tnk-bp information sheet

TNK-BPInformation Sheet

JUNE 2008

FAST FACTS

Reserves at 31/12/2007

8.225 billion barrels of oil equivalent under SEC life-of-field criteria

9.982 billion barrels of oil equivalent under PRMS criteria

2007 production

1.6 million barrels of oil equivalent/day

Reserves replacement

179% on a SEC life-of-field basis

297% on a PRMS basis

TNK-BP International Ltd US GAAP

financial highlights for 2007

$38.7 billion Total Revenues

$9.4 billion EBITDA

$5.3 billion Net Income

$3.5 billion Capex

Taxes

$20 billion paid in taxes, duties and excise in 2007

$70 billion paid in taxes, duties and excise since 2003 to end 1Q 2008

Employees

65,000 at end 1Q 2008

Contents

Who we are 2

Strategy 10

Upstream and technology 12

Downstream 40

Gas 48

People 52

Health, safety and environment 58

Finance 66

Community contribution 72

Who we are

33WHO WE ARE

TNK-BP INFORMATION SHEET

STRUCTURE

The TNK-BP group has been operating since 1 September 2003. It was • formed by Alfa, Access/Renova (AAR) and BP as a 50/50 enterprise combin-

ing AAR and BP oil and gas assets in Russia and Ukraine.

TNK-BP shareholders also own close to 50% equity interest in Slavneft, which • is separately managed. For more details on Slavneft please see page 6 of

this booklet.

TNK-BP is vertically integrated, privately held and unlisted, although TNK-BP • Holding (referred to on page 5 of this booklet) is quoted on the Russian stock

exchange.

TNK-BP Limited registered in the British Virgin Islands (BVI) consolidates the • assets and business activities of TNK-BP Holding, all other TNK-BP interests

in Russia and abroad, including principally the company’s downstream busi-

ness in Ukraine.

TNK-BP’s main Russian assets, including all crude oil production and oil re-• serves, are held by TNK-BP Holding, an onshore Russian company created

as a key element of TNK-BP’s major corporate restructuring.

TNK-BP is currently Russia’s third largest company in terms of liquids pro-• duction. In 2007 TNK-BP accounted for approximately 18% of Russia’s total

oil production (including its equity share of Slavneft production).

TNK-BP comprises 65,000 people working across Russia and Ukraine.•

TNK-BP is a generic term used to describe any or all of TNK-BP Ltd. and its subsidiaries. Unless expressly indicated otherwise, wherever the generic term TNK-BP appears in this booklet, it is used for ease of com-munications purposes only. It does not signify any particular individual legal entity or sub-group of entities within the group of companies belonging to the ultimate shareholders of TNK-BP Ltd., and does not therefore denote or relate to the domicile or tax status of any TNK-BP legal entity or group of legal entities.

Unless expressly stated otherwise, statistics quoted in this booklet do not include TNK-BP’s interest in Slavneft.

4WHO WE ARETNK-BP INFORMATION SHEET

Businesses consolidated into TNK-BP International’s US GAAP

financial statements

Businesses which are not consolidated into TNK-BP International’s

US GAAP financial statements, but are consolidated into

TNK-BP Limited’s US GAAP financial statements

Businesses accounted for as equity investments

Corporate structure*

* Showing principal operating and holding companies.

** As a result of accessions of TNK, SIDANCO and ONAKO to TNK-BP Holding and completion of the voluntary exchange program, minority shareholders hold about 5% of TNK-BP Holding shares.

*** A “Heads of Terms” has been agreed to sell TNK-BP’s interest in RUSIA Petroleum to Gazprom. Until this transaction is completed, RUSIA Petroleum remains part of the TNK-BP group.

5WHO WE ARE


TNK-BP Holding

In 2004, a major corporate restructuring was commenced to simplify TNK-• BP’s complex legacy structure (more than 600 legal entities) and improve

transparency and corporate governance.

In 2005, TNK-BP completed two critical steps in its corporate restructuring: •

Heritage holding companies TNK, SIDANCO, and ONAKO merged into –TNK-BP Holding (TBH);

Approximately 70% (by value) of minority shareholders in 14 key TNK- –BP subsidiaries exchanged their shares for shares in TNK-BP Holding

through the voluntary share exchange program.

Upon completion of the voluntary share exchange program, minority –shareholders owned approximately 5% of TNK-BP Holding.

As a result of restructuring, we have rationalized our onshore and offshore • structure and reduced the number of legal entities by approximately 200.

This process continues.

6WHO WE ARETNK-BP INFORMATION SHEET

Slavneft

TNK-BP holds a 49.8% interest in Slavneft through TNK-BP International Ltd. • Slavneft operates as a separate entity. TNK-BP and Gazprom Neft have

equal representation on the Slavneft Board of Directors.

Slavneft’s production 2005-2007

2005 2006 2007

Oil production, thousand barrels per day 488 472 424

PHYSICAL STRUCTURE

The main oil production assets of TNK-BP are located in West Siberia and the • Volga-Urals region; with new provinces being opened in East Siberia via the

planned development of the Verkhnechonskoye oil field (concurrently with

the construction of the Transneft operated East Siberia Oil Pipeline) and in

the south of the Tyumen Region as we develop the Uvat group of fields.

The main gas business assets are our significant associated gas production • from our oil operations, the Rospan project in Novy Urengoi, which is 100%

owned by TNK-BP, and the Yugragazpererabotka gas processing joint ven-

ture we have with SIBUR Holding in Nizhnevartovsk. TNK-BP owns 49%

of Yugragazpererabotka.

TNK-BP holds approximately 200 exploration and production licenses. •

Twenty seven new licenses were acquired in 2007. •

TNK-BP’s top 10 fields deliver two thirds of its production.•

Top 20 fields hold 80% of proved reserves. •

Mature field upstream base features an average water cut of over 90%.•

Average well productivity is 15 tons per day.•

Approximately 25,000 km of infield gathering pipelines (following divestment • of assets).

7WHO WE ARE


TNK-BP has four refineries located in Russia (Ryazan Refinery, Saratov • Refinery, Nizhnevartovsk Oil Refining Enterprize, and Krasnoleninsk Refinery)

and one refinery in Ukraine (Lisichansknefteorgsintez), all close to production

areas and export routes.

In addition, the company operates approximately 1,600 retail outlets branded • either as BP or TNK in Russia and Ukraine.

8

Map of assets

WHO WE ARETNK-BP INFORMATION SHEET

9WHO WE ARE


Strategy

1111STRATEGY


The strategy is unchanged since the founding of TNK-BP in 2003 and remains

robust. It is fundamentally targeted at growing the value of the company, and

there are four key focus areas:

Resources to reserves to production • (R/P management): deployment of

adequate and innovative capital, international best-practice field-level tech-

nology and advanced computer modeling techniques to deliver continual

reserves replacement and grow production.

Margin enhancement: • targeted midstream and downstream investments to

improve logistics costs, expansion of the company-owned retail network to

capture a greater share of the value chain via delivery of differentiated and

advantaged products (e.g. BP Ultimate) and selective investment in refining

to further enhance and create new high quality products.

Gas: • transformation from an oil group to a major oil and gas group through

monetization of our large free and associated gas opportunity set (targeting

95% gas utilization by end 2011 and the construction of dedicated electric

power assets) and development of TNK-BP’s large gas resource base.

Corporate governance: • corporate restructuring to simplify and improve

transparency, US and International GAAP consolidated reporting and imple-

mentation of international best business practices to further enhance corpo-

rate responsibility and performance delivery.

Two essential enabling mechanisms are specifically targeted to enhance overall

strategy delivery and further develop the TNK-BP contribution to the Russian oil

and gas industry:

Portfolio management: • divest non-strategic assets where others see and

can access greater value in ownership than TNK-BP (thereby enabling higher

activity and investment levels), acquire and develop assets where TNK-BP

can create and access new value and apply distinct skills and capabilities

(in the historic home of TNK-BP – Russia and Ukraine – as well as select

international locations beyond Russia which possess accessible synergies to

the existing TNK-BP capabilities) to support growing the company over the

medium- to long-term.

Organizational capability development:• develop the knowledge, skills and

abilities of employees to match the long-term needs of the business; major

projects, greenfield oil, brownfield oil, new gas as well as the production,

distribution and marketing of high-quality refined products.

Upstream and technology

13UPSTREAM AND TECHNOLOGY


EXPLORATION AND APPRAISAL

TNK-BP’s exploration strategy supports the company’s growth aspirations • through:

A balanced approach to Brownfield (short-term production options and –field extensions/satellites in Orenburg and West Siberia) and Greenfield

(new material development hubs like the West Siberia Uvat and Bolshek-

hetsky projects) exploration and appraisal activity.

Access to future growth opportunities in new licenses in existing areas –and frontier Bluefield opportunities – we accessed our first such opportu-

nity in Astrakhan on the Volga Delta in 2006 and our second through ac-

cessing exploration acreage in the proven Timan-Pechora Basin in 2007.

Since 2003 TNK-BP has substantially grown its exploration portfolio from • approximately 1.5 billion barrels to over ten billion barrels in 2007 (including

discovered resources and yet-to-find resources in unexplored acreage but

excluding gas). This is equivalent to over 20 years of current production.

Portfolio growth has been achieved through:•

New license access – over 60 new licenses acquired since 2004 including –27 in 2007 in Brownfield (Saratov and West Siberia), Greenfield (Bolshek-

hetsky) and Bluefield (Timan-Pechora) areas. New discoveries and under-

developed fields have also been purchased in our Brownfield areas. Non-

core licenses in Brownfield and Greenfield have been sold or relinquished.

Exploration and appraisal activity – over 140 wells drilled and approxi- –mately 10,000 sq. km of exploration 3D seismic and nearly 20,000 km

of 2D seismic performed since 2003. In 2007 nearly 50 new wells were

completed with 30 new discoveries and successful appraisal wells. Over

6,300 sq. km of 3D seismic was acquired over existing fields and for ex-

ploration projects and 5,400 km of 2D to meet license obligations.

Implementation of improved exploration standards and techniques in geo- –logical and resource estimations based on seismic models.

Our exploration and appraisal drilling success rate has averaged 65% be-• tween 2003 and 2006. Our 2007 success was over 60%.

Total exploration and appraisal spend has increased five fold since 2003. • In 2007 over $300 million was invested in exploration and appraisal projects.

14UPSTREAM AND TECHNOLOGYTNK-BP INFORMATION SHEET

In 2007 further discoveries were made in the Uvat Region and significant • satellite discoveries in Orenburg (Sorochinsko-Nikolskoye and Ananyevskoye

fields) and in West Siberia at the Ust-Vakh field, adjacent to Samotlor, and

Bakhilovsky and Verkhne-Kolik-Yegankoye fields in Business Unit East.

New 3D seismic programs in Orenburg aimed at developing new exploration • satellites have confirmed the presence of undrilled field extensions that are

now being exploited with further development drilling and sidetrack opera-

tions.

