lukoil - caspian corridor conference 2014

LUKOIL: Financial Results 2013

Vice-President Andrey Gaidamaka London, March 2014

[3/3/2014 5:17 PM]

2

Forward-Looking Statements

• Certain statements in this presentation are not historical facts and are “forward-looking”. Examples of such forward-looking statements include, but are not limited to:

– projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios;

– statements of our plans, objectives or goals, including those related to products or services;

– statements of future economic performance; and

– statements of assumptions underlying such statements.

• Words such as “believes,” “anticipates,” “expects,” “estimates”, “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

• By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. You should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, including our ability to execute our restructuring and cost reduction program.

• When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which we operate. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario.

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3

Full Energy Cycle

Vertical Integration

LUKOIL – Going Global

39 countries

LUKOIL in the world companies ratings:

Oil, public (Fortune Global-500) №8 Energy (Platt’s) №11 All companies in the world (The Forbes 2000) №64

LUKOIL’s oil, % of the world:

Production 2% Refining 2%

Proved reserves 1%

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4

Oil production growth +1.3% Finishing 1st stage of Filanovsky field infrastructure construction Final stage of West Qurna-2 field infrastructure 9 fields and 49 strata discovered – best result for the last 5 years

Refineries modernization Coking unit in Perm (2.1 mln t/year) VGO hydrocracking in Volgograd (3.5 mln t/year) Catalytic cracking in Nizhny Novgorod (2.0 mln t/year)

Expansion to Asia Pacific market Oil export via ESPO pipeline started. It allows to sell LUKOIL’s light oil as ESPO brand oil – with higher quality mark-up than for Urals oil

High Ratings Fitch upgraded LUKOIL rating from «ВВВ-» to «BBB» with stable outlook

2013 Main Events

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5

2013 Financial Highlights

Excluding one-off non-cash effects

Including one-off non-cash effects

• Net income, $ mln 10,281 7,832

• Earning per share, $ 13.6 10.4

• EBITDA, $ mln 19,255 16,668

• Free cash flow, $ mln 643 643

• Debt / Capital 12% 12%

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6

40

50

38 42

50

52

59 75

90

0

30

60

90

120

2006 2007 2008 2009 2010 2011 2012 2013

Dividend per share, rub.

Interim dividends Level that corresponds to 15% CAGR

Increasing Dividend Growth Rate

In October we paid the second interim dividends – 50 RUB per share

LUKOIL is to increase dividend payout ratio to 30% in the mid-term

CAGR 15%E

+27%

+20%

+25%

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7

LUKOIL Presents High Financial Efficiency

8

16

21

24

30

0 5 10 15 20 25 30

CompanyRussia 3

Company

Russia 1

CompanyRussia 2

LUKOIL

Company

Brazil 1

2013 EBITDA per boe of production, $*

* Calculated excluding one-off non-cash effect

6

7

12

12

13

4 6 8 10 12 14 16

Company

Russia 3

Company

Russia 1

Company

Brazil 1

Company

Russia 2

ЛУКОЙЛ

2013 net income per boe of production, $ *

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8

Financial Results

2013 2012 Δ, %

$ million

Excluding one-off non-cash effects

2013

Including one-off non-cash effects

2013

141,452 139,171 2 Sales 141,452 141,452

(10,086) (9,359) 8 OPEX (10,086) (10,086)

(36,137) (36,502) (1) Taxes other than income tax (including excise and export tariffs)

(36,137) (36,137)

10,247 14,070 (27) Income from operating activities 13,025 10,247

10,458 13,723 (24) Income before income tax 13,236 10,458

7,832 11,004 (29) Net income 10,281 7,832

10.38 14.47 (28) Basic EPS, $ 13.63 10.38

16,668 18,915 (12) EBITDA 19,255 16,668

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9

Adopted in 2012-2013 Taxation Amendments Developed by the Government in Collaboration with LUKOIL

Hard-to-recover oil reserves

• Reduced mineral extraction tax (MET) for low permeability reservoirs (Bazhen, Khadum, Abalak, Domanik, Tyumen formations)

• Possibility to establish a special crude export duty (CED) for Tyumen formation was included in the legislation

• Reduced export duty for high viscosity oil for 10 years

New fields

• Reduced oil export duties formulae for Caspian, Nenets, North Yamal-Nenets, East Siberian and shelf regions

• A fiscal system designed for offshore projects of the 2nd category of complexity for the new Caspian projects

Mineral extraction tax breaks

• North Yamal-Nenets region: zero rate for 10 years or until 25 mln t of cumulative production

