Oil Company LUKOIL

1
Oil Company LUKOIL
Leonid Fedun Vice President 2001 Oil and Gas
Conference New Horizons
London June 7-8, 2001
2

• II. Launching Pad for Future Growth

3
Strong Reserve Growth
Proven Oil Gas Reserves

• Proven reserves up by 70 since 1995
• Reserve growth has come from
• Continued exploration
• Targeted acquisitions
• Reserve base continues to shift out of the higher
  cost Western Siberia
• Accounts for only 53 of proven reserves today
• International reserves account for nearly 20 of
  total proven reserves

BN BOE
Proven Oil Gas Reserves Shift
MM BOE
This includes estimated proven reserves in West
Qurna
4
Consistent Production Growth
LUKOILs Production 000 BBL/day
Crude production up every year since 1995 33
increase over 5 year period Annualized CAGR of
7.9 International production currently accounts
for only 3 of total production But growth rate
is very high Production outside of Russia has
more than tripled from 1997 - 2000
Intl production as a of LUKOILs total
production
3.0
2.0
1.0
0.0
Russia
International
5
Improving Upstream Efficiencies
Average Daily Flow Rate(W. Siberia)

• Marked improvement in operational efficiencies
  over the last 5 years
• Average flow rates up by 15 in West Siberia
• Efficiencies achieved through
• Shut in of marginal wells
• Continuing shift to higher quality reservoirs
• Increased application of new technologies

BBL/day
75
70
70
65
61
60
55
1996
1997
1998
1999
Oil Production
MM BBL
New Technologies
Traditional Technologies
6
Strong Growth in Refining
Refining runs000 BBL/day

• Refining output is up sharply 70 increase since
  1995
• International expansion has been key driver of
  our refining growth
• Accounts for 2/3 of our growth over the last five
  years
• Today accounts for nearly 40 of our refining
  throughput

Intl refining as a of LUKOILs total production
30.0
20.0
10.0
0.0
Russia
International
7
International Downstream Assets
LUKOILs Primary Refining Assets Operating Data
LUKOIL has built a leading position in RM in
South Eastern Europe
Refinery
Capacity
Production
Utilization
Ownership
MMTY
MMTY


Petrotel (Romania)
4.7
1.2
25.53
51.00
Neftochim (Bulgaria)
10.5
5.3
50.48
58.00
Odessa Refinery Plant (Ukraine)
3.8
0.9
23.68
51.90
LUKOILs Primary European Refining Assets
8
Advantaged International Assets
Mediterranean Refining Margins 1995 - 2002E

• Strategically advantaged refineries
• low-cost crude supply
• able to sell product to export markets
• Strong regional refining margins projected
  through 2002
• Cost savings being achieved through refinery
  optimization
• Upgrading underway to meet new
  EU specifications

Urals Price 1995 - 2002E
Morgan Stanley estimates
9
Management of International Operations
OAO LUKOIL
LUKOIL Overseas Holding (London - Moscow)
LUKOIL Europe Holding (London - Moscow) Safin
European RM
USA RM
Iraq
Caspian
Kazakhstan
10
World Class Reserves and Production

• LUKOIL ranks as a world-class company in terms of
  reserves and production
• Our expansion strategy will deliver greater
  international diversification on par with other
  oil majors

2000 Reserves (Billion BOE)
2000 Production (M BOE/d)
Source Company data
11
Strong Financial Growth
12
Monitoring Key Ratios to Maximize Efficiency
6 months, ended June 30
1998
1999
1999
2000
All data shown as , unless otherwise noted
1.15
1.69
2.25
0.14
Earnings per share, in US dollars
11.0
14.4
23.2
3.2
Return on sales
7.6
8.5
0.9
9.9
Return on assets
13.1
15.0
1.6
16.8
Return on equity
68.6
59.0
42.7
28.6
Sales on assets
11.0
13.4
2.4
31.2
ROACE
15.3
23.8
19.5
25.6
Net debt to net debt plus equity
13
Rational Deployment of Capital

• High rates of reinvestment are ensuring continued
  growth
• Special emphasis placed on RM investments over
  last three years
• up by 35
• targeted at balancing production and
  refining capacity

Annual Capital ExpendituresUS MM
14
Proposed Dividend Payout and Share Swap
LUKOIL Share Price Performance