In 2007 further well testing and new exploration and appraisal drilling have • confirmed the potential of the Bolshekhetsky project as a significant Green-

field project for TNK-BP. Plans are underway to begin pilot production in the

region in 2009.

In 2007 over 210,000 tons of oil and condensate were produced from suc-• cessful exploration wells and follow-up development activity. The time from

exploration success to full field development has been reduced to less than

6 months in Orenburg (Sorochinsko-Nikolskoye) and less than 12 months in

West Siberia (Bakhilovsky).

In 2008 TNK-BP plans to drill over 60 new wells with over 50% drilled on • Brownfield projects and support development projects in West Siberia,

Orenburg and Uvat. Approximately 5,000 km and 5,000 sq. km of 2D and 3D

seismic are planned. 2008 spend is expected to reach approximately $400

million. Production from E&A activity and follow-up development is forecast to

be over 500,000 tons.

TNK-BP Exploration and appraisal: costs and success rates

%



RESERVES

Independent audit conducted by DeGolyer and MacNaughton confirmed • TNK-BP’s Total Proved Reserves at 31 December 2007 as:

8.225 billion barrels of oil equivalent on an SEC life-of-field* (LOF) basis, or –

9.982 billion barrels of oil equivalent on an PRMS** basis –

TNK-BP reserves, billion barrels of oil equivalent

Reserve 2006 2007 2007/2006

SPE SEC LOF PRMS SEC LOF PRMS SEC LOF

Proved total 8.95 7.81 9.982 8.225 1.033 0.415

Note: Numbers are based on reserve audit reports from 31 December 2006 and 2007 prepared by DeGolyer and MacNaughton. Numbers include proved developed gas reserves and exclude Slavneft.

The figures for 2007 represent a Total Proved Reserves replacement ratio • of 179% on a SEC LOF basis, exceeding for the fifth year in succession the

company’s objective of at least 100% reserve replacement under these crite-

ria; on a PRMS basis reserves replacement was 297%.

Our average Reserves Replacement Rate for the 2004-2007 period was • 143% on a SEC LOF basis.

For the first time, reserves from some of the company’s new greenfield proj-• ects have been included in the proved reserves figures. The first bookings

were made in 2007 for the Verkhnechonskoe field in East Siberia and 2 fields

in the Uvat Region of West Siberia, both of which are under development.

Next reserves audit will confirm reserves at 31 December 2008. Results will • be published during 1Q 2009.

* SEC (US Securities and Exchange Commission) regulations set a standard for proved reserves that re-quires a demonstration of continuity of production. TNK-BP quotes Total Proved Reserves to SEC criteria, taken to the economic life of the field rather than to license expiry – SEC LOF.

** PRMS (Petroleum Resources Management System, formerly Society of Petroleum Engineers – SPE) methodology provides a fairer reflection of the total resources available over the life of the field. PRMS guidelines rely on continuity of reservoir geology rather than production. In 2007, some significant changes were made to how SPE non-proved reserves are calculated. These changes have been incorporated into the PRMS definitions but do not impact the calculation of TNK-BP proved reserves stated above.


Reserves replacement ratio (RRR) vs. finding and development (F&D) costs

TNK-BP outperformed most of its peers in organic reserves replacement ratio (3Y RRR for 2005-2007) as well as having the lowest F&D costs per boe of proved reserves increase.

PRODUCTION

In 2007 we produced 78 million tons of oil equivalent.•

Our average 2007 production 2007 was:•

1.6 million barrels/day on a barrel of oil equivalent basis –

1.45 million barrels of oil and condensate per day –

TNK-BP share of Slavneft production in 2007 was approximately • 200 thousand barrels of oil and condensate per day.

TNK-BP production growth for 2008 is expected to be generally flat, rising • later in 2009 after new projects come on line.

TNK-BP production 2003-2008 (including Slavneft production)



Idle well reactivation

TNK-BP operates 145 fields with a total stock of producing wells of approxi-• mately 22,000. At the start of 2008, idle wells stock (including wells under

completion) amounted to 6,140 (29% of the total number of development well

stock). Approximately 80% of idle wells are in eight key fields.

Since the start of operations, TNK-BP has already reactivated about 9,800 • idle wells. In 2008-2011, we plan to spend over $2.5 billion on the idle wells

reduction program, including $756 million in 2008. In 2007 we spent $692

million on well reactivation.

By end 2009, we plan to reduce the number of idle wells to 20% or less of the • total number of wells.

Working with idle well stock


TECHNOLOGY

TNK-BP continues to introduce and apply world best practices in technology

across all its activities, from accessing new license areas, exploration and ap-

praisal, production technology, to refining, marketing, and managing the com-

pany’s major projects.

Seismic technology

TNK-BP is the largest consumer of seismic services in Russia – we account • for around a third of the market in Russia and have an ambitious plan to

cover all our core assets with 3D seismic by the end of 2010.

Our annual volume of 3D seismic acquisition has increased ten fold since • 2003 and 2D programs are likely to double again in 2008 to meet license

commitments associated with our successful new license access strategy.

TNK-BP works closely with some of the best contractors in Russia to improve • efficiency and data quality. We introduced the first foreign crew to West Si-

beria in 2006 and continue to revise our long-term contracting strategy to in-

crease market competition and improve approval and permitting processes.

In 2006 TNK-BP reached international industrial standards in seismic • acquisition:

modern acquisition systems are used – Sercel-408 and Sercel-428, –I/O System-4;

improved remote communications to enhance site and office quality con- –trol – eSQC-Pro on-line seismic acquisition control is now widely used.

In 2007 TNK-BP approached world-class standards of 100,000 traces per sq. • km for conventional 3D survey. We plan to further increase this to 150,000

traces per sq. km in some projects during the next winter season 2008-2009.

2007 saw the introduction of further modern advanced technology, including:•

Introduction of LiDAR (Light Imaging Detection and Ranging) – high preci- –sion laser mapping of sites prior to 3D seismic acquisition. LiDAR survey

was implemented at Yem-Yegovsky field in summer 2007 and the data is

being used for 3D field acquisition at Yem-Yegovsky.



Low-impact seismic operations associated with further summer seismic –acquisition in West Siberia. Summer 3D acquisition was performed in Uvat

this summer with two contractors BGP and Integra.

Since 2004, TNK-BP has been operating (with WesternGeco) a dedicated • seismic center hosting one of Russia’s largest industrial use computers. The

contract for the centre was recently renewed for a further three years.

Advanced depth and time seismic processing techniques are routinely used • to improve reservoir imaging in complex subsurface areas like Orenburg and

Uvat.

Sixty percent of Russia’s territory lies in permafrost regions. Three quarters of • Russia’s oil and gas resources are deposited in the permafrost zone. TNK-BP

together with Western Geco is working on a new seismic processing technol-

ogy to interpret formations under Russia’s permafrost. Non-homogeneous

permafrost distorts wavelength travel time, making it difficult to image subsur-

face formations.

TNK-BP is actively reviewing the use of multi-component (3D/3C) seismic to • improve data quality in areas impacted by shallow gas. A pilot project was

acquired in 2005, processed in 2006 and is now being evaluated.

TNK-BP is testing new seismic processing technology using multi-focusing • processing techniques to better image the shallow reservoirs at the Russkoye

field where traditionally seismic fold is low and resolution poor. Processing is

being done on both 2D and 3D seismic data.

The multi-processing technique is also being used on 3D decimation trails • to determine whether data quality can be maintained with reduced acquisi-

tion shot and receiver lines. The benefits will be greater efficiency in seismic

acquisition and improved HSE performance and environmental impact.

Interpretation teams regularly use the Visual Modeling Center which was • opened in the Moscow office in 2006. This advanced visualization center

allows teams to rapidly integrate data, review structural and stratigraphic

models and optimize well locations.


Drilling technology

Recent success of new technologies (e.g. extended reach drilling, multilaterals)

continues to challenge our drilling organization to push our technical boundar-

ies even further. Several technologies that are new to TNK-BP (and in some

cases new to Russia) are being prepared for application mainly in the area of

coiled-tubing drilling. In addition, casing drilling applicability to our fields’ specific

conditions is now undergoing deeper study.

Coiled tubing drilling (CTD) – TNK-BP senior management is confident in • this technology’s ability to deliver a step change in drilling performance. The

forward plan includes development of CTD capability in two business units:

Orenburg and Samotlor.

Hybrid CTD is a new approach where drilling on conventional drill pipe can • be alternated with CTD (where it makes most economic sense) in the same

well at different stages and at various depths of well construction. This ap-

plication will provide great flexibility in our approach to drilling wells, but

requires unique equipment and well design processes. It ultimately has the

potential to cut our drilling time by up to two-thirds in Business Unit Samotlor.

The application of under-balanced drilling reduces drilling risks and formation dam-• age when subsurface conditions are complex, and pore pressures are naturally

low. The combination of under-balanced and coiled tubing drilling will be tested in

BU Orenburg – potentially reducing drilling time and increasing well productivity.

Casing drilling – technology that uses the casing string to drill ahead, impart-• ing rotation to a rotary shoe as opposed to a bit via the conventional drill

string. More detailed studies in Orenburg and Samotlor will take place this

year to measure the value of this technology to our business. Benefits are

expected in the areas of time savings and operational safety.

TNK-BP operates about 100 drilling rigs, and this fleet is growing and con-• stantly modernizing. Worldwide best practices and internal technical exper-

tise are continuously being deployed to transform our drilling performance.



Well work technology

TNK-BP well work has evolved during the past few years and activities include

hydraulic fracturing, down hole equipment optimizations, improvement of ESP

(electric submersible pump) run life, bottom-hole acid treatments and recomple-

tions. These enabling technologies are allowing enhanced development of

mature Brownfield assets.

Hydraulic fracturing technology underwent a step change in volume per-• formance during 2004 by completing over 1,500 jobs across TNK-BP and

delivered more than 50 million barrels of oil. Candidate well selection, fractur-

ing design and quality control of fracturing equipment and service continue

as important elements that influence well work success. Over 1,000 fracturing

jobs add nearly 40 million barrels of oil every year.

Successful pilots to optimize ESPs during 2003 and 2004 led to significant • work during 2005. Over 700 jobs are completed across TNK-BP adding

20 million barrels of oil production every year. Downhole optimization work

focuses on candidate selection and equipment design. Training program pilot

projects are now underway to enhance skill levels.

Improving ESP run life to 600 days by 2011 is a major initiative that involves • coordination of activities across several TNK-BP business streams. Signifi-

cant improvement to Mean Time Between Failure has been made since July

2006 when run life was about 300 days. By end 1Q 2008, this had risen to

385 days – a direct result of using more reliable equipment and expanding

a number of successful pilot programs. Run life is now at record high levels

in the 4.5 year history of TNK-BP. Successful implementation of a Group

Analysis and Monitoring System during 2007 was used to support a strategic

change that will further improve equipment reliability across the company.

Treatment of formation pay zones with hydrochloric acid is termed Bottom-• Hole Treatment (BHT) technology. The number of BHT’s has tripled since 2004.