Excise taxes

• Euro-3 – Euro-5 gasoline differential above RUB 4,000 extending to 2014-2015

Mineral extraction tax for gas

• Taking into account export opportunities and field complexity

Source: Russian legislation

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10

Hard-to-recover Reserves

New law may cover up to 327 deposits with recoverable ABC1+C2 reserves about 2 bln bbl

About 65% of all LUKOIL hard-to-recover reserves are within 13 projects: LUKOIL-Western Siberia: West-Kotukhtinskoe, Kechimovskoe, Kogalymskoe, Kochevskoe, Krasnoleninskoe, Pyakyakhinskoe, North-Kochevskoe RITEK: Aprelskoe, im. Vinogradova, Galyanovskoe, Sredne-Likhminskoe, Sredne-Nazymskoe Komi: im. Yu. Rossikhina

LUKOIL hard-to-recover reserves

Komi (3%)

LUKOIL- Western Siberia (60%)

RITEK (37%)

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11

Current changes in Russian legislation allow LUKOIL to effectively increase hydrocarbon production

Northern Caspian fields

Initial recoverable reserves:

>4.5 bln boe

Nenets region fileds

Recoverable reserves:

>400 mln boe

Hard-to-recover reserves


>800 mln boe Mineral extraction

tax on gas

Recoverable reserves: >3 bln boe

Northern Yamal-Nenets region fields


>250 mln boe

High viscosity oil

Recoverable reserves: >116 mln boe

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12

Tax Benefits Increase Unconventional Oil Reserves Attractiveness

31 51

56 56

83 94

105

0

20

40

60

80

100

120

Standard taxation Low permeabilityreservoirs

(Vinogradov)

Low permeabilityreservoirs (Bazhen,

Abalak, Khadum,Domanik)

High viscosity oil(Usinskoe)

Shelf (Korchagin) Shelf (Filanovsky) High viscosity oil(Yaregskoe)

Taxation and netback under $110/bbl oil price, $/bbl

Netback Crude export duty (CED) Mineral extraction tax (MET)

Netback is calculated as oil price less mineral extraction tax and export duty per barrel

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13

Tax Initiatives Development in Progress

Tax holiday extension for MET in Nenets region

Export duty rates for petroleum products:

• Lower gasoline export duties to the level of other petroleum products (66%)

•Differentiation between export duties for fuel oil and other “heavy finished” oil products (coke, bitumen, etc.)

•Shifting introduction of fuel oil protecting tariff from 2015 to 2017-2018

Practical approval of the financial result tax (FRT)

Pilot projects on LUKOIL fields

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14

Capital expenditures

4Q

2013

3Q 2013

Δ, % $ million 2013 2012 Δ, %

3,565 2,788 28 Exploration and production 11,808 8,973 32

2,459 1,947 26 Russia 8,325 7,085 18

1,106 841 32 International 3,483 1,888 84

830 766 8 Refining and marketing 2,715 2,007 35

455 487 (7) Russia 1,736 1,439 21

375 279 34 International 979 568 72

59 19 211 Chemicals 113 90 26

53 18 194 Russia 105 62 69

6 1 500 International 8 28 (71)

84 86 (2) Power generation 285 503 (43)

168 96 75 Other 513 277 85

4,706 3,755 25 Total (cash and non-cash) 15,434 11,850 30

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15

2013 Results

2,166 2,170

2,202

2,16

2,17

2,18

2,19

2,20

2,21

2011 2012 2013

LUKOIL hydrocarbon production, mln boe per day

+1.5%

0

10

20

2011 2012 2013 2014П

Iraq Uzbekistan North Caspian Other upstream Downstream

LUKOIL invests in new

sources of growth

+23%

+29%

LUKOIL capex, $ bln

15% 24%

29% 32%

1,5%

-5%

-3%

-1%

1%

LUKOIL Total Chevron ExxonMobil

ConocoPhillips

Shell Eni

Hydrocarbon production growth rate 2013/2012, %

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16

Upstream Projects

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17

0

25

50

2014E-2016E

E&P capital expenditures, $ bln

International

projects

Western Siberia

European Russia

E&P Capital Expenditures and Production in 2014-2016

Hydrocarbon production structure 2014E-2016E

15%

43% 42%

International

projects

Western Siberia

European Russia

35%

30%

25%

10%

Iraq

Kazakhstan

Uzbekistan

Other

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18

Production Growth

0

600

1 200

2013 2016E

Iraq Uzbekistan North Caspian, oil North Caspian, gas Other oil Other gas

LUKOIL hydrocarbon production, mln boe

17% 4%

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19

Major Investment Projects

200

550

750

2 600

Khvalynskoe

Gas pipeline

im.U.Korchagina

im.V.U.Filanovskogo

350

450

1 500

Imilorskoe

Bolshoe and Olkhovskoe

(im. Vinogradova)

Pyakyahinskoe

Timano-Pechora North Caspian

Western Siberia

Capital expenditures in 2014E-2016E, $ mln

150

150

400

450

450

550

East-Lambeyshorskoe

Im. Yuriya Rossikhina

East-Sarutayuskoe

Yaregskoe (mine)

Yaregskoe (Lyaelskaya)

Usinskoe (Permo-Carb.)

