Rosneft Posts Record USD 10.3 bln Net Income in 9M 2008

Rosneft (the „Company“) today reported its US GAAP consolidated financial results for Q3 and 9M 2008.

EBITDA and net income in Q3 and 9M 2007 are adjusted for accrual of penalties and fines related to Yuganskneftegaz tax liabilities. Net income in 9M 2007 is adjusted for YUKOS bankruptcy proceeds. Rosneft’s crude oil production in Q3 and 9M 2007 is adjusted to reflect a 50% share in Tomskneft production.

In Q3 2008, Rosneft’s EBITDA increased by 31.4% to USD 5,326 mln from USD 4,054 mln in Q3 2007. In 9M 2008, Rosneft had a record EBITDA of USD 17,076 mln, an increase of 81.7% against 9M 2007.

In Q3 2008, the Company’s net income was USD 3,469 mln, up 79.9% compared to USD 1,928 mln in Q3 2007. In 9M 2008, net income hit a record of USD 10,345 mln, up 139.0% compared to USD 4,328 mln in the same period of 2007.

The increase in key financial indicators resulted from continued industry-leading growth in daily crude oil production, improved vertical integration following the acquisition of refining and marketing assets in 2007, improved cost control and high level of international and domestic prices of oil, petroleum products and gas.

Performance improvements were tempered primarily by higher taxes (a record of USD 12.5 bln in Q3 2008 compared to USD 7.1 bln in Q3 2007; and USD 33.2 bln in 9M 2008 compared to USD 19.1 bln in 9M 2007). The tax-to-revenue ratio in Q3 reached a record high of 60.6%, compared to 55.9% and 51.4% in Q2 2008 and Q3 2007, respectively, which was attributable in part to the export duty time lag. Other negative factors were transportation tariff growth ranging from 13% to 33%, real ruble appreciation through 1H 2008, and decrease in the oil price by more than 30% in Q3 2008.

In Q3 2008, Rosneft decreased its net debt by USD 2,048 mln to USD 19,388 mln (adjusted for bank deposits of USD 210 mln held until debt repayment), largely due to a significant free cash flow of USD 2,234 mln. Short-term loans and current portion of long-term debt decreased from USD 13.4 bln to USD 8.4 bln in Q3 2008. Overall, in 9M 2008, Rosneft reduced net debt by USD 6,887 mln, while the Company’s net-debt-to-LTM-EBITDA ratio decreased from 1.8 to 0.9.

Successful efforts to improve overall efficiency, eliminate unnecessary expenditures upon consolidation of recently acquired assets, and increase well productivity resulted in controllable cost reductions. In Q3 2008, Rosneft’s upstream production and operating expenses decreased to USD 3.35 per bbl from USD 3.68 per bbl in Q3 2007. In 9M 2008, these expenses amounted to USD 3.29 per bbl, down 5.7% compared to USD 3.49 per bbl in the same period of 2007. In Q3 2008, the Company’s refining expenses decreased to USD 3.6 per bbl, compared to USD 4.2 per bbl in Q2 2008. In addition, Rosneft reduced its SG&A expenses to USD 375 mln, a decrease of 13% and 2.1% compared to Q2 2008 and Q3 2007, respectively.

The Company’s capital expenditures totaled USD 6,426 mln in 9M 2008, up 41.6% as compared to 9M 2007. The increase in capital expenditures is primarily attributable to acquisitions in 2007 as well as further expansion of operating activities at Yuganskneftegaz and development of the Vankor field. In Q3 2008, capital expenditures decreased by 12.8% q-o-q to USD 2,179 mln.

In 9M2008, Rosneft remained the global leader in terms of growth in crude oil production. Rosneft’s daily crude oil output (including production by subsidiaries and share in production by affiliates) increased by 11.8% to 2,120 th. bpd from 1,896 th. bpd in 9M 2007 (adjusted to reflect a 50% share in Tomskneft production). The organic growth amounted to 4.5%.

In Q3 2008, Rosneft produced 12.07 mln tonnes of petroleum products, up 10.2% q-o-q. Overall, during 9M 2008, the Company produced 34.98 mln tonnes of petroleum products, an increase of 32.9% y-o-y. This substantial increase is explained by organic growth in throughput at the Tuapse and Komsomolsk refineries, as well as by the acquisition of five major refineries in Q2 2007.

In Q3 2008, retail sales of petroleum products increased by 38.1% y-o-y to 1.16 mln tonnes. Overall, in 9M 2008 Rosneft sold 3.09 mln tonnes of petroleum products through its retail network, more than a twofold increase y-o-y.

„Q3 2008 results further confirm our success in implementing the Company’s policy aimed at enhanced operating efficiency. In this period, we managed to improve our key operating indicators, while also succeeding in reducing unit upstream, downstream and SG&A expenses, and capital expenditures. Furthermore, we significantly reduced net debt and continued efforts to optimize our debt portfolio. All of these measures together with continued cost reduction and prioritization of investments position the Company well for what is now a more challenging operating environment of substantially lower prices,“ Rosneft President Sergey Bogdanchikov said.

Rosneft’s US GAAP financial statements and Management’s Discussion and Analysis (MD&A) for Q3 and 9M 2008 and a related investor presentation are available for download at www.rosneft.com.

Rosneft Information Division
Tel.: +7 (495) 221-31-07
Fax: +7 (495) 411-54-21
n_manvelov@rosneft.ru
December 01, 2008

These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.