Nearly 1,500 jobs are completed across TNK-BP adding 25 million barrels of oil

every year. The technology of diverted acid treatments has been successfully

introduced. Incremental gains during 2007 are nearly 20 tons per day versus

10 tons from conventional treatments.


A well work technology called Radial Drilling was recently introduced to TNK-• BP. The radial drilling process uses a flexible tube to jet radial holes into the

formation with high-pressure liquids. It allows 50 millimeter radial channels to

penetrate up to 100 meters into the oil zone (compared to conventional per-

foration of 0.5-1.2 meter length holes). Radial drilling is a low-cost method to

produce bypassed pay near water by reaching beyond damage intervals of

the wellbore, improving drainage areas and enhancing water injection. Cur-

rently a pilot is underway in Samotlor to test this technology. Radial Drilling

well work offers an alternative method to improve reservoir access and re-

cover missed oil. An expanded program is being organized for later in 2008.

Reservoir management

Reservoir management utilizes a number of techniques to maintain reservoir

pressure and ensure maximum recovery, including waterflood optimizations,

sidetracking, and horizontal drilling with geosteering. Reservoir management

improvements are delivered through the implementation of multi-disciplinary

teams with a comprehensive toolbox of technical analysis and reservoir surveil-

lance techniques.

Optimizing waterflood systems – these pressure maintenance systems are • individually tailored to the characteristics of each field. System elements in-

clude reconfiguration of waterflood patterns, conversions of existing produc-

ing wells to injector wells, and conducting infield drilling. Integrated water-

flood management has resulted in field-scale waterflood response in several

areas across TNK-BP, increasing recovery.

Gas injection to produce additional oil in mature waterfloods is being evalu-• ated for pilot testing. This could increase production by improving reservoir

voidage replacement and by mobilizing oil which can not be recovered

through water injection.

Sidetracking is an important technique used to improve reservoir access to • bypassed reserves. It is a key production growth tool in our mature fields.

Sidetracking allows us to increase recovery while utilizing our idle well stock.

Horizontal drilling with geosteering allows us to locate wells in unswept oil • pockets, improving oil recovery rates by up to 50%. In 2007 TNK-BP drilled

more than 100 horizontal wells with geosteering, and this number is antici-

pated to grow to more than 200 per year by 2009.



Multi-lateral wells – a technology to drill complex wells, which permits two or • more well bores to be drilled off the main mother bore further into the produc-

tion zone, thereby increasing the productivity of the well and accessing more

efficient reserves per well. We drilled our first multi-lateral well in 2007 with an

initial rate over 200 tons per day. Multi-laterals wells are a significant technol-

ogy for development of fields with thin or low geologic quality.

Sidetrack

wells

More than 150 drilled in 2007• By 2009 – more than 250 per year•

Horizontal

wells

Number increased to more than 100 in 2007• To grow to more than 200 per year (or more) by 2009•

Multilateral

wells

First multilateral well drilled in 2007• Initial well rate over 200 tons per day•

Note: sidetrack wells and horizontal wells are not mutually exclusive. Most sidetracks are now horizontal wells.

Heavy oil recovery – TNK-BP’s asset base includes large undeveloped • resources of heavy viscous oil. Its production requires new technologies not

commonly used in Russia today:

During 2007, horizontal wells were successfully drilled and production –tested in both the Vanyogan and Russkoye license areas.

Multi-lateral wells to enable economic rates and access to secondary –reserves. Multi-lateral wells can reach up to 2,500 meters and produce oil

at 8 to 10 times the rate of standard vertical wells.

Steam flooding, which heats the oil, reducing its viscosity and resistance to –flow. This process is currently being appraised for TNK-BP’s viscous fields.


Multi-disciplinary teams have improved transfer of ideas from geoscientists • to reservoir engineers and from production engineers to drillers to optimize

integration of field development plans:

Geologists, geophysicists and petrophysicists work together to confirm –the depositional environment and determine how it impacts property

modeling between wells.

The geologic model is integrated with information from production and –reservoir engineers to help assess reservoir compartment sizes and de-

velopment techniques to optimize well design.

Advances in the technical toolbox include the development of fit-for-purpose • solutions which can be employed by a wide range of specialists throughout

the company, ranging from the simple to the complex, including:

Decline curve and Block Analysis techniques which can be used by any –production engineer in the regions.

Integrated modeling solutions which allow new drilling and surveillance –data to be rapidly integrated into geologic and reservoir models decreas-

ing the time needed to update models.

Integrated uncertainty modeling which combines monte carlo statistical –analysis techniques with geologic and reservoir modeling packages to

allow rapid assessment of the impact of fluid, rock, and hydrodynamic

uncertainties on development planning.



Stewarding major projects

The Capital Projects Procedure has been in use in TNK-BP as guidance on the • process for development and execution of Major Projects, with a firm focus on

business objectives. After two years of use, it is being restructured to ensure that

learnings are incorporated to enhance excellence in Major Project execution. In

addition, a team of project professionals provides management assurance and

early intervention to ensure successful delivery of projects that are in execution.

All our major project professional staff have personal development programs • which link “on the job” skill development to a wide range of project management

training opportunities.

Managing contractors’ performance

Supplier Performance Management is the process by which TNK-BP can • gain further assurance that suppliers’ performance are meeting expectations

and goals. This will allow us to extend our performance culture to our suppli-

ers and create a common framework to manage them.

Pre-contract and during the contract period, TNK-BP performs site audits to • verify contractor competence, operational procedures, and compliance with

technical specifications, minimum technical standards, and HSE standards.

Corrective Action Registers are tracked.

In early 2007 the STEPS (System to Evaluate Performance of Suppliers) was • rolled out in TNK-BP. Since then all business units have adopted STEPS use

and are incorporating these data into their quarterly performance reviews as

a mechanism for evaluating contractor activity. STEPS data is used to sup-

port ongoing rig audits, and to proactively evaluate our suppliers’ technical,

operational, and safety performance. In addition, this tool will be used to

inform decisions around awarding contracts. There are currently 19 product

lines being tracked in the system and over 24,000 scorecards have been

entered.


MAJOR PROJECTS

TNK-BP is developing over a dozen new major projects the realization of which

will ensure the company’s sustainability over the long term. Many of these proj-

ects are located in remote areas with limited or no infrastructure and require sig-

nificant investment of capital and technology. The more advanced are several

large greenfield projects: the Uvat group of fields and the Bolshekhetsky project

in West Siberia, and the Verkhnechonskoye field in East Siberia.

TNK-BP’s major upstream projects

Uvat group of fields

Located in the south of the Tyumen Region in the south of West Siberia, LLC • TNK-Uvat has the license to develop fields across nine license areas stretch-

ing 200 km west-to-east.

Estimated recoverable reserves in the range of approximately 1.3 billion • barrels.

Ongoing active exploration and appraisal program, which is expected to pro-• vide greater resource definition by early 2009. Key 3D seismic data acquired

and is being analyzed for Eastern and Central Hubs.



Pilot production and extended well testing is being performed in 2008 on four • Central Hub discoveries to improve the understanding of reservoir productiv-

ity and deliverability.

Four high-capacity, winterised drilling rigs (Deutag) were purchased to en-• able long-reach, horizontal drilling to increase well productivity and minimize

environmental impact due to reduced number of well pads.

Two well pads on Eastern Hub completed. Development well drilling is in • progress. Central processing facility and multiphase pump system construc-

tion set up.

Regional infrastructure project implementation is in progress (530 mm • pipeline and winter road) to improve logistics and connections with major

trunk lines.

Total expected capital expenditure of approximately $7-8 billion. •

Early oil is expected at about 40 thousand barrels/day (1.9 million tons/year) • by 2009. First stage of commercial development will have production of

about 3-5 million tons/year (60-100 thousand barrels/day) by end of 2010.

Full scale plateau production could deliver 7 million tons/year.

Verkhnechonskoye field

Verkhnechonskoye field is the largest oilfield in East Siberia, discovered • in 1978. It is located about 1,100 km north of Irkutsk in an area with limited oil

industry infrastructure.

TNK-BP holds a 68.5% interest in Verkhnechonskneftegas, which is the • license holder for the development of the Verkhnechonskoye field. Rosneft

is another major shareholder.

Verkhnechonskoye has current estimated recoverable resources of about • 1.4 billion barrels (approximately 200 million tons) of oil. Total estimated

CAPEX about $4-5 billion.

The project will be developed in three stages:•

Minimum Pilot Project to gather high-quality reservoir data, reduce un- –certainty, and provide information to support full field development (FFD)

decision. This Project was completed on 31 December 2007.


Early Oil Project includes construction of a pipeline to link the field to the –East Siberia Pacific Ocean pipeline (ESPO), currently under construction

by Transneft (expected reverse flow start-up schedule by the middle of

2008), construction of a road to the neighboring Talakan field, and instal-

lation of associated infrastructure. Target production level for the Early Oil

stage is estimated at 1-1.5 million tons/year from the end of 2008. Prepa-

ration works for the construction of a 85 km pipeline, which will link Verkh-

nechonskoye to the ESPO pipeline began in October 2007. Construction

planned to complete 2H 2008.

Full field development with possible 7-10 million tons/year (140-200 thou- –sand barrels/day) oil production plateau.

TNK-BP is evaluating options to reduce the number of wells by applying new • technology, such as line-drive extended-reach horizontal wells.

Development impact of high angle wells

(average cumulative production per well)



Bolshekhetsky project

The project started in 2004 with the acquisition of three undeveloped fields – • Suzunskoye, Tagulskoye and Russko-Rechenskoye in the Bolshekhets-

kaya depression in the northern part of East Siberia from Slavneft. Over the

2005-2007 period TNK-BP strengthened its position in the region and cur-

rently the Bolshekhetsky project comprises 11 license areas.

Ultimate reserves amount to around 1.55 billion barrels. •

A 3rd stage of the exploration program is planned with expected reserves • addition of 0.3 billion barrels.

Suzunskoye is the most thoroughly explored field bearing high-quality light • crude; options for accelerated development are being examined.

In 2007 preparatory operations for pilot development at Suzunskoye field • were commenced. Early oil is expected in 4Q 2008.

Plateau production could reach up to 8 million tons/year in full field develop-• ment.

Kamennoye field

The Kamennoye field is part of the Nyagan group of fields located in the Tyu-• men Region and has estimated oil in place of 8.5 billion barrels (1.1 billion

tons). Discovered some decades ago, it was considered “undevelopable” at

the time. TNK-BP is using leading technologies such as 3D modeling, new

fracturing technologies, water injection and others which have allowed us to

re-evaluate the field’s potential and re-prioritize reserves.

TNK-BP has some existing production at the Southern part of Kamennoye • (currently at around 3,000 tons/day) and is also studying opportunities to

develop the Northern part of the field (Northern hub) from early 2009.

In the Northern hub (Aitor and Poima areas) conceptual engineering and • reservoir modeling are underway, expected to complete mid 2008.