Primary investment targets

of the Company in

2014-2016

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20

0

10

20

30

40

50

60

West Qurna-2* im.V.U.Filanovskogo

Yaregskoe(Mine +

Lyaelskaya)

East-Lambeyshorskoe

Im. YuriyaRossikhina

East-Sarutayuskoe

Oshskoe Vinogradova Imilorskoe

Oil production expected growth in 2014-2016 relative to 2013, Kbpd

Main Oil Production Growth Contributors

Calculated as expected production volume over 2014-2016 period divided by 1096 days less 2013 production volume divided by 365 days. Production volumes in tonnes of oil were translated into barrels using an average conversion rate of 7.33 barrels per tonne * Production volumes depend on oil price dynamics and compensation costs accounting

Noth Caspian

Timan-Pechora

Western Siberia

International projects

~

130

~

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21

International Projects: West Qurna-2 (Iraq)

1Q 2014: 38 wells drilled

1H 2014: Start of commercial production, 120 Kbpd

Key facilities to be launched:

• Oil treatment unit

• Export oil pipeline

• Power plant

Launch with 5%-15% budget savings

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22

Korchagin and Filanovsky fields (Northern Caspian)

17 29 33

161

0

50

100

150

2012 2013 2014Е 2016Е

LUKOIL-Nizhnevolzhskneft oil production, Kbpd

+550%

+73%

31

83

94

0

20

40

60

80

100

120

Standard taxation Shelf (Korchagin) Shelf (Filanovsky)

Taxation and netback under $110/bbl oil

price, $/bbl

Netback CED MET


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23

Exploration Success on the Caspian in 2013

Kuvykin field

Due to successful exploration drilling in 2013

recoverable gas and liquid hydrocarbons reserves and

resources increased to 1.5 bln boe (Russian standards)

Kuvykin

Rakushechnoye

Korchagin

Khvalynskoye

Filanovskiy

Caspian Sea

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24

180

280

380

2012 2013 2014E 2015E 2016E

Oil production, Kbpd

Other Oshskoe East-Lambeyshorskoe Usinskoe (Permo-Carbon) Yaregskoe + Lyayel

LUKOIL-Komi (Timan-Pechora)

LUKOIL-Komi

• 3P hydrocarbon SEC reserves 3.2 bln bbl (93% of LUKOIL in Timan-Pechora)

• Yaregskoe and Usinskoe – LUKOIL’s major high viscosity oil fields subject to tax benefits

• Oshskoe and East-Lambeyshorskoe – two largest 2014E contributors of LUKOIL oil production growth in Russia

+30%

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25

Denisovskaya Depression (Timan-Pechora)

• 3 new fields and 12 exploration areas

have been discovered within the

block since 2008

• As of today, the Company has

completed construction of main oil

pipelines

• Main development facilities are to be

completed in 2014

+130 (3C)

2008 2011 2013 2014E-2016E

568

409 (3P)

Bayandyskoe (flow rate 4.7 kbpd)

East-Lambeyshorskoe (flow rate 5.5 kbpd)

South-Bayandyskoe (flow rate 2.7 kbpd)

Recoverable oil reserves,

mln barrels

Naryan-Mar

Usinsk

Ukhta

Syktyvkar

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26

Denisovskaya Depression (Timan-Pechora)

4 fields are planned to produce oil at Denisovskaya Depression in 2014-2016: Bayandyskoe, South-Bayandyskoe, North-Ipatskoe, East-Lambeyshorskoe

Сonstruction at East-Lambeyshorskoe field in progress: • Oil treatment unit (to be finished in 4Q 2014E) • Power facilities (to be finished in 3Q 2014E)

10 12

17

23

2013 2014E 2016E 2021E

Oil production, mln bbl

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27

35

40

45

2013 2014E 2015E 2016E


Unconventional Reserves: Usinskoe Field (Timan-Pechora)

+15%

• Oil proved reserves : 562 mln bbl

• Tax benefits: zero MET rate for high viscosity oil

• In 2013, drilling for realization of SAGD technology started. LUKOIL plans to complete 5 couples of wells and put the area into steam heating operation in 2014.