• LUKOILs dividend payout has grown steadily over
  the last four years
• The proposed share swap will benefit all
  shareholders
• Strong recent performance in the pref shares
• Simplify share structure
• More equitable distribution of
  future dividends

Last Twelve Months, US per share
LUKOIL Historical Dividend Payments
US per share
15

• II. Growth and Efficiency
  Strategic Overview

16
Upstream Strategy - Potential and Efficiency
Growth

• Continue steady production growth
• Selective development of existing reserves
• Opportunistic acquisitions
• Lower production costs
• Improve efficiencies in existing operations
• Production expansion in lower cost regions (Timan
  Pechora, Caspian and Middle East)
• Strengthen netbacks Shifting production will...
• lower transportation costs
• increase proportion of sales in international
  market
• improve quality of crude

17
Sustainable Growth Strategies
Prospective Growth of Oil Production
Timan Pechora 2000 - 10.7 MM tons of
oil 2010-2015? - 20-25 MM toe
Western Siberia 2000 - 50.8 MM tons of
oil 2010-2015? - 45-50 MM toe 30-40 bn
cubic m of gas
European Russia 2000 - 14.2 MM tons of
oil 2010-2015? - 13-15 MM toe
Caspian region 2000 - 2 MM tons of oil 2010? - 15
MM toe 2015? - 20-25 MM toe
Iraq 2010? - 15 MM tons of oil 2015? - 20-25 MM
toe
18
Downstream Strategy - Open New Markets

• Expansion into Central and South Eastern Europe
  RM
• Exploit advantage as the low-cost crude supplier
  to region
• Capture strong Mediterranean refining margins
• Benefit from projected demand growth in region
• Improve efficiencies through optimising
  operations among our regional refining assets

19
Global Strategies LUKOIL International Operations

• LUKOIL is active today in more than 20 countries
• Our main strategic assets are situated in
• Western Siberia
• Timan Pechora
• The Caspian Basin
• S.E. Europe
• N.E. United States
• LUKOILs most recent discovery in the Yamal
  region of Siberia will position us to become a
  major gas exporter

20
Global Strategies LUKOILs Regional Expansion

• LUKOIL is rapidly expanding its downstream and
  upstream operations into neighboring regions
• Upstream
• Caspian
• Kazakhstan
• Middle East
• Downstream
• Central Europe
• Atlantic Basin
• LUKOIL is poised to become Russias first truly
  international oil major

21
Global Strategies Why Expand Beyond Russia?

• Reduce our exposure to single market risk
• Exploit competitive advantages
• Low cost crude supplier
• Superior knowledge of markets and geology
• Shift production to lower cost reserves
• Expand RM business in markets with higher
  product prices
• Capture margins further down value chain in
  markets supplied by our crude

22
Global Strategies New Markets

• Expansion into Atlantic Basin Marketing
• Region will increasingly become net product
  importer
• Upgrade our export-oriented refining assets to
  deliver to this market
• Secure a market for future Timan Pechora
  production
• Take market share from declining, higher-cost
  North Sea production
• 2 MM BBL/day decline by 2010

North Sea ProductionMM BBL/day
2MM BBL/day declinein 2010
23
Setting and Achieving Targets
Corporate Growth 2001 - 2005
24
Leading the Way in Corporate Standards
Creating Relative Value Among Peers

• Commitment to upholding international corporate
  governance and transparency standards
• Progressive dividend policy
• Upholding minority shareholder rights
• Shareholder rights charter
• High-caliber international management team and
  ethical standards
• Participation in educational and philanthropic
  programs
• International sponsorship and brand-building

25
Predictability and Accountability
Delivering for the Investment Community

• LUKOIL has embarked on a regular process of
  reporting financial and operating results to the
  international financial community, which will
  include
• Interim publishing of US GAAP financial
  statements
• By press release and over the web
• Quarterly analyst conference calls for discussion
  of results
• Semi-annual roadshows for discussions with
  investment community
• Improved investor relations web site

26
LUKOILs Competitive Advantages

• Russias most balanced integrated oil company
• Growing downstream presence provides cushion from
  downward oil price movements
• Superior asset base
• Growing geographical diversification
• International experience unique among peers
• International mergers and acquisitions expertise
• Shares are legitimate acquisition currency
• Strategic foothold in the North American
  downstream market
• Financial discipline and reporting standards to
  judge opportunities according to strict strategic
  and financial return standards