Plateau production at around 8-10 million tons/year (160-200 thousand bar-• rels/day) could be achieved in the full field development scenario.


Viscous oil projects

TNK-BP’s undeveloped resources include significant amounts of viscous, • heavy oil. Its development is complicated by heavy crude properties.

The two major projects are the Russkoye and Vanyogan fields, which are • both currently undergoing pilot activities.

The Russkoye field is located in the Yamal-Nenents Autonomous District in • West Siberia above the Arctic Circle; estimated reserves are over 2 billion

barrels of oil. TNK-BP is testing new seismic processing technology to bet-

ter image the shallow reservoirs where traditionally seismic fold is low and

resolution poor.

TNK-BP is evaluating technology for heavy oil recovery and performing fea-• sibility studies for the development of Russkoye. During successful 2007 pilot

activity, two new horizontal wells with progressive cavity pump completions

were tested and showed initial production rates of over 100 tons/day per well.

An exploration well aimed at testing the potential for lighter crude in deep • reservoirs will be completed in 2008.

For 2009, technology pilots are being planned to test enhanced oil recovery • options.

At the Vanyogan field sustained well testing over the two past years has • proved viscous oil production potential.

Several horizontal test wells were drilled during 2007 pilot activities at Vanyo-• gan. Good initial production rates were recorded.



INTERNATIONAL OPPORTUNITIES

Initially, the geographic scope of TNK-BP’s business activities was focused • on the territory of the Russian Federation and Ukraine. Subsequently the

shareholders have agreed that the company may pursue economically

attractive opportunities in certain other countries – especially those where

TNK-BP may be able to deliver unique skills, experience and competitive

advantage. These include:

Venezuela

In the second half of 2007, TNK-BP signed an agreement with the Venezuelan • state company Petroleos de Venezuela S.A. (PDVSA) to conduct a joint re-

serves certification study for the Ayacucho number 2 block onshore in the Ori-

noco delta. The initial term of the agreement is for 18 months from the date of

signing and a joint working group has been established. If this work proves suc-

cessful to both parties, it may subsequently lead to a joint venture with PDVSA.

Turkmenistan

TNK-BP is interested in evaluating business opportunities, particularly in • some onshore mature Turkmen fields where its successful Russian mature

field experience can bring particular benefits to Turkmenistan. To date no

specific deals have been agreed but this work is ongoing and we have es-

tablished a representative office in Turkmenistan.

Kazakhstan

TNK-BP is also considering suitable business opportunities in Kazakhstan. •


OILFIELD SERVICES

Oilfield Services (OFS) has almost completed the divestments of non-core • services started in 2003-2004 and is now entirely focused on enhancing

the efficiency and value of its services for Upstream. OFS portfolio currently

includes four core activity sets:

Drilling; –

Sidetracking; –

Capital and current well workovers; –

Cementing. –

There are currently ten companies in TNK-BP’s OFS – six operational and • four asset management companies.

In 1Q 2008 over 7,000 people were employed in OFS. •

In 2008 we plan to continue improving the management of our core services. • We will further consolidate OFS assets through organizational changes and

optimize ownership of assets (a certain number of drill rigs have already

been purchased by OFS from the company’s Upstream companies).

OFS long-term objectives include improved efficiency and quality of services, • leadership in HSE, and development of internal competitive advantages.

Some results from 2007 include: 729,000 meters drilled, 359 wells handed • over to the client, in excess of 11,700 capital and current well workovers

completed.

The first phase of a comprehensive rig modernization program is complete, • with over $130 million invested in technical upgrade of equipment. This

program resulted in improved drilling efficiency and work safety and reduced

drilling cycle. In addition, eight new pulling rigs were acquired in 2007 for well

workovers.

As a result of recent tenders, long-term contracts with Upstream now ac-• count for 49% of OFS total drilling and sidetracking work, and for 65% of its

well workover operations.



During 2007, we introduced Enterprise Wide Risk Management at OFS • subsidiaries, performed an audit of the rig fleet, made substantial progress in

reducing the number of major and serious incidents per 200,000 man-hours,

and launched a new program of cooperation with educational institutions in

Russia.

Commencing in 2008, drill rigs that are not currently used by TNK-BP will • be reactivated, upgraded and refitted, and drill crews recruited and trained

to provide services to third-party customers. The project will enable OFS to

develop the skills necessary to succeed in a competitive market, win market

share, build a reputation as reliable and efficient contractor, and increase

earnings. In 1Q 2008 two drill crews commenced work for third parties.

We continue to improve the Quality Management System which has been • implemented to ensure continuous improvement in quality of services de-

livered to Upstream. Quality Directors responsible for delivering this system

have been placed in each service company. Regular annual audits since

2005 show continuous improvement in the quality of services. One important

achievement is a substantial reduction in the number of major and serious in-

cidents in the drilling and well workover segments in 2007 compared to 2006:

In 4Q 2007 OFS introduced a Quality Passport which will be issued to around • 7,000 employees in OFS and the regional operating units. The Quality Passport

serves as a record for each employee’s certification and training. The pass-

ports demonstrate the company’s commitment to training, HSE, and a “one

company” spirit, and provide management with a tool to monitor training gaps

and recognize individual contributions and achievements.


In 1Q 2008 OFS launched an IT project entitled “Quality Monitoring System”. • Its function is to automate the gathering and storage of information on inci-

dents related to services quality, calculation and visualization of companies’

quality indicators, as well as to support the maintenance and control of Qual-

ity Passports.

In Q3 2007, OFS launched a web-based knowledge sharing portal INFORM. • Since the launch of INFORM work has been carried out to replace the com-

munication channels with modern satellite channels for robust data transfer.

INFORM makes the following operations available:•

Real-time generation of daily drilling reports, which are fed into the system –from a computer by the foreman at the rig, bypassing the Central Dis-

patch Service.

Storage of all drilling data in a single database to produce any reports –required, including upon the request of Upstream.

Operations forum, where foremen can discuss urgent issues on the spot. –

Notification of incidents and lessons learned, making the information –available to all drilling foremen and thereby enabling them to avoid similar

incidents.

Over 40 operating drill rigs have been connected to INFORM to date.•



SUPPLY CHAIN MANAGEMENT

TNK-BP spends over $6 billion a year on goods and services in Russia. Ninety

percent of this is contracted domestically. Traditional purchasing on request to

meet internal demand is now replaced by supply chain management that gives

TNK-BP Supply Chain management (SCM) an important role in connecting

markets with internal business requirements, identifying value drivers in supply

chains and managing suppliers and contractors to deliver the best value for the

company.

Spend in Upstream sectors:

* MRO – materials for maintenance, repairs, and operations


Supply Chain strategy

In 2004 we developed the TNK-BP Supply Chain strategy with the vision to de-

velop a best-in-class supply chain system by:

Focusing on generating value from key sectors of procurement by creating • cross-functional sector teams.

Measuring and managing contractor and supplier performance.•

Developing effective flexibility and transparency processes into our Supply Chain.•

To fulfil this strategy we have made commitments to improve our processes,

systems and capabilities and have delivered significant progress:

Currently there are 11 cross-functional sector teams operating in critical up-• stream sectors (drilling and drilling services, sidetracking, workover, seismic,

fracturing, tubulars, perforating and logging, capital construction, chemicals,

mean time between failure, and power generation) and covering about $3.8

billion of spend. These teams monitor key markets and develop TNK-BP

strategies on how to place our demand most effectively in terms of overall

value delivery.

In line with our strategy, we are moving towards longer-term relationships • with vendors that allow for better pricing, enhanced quality through technical

cooperation and which encourage our partners to invest into innovation and

development. We were the first company in Russia to have signed a long-

term contract for pipe supplies with TMK, the world’s second largest pipe

manufacturer. This contract has now been expanded and extended for a

further five years at a value of approximately $2 billion.



Currently we are aiming at achieving about 60% coverage by long-term con-• tracts of high spend and critical materials and about 55% of key upstream

services. TNK-BP were the first in Russia to issue large scale long-term ten-

ders for drilling, workovers and sidetracking.

At the end 2007 TNK-BP awarded long-term contracts totaling over $3 billion • for drilling and workovers, including $1 billion in long-term contracts for TNK-

BP’s own drilling and workover companies. The scope covers over 60 drilling

rigs and 300 workover rigs to support its upstream operations.

Among the winners there were two new players for the Russian market – • Weatherford and Nabors. They plan to mobilize modern high tech rigs in

Q3 2008.

Due to the long-term contracts for workover we now have the ability to use • specialized contractors for fishing and well killing to drive operational effi-

ciency.

The Supply Chain Excellence (SCE) program launched last year is aiming to • structure the company’s demand and to place it in the marketplace in such a

way that TNK-BP derives the maximum benefit in terms of cost, performance

and value. There are three major initiatives within the SCE program:

Organization structure development –The changes are aimed at moving execution closer to the business whilst

leveraging the buying power of TNK-BP. This will accelerate the work of

our sector and sourcing teams. The changes will broaden supply chain

capability across TNK-BP with new SC teams in both Upstream and

Downstream.


Business Processes and Systems Program –In our procurement practices we strive to combine the requirements of

transparent, defined processes coupled with front-end controls with the

need for flexibility and delegation of authority to individuals capable to

make the best business decisions.

Automation is essential to connect internal demand to markets. In 2007

we launched new systems for P2I (Purchase-To-Invoice), Materials Man-

agement and Materials Catalogue. Benefits of automation include: a) data

integrity (no errors and paper work); b) time (the purchase order in on

Buyers’ desk in 24 hours with MRP* already done).

Work is ongoing to create a unique system in the Upstream which will

integrate forecasting, planning, demand management and purchasing

into a single system (Group Finance and Logistic – GFL). The program

commenced in January 2008 and is expected go live in July 2008 in Nizh-

nevartovsk.

Capability development –TNK-BP were the first in Russia to implement a large scale world-class

training program in supply chain management. In this undertaking we are

supported by two internationally recognized institutions: the Chartered

Institute of Procurement and Supply (CIPS) and the Accenture Supply

Chain Academy.

Currently we have over 700 employees using the Supply Chain Academy

courses online and 240 employees who have successfully completed the

CIPS classroom training. We now have 195 individuals certified as re-

sponsible buyers by CIPS.

* Material Resource Planning is a software-based production planning and inventory control system used to manage manufacturing processes.



The Supply Chain Excellence program is expected to continue for approxi-• mately two years.

Theme Benefit

Organizational

structure

A professional SC community with clear segregation •

of roles

Proactive and responsive organization, which •

understands both the business and the market

Enables engineers to focus on engineering•

Empowered sector and sourcing teams•

Business

processes

and systems

Flexible and responsive demand planning•

Supporting strategic long-term contracting•

Increased leverage in the market place•

Increased procurement transaction efficiency•

Standardization of financial processes•

Transparent management information•

Capability

development

Improved supply chain capabilities and skills•

Use of professional judgment in place of rigid rules•

Motivate staff by offering career development •

opportunities

Underpins strategic procurement•

In December 2007 Newpoint Consulting performed an independent bench-• marking of HQ SCM activities for Upstream. In areas we were focused on

(which are Upstream and corporate procurement) it ranked TNK-BP 2nd out

of 19 in the oil and gas sector – ahead of BP and Shell. TNK-BP was ranked

14th from 197 organizations overall.

