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PRODUCTS

Herein is the marketing products for the {GAZNEFTESERVIS} Supplier-Refinery and Storage Facility

  1. Petroleum Commodities: Jet Fuel JP54, D6, Jet Fuel A-1, Diesel D2, Diesel EN590, Diesel Gasoil D2 50PPM/10PPM, Mazut M100/75/ M100/99, LNG, LPG, Bitumen, Petroleum Coke, Crude ESPO, Crude Oil Rebeca etc.

  2. Mercury Product

  3. Rubber, Plywood Products

  4. Plastic Product

  5. Agro Chemical Product.

   Gaznefteservis strategic goal for the 21st century is to secure stable growth and to become one of the world’s leading oil companies. The goal can be achieved through a well-balanced solution of social, economic and environmental protection assignments.

  Gaznefteservis realizes its responsibility to the nation for environmental safety, rational use of natural resources. The Company relies on people’s understanding of the complexity and range of problems it is facing in this sphere. Gaznefteservis priority objectives are health protection and safety of personnel and communities in the areas where Gaznefteservis operates and natural resources management. To complete this, industrial/occupational/environmental safety systems have been created and are successfully operating within the Company. They fully comply with the existing legislation of the Russian Federation and are based upon best domestic and international practices and are certified in conformity with ISO 14001 and OHSAS 18001. The policy has been developed and is along the line with the state strategy in the area of industrial/occupational/environmental safety and rational management of natural resources.

   Gaznefteservis sets out the following goals in the coming 5 years: Gaznefteservis developed its oil refining business very rapidly in 2007, particularly at Russian refineries, thanks to intensive modernization and extension of capacities, in a context of high refining margins. The Company refined 56.77 million tonnes of oil in 2007 (including processing at third-party refineries), which is 5.4% more than in 2006. Gaznefteservis own facilities refined 52.16 million tonnes (6.7% more than in 2006).

  The Group’s program for modernization and reconstruction of its refineries was continued in 2007 with capital expenditures of $830 million. GAZNEFTESERVIS also consolidated its oil refining assets, including increase of its stake in the Nizhny Novgorod Refinery to 96.91%. Investments in Group refineries during 2007 totalled $157 million.

 Refinery throughputs at Gaznefteservis’s own Russian refineries rose by 7.7%, to 42.55 million tonnes in 2007. Capacity load in Russia was 96.5%, which is the highest level in Company history. GAZNEFTESERVIS processed 3.59 million tonnes of crude oil at third-party refineries in Ufa, helping to take best advantage of the favourable price environment.
The share of high-octane gasoline in total output of gasoline at Company refineries in Russia (not including mini-refineries) rose to 83.5% in 2007, up from 76.6% in 2006. Refining depth was 74.0% and light product yield was 49.9%. The biggest output increases in 2007 were of fuel oil (18.4% increase compared with 2006), heating oil (+13.9%) and motor gasolines (+11.4%).
Measures were implemented in 2007 to reduce operating expenses and raise production efficiency of Russian refineries. As a result irretrievable losses at refineries were reduced from 0.70% to 0.65%. Irretrievable losses at the Nizhny Novgorod and Ukhta Refineries were among the lowest in the Russian refining industry at 0.38% and 0.22%, respectively. There was also a 2% reduction in average personnel numbers at Gaznefteservis’s Russian refineries during the year.
Capital expenditures for modernization of the Company’s Russian refineries were $606 million and investments were $157 million in 2007.

GAS PRODUCTION

The objectives of Gaznefteservis’s gas program are accelerated growth of gas production both in Russia and abroad and increase in the share of gas to a third of total hydrocarbon production by the Group. The strategic aim is to commercialise gas reserves and reduce the Company’s exposure to price volatility on the international oil market.
Gas production by Gaznefteservis in 2007, including the Company share of production by equity affiliates, was 16.397 billion cubic meters (1.586 billion cubic feet per day).

Output of marketable gas (net of own use, reinjection into reservoir formations and transport losses) totalled 13.955 billion cubic meters (1.350 billion cubic feet per day), of which 13.731 billion cubic meters were produced by subsidiaries. Average daily production of marketable gas grew by 2.5% compared with 2006. Gaznefteservis profit from gas projects was over $150 million, which is more than twice higher than in 2006.

 Production of natural gas was 10.787 billion cubic meters, of which 9.652 billion cubic meters was marketable. Output of marketable natural gas was 1.7% lower than in 2006 due to reduction of purchases by Gazprom from the Nakhodkinskoye field. The main achievement in gas production during 2007 was launch of production at the Khauzak gas field as part of the Kandym – Khauzak – Shady project. Production of associated gas was 5.610 billion cubic meters. Associated gas is used at Company fields for maintenance of reservoir pressure (by injection of the gas), for production of electrical energy at gas-fired generating stations and for other production needs. Marketable associated gas is delivered to gas-processing plants and to local consumers. Production of marketable associated gas was 4.303 billion cubic meters, which is 13.5% more than in 2006.