• Construction of power center in progress. Starting from 2016, power center is to provide electrical power and steam for injection.

Steam assisted gravity drainage (SAGD)

31 56

0

20

40

60

80

100

120

Standart

taxation

High viscosity

oil (Usinskoe)

Taxation and netback under $110/bbl oil price,

$/bbl

Netback CED MET

Lyaelskaya area


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28

Unconventional reserves: Yaregskoe field

• 65 production wells to be drilled on Lyayel area of the field in 2014-2016

• Yaregskoe field is subject to tax benefits :

• Zero mineral extraction tax • Export duty rate = 10% of standard rate

0

25

50

2012 2013 2014E 2015E 2016E


х4

31

105

0

20

40

60

80

100

120

Standard taxation High viscosity oil (Yaregskoe)


$/bbl

Netback CED MET


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29

Unconventional Reserves: Vinogradov field (Western Siberia)

• Bolshoe and Olkhovskoe fields were discovered in 1984-1986 and now united into a single field – Vinogradov with initial recoverable reserves of 560 mln bbl

• 73% of reserves are in АС3 layer with large area (>1,000 km²), but small net pay (5 m) and low permeability (0.002 mkm²)

• For the long time the reserves have been considered not economically feasible. After continuous pilot development program we have achieved sufficient well flows to ensure acceptable return on capital.

• 33 production wells to be drilled and launched in 2014

Vinogradov

98

286 346

Best result of pastyears

500G well 2280G well

Pilot program: Wells flow, bbl per day

2012-2013

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30

Unconventional Reserves: Vinogradov field (Western Siberia)

• Average annual well flow rates were 367 bbl per day

• 106 wells are planned to be drilled in 2015-2016, of which 33 horizontal

• Tax benefits: mineral extraction tax rate = 20% of standard rate

31 51

0

20

40

60

80

100

120

Standart taxation Low permeability reservoirs(Vinogradov)


$/bbl

Netback Export duty MET


0,2 1

4

10

20

0

5

10

15

20

25

2013 2014E 2015E 2016E 2019E

Oil production, mln bbl

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31

Imilorskoe field (western Siberia)

• Production drilling started in February, 2014. LUKOIL considerably ahead of schedule: the original plan was to start it in September, 2014

• 23 km of oil pipelines, 42 km of roads and a 74-m bridge across the Entl-Imiyagun River have been constructed, 4 well pads are under development, 3D seismic data is collected for an area exceeding 1.5 th. sq. km.

• LUKOIL suggested Russian Government to include Imilorskoe field to Excess-Profits Tax pilot program

Imilorskoe

Kogalym

- LUKOIL license areas

1

2

3

1 - Distance to a field oil pipeline

1 - Distance to trunk oil pipeline 3 - Distance to GCS "Kogalymskaya" 1

2

3

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32

Bazhen Formation: Sredne-Nazymskoe field (Western Siberia)

Thermal gas injection technology (TGI) Area main results in the region of 219 well

Initial oil in place, th. tonnes 7,885

Initial reserves in draining areas and matrix, th. t 2,140

Natural production (September, 2009), th. t 82

Natural oil recovery factor (under increasing pressure up to saturation pressure 117 atm)

4.4%

Natural oil recovery factor (actual) under middle pressure 166 atm (September, 2009)

3.8%

Current prodution th. t (September 1, 2013) 111

Total air injection (March 1, 2013), mln nm3 7

Current oil recovery factor (under increasing pressure due to TGI on the average up to 210 atm)

5.2%

TGI planned oil recovery factor 40%

Air-oil ratio, m3 per ton 240

oil kerogen macrofissures

In process of TGI

Mixture of gases New fissures

formation

Oil production

Oil production

Oil production

Air injection

Oil

Heat bank

Miscible displacement area

Before TGI

Nondraining rock shattering

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33

Downstream Projects

[3/3/2014 5:18 PM]

34

0

5

10

2014E-2016E

Other Marketing abroad

Marketing in Russia Refining abroad

Refining in Russia

0

5

2001 2013*

LUKOIL Capex in Refining and Marketing, $ bln

Integrated Indicators of Refining in Russia

* - Excluding non-cash one-off write-offs

Calculated at current price level

EBITDA, $ bln

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35

Value Growth Driver: Refineries Upgrade

2015-2016

Perm - Modernization of low-temperature condensation and distillation unit

Nizhny Novgorod - VGO catalytic cracking

- Vacuum block

Burgas - Heavy residues processing complex

Volgograd - VGO Hydrocracking

- Atmospheric-vacuum distillation unit

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36

4,0 5,1 5,1

5,8 6,5

7,8 1,7

3,2 3,0

3,1

0

2

4

6

8

10

12

2010 2011 2012 2013 2014E 2015E

Euro-5 Euro-4

Excise Differentiation Rewards High Quality Producers

In the midst of excise fast growth, launching lower excise rates for Euro-5 since July