Downstream

4141DOWNSTREAM


REFINING

In refining we have invested to improve the integrity and condition of the operat-• ing plants in our refineries. The actual 2007 integrity investment of $17 million will

more than double in 2008. The overall investment in our refineries in 2007 was

$140 million. The company is planning to spend nearly twice as much in 2008.

The refineries continue to operate at a throughput close to maximum. The • planned crude throughput for our Russian refineries in 2008 is over 29.5 mil-

lion tons, and together with Lisichansk Refinery in Ukraine – 34.5 million tons.

We have increased our average refining availability from 85% in 2003 to almost • 92% in 2007. 2008 shall see the operational availability index at 94%, and we are

driving toward international benchmark levels of 95-96% in the next two years.

We are gradually reducing production of fuel oil through investment projects • such as visbreaking and maximizing bitumen production.

Over the last two years, we launched production of several new and cleaner • products at our refineries, including low-sulphur gas oil at Ryazan, Lisichan-

sk and YANOS refineries, M-grade gasoline at Lisichansk and BP Ultimate

gasoline at Ryazan.

Future investments will expand our production capability for low-sulphur • diesel and Euro spec gasoline. In Q3 2008 Ryazan Refinery will start produc-

ing 1.7 million tons/year of 10 ppm diesel fuel. The company is investing $50

million in the project. Currently implementation of the isomerization project at

Saratov Refinery is in progress, which will enable production of 400 thousand

tons of Euro-4 gasoline per year. The estimated project budget is $45 million.

We are improving our ability to optimize our gasoline blending by reducing • quality (octane) giveaway while maintaining the specification requirements.

Recently, we completed the implementation of the Laboratory Information

Management (LIMs) system at all our refineries (including YANOS).

42DOWNSTREAMTNK-BP INFORMATION SHEET

In 2007, we had major turnarounds at two refineries. We successfully com-• pleted a simultaneous turnaround of 17 units at the Ryazan Refinery (an

unprecedented scale – during previous turnarounds maximum eight units

were shut down), including the deep crude conversion VGO (vacuum gasoil)

complex. We also performed the successful and safe dismantling of the old

FCC (Fluid Catalytic Cracker) unit located within close proximity of other live

and operating facilities. Over 2,600 contractor employees and 500 refinery

employees were involved in the turnaround with a budget of over $47 million.

Lessons learned from the Ryazan Refinery were incorporated into the plan-

ning of the Saratov Refinery turnaround, which commenced in October and

was successfully completed within the original budget of $4.5 million in early

November. During the turnaround, all refinery units had to be shut down,

and over 850 contract staff worked on the site at peak. Overall, over 680,000

man-hours were completed without any LTIs (Lost Time Incidents). We are

also working with Rostekhnadzor to gain approval for extended turnaround

cycle lengths for some of our units.

In July 2007, we completed implementation of the SAP project at Ryazan, • delivering a major improvement to business processes, including procure-

ment, maintenance, finance, and HR. A team to implement SAP at the Sara-

tov Refinery will be mobilized during 2008.

In the fall of 2008 we are planning to conduct a turnaround of most large • units at Lisichansk Refinery. The planned budget is $6.2 million. During the

second half of the year we will perform work at 12 units of Ryazan Refinery

within a turnaround budget of approximately $40 million.

Over the next five years, we plan to invest more than $1 billion in refining. • Essentially all of this will be directed towards maximizing the value of pro-

duction from the existing assets. In order to detail our long-term plans we

are currently modifying the master-plans for each refinery to determine tech-

nical development options for our refineries for the next ten years.

In future, we will focus on improving our energy efficiency through reduced • consumption and reducing operating overheads through greater use of

advanced technologies.

43DOWNSTREAM


MARKETING AND SALES

In marketing, TNK-BP pursues a dual-brand retailing strategy with each brand • targeting different client segments. The BP brand is deployed in highly urban-

ized markets such as Moscow and St. Petersburg and recently Kiev while

the TNK brand is deployed in these markets as well as in selected regions of

Russia and Ukraine. We plan approximately $500 million of organic invest-

ment into our existing marketing assets over the next five years.

The TNK brand operates in Ryazan, Tula, Kaluga, Kursk, Karelia, Moscow, • Rostov, Saratov, Kiev, Krasnodar, and Saint-Petersburg. It has undergone

recent renovation resulting in a new look for TNK retail sites. The goal was to

create a distinct and relevant brand positioning, which will increase customer

trust and loyalty as we improve the quality of services and products. By 1

September 2008, 375 TNK own sites in Russia will have the new look and

feel, new operating standards, and new shops.

In addition to company-owned sites, the TNK brand is also marketed through • “jobbers” – these companies are supplied fuel, carry our brand and agree to

comply with our standards. Jobbers allow us to extend our brand into areas

where we do not invest capital ourselves. Currently, there are 529 branded

jobber sites in the TNK retail network. We currently have 115 jobber sites with

the new TNK look and feel, and plan to have over 170 of these by the end of

the year.

TNK-BP is expanding its retail presence in a number of regions:•

In St. Petersburg TNK-BP plans to build 60 retail sites at a total cost of –$150 million over the next three-five years. Of the total, 40 sites will carry

the TNK brand, while 20 will sell BP-branded fuels. We have completed

the first three TNK sites, which were launched in 2007, with nine other

sites under active design and construction. The first BP site in Saint-Pe-

tersburg commenced trading in December 2007 with the Grand Opening

taking place in February 2008.

The 50th BP site in Moscow region was opened in March 2008. –


In 2006, we launched a Logistics Transformation Project to support our fuels • marketing. The project will rationalize our depot network, upgrade all strate-

gic depots to international standards, including bottom loading and automa-

tion, and renew our truck fleet. By end 2007 renewal of 50% of our trucks

was completed. In 2008 design and reconstruction works for over 13 depots

are in progress. Overall, we plan to invest over $65 million in this initiative

between 2008 and 2012.

In September 2006 TNK-BP launched BP Ultimate unleaded fuel with oc-• tane grades 95 and 98 at all BP’s retail stations in Moscow and the Moscow

Region. The new fuel delivers increased engine power, cleans engine de-

posits and prevents their formation in the future, provides fuel economy, and

reduces emissions. Since launch, over 48% of A95 customers have switched

to Ultimate 95. The sales of Ultimate 98 have grown by more than 25% com-

pared to the sales of regular A98 fuel before launch. Currently one in every

three of our BP fuel customers is an Ultimate customer.

We plan to launch a TNK branded fuel in Moscow and Ryazan during • 4Q 2008.

Malina brand loyalty program: TNK-BP was one of the founders of the Ma-• lina coalition brand loyalty program, the first of its type in Russia, launched in

the Moscow retail market on 3 April 2006. The program was designed as a

unique system for identifying, acquiring and retaining customers by obtaining

a deeper understanding of the needs of current customers.

BP brand retail sites are Malina co-participants with eight other market lead-• ing retailers: Ramstore supermarkets, Beeline telecoms, “36,6” pharmacies,

Ile de Beaute perfumeries, Rosinter casual restaurants, Raiffeisen bank,

MONE beauty salons and OZON e-shop. To date over 3 million cards have

been issued to customers and 46% of BP turnover is coming though Malina

cards owners.

The Retail Automation Project was introduced to support new business • processes in retail and to employ the latest retail automation technology.

Retalix’s solution for Point of Sale, onsite back office and central retail man-

agement system went live in November 2006 in Saratov. This was followed

by a rollout program for an additional seven regions. Currently the system

is operating in 197 sites in Saratov, Kursk, Ryazan, St-Petersburg, Tula and

Moscow. We are currently on track to have 300 sites utilizing the Retalix

system by the end of 2008. This will improve speed of customer service and

unify all TNK retail sites onto a single IT support system.

45DOWNSTREAM


Lubricants – TNK-BP is in the process of designing a new lubes plant which • will double today’s production capacity. This is being done in parallel with the

several projects aimed at repositioning the TNK Lubes brand and making it

more recognizable to target clients as well as projects aimed at optimization

of supply of base oil.

Bitumen – since its inception the business has restructured sales channels • and as a result doubled bitumen EBITDA. Today major projects include:

upgrade of production units at Ryazan and Saratov which will produce high

quality bitumen according to Russian and European specs; development of

bitumen storage network in our focused regions; upgrade of railcar fleet by

introducing new insulated bitumen railcars and development of export routes.

Aviation – TNK-BP already being one of the largest suppliers of jet fuel to • Moscow’s key Sheremetyevo and Domodedovo airports, is searching for op-

tions to expand its operations in other key Russian and Ukrainian airports with

the main aim to fuel planes into “wing-tip” and provide service to customers

directly.

Bunkering – TNK-BP is actively exploring marine bunkering opportunities in • ports west of the Urals. We have recently set up a dedicated production unit

“Marine”, which will sell marine fuels to end users, targeting primarily internal

waterways, ports of Novorossiysk and St. Petersburg.

SALES, TRADING AND LOGISTICSA tolling arrangement with the Lisichansk Refinery (Ukraine) has been started • from February 2008. 210 thousand tons of crude volumes were refined in Feb-

ruary-April. The tolling arrangement involves crude from Russia being exported

for refining at Lisichansk Refinery and products are imported back to Russia.

This arrangement allows us to provide additional supply of fuels into the Rus-

sian market while maintaining the supply of product into the Ukrainian market.

Supply department in STL was reorganized and a new Crude and Products • management team was established within Supply. This new group is respon-

sible for execution of the existing delivery schedule and control all movement of

our crude and products deliveries to end customer.

STL launched a new product for the market in February 2008 – the first 1000 • ppm gasoil in Russia. At the moment it is delivered to Southern destinations

and returns an additional $5-10/ton.


UKRAINE

The main goal of our Ukrainian operations is to build a self-sufficient custom-• er-oriented business in the TNK-BP portfolio adding value through best-in-

class refining, STL and marketing channels.

Significant improvements in corporate governance of our Ukrainian opera-• tions have been delivered. We have simplified TNK-BP Ukraine corporate

structure and have fully consolidated commercial activity in Ukraine, resulting

in increased transparency and efficiency of our operations. A second bank-

ruptcy process for OAO LINOS is now in progress, aiming to address legacy

creditor issues from this bankrupt entity in accordance with the Ukrainian

legislation.

We have invested $41 million to complete several major projects at our • Lisichansk Refinery, including new Isomerisation, Bitumen and Hydrotreater

unit for 50 ppm gasoil production. Furthermore, our total 2008 investment at

Lisichansk is expected to be about $35 million, including $10 million invested

in refinery integrity and industrial safety.

