Press releases in October 2009

TNK-BP Maintains Year-on-year Production Growth of 3%; Posts a 34% Rise in Net Income in the Third Quarter

TNK-BP today reported its results for the third quarter and nine months ended September 30th 2009 (US$ millions unless otherwise stated).

*excluding Slavneft

Commenting on the results, Mikhail Fridman, interim Chief Executive Officer of TNK-BP, said:

“In the third quarter of 2009, TNK-BP continued to improve on the strong performance it reported for the first half of the year. We remained an industry leader in growing oil and gas production, with volumes for the 9 months to September amounting to a 3.0% increase relative to the same period in 2008. This represents 8 continuous quarters of production growth. In addition, TNK-BP benefited from stronger oil and product markets, prudent financial management, and in July, we realized a gain on the sale of our oil field services business of $204 mln. As a result, our net income rose by almost 34% relative to the second quarter. 

The company continued to apply a focused and controlled approach to its capital investment programme in order to ensure new projects are delivered on time and on budget, as well as maintaining the efficiency of the existing asset base. Confidence in management’s ability to deliver allowed the Board to support a $1.3 bn investment in refinery upgrades as well as over $0.4 bn to continue work in developing our new Greenfield projects in Yamal. We continued to work to make TNK-BP a safer and cleaner company with once again significant improvement on our days away from work frequency and further reduction in oil spills.

The third quarter results show that TNK-BP is well-positioned to deliver solid performance for 2009 and continue to look forward to developing sustainable growth and improving performance in the future. We are focused on a sustainable way forward which will create additional workplaces and revenue for the Russian economy.” 

3Q operational highlights

• Oil and Gas volumes for 9M09 increased by 3% relative to 9M08 (excl. Slavneft) largely due to incremental greenfield production from Uvat and Kamennoye fields in West Siberia, the Verkhnechonskoye oil field in East Siberia as well as sustainable growth in Orenburg in the Volga-Urals region.
• By the end of August, the Uvat development had yielded over 1 million tonnes of crude from the first six months of operations.
• In July, TNK-BP completed the divestment of its oil field services business to Weatherford International Ltd; generating a profit of $204 mln in the third quarter.
• TNK-BP and Gazpromneft completed the split of Russian retail assets of the oil company Slavneft which the two companies jointly own, the result of which was that TNK-BP acquired control of 88 service stations and 12 oil depots in the Yaroslavl, Kostroma and Ivanovo regions.  
• Turnarounds in the Nizhnevartovsk refinery (NNPO) and Krasnoleninsk refinery (KNPZ) were successfully completed on time and without incidents.
• In August, the company started to trade through the oil products exchange in St Petersburg and the range of products sold was extended to include diesel, gasoline of different grades and jet fuel; by the end of September, the volume sold through the exchange had exceeded 45,000 tonnes.
• TNK-BP for the first time reported data on greenhouse gas emissions showing consistent reduction in annual volumes (2008 emissions volume is 18% lower than in 2007). The company applied a proprietary method of greenhouse gas emissions evaluation based on recommendations made by the IPIECA (the International Petroleum Industry Environmental Conservation Association) and the API (American Petroleum Instritute).
• The company achieved important milestones in occupational safety — 15 million man-hours of operations at the LINIK refinery (Lisichansk, Ukraine) and 10 million man-hours of operations at the Ryazan refinery (RNPK) without lost time injuries.

Jonathan Muir, Chief Financial Officer of TNK-BP, said: “This represents a very strong set of results. While the overall environment remained strong, the major growth quarter on quarter was due to volume growth and performance improvements which continued to contribute to stronger earnings further boosted by the sale of our OFS business”.

3Q 2009 financial highlights

• Revenues for 3Q increased 26% quarter-on-quarter driven by a 17% increase in average Urals prices, higher crude production and additional sales of oil products.
• Export duties and other taxes increased by 43% quarter-on-quarter with a 48% increase from the price effect on export duties and MET, partly offset by the effect of lower export sales as a result of channel optimisation.
• EBITDA for 3Q amounted to $2.8bn, a 20% (+$464m) improvement on 2Q; the benefit from higher prices was offset by a lower positive duty lag and the effects of forex, with improvements from volume growth, performance optimization initiatives and the gain from sale of TNK-BP’s oil field services business. 
• Net Income for 3Q amounted to $1.7bn, a 34% (+$424m) improvement on 2Q due to the effects of the EBITDA benefits and the effect of fixed costs.    

9 months 2009 financial highlights

• Revenues for 9M09 decreased by 44% relative to 9M08 with a 48% fall in average Urals prices partly offset by a 3% growth in production volumes.
• Export duties and other taxes fell by 56% for 9M09 relative to 9M08 largely due to the fall in Urals price, with a further benefit from changes in tax legislation offset by higher sales volumes and lower export duty lag. 
• Cash costs (operating expenses, transportation and SG&A) decreased by 19% reflecting reductions from cost management initiatives and the benefit of a weaker ruble.
• EBITDA for 9M09 amounted to $6.7bn which is 39% lower compared to the same period in 2008 largely due to the combined effect of revenue, tax and cost reductions partly offset by the gain on divestment of the oil field services business. 
• Income Tax has fallen by 55% in 9M09 due to the fall in pre-tax profits as well as the benefit from changes in tax legislation in 2009. 
• Net Income for 9M09 amounted to $3.7bn which is 44% lower compared to the previous period in 2008 due to the decrease in EBITDA and the dilution effect of dd&a charges.    
• Cash from operations of $4.6bn remained strong despite the volatile trading environment.
• Net debt was reduced by $1.2bn in 9M09 resulting in gearing falling to 24%.
• Organic capital investment amounted to $2.1bn, aimed at focused development of both Greenfields and Brownfields.

The financial information shown in the press release relates to TNK-BP International Ltd. This information does not constitute Interim Condensed Consolidated Financial Statements.  The Interim Condensed Consolidated Financial Statements will be published in early November 2009.

Notes to editors:

TNK-BP is Russia’s third largest oil company, 50% owned by BP and 50% owned by the AAR Consortium (Alfa Group, Access Industries and Renova). TNK-BP also owns close to 50% of another Russian oil and gas company, Slavneft. TNK-BP accounts for approximately 16% of Russia’s production (including its share of Slavneft). SEC proved reserves (life of field basis) were 8.1 billion boe as of December 31, 2008. The company’s upstream operations are located in West and East Siberia and the Volga-Urals region. TNK-BP owns and operates five refineries in Russia and Ukraine, and retails through a network of 1,400 service stations working under the BP and TNK brands.

For further information please contact:

Marina Dracheva: TNK-BP International Media — telephone +7 (495) 363-65-80
Nikolai Gorelov: TNK-BP Russian Media — telephone +7 (495) 363-27-57.

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