2012 provides an opportunity to obtain a significant economic effect in 2014-2015 and

recover the investments for LUKOIL refinery modernization

Source: Russian legislation

1,2

2,2

3,0

4,5 4,8

5,2

0,6

0,6 0,7 0,7

0

1

2

3

4

5

6

2010 2011 2012 2013 2014E 2015E

Euro-5 Euro-4

x2.7

Diesel excise rate, th. rub./t Gasoline excise rate, th. rub./t

x5.0

+ +

Economic effect Economic effect

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37

Modernisation of LUKOIL Refineries Allows to Reduce Dark Petroleum Products Share

Despite the oil quality change and operational downtime of units LUKOIL accomplishes 2012-2021

strategy for dark oil products reduction

12,2 12,3 11,1 10,6

7,6

2,7

6,8 4,5

4,2 4,3

3,0

3,4

19.0

16.9

15.3 14.9

10.6

6.0

2010 2011 2012 2013 2016E 2021E

Fuel oil

Vacuum gas oil

Dark petroleum products production, mln t

Nizhny Novgorod

FCC launch

2.0 mln t

Volgograd DCU

launch 1.0 mln t

Launch CDU, DCU, oil quality

Volgograd VGO HCU 3.5 mln t,

Perm DCU

2.0 mln t

Nizhny Novgorod

H-Oil 4.8 mln t

45.0 45.2 44.3 44.8 42.0 46.4

Refining throughput, mln t

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38

Integrated Indicators of Marketing in Russia

EBITDA, $ mln

Growth of Marketing segment in Russia is determined by:

• Marketing network extension in traditional regions

• Creation of marketing networks in new regions

• Average daily sales per gasoline retail station growth due to increase in efficiency

• New aircraft refueling sites construction



0

1000

2013*

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39

Integrated Indicators of Power Segment

0

150

2013*

Mid-term growth is determined by launching new facilities:

• 2013 – combined cycle gas turbine unit-235 LUKOIL-Astrakhanenergo

• 2014 – combined cycle gas turbine unit-135 Stavrolen ltd. LUKOIL-Stavropolenergo (December, 2014)

• Expanding production capacity within launched facilities.



EBITDA, $ mln

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40

Integrated Indicators of Refining and Marketing abroad

0

1000

2013*

EBITDA, $ mln



[3/3/2014 5:18 PM]

41

0

5

2013*



Refining in Russia

Marketing In Russia

Power

Integrated Indicators of Refining, Marketing and Power Segments

EBITDA, $ bln

Refining and Marketing

abroad

[3/3/2014 5:18 PM]

42

Environmental Safety is Our Priority

LUKOIL presented a draft «2014-2018 Environmental Safety Program»

Main goals:

• Utilization of newly generated waste in a ratio of at least 1:1

• 95-percent utilization of associated petroleum gas by 2015

• Increased production of Euro-5-compliant eco-friendly fuel

• Introduction of automated systems of industrial environmental monitoring

• Compliance with national and international environmental requirements

1,5

2,3

3,6

4,5

1

2

3

4

5

1995-2003 2004-2008 2009-2013 2014E-2018E

Environmental spending, bln USD

Recultivation

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43

2014-2018 Environmental Safety Program:

• Reduction of air emissions by 100 th. t

• Additional produced water conditioning 7 mcm

• Reduction of water usage by 8 mcm

• Waste disposal 900 th. t

Including those accumulated before privatization 580 th. t

• Remediation of disturbed and contaminated lands 115 km²

• Liquidation of waste pits 1 th.

• Maintenance overhaul and replacement 4 th. km

• Diagnostics 31 th. km

• Inhibitory protection 20 th. km

Environmental Safety is Our Priority

Air

Water

Land

Pipelines

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44

Conclusion

• The Company moves from the stabilization phase to the growth phase,

focusing on the long-term sustainable growth of production

• LUKOIL received access to the strategic reserves of Russia and

expanded significantly its resource base through exploration

• Company operations are aimed at:

- Value creation and accelerating growth of dividends

- Increasing efficiency of operating activities

- Cost control, and OPEX optimization

- Maintaining conservative financial policy

- Maintaining strong financial discipline

• Dividends will continue to grow. Our goal is to increase shareholder value

lukoil - caspian corridor conference 2014

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