The next turnaround for Lisichansk Refinery is to be carried out in Septem-• ber-October 2008.

A significant improvement of market position is planned in 2008 due to • increasing share of branded COCO (company-owned, company-operated),

B2B and JOJO (jobber-owned, jobber-operated) sales up to 30% of total

domestic sales.

A leading position in Kiev region market was recently secured through the • acquisition of an independent retail chain of 36 filling stations and two depots.

We continue to work with the Ukrainian government to develop a business • environment supportive of a viable long-term Refining and Marketing sector

in the Ukraine.

47DOWNSTREAM


4949GAS


TNK-BP’s goal is to substantially enhance its gas business as a portion of its over-

all business and transform itself from an oil group into a major oil and gas group.

TNK-BP aims to achieve this by exploiting it’s significant associated natural gas

resources through a gas utilization enhancement plan to take total gas utilization

across the company to over 95% by the end of 2011 and through developing its

gas or gas and condensate projects such as Rospan. The major activities under-

way in 2008 to support TNK-BP’s Gas Business strategy include:

Associated gas

TNK-BP has embarked on a commitment to invest more than $1 billion over the • next five years to materially enhance its overall associated gas utilization to a

rate in excess of 95% by end 2011. This program will involve the construction

of new gas gathering and processing facilities, gas re-injection as well as the

construction of “own use” new gas-fired electric power facilities.

In 2007 the company produced 12.5 billion cubic meters of associated petro-• leum gas (APG). Of this volume, 1.1 billion cubic meters was consumed for

internal needs and 7.43 billion cubic meters were processed. The APG utiliza-

tion rate was 69%.

On 15 November 2006 TNK-BP and SIBUR Holding (Gazprom subsidiary) an-• nounced the creation of a joint venture to process associated gas produced

by TNK-BP and other oil and gas companies in the Nizhnevartovsk Region.

The parties now own 49% and 51% in the new company Yugragazpererabotka

respectively and equally share management control.

Under the terms of the venture, TNK-BP supplies associated gas from its fields • to the gas processing plants at Belozerny and Nizhnevartovsk (which have

been transferred to the JV by SIBUR).TNK-BP receives 100% of dry lean gas

produced from the associated gas and SIBUR receives 100% of liquid prod-

ucts. Dry lean gas is then supplied to the Nizhnevartovsk state district power

plant, which delivers electricity to the city of Nizhnevartovsk and other consum-

ers. This JV is helping TNK-BP to monetize the associated gas it produces and

reduce gas flaring. Improving the gas utilization rate will also lead to the reduc-

tion of greenhouse gas emissions.

In May 2007, an incident took place at the Belozerny Gas Processing Plant (GPP), • which led to the suspension of operations of one of the two processing units.

This contributed to the decline of TNK-BP’s overall APG utilization rate in 2007.

Yugragaspererabotka invested 1 billion rubles in reconstruction of the unit, which

was launched again in March 2008. Once the unit resumed operations, the GPP

began operating at full capacity of 4 billion cubic meters/year.

50GASTNK-BP INFORMATION SHEET

Additional measures were put in place to enhance safety at the plant. They in-• cluded new alarm systems and emergency shut down procedures. A new HSE

awareness program was launched to motivate employees to pay greater atten-

tion to safety issues. Regular audits are being conducted to enhance the facility’s

safety awareness, and improve performance.

Yugragazpererabotka is considering options to build an additional processing unit • at the Belozerny GPP, which would increase processing capacity by another 1.5

billion cubic meters in 2011.

The Nizhnevartovsk GPP (also part of the Yugragazpererabotka JV) plans to com-• plete reconstruction and launch the plant’s third gas absorption unit by the end of

2008. This will enable the facility to process an additional 750 million cubic meters.

All together, the commissioning of the third unit, construction of the third compres-

sor station and expansion of units at the Belozerny GPP will provide additional

processing capacity of 3 billion cubic meters/year of associated gas by 2011. This

will be in addition to the 8.280 billion cubic meters of currently available capacity.

Associated gas regional overview

Power

In September 2007, TNK-BP and power generation company OGK-1 signed a • shareholder agreement laying the foundation for a joint venture. This JV will build

51GAS


the third unit of the regional power plant in Nizhnevartovsk. OGK-1 will contrib-

ute two existing blocks of the Nizhnevartovsk power plant (capacity 1,600 MWT)

and TNK-BP will contribute $320 million. OGK-1 will control 75% in the JV and

TNK-BP will have a 25% stake.

TNK-BP currently supplies 3 billion cubic meters of gas per year to the existing • blocks of the power plant. Once the new block is completed, TNK-BP will sup-

ply an additional 1.2 billion cubic meters of gas per year to the 3rd block under

a 15-year agreement. In addition, TNK-BP plans to purchase approximately 6

million kilowatt-hours per year from the 3rd block under a parallel 15-year agree-

ment. Commercial agreements are due to be signed in 2008.

Rospan

TNK-BP owns a 100% interest in Rospan, a gas and condensate production as-• set located in Yamal-Nenets Autonomous District of Northern Russia.

Rospan’s commercial gas sales reached approximately 1.5 billion cubic meters • in 2005 on a gross basis and approximately 2.7 billion cubic meters per year in

2006 (i.e. a 80% increase in annual sales volumes).

In 1Q 2008 TNK-BP agreed with Gazprom to sell 2.7 billion cubic meters of • Rospan’s gas into the Gazprom pipeline system in 2008. In addition, Gazprom sub-

sidiary Mezhregiongaz and Rospan agreed to establish a JV to market Rospan’s

gas. Another purpose of these steps is to create a basis for further development of

Rospan, and enhance its production over time.

TNK-BP invested approximately $58 million of capital expenditures in 2006 and • $105 million in 2007 to further Rospan’s activities. The investment will support

Rospan’s ongoing operations through upgrades of existing facilities and the com-

pletion of new wells, and interpretation of 3D seismic surveys.

Kovykta

On 22 June 2007 TNK-BP, Gazprom and BP executed a “Heads of Terms” agreement, • the provisions of which included the sale of TNK-BP’s interests in RUSIA Petroleum and

East Siberian Gas Company (ESGC) to Gazprom for a price of between $700-$900 mil-

lion (to be finalized once necessary due diligence and adjustments have been made).

TNK-BP has an option to re-enter the project at blocking stake level under certain condi-

tions. This sale is part of a broader agreement between TNK-BP, Gazprom and BP to

invest jointly in major long-term energy projects in Russia and around the world.

People

5353PEOPLE


TNK-BP employs approximately 65,000 people in Russia and Ukraine. This includes

93 expatriate staff and 160 staff seconded from the BP shareholder, or approxi-

mately 0.3% foreign professionals.

Compensation and benefits

TNK-BP applies a holistic approach to the issue of employee motivation through • its Total Reward System. Under this approach, the employee compensation

package is not limited simply to monetary compensation (salary and bonus), but

includes the whole range of instruments, starting from non-cash benefits, through

training and development, recognition and awards, and even less tangible factors

such as corporate culture, work-life balance, and safe and convenient working

conditions.

A company-wide salary and reward system has been developed, harmonized • and implemented. It is based on the Hay Group Job Evaluation methodology, a

global benchmark for organizations of the size and complexity of TNK-BP.

Salary levels are compared, on an ongoing basis, with a peer group of local and • international companies operating in the Russian Federation. We conduct regular

monitoring of the competitive labor marketplace, using independently-provided

data.

Short-Term Incentive payments (annual performance-related bonus) are provid-• ed to employees company-wide and linked to performance at corporate, busi-

ness unit, and individual levels.

A Long-term Incentive Plan geared to sustainable business success, applies to • more than 900 executives, more than half of whom work in the regions.

A competitive non-cash benefits package applies to the majority of staff, and • includes:

non-state pension plan; –

targeted housing program; –

voluntary medical insurance; –

life and accident insurance; –

sanatorium and spa treatment; –

a growing range of other social benefits and programs. –

54PEOPLETNK-BP INFORMATION SHEET

Training and development

Building organizational capability represents a priority area for the company’s man-• agement. Providing opportunities for employee development plays a significant

role in ensuring and realizing organizational potential.

In 2007, TNK-BP began implementing some essential development tools, such as • Leadership Competencies, Personal Development Plans, target learning pro-

grams and professional competencies for certain functions. In-house organization-

al development programs are aimed at developing leadership capability within the

whole company, which will allow managers and executives at all levels to improve

their performance, and support the company’s ambitious business objectives. The

architecture and list of these programs are:

“Three Horizons” – development program for university graduates, build- –ing technical and business skills among over 900 “Young specialists”.

“Perspective” – aiming to equip field supervisors and others at the “front –line” of management with the tools to lead teams more effectively (450

managers participate each year).

“Ascent” – providing tailored opportunities to accelerate the development –of 100 individuals.

“New Height” – aimed at improvement of managerial and leadership skills –of top managers of core Oilfield services segments.

“Active” – create a common business environment and skills development –underlain by standardized business processes and language.

“Creating a World Class Company” – developed by INSEAD especially for –TNK-BP; provides exceptional opportunities for executive development. Grad-

uates include 250 current TNK-BP executives with senior leadership potential.

55PEOPLE


As well as providing such leadership programs, the company pays consid-• erable attention to professional development of employees. More than 300

programs, typically 2-3 day seminars, are available to employees company-

wide. These address a broad range of capabilities, from technical and busi-

ness-specific competencies to teambuilding and other interpersonal skills.

More than 40,000 man-days of professional training and development were • delivered in 2007.

In 2007, TNK-BP recruited 545 graduates fresh out of leading universities • across Russia and Ukraine, 80% with a five-year ‘specialist’ degree in oil

and gas.

In 2007, in partnership with the Russian Ministry of Education and Science, • TNK-BP launched an innovative grants program, which provides significant

financial support to university projects selected on merit by open tender. In

2007 TNK-BP supported 18 projects from ten universities for $2.5 million in

nine different areas. All these projects were aimed at enhancing the prepara-

tion of oil and gas specialists.

In 2008, TNK-BP received 40 project proposals from 12 leading Russian • universities for a total amount of $7.0 million. The company will evaluate the

projects and announce the winners at the end of May 2008.

Company experts have begun giving master classes in key engineering and • commercial disciplines for fourth and fifth year students of TNK-BP’s partner

universities. TNK-BP conducted 34 master classes in six universities during

the 2007-2008 academic year and plans to hold as many next semester.

TNK-BP sponsors and recruits a growing number of postgraduates from • petroleum-related Master’s degree programs, delivered in partnership with

leading European institutes.

In 2008, TNK-BP established a world-class Geoscience Master’s Degree • Program at the Tyumen State Oil and Gas University. The program will deliver

a curriculum linked to a leading international university, with the ultimate goal

of graduating geoscientists ready to manage the growing complexity of TNK-

BP’s technological solutions to key oilfield challenges.