27
Sustainable Production Growth

• Crude Oil Production
• of Russias total

• Production growth well above the Russian average
• Nearly a quarter of Russias 2000 production
• Sustainable growth since the beginning of
  privatization (1995)
• Sustainable growth of the share in Russian
  crude exports

Crude Oil Export Sales of Russias total
28
Macroconditions for Growth

• Economic growth. GDP growth tendency is not less
  than 3-4 p.a. Budget surplus. Growth of gold and
  currency reserves. Improved solvency and tax
  collection
• Favorable market environment. Long-term supply
  and demand forecast under a regulating OPEC role
  shows that Russian crude oil price will be
  maintained at the level not lower than
  18-20/barrels. Convergence of domestic and
  international oil and petroleum product prices
• Improvement of legislation. Stabilization of the
  PSA regime is in its final stage. Enhancement of
  taxation regime, including taxation regime for
  oil companies. Nondiscriminative access of oil
  companies to gas transportation facilities
• Complications. Inflation growth. Low pace of
  structural reforms in Russia

29
LUKOILs International Operations. Case Study
Bulgaria

• Operations launched in 1999. Largest refinery in
  the Balkans. Retail chain. 2001 revenues amounted
  to 1.5bn, an equivalent to 7 of GDP and 25 of
  tax revenues of the country
• Active development of the Mediterranean markets
  (Turkey, Greece, Serbia, Macedonia and other
  countries) in the sphere of oil, petrochemical
  products and polymers. Annual sales growth by
  3-15
• Over 2 years Neftochem became profitable. 120m
  of old debt was paid. Production of petroleum
  products in accordance with European standards.
  Output growth by 20. Environmental safety
• Attractive perspectives in terms of supplies of
  various types of products, including liquefied
  gas, in the Balkans and on the Black Sea. Raising
  of product quality to international standards.
  Joint integrated efficient development with
  Petrotel (Romania) and Odessa refinery (Ukraine)

30
Focus Regions of LUKOIL Overseas Holding

• LUKOIL Overseas Holding participates in major
  projects in highly prospective hydrocarbon basins
• Russia
• JV mature production
• Caspian Kazakhstan
• exploration
• early production
• Middle East
• new ventures
• North Africa
• JV production

31
Expanding Production Outside Russia

• Efficiency
• Diversify EP portfolio
• Find and develop new, lower cost reserves
• Exploit LUKOILs competitive advantages
• regional expertise
• advantaged logistics
• Mitigate single market risk
• Goal Increase share of international efficient
  projects in LUKOILs production portfolio

Geographic Breakdown of Production, MM tons/year
32
Strategic Interest in Getty Petroleum Marketing

• Upon completion of Timan-Pechora and its
  associated refinery, LUKOIL plans to deliver
  gasoline to the United States East Coast
• The sale of gasoline directly through controlled
  sites could enhance profit margins by 18 to 20
• Getty Petroleum Marketing ("GPM") key strategic
  strengths
• Over 1 billion gallons of annual gasoline sales
• 1,300 retail sites in the northeastern United
  States
• Strong brand recognition
• Significant market share in core urban areas
• The acquisition of GPM is expected to be the
  beginning of a significant expansion in the
  eastern U.S. retail market

33
GPM Growth Strategy

• Ancillary Business Expansion
• Formalize, modernize and revitalize other uses
• New revenue streams
• Mitigate earnings volatility
• Support volume growth
• Discretionary Spending
• Internal growth
• Image upgrade
• Improve customer experience
• Attractive return characteristics
• Acquisitions
• Ample opportunities
• Increase utilization of distribution capacity
  more quickly
• Capitalize on Parent Company Resources

34
LUKOIL Going Global
AGENDA

• Introduction
• Update on Company Strategy
• Focus on International Growth
• Upstream Former Soviet Union and Middle East
• Downstream Eastern Europe and Atlantic Basin
• Growth Targets
• Update on Other Recent Developments
• US GAAP Financials
• Dividend and Proposed Preference Share Conversion
• Corporate Governance Initiatives