must also careful�ly consider the logistics of dieselexports to Europe before makingthe decision to invest intoupgrading diesel production.

Russian refining overview

Investment outlook In line with TNK�BP's strategy, other TNK�BP refineries willcontinue to focus on maximizing profits from their respectivelocal market. Local refinery supplies are key to maintainingpresence on the regional retail markets of Russia and Ukraine.Supplying the local markets will be the key role for refineriessuch as Orsk and Saratov. The latter will continue to supplylocal markets while also serving as an important crude trans�shipment point on the Volga River.

"Over a one� to three�year horizon, we foresee no need formajor capital investment in our refining assets, other than

completion of the VGO as part of the Ryazan modernizationprogram, which is currently in progress," says Doug Harris."There will be significant opportunities for optimization andde�bottlenecking, which typically are not capital�intensive.Minor investments will be required for sustaining the businessand for minor commercial development."

Over the longer term (more than three years), spending onupgrading capacity to produce clean fuels will be tied tothe RF government's policy on fuel specifications –depending upon how fast the government moves to intro�duce new fuel standards. Potential investments may be tiedto projects to begin or expand specific product exports, orby the need to capture specific market opportunities thatmay arise in the future.

Solomon benchmarking study In 2004, TNK�BP participated for the first time in theSolomon Associates refinery study. The goal was to benchmarkthe current state of the Company's refineries against otherRussian refineries, as well as comparable plants in Europe,Africa and the Middle East.

The study was done on the basis of 2002 operating data. Thegraph shows how TNK�BP's refineries fall into the Solomonquartiles on key performance measurements. "We have donevery well on some measurements, such as the maintenanceindex and the cash operating cost index," says Harris. "Alsoevident are opportunities for improvement, which will eventu�ally translate into more profitable operations."

For example, the Company scored in the bottom quartile interms of energy usage, mechanical availability, personnelnumbers and utilization. Current low costs relative to aWestern environment means that these poor scores have notyet affected the Company's position in the overall cost cat�egory. But they also indicate the areas in which theCompany needs to focus in order to maintain a competitivecost advantage as the Russian economy matures and costsconverge towards world levels.

"The key task is therefore to bring up our refineries from the bottomquartiles before the cost structure changes," says Harris. "Forinstance, energy is the single biggest cost, accounting for 25�35% of

10

Solomon Quartiles

Refined Product Trends in Russia

total refiningcosts. Energy isinexpensive intoday's Russia,and the Companycurrently paysonly about half ofwhat a Germanrefinery wouldhave to pay.However, asRussia de�bottle�necks its exportinfrastructure,energy costs willrise. So energysavings programsare going to be ahigh priority forour refineriesgoing forward."

Utilization andavailability are

key drivers for the profitability of any refinery. Russian refiner�ies, are affected by regulations that require turnarounds on anannual and bi�annual basis. So improving performance in thisarea will be a regulatory as well as an operational issue. TheCompany embarked on a review designed to identify the rootcauses of reliability problems, and to develop new performancemetrics aimed at improving maintenance and repair schedulesand timescales.

As indicated by the personnel index (i.e., number of employ�ees), labor is another major cost item. It accounts for 12�15%of total costs. While labor costs have been low to date, overthe past few years, they have demonstrated a significantupward trend of 10�14% annual growth. As a consequence,labor productivity is another area of focus.

The purpose of participating in the study has been to under�stand where the Company ranks on key measures and to plantargeted improvements, rather than to aim for the first quar�tile in all categories, Harris emphasizes. "An example of thisis the fourth quartile on the personnel index, which indicatesthat TNK-BP employs more people at each plant than ourpeers," he says. "This could be interpreted as an indication ofinefficiency, but may also be due to structural factors withinthe regional economies where we operate. For instance, in arelatively remote region where the Orsk refinery is located,we need to employ larger numbers of staff for maintenancework. It would be very difficult to outsource such work tocontractors as there are none available locally."

"We will be using the Solomon study to identify where theTNK�BP operations are out of line with our peers and willaddress solutions as appropriate to each situation. We haveidentified and begun working on four areas, aiming to bringour refineries up to international peer group standards: ener�gy savings, personnel optimization, utilization of profitableunits and margin focus. At this point, we are the only Russiancompany to have committed to undergo such benchmarkingstudies on a regular basis, although others may follow."

Enhancing HSE in refining Improvements in HSE performance are targeted across allTNK�BP refineries. In 2004, the Company introduced a newincident reporting system, designed to help identify the root

causes of safety problems quickly and to share the lessonslearned. A new corporate safety performance standard hasbeen implemented, focusing on risk assessment and mitiga�tion as well as personal protective equipment." The proce�dures inherited from our heritage companies are very sound,and regulate processes such as operating units, managingemergencies and documenting handoffs very well.Emergency preparedness is also very strong. This is a solidbasis on which we began building our new HSE policies,"says Harris. "Our contractors will also be included in all ourHSE programs, as we strive to build an HSE network ofhigh�performance professionals."

Looking to the future The challenges of managing Russia's refineries are not newto Harris, who worked with ARCO and BP prior to joiningTNK�BP in 2003. "The issues which we face in Russia are noworse than those that the industry has had to address in therest of the world," he observes. "In many ways, they are sim�ilar to situations I dealt with working in the United Statesabout twenty years ago. I can certainly say that TNK�BPdoes not have any major environmental problems within itsrefining portfolio, and the issues of tank leaks, flaring andvapor recovery are typical for any global refinery. However,even though we are already meeting all Russian regulatorystandards we will not be resting on our laurels, and will grad�ually be increasing the minimum requirements across ourbusiness towards global norms."