56PEOPLETNK-BP INFORMATION SHEET

In 2007 TNK-BP created and continues to develop a modern training centre • at the Irkutsk State Technical University providing further training for students

and for employees of Verkhnechonskneftegaz in key disciplines to fill organi-

zational capability gaps in the region.

By providing such targeted financial support, TNK-BP helps to improve the • qualifications of Russian university graduates in oil production and refining,

creates a competitive environment for universities, and strengthens the links

between educational institutes and business.

Knowledge interchange between Russian and expatriate professionals is • catalyzed through:

secondment of high-potential Russians to BP locations outside Russia - –34 to date;

short-term training assignments at BP (less than 5 months) - 90 to date; –

secondees from BP, transferring skills to Russians in TNK-BP - 160; –

intensive programs to develop both English and Russian language capa- –bility, with specific individual targets and independent testing and certifi-

cation.

57PEOPLE


Culture and Inclusion

In 2006, a unified, company-wide awards program was launched in 2006. • This includes regional and subsidiary awards, as well as a company-wide

Chairman’s award for excellence in HSE and an award for outstanding

achievements in Technology. For the 2007 Awards program, 114 submis-

sions were received: 63 in the area of HSE, and 51 in Technology.

Chairman’s award for HSE – won by Khokhryakovskoye Associated Gas –Project “Putting out the flares – turning emissions into revenue”.

Award in technology – won by ‘Pumping up the life with breakthrough –pump performance’.

As in past years, an employee opinion survey was completed in December • 2007 at subsidiaries in nine regional locations across Russia and Ukraine and

in the corporate center in Moscow. The survey included interviews with local

management, focus groups, and 4,239 questionnaires completed anony-

mously by a broad cross-section of employees. Results can be summarized

as follows:

Employees now view TNK-BP as a well-established, fully operational –company. Overall perceptions of the company (selected from a range of

options) are characterized by ‘stability’, ‘growth’ and ‘perspectives’, with

‘difficulties’ in fourth place.

TNK-BP’s unique culture, combining the best of Russian and global busi- –ness approaches, is seen as a strength.

In the view of most respondents, TNK-BP continues to show commitment –to the principles of business ethics, human and environment safety priori-

ties, transparency, compliance with the law and social responsibility. In

their view, these are the company’s distinctive features.

Internally, information now flows from TNK-BP sources rather than exter- –nal media. Employees cite company publications, announcements and

their direct supervisor as their usual sources of company news, rather

than newspapers and television.

Health, safety and environment

59HEALTH, SAFETY AND ENVIRONMENT


TNK-BP strives to ensure that all its activities are conducted with proper re-

gard for the safety of its employees and the environment. TNK-BP’s integrated

Health, Safety and Environment (HSE) Management System is based on com-

pliance with the statutory requirements in this area and voluntarily established

standards supported by the company’s HSE Policy. The company’s goal in HSE

is no accidents, no harm to people, and no damage to the environment.

ENVIRONMENTAL PROTECTION

Environmentally, TNK-BP is focused on three key objectives: land remedia-• tion, associated gas utilization, and pipeline integrity management.

Land remediation

A program to remediate the “legacy pollution” (land polluted during previous • years of operation by heritage companies or prior license holders) and de-

commissioning industrial facilities has been underway since 2005. As a result,

more than 1,700 hectares of land have been fully remediated and handed

over to authorized government commissions at a cost of close to $50 million.

Commencing 2006, obsolete and defunct facilities at Ryazan and Saratov

refineries have been successfully dismantled as part of the decommissioning

of Downstream operational facilities.

The company plans to remediate legacy pollution by 2014.•

60HEALTH, SAFETY AND ENVIRONMENTTNK-BP INFORMATION SHEET

Associated gas utilization

Associated gas utilization is an important strategic area for TNK-BP, since • it leads to the reduction of atmospheric emissions and ensures compliance

with the company’s license obligations. The company continues to implement

programs to increase the associated gas utilization rate in Nizhnevartovsk

and Orenburg regions. Plans for the next two years include:

Expansion of the Zaikinsky Gas Processing Plant and Pokrovsky Gas –Compressor Station in the Orenburg Region.

Construction of a gas collection system in the Nizhnevartovsk Region. –

Further expansion of the Nizhnevartovsk and Belozerny gas processing –plants.

Total capital investment in associated gas utilization projects is likely to • exceed $1.1 billion by end 2011 to reach 95% utilization rate. This will allow

TNK-BP to reduce atmospheric emissions caused by flaring of associated

gas as well as ensure its commercial utilization.

Extinguishing flares and building gas pipelines has allowed a number of JSC • “Orenburgneft” fields to comply with emissions standards. Plans are also in

place to commission newly constructed pipelines at Skvortsovskoye, Kruto-

yarskoye, and Kurmanaevskoye fields.

Pipeline integrity management

TNK-BP operates approximately 25,000 km of infield pipelines. About 40% of • the pipelines were commissioned more than 15 years ago.



A five-year Pipeline Integrity Management program amounting to $1.7 billion • has been in effect since 2004 to reduce the number of leaks from the com-

pany’s pipelines. The program covers two areas:

replacement of worn-out pipelines; –

implementation of new technologies to improve condition and protect –existing pipelines.

By the end of 2007, $380 million had been spent on pipeline replacement • and corrosion control. Since 2004, 2,650 km of pipelines have been replaced

and 8,600 km of pipelines have been treated with corrosion inhibitors to pre-

vent environmental damage. These activities have led to a 40% reduction of

the total number of pipeline leaks since 2004 and a 35% reduction of spills in

the reporting year since 2006.

Pipeline integrity program 2004-2009 (normalized for divestments)

By 2012 we expect to replace 4,500 km of pipelines and to have treated • 12,500 km of pipelines with corrosion inhibitor.


SAFETY

Employee safety is one of the main priorities for TNK-BP. Operations proce-• dures are constantly improved, equipment is updated, a more responsible

attitude towards work safety is promoted, and management is encouraged to

lead by example.

In 2007 TNK-BP focused on three key activities in the area of safety:•

improving management’s overall safety leadership capabilities; –

raising the level of HSE awareness in contractor management; –

enhancing risk management competencies. –

These activities have resulted in improvement of safety performance indica-• tors as follows:

work-related fatalities decreased by 13% in 2007; –

the number of injuries causing temporary disability per 200,000 man- –hours fell from 0.23 in June 2004 to 0.14 in December 2007.

In 2003, the issue of standard personal protective equipment was identified • as one of the most critical in the company. To address this issue, a targeted

program was introduced across the company. Currently all relevant work-

force are issued a kit of modern and effective winter and summer protective

equipment each year.

A special focus is placed on transportation safety, which was identified as anoth-• er high-risk area. Almost 100% of the company’s drivers have signed a standard

safe driving agreement stipulating their responsibility to comply with the TNK-BP

Technical Standard on Transportation Safety. A seatbelt installation program was

implemented according to plan in the reporting year. More than 15,000 drivers

were trained in defensive or winter driving. In 2007 we conducted a Transporta-

tion Safety Month campaign and organized a conference in Nizhnevartovsk to

discuss its results, engaging representatives of transportation-related contractor

companies. We plan to hold such conferences regularly in the future.



Pilot projects were launched in Orenburg and Nizhnevartovsk regions in 2007 • to implement on-board vehicle monitoring systems.

As a result of these activities fatal traffic accidents decreased from 18 in 2005 • to 8 in 2007 (55% reduction). The traffic accident rate per million km driven

decreased by 21% in 2007.

DAFWCF – days away from work cases frequency –

12 month rolling average

Major and severe VAR (Vehicle Accident Rate)

per 1 million km driven


HEALTH

A five-year employee health program is currently being implemented at • TNK-BP.

In addition, a standard on on-site medical emergency response is being • implemented. More than 30 medical stations at industrial sites have been re-

equipped, over 20 modern ambulances procured, and around 3,500 first-aid

volunteers of the company’s staff trained.

In Orenburg a pilot project to study cardio-vascular diseases and related • incidents at work has been implemented, on the basis of which the company

developed its program for on-site prevention of cardiovascular disease.

TNK-BP was awarded a silver medal at the Health and Safety 2007 competi-• tion held under the auspices of the Russian Ministry for Public Health and

Social Development.



HSE REPORTING

TNK-BP’s HSE reporting systems continue to move towards international • standards. TNK-BP is the only Russian oil and gas company which is an ac-

tive member of the international Oil and Gas Producers Association (OGP)

and prepares reports to OGP standards. In 2007 safety and environmental

reports were prepared for OGP for the third year running.

Reporting transparency

Finance

6767FINANCE


TNK-BP’s business strategy is underpinned by a prudent financial strategy,

which is aimed at achieving business growth objectives while maintaining the

company’s strong balance sheet and enhancing its financial flexibility.

TNK-BP International Ltd

Financial reporting

TNK-BP International Ltd (TIL) publishes annual and half yearly financial • statements on the TNK-BP corporate website and also files its financial state-

ments twice a year with the Luxemburg Stock Exchange, where the com-

pany’s Eurobonds are listed.

Financial statements are based on consolidated accounts for the TIL group • of companies and are prepared under US GAAP.

Financial highlights

$ billion 2006 2007 % change

Total Revenues 35.5 38.7 9%

EBITDA 11.2 9.4 - 16%

Net Income 6.6 5.3 - 21%

Net Income (excl. Udmurtneft divestment effect) 4.2 5.3 +24%

CAPEX 2.3 3.5 +53%

Dividends declared 5.0 2.6 - 48%

ROACE (%) 48% 31% - 36%

Note: 2007 TIL accounts is approved by TNK-BP Board Audit Committee but still awaiting formal Board of Directors approval. Hence figures shown for 2007 should be treated as estimates.

The most significant difference between the two periods is the effect of the • divestment of TIL’s interest in Udmurtneft which was sold in August 2006 as

part of TNK-BP’s portfolio management strategy. In 2006, these assets con-

tributed oil production of 122 thousand barrels/day, and net income benefits

of around $0.4 billion from trading operations, and $2.0 billion as a one-off

gain on divestment.

68FINANCETNK-BP INFORMATION SHEET

The trading environment in 2007 was stronger than 2006 with Urals increas-• ing by 13%, domestic crude prices by 11%, with further support from stron-

ger product markets. Average TIL realizations in 2007 showed an increase

of 15%.

Adjusting for the effects of Udmurtneft sales in 2006 the underlying year-on-• year increase in Total Revenues is 9%.

Production volumes of oil and condensate amounted to 1.452 million barrels/• day for 2007 (excluding Slavneft). After adjusting for the Udmurtneft volumes

in 2006, underlying production levels were largely unchanged year-on-year.

The business environment was affected by other external factors which had • an adverse effect on costs. A 5% appreciation of the ruble relative to the

US dollar caused an increase in dollar terms of ruble denominated costs. In

addition, the business continued to experience the wider effect of inflation in

the oil services sector including both field operations and transportation. The

estimated effect in 2007 is an increase to costs of around $0.7 billion relative

to 2006.

