No. 3, 2009

For ten years now, LUKOIL has been successfully developing oil and gas fields in the Republic of Komi

One of the key business spheres of JSC LUKOIL in expanding oil production is development of the Timan-Pechora oil- and gas-bearing province. The results of the Company's ten years of operation in this region are convincing proof that the plans are realistic.

LUKOIL's constructive efforts

At the end of the 20th century, the situation in the oil industry of the Republic of Komi gave cause for concern due to oil production plummeting, frequent logistical disruptions, and mounting social tensions within work teams. At the same time, the trend toward exhaustion of the traditional oil and gas provinces of Western Siberia and the Volga area was making itself increasingly felt. That is why LUKOIL analysts began carefully weighing the pros and cons of developing production in new areas. They focused primarily on the Timan-Pechora oil- and gas-bearing province, where explored reserves alone of the 190 hydrocarbon fields approached 2 billion tons and, if the prospects of the Arctic sea shelf are taken into consideration, even modest forecasts raised these estimates substantially.

The management of LUKOIL began looking at development of the Timan-Pechora province as a vital strategic task. The most varied and sometimes nontrivial variants were elaborated until,

finally, the optimal one was identified. On July 9, 1999, the first ever Agreement on Cooperation between LUKOIL and the Government of the Republic of Komi was signed. The parties agreed to develop cooperation in the sphere of oil production, refining and transportation, and sale of oil and petroleum products on the domestic and foreign markets, as well as in the R&D sphere.

This was just the first step, but it was followed by other, more radical actions. In September 1999, for instance, LUKOIL acquired the full block of shares in KomiTEK and, at the end of 1999, the Republic of Komi's oldest Ukhta Refinery was also taken over by LUKOIL.

A memorable landmark in the history of the oil industry in the Republic of Komi was April 25, 2000, when a visiting session of the LUKOIL Board of Directors was held in Usinsk to approve the Company's Program for development of oil production in the North of European Russia. This document was drawn up within the scope of the Federal Target Program entitled "Integrated Development of the Oil and Gas Resources of the Timan-Pechora Province up to 2005 and beyond," drawn up on the instructions of the Fuel and Energy Ministry of the Russian Federation. The trifaceted LUKOIL Program provided for increasing oil reserves by 227.5 million tons and those of petroleum gas by 15.3 billion m³ between 2001 and 2010;

establishing a regional oil shipping system via the Varandey terminal on the Pechora sea coast; and developing the southern transport route via the existing oil pipeline system. The priority tasks set included rehabilitating the Ukhta Refinery, increasing the depth of crude refining from 42.4% in 1999 to 55.7% in 2005 and to 73.3% in 2010, and using petroleum gas resources as raw material and fuel for gasification of the region. An important place in the Program was allotted to ensuring social stability and comfortable living and working conditions for Company employees and local residents; environmental safety of production facilities and presentation of the biological stability of the natural complex. Between 2001 and 2010, LUKOIL planned to invest 134.2 billion rubles for these purposes, including 89.4 billion rubles in oil production, 13.5 billion rubles in geological exploration, 7.1 billion rubles in refining, 1.6 billion rubles in petroleum products supply, 15.8 billion rubles in development of the transport system, 4.4 billion rubles in development of a petroleum gas utilization system, and 2.4 billion rubles in construction of social infrastructure facilities.

Apart from direct expenditures on improving the environmental situation in the region, the Program envisaged implementation of environmental action plans during design and construction of upstream and downstream facilities. In aggregate, including direct costs, it was planned to spend up to 30% of all the capital investments on nature protection and environmental safety.

A worthy celebration of the industry's anniversary

LUKOIL-Komi is, at present, the biggest subsoil user in northwestern Russia, operating in the Timan-Pechora oil- and gas-bearing province located on the territory of two constituent entities of the Russian Federation: the Republic of Komi and the Nenets Autonomous Area.

As a result of large-scale organizational and technological measures designed to start up new production capacities, optimize assets and implement an active strategy for development of the oil

production complex, the company has greatly increased the volume of oil produced. Thus, in 2007, a total of 13.959 million tons of oil was produced, while the respective 2008 figure was 14.466 million tons. On the territory of the

Republic of Komi, LUKOIL-Komi produced 8.205 million tons of oil in 2007 and 9.130 million tons in 2008.

In 2008, fulfillment of the geological exploration program provided for an increase in recoverable hydrocarbon reserves in the amount of 16.3 million tons. The investment program was implemented in full and 20.9 billion rubles were used for these purposes, the value of fixed assets introduced amounted to 19.6 billion rubles, and product‘s and service sales revenues reached 21 billion rubles, which was 33% above the planned level. The average rise in labor productivity within the company's structural subdivisions was 11.3%.

To celebrate in a worthy manner the 80th anniversary of the oil industry in the Republic of Komi and the 10th anniversary of the Company's presence in the region, LUKOIL-Komi oilmen are steadily increasing their production rates. This year, startup of 56 new wells will give an additional 572,000 tons of oil. Moreover, it is planned to produce an additional 784,000 tons of oil as a result of implementation of 644 geotechnical measures at the existing stock of wells.

In a speech before company employees, LUKOIL-Komi General Director Azat Khabibullin outlined the company's priority tasks, including: carrying out drilling operations in the volume of 172,600 m; launching production operations on the Yuzhno-Yuryakhinskoye field; and construction of a booster compressor station, a 35 km interfield pipeline, and oil treatment facilities with a capacity of 4.3 million tons per year. In addition, the company is about to implement a program for 95% utilization of petroleum gas. To this end, it is planned to build a compressor station at the Kyrtayelskoye field and start up a gas-turbine electric power plant at the Tedinskoye oil field.

The management and employees of LUKOIL-Komi are constantly focused on ensuring high quality and efficiency of the work of each link and structural subdivision. It is obvious, moreover, that the company's major achievements so far are merely another stage in its steady advance.