11december 2004

The Ryazan refinery, TNK�BP'smost important Russian refineryasset, was commissioned in1960. In 1968, it reached itsnameplate capacity of 18 milliontons per year.

In 1995, the refinery became partof Tyumen Oil Co. (TNK), and thenew owner began a major mod�ernization program. Under theprogram, in 2002, the refineryreceived a new FCC unit, which,with annual capacity of 2.5 mil�lion tons, remains Russia'slargest. Also prior to the 2003merger, TNK installed a new load�ing facility, which enhanced therefinery's capacity to export crudefrom the refinery by rail.

At this stage, the refinery is focus�ing on completing the VGO (vacu�um gas oil) hydrotreatment unit,to be commissioned in 2005. Theunit is an important upgrade thatwill position Ryazan in the topquartile of Russian refineries andwill make it competitive againstsimilar plants on the global basis.The new VGO hydrotreater feedsinto the FCC. Launching the VGOwill improve Ryazan's conversion

ratio. Quality of gasoline willimprove significantly, with sulfurcontent reduced from 400�500parts per million (ppm) to 30�150ppm. Sulfur content in diesel fuelwill be reduced from 350�2000ppm to 50�350 ppm. Such areduction of sulfur content carrieswith it a substantial environmen�tal benefit.

Other elements of the moderniza�tion program include the alkyla�tion plant, C4 isomerization, H2and H2SO4 plants.

The total cost of the moderniza�tion program is about $580 mil�lion. Total investment from thedate of the TNK�BP merger tocompletion of the program is like�ly to reach $220 million. "Theeconomics of these investmentsare quite attractive," says TNK�BPVice President Doug Harris, whoheads the company's refiningoperation. "Even while the pro�gram is not complete, we arealready netting substantial finan�cial benefit from the technologyupgrades – in the neighborhoodof $6 million per month."

Upgrading the Ryazan Refinery

Ryazan refinery

Russian Oil and GasIndustry News

Russian Production and Export DataOil and gas condensate production in Russia for the period ofJanuary to November 2004 increased 9.2% as compared withthe same period of 2003 and totaled 419.365 million tons, or9.11 million barrels per day.

Gas production for January�November 2004 reached 575.05billion cubic meters (60.6 billion cu feet per day), which is a2.1% increase over the same period of 2003.

Exports of Russian oil to non�FSU countries in January�November 2004 were 166.33 million tons (3.6 million barrelsper day), an 18.3% increase over the same period of last year.

Transneft Hikes Oil Transportation Tariff The Federal Tariff Service (FTS) approved raising tariffsfor transporting oil through Transneft's trunk oil pipelinesby an average of 11.2%. The new tariffs will become effec�tive January 1, 2005.

This is the second increase in transportation tariffs in recentmonths. On September 1, 2004, the cost of transporting oilthrough Transneft's trunk pipeline system increased by anaverage of 5%.

Oil Export Duty to IncreaseThe Interdepartmental Commission on Protective Measuresin Foreign Trade, which functions under the RF Ministry of

Economic Development and Trade, approved an increase inthe oil export duty. Effective December 1, 2004 the dutyincreased to $101.0 per ton.

The previous tax increase took place on October 1, when itwent up from $69.9 to $87.9 per ton.

Government Approves Subsoil Blocks to beAuctioned in 2004 and 2005In October 2004, the RF Ministry of Natural Resources andRF Ministry of Economic Development and Trade approvedthe list of subsoil blocks to be auctioned in 2004 and 2005.According to Minister of Natural Resources Yuri Trutnev, thelist includes 181 blocks, of which 39 are to be auctioned in2004, and 142 in 2005.

According to the Minister, the blocks contain total recoverablereserves of 388 million tons (2.8 billion barrels). The list ofblocks includes Sakhalin�3, Magadan�1 and Magadan�2.Auctions for these major blocks will be held within threemonths after the new Subsoil Law is adopted.

Transneft Plans to Expand Capacity in 2005Transneft President Semyon Vainshtok said that in 2005 thestate pipeline operator plans to increase the system's totalthroughput capacity by 16%. If implemented, this increase willbe double the average oil production growth rate achieved bythe industry over the course of the last three years.

In 2005, the trunk oil pipeline system will have the capacity topump 476 million tons of oil. Exports are expected to reach260 million tons for the same period.

Transneft also scaled down the plan to increase capacity ofthe Baltic Pipeline System, which terminates in Primorsk onRussia's Baltic Coast. BPS capacity will increase to 60 mil�lion tons per year rather than to 62 million tons as had beenpreviously planned. Transneft said this would generate sav�ings of $900 million.

Rosneft Acquires Control of YuganskneftegazRosneft acquired Baikal Finance Group, the winner of the ten�der for the 76.79% stake in Yuganskneftegaz, held onDecember 19, 2004.

According to Rosneft officials, the acquisition ofYuganskneftegaz is in line with the company's strategy togrow into "a balanced national energy company."

12

Russian Oil and Gas Production and Exports, 11 months 2004

Communications and Public AffairsAlexander Mikhailiants

Phone: +7 (095) 363 2757Fax: +7 (095) 787 8837

E-mail: agmikhailiants@tnk-bp.ru

Investor RelationsRuslan Nickolov

Phone: +7 (095) 787 9630Fax: +7 (095) 787 8837

E-mail: rznickolov@tnk-bp.ru

Investor Relations (Fixed Income)Dmitry Logvinenko

Phone: +7 (095) 745 7854Fax: +7 (095) 787 9675

E-mail: ddlogvinenko@tnk-bp.ru

Insight TNK-BP is published by the Communications and Public Affairs DivisionArbat Street, 1, Moscow, Russia 119019

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