The level of activity related to production operations also increased in 2007. • Additional wellwork, fracturing, and sidetracks contributed to additional costs

of around $0.6 billion relative to 2006.

Relative to the increase in realizations of 15%, costs and other deductions • increased by only 12% year-on-year giving rise to an underlying growth in

EBITDA of 21%.

Income tax expense in 2007 was consistent with that in 2006. The change • in legislation relating to withholding tax allowed the release of a provision of

about $0.2 billion in 2007; this contributed to a slightly lower effective tax rate

of 26% and helped increase underlying net income growth to 24%.

69FINANCE


Debt profile

In 2007 the trend of improving TIL credit ratings continued with a one notch • upgrade from Fitch Ratings to the first step of investment grade BBB- (Sta-

ble). TIL currently has investment grade ratings from Moody’s and Fitch and

remains one notch below investment grade with Standard & Poor’s.

TNK-BP International Ltd credit ratings

and Russia’s sovereign ratings in April 2008

Standard & Poor’s Moody’s Fitch Ratings

Entity Rating Outlook Rating Outlook Rating Outlook

TNK-BP Int Ltd. BB+ Stable Baa2 Stable BBB- Stable

Russia BBB+ Positive A2Possible

upgradeBBB+ Stable

Source: Standard & Poor’s, Moody’s, Fitch Ratings

TIL debt portfolio characteristics are shown in the table below:•

Debt portfolio characteristics 31 Dec 2005 31 Dec 2006 31 Dec 2007

Total debt, $ billion 3.6 6.9 8.5

Net debt, $ billion 2.3 5.2 5.4

Gearing (net debt/net

debt + equity)

21% 34% 30%

Fixed / Floating debt 4% / 96% 22% / 78% 55% / 45%

Long-term debt /

Average portfolio tenor

80%/

2.2 years

70% /

3.4 years

81%/

4.8 years

Unsecured / secured debt, % 50/50 100/0 100/0

In July 2006 TNK-BP placed five- and ten-year Eurobonds totaling $1.5 bil-• lion. This issue constituted the first drawdown under TNK-BP’s $5 billion Debt

Issuance Program established in September 2005 and was voted the best

corporate bond deal in Eastern Europe in 2006 by market participants in

Euroweek magazine.

70FINANCETNK-BP INFORMATION SHEET

In March 2007 TNK-BP placed a further five and ten year Eurobond offering, • raising $1.3 billion. This placement proceeds were mainly used to repay $1.2

billion of short-term debt. As a result the average debt portfolio life rose to

over 4 years increasing share of long-term debt to around 80%.

In October 2007 TNK-BP placed another dual-tranche Eurobond offering, • raising $1.7 billion. The issue was placed in difficult market circumstances

caused by the US sub-prime crisis.

On 6 November 2007 TNK-BP signed a $0.6 billion club term loan facility • with a consortium of leading international banks. The facility has a tenor of

30 months with quarterly repayments after 6 months’ grace period and bears

interest of LIBOR + 0.75% per annum.

TNK-BP Eurobonds characteristics are shown in the table below:•

Issue parameters Series 1 Series 2 Series 3 Series 4 Series 5 Series 6

Listing Luxembourg Stock Exchange

Issuer and Guarantor TNK-BP Finance (Issuer) and TNK-BP International (Guarantor)

Placement

date

July

2006

July

2006

March

2007

March

2007

Oct

2007

Oct

2007

Rate (fixed) 6.875% 7.50% 6.125% 6.625% 7.50% 7.875%

Amount $500 mln $1000 mln $500 mln $800 mln $600 mln $1100 mln

Maturity 5 years 10 years 5 years 10 years 5 years 10 years

Joint Lead Managers

and Bookrunners

Citigroup, Credit

Suisse, UBS,

BNP Paribas

ABN Amro,

Barclays Bank

and Citigroup

Credit Suisse

and UBS

TNK-BP Holding

TNK-BP Holding (TBH) is a Russian registered holding company, created in • 2004 as part of the restructuring of the TNK-BP group. TBH holds the majority

of TNK-BP’s upstream and downstream assets in Russia.

Financial reporting

As required by Russian legislation, TBH prepares quarterly Statutory Ac-• counts; these are prepared in respect of the standalone TBH legal entity

under Russian Accounting Standards (RAS).

71FINANCE


TBH also prepares consolidated Financial Statements for the TBH group • of companies under US GAAP. TBH prepared its first set of US GAAP con-

solidated accounts for 2006 and will continue preparing US GAAP financial

statements on a semi-annual basis.

TBH Statutory Accounts under RAS and consolidated Financial Statements • under US GAAP are published in the Investors section of our corporate web-

site www.tnk-bp.com

TBH holds shareholder meetings twice a year (Annual General Meeting and • Extraordinary General Meeting) to consider full year and half yearly accounts

and to declare annual and interim dividends.

Dividends

An EGM of TBH shareholders held on 28 September 2007 declared divi-• dends of RUR 21.7 billion ($847 million and RUR 1.33 per share) in respect

of financial results for the first half of 2007. This amount represents 100% of

TBH first half 2007 net income as reported in the Statutory Accounts pre-

pared under RAS.

At TBH’s AGM on 15 June 2007, shareholders approved a recommended • dividend payment of RUR 22.3 billion ($861 million and RUR 1.37 per share)

in respect of retained earnings at December 31, 2006.

Auditors

Statutory audit

In 2006, most of the statutory audit work was carried out as an integrated • audit program by BDO Unicon.

In 2007, PricewaterhouseCoopers carried out the statutory audit of nine key • subsidiaries; the rest of the statutory audit program was carried out by FinEx-

pertiza. A similar arrangement will continue in 2008.

Group audit

PricewaterhouseCoopers acted as auditors of the TNK-BP group for 2006 • and 2007, and continue in that role in 2008.

Community contribution

73COMMUNITY CONTRIBUTION


Social investment

In 2007 TNK-BP spent about $148 million on external social programs and • over $93 million on programs targeting staff. Similar to previous years, the

social investments were long-term and consistent and were targeted at

pressing social issues. The volume of social investments is pro-rated with

the scale and growth dynamics of the company’s business.

Growth in social investment

External social programs were implemented in five main areas:•

Support for vulnerable social groups. –

Promotion of a healthy lifestyle. –

Support for education and opening up young people’s potential. –

Preservation of Russia’s cultural and historical heritage. –

Implementation of public environmental programs. –

Last year TNK-BP signed around 40 cooperation agreements with local ad-• ministrations in the regions where the company operates (Tyumen, Orenburg,

Saratov, Irkutsk, Ryazan, Novosibirsk Oblasts, Krasnoyarsk Territory, Khanty-

Mansiysk and Yamalo-Nenets autonomous districts). The framework of these

agreements covered implementation of various regional programs targeted

at both general social issues and those specific to each region.

74COMMUNITY CONTRIBUTIONTNK-BP INFORMATION SHEET

In line with its consistent and long-term approach to social investment, TNK-• BP continued supporting its major social investment projects started in previ-

ous years:

Preservation of St. Petersburg’s cultural heritage and restoration of histori- –cal buildings through long-term financing of two programs: “Restoration

of cultural heritage” and “St. Petersburg’s facades 2005-2007” to recon-

struct the city’s historical centre ($10.4 million paid in 2007).

Financing the construction of Olympic sites in Sochi, capital of the 2014 –Winter Olympics ($10 million paid in 2007).

Financial support for Russia’s professional sports ($6.3 million paid in –2007 as grants for winners of high-profile competitions through the Rus-

sian Olympians Foundation).

Investment into the construction of the Skolkovo Moscow School of Man- –agement ($2 million paid in 2007; this is in addition to $0.9 million paid in

2006). As one of the project’s founders, TNK-BP plans to invest a total of

$5 million in the school’s construction.

Other important external social programs:•

Financing of a comprehensive program to prevent and treat hepatitis –and HIV.

Promoting healthy lifestyle and anti-drug campaigns. –

Support for the veterans of the Great Patriotic War and conflicts of recent –years.

Support for the families of servicemen killed in military action. –

Support for other socially vulnerable groups. –

75COMMUNITY CONTRIBUTION


Social reporting and expert recognition of TNK-BP’s

social policy results

To obtain an objective evaluation of its social activity and to define where our • social investment should be directed in the future, TNK-BP regularly partici-

pates in various ratings of corporate social responsibility. In 2007 TNK-BP

won a distinguished position in the first national Responsible Leadership

Rating*, where TNK-BP was assessed along with 50 other leading Russian

companies. TNK-BP also improved its position in the Russian version of the

global AccountAbility Rating**, climbing from 10th to 7th place.

Evidence of the company’s strong position in corporate social responsibility • is the first place which has been awarded to TNK-BP at the VII All-Russian

Rating “Russian Company of High Social Performance” in the category

“Conservation of resources and the environment” held annually by the Rus-

sian government. One of TNK-BP’s subsidiaries – TNK-Nizhnevartovsk – won

third place in the category “Remuneration and the social sphere” in the same

rating.

To ensure transparency of its social activity, TNK-BP plans to publish a com-• prehensive review of its social investment activities for the third year in suc-

cession. These reviews describe the results of social investment programs

over the previous year and plans for the coming year. These reviews are also

published on the company’s website.

In 2007 the company became one of the sponsors and organizers of the Na-• tional Corporate Social Responsibility Forum. Held under the auspices of the

RF Public Chamber and the Audit Chamber, the Forum provides the founda-

tion for a regular dialogue between business, government institutions and

public organizations on the issues of corporate social responsibility, in which

TNK-BP takes an active part.

* Responsible Leadership Rating is a system that provides a comprehensive evaluation of a company’s ability to formulate and deliver its commitments in the social sphere in the context of national priorities for social and economic development. The Rating was set up in 2007 by project bureau Business Culture with support from the Center of Situational Analysis of the RF Audit Chamber and the National Center of Social Monitoring.

** AccountAbility Rating is an international rating that appraises the quality of social policies maintained by the world’s largest companies. This rating was developed by AccountAbility, an independent think-tank providing internationally accepted social reporting standards, and CSR Network, a UK-based consultancy. AccountAbility Rating, Russia is the Russian version of AccountAbility Rating, compiled and published since 2006 by AccountAbility’s exclusive partner in Russia, project bureau Business Culture.

76COMMUNITY CONTRIBUTIONTNK-BP INFORMATION SHEET

The Life Line program

Since December 2004, TNK-BP employees have participated in Life Line – • a private donations program designed to help children with serious diseases

who require complex and expensive treatment. The Life Line program is

organized and managed by Charities Aid Foundation (CAF Russia). Since the

start of the program, TNK-BP employees have donated over $300,000. This

amount has been used to cover the costs of treatment of 56 children regis-

tered with the Life Line program who suffered from various life-threatening

heart conditions.

77

NOTES

tnk-bp information sheet

Documents

slavneft tnkbp

tnkbp group

tnkbp shareholders

tnkbp interests

bp oil

companies tnk

tnkbp legal entity

tnkbp information sheet