 The utilization rate for associated gas was 69.0% in 2007 which is lower than in 2006. This was mainly due to acquisition in 2005–2006 of new production assets (Geoilbent and Khantymansiyskneftegazgeologiya), which do not have developed systems for gas utilization, as well as rapid growth of oil production by these assets.
The system for utilization of associated gas at Company fields was further developed in 2007 by construction of compressor stations and gas pipelines. The level of utilization at main Company fields in Western Siberia exceeded 95%. Implementation of projects for use of associated gas at newly acquired assets will enable production of the gas to be increased by more than one billion cubic meters. Gaznefteservis is carrying out a small-scale generating program, based on construction of gas-fired mini power stations at fields in order to increase associated gas utilization. As a result the Company is able to reduce flaring of associated gas and cut electricity costs, thus reducing oil lifting costs. These measures are important for implementation of Gaznefteservis’s program, which aims to increase associated gas utilization to 95%, and which was approved in 2003. The Company had 376 gas production wells at the end of 2007, of which 277 were in use.

The chief objective of Gaznefteservis’s geological exploration work is to replace production with new commercial reserves of hydrocarbons and to prepare reserves for rapid launch and expansion of production in promising regions (Timan-Pechora, Northern Caspian and the Bolshekhetskaya Depression). The Company maximizes efficiency of its geological exploration work by use of the latest technologies.

Most of the Company’s geological exploration work in 2007 was concentrated in Western Siberia, the offshore Caspian, Volgograd Region, and the Timan-Pechora oil & gas province. During 2007 the Company carried out 7,736 km of 2D seismic and 5,451 km2 of 3D seismic in order to locate and detail geological structures and to prepare for drilling of prospecting and exploration wells at promising sites. In recent years the Company has improved quality of its seismic exploration work and speeded up processing and interpretation of data, mainly thanks to installation of the latest IT solutions. High quality of seismic exploration has improved the success rate of exploration drilling to a level above 70% in the last five years.

GAZNEFTESERVIS
RESERVES AND PRODUCTION

Gaznefteservis developed its oil refining business very rapidly in 2007, particularly at Russian refineries, thanks to intensive modernization and extension of capacities, in a context of high refining margins.

The Company refined 56.77 million tonnes of oil in 2007 (including processing at third-party refineries), which is 5.4% more than in 2006. Gaznefteservis’s own facilities refined 52.16 million tonnes (6.7% more than in 2006).

The Group’s program for modernization and reconstruction of its refineries was continued in 2007 with capital expenditures of $830 million. GAZNEFTESERVIS also consolidated its oil refining assets, including increase of its stake in theNizhny Novgorod Refinery to 96.91%. Investments in Group refineries during 2007 totalled $157 million.
Refinery throughputs at Gaznefteservis’s own Russian refineries rose by 7.7%, to 42.55 million tonnes in 2007. Capacity load in Russia was 96.5%, which is the highest level in Company history. Gaznefteservis processed 3.59 million tonnes of crude oil at third-party refineries in Ufa, helping to take best advantage of the favourable price environment.
The share of high-octane gasoline in total output of gasoline at Company refineries in Russia (not including mini-refineries) rose to 83.5% in 2007, up from 76.6% in 2006. Refining depth was 74.0% and light product yield was 49.9%. The biggest output increases in 2007 were of fuel oil (18.4% increase compared with 2006), heating oil (+13.9%) and motor gasolines (+11.4%).

Measures were implemented in 2007 to reduce operating expenses and raise production efficiency of Russian refineries. As a result irretrievable losses at refineries were reduced from 0.70% to 0.65%. Irretrievable losses at the Nizhny Novgorod and Ukhta Refineries were among the lowest in the Russian refining industry at 0.38% and 0.22%, respectively. There was also a 2% reduction in average personnel numbers at Gaznefteservis’s Russian refineries during the year.

Capital expenditures for modernization of the Company’s Russian refineries were $606 million and investments were $157 million in 2007.

The Volgograd Refinery commissioned an isomerization unit with annual production capacity of 370,000 tonnes. The unit enables increase in yields of high-octane gasolines conforming to Euro-3 and Euro-4 standards. Economic effect (NPV) is estimated at $50 million.

At the Perm Refinery an isomerization unit was installed and put into operation. The unit, with annual production capacity of 450,000 tonnes, reduces purchases of high-octane additives, increases output of high-octane motor gasoline and reduces levels of benzol, aromatics and sulfur to conform to Euro-3 and Euro-4 standards. Economic effect (NPV) from installation of the unit is estimated at $85 million.
The Perm Refinery also commissioned an automated mixing station for motor gasolines with daily capacity of 6,500 tonnes. The station enables automated production of any grade of gasoline, thus reducing necessity for storage and, consequently, reducing working capital, while increasing gasoline production volumes.
Annual refining capacity at the Perm Refinery was increased from 12.0 to 12.4 million tonnes in 2007 thanks to overhaul of fractionation columns on distillation units.

At the Nizhny Novgorod Refinery the Company completed most of the work on installation of a vacuum residue visbreaking unit with 2.4 million tonnes annual capacity, and commissioning of the unit is scheduled for the second quarter of 2008. Economic effect (NPV) of the new installation is estimated at $383 million thanks to greater depth of refining and efficiency improvements.

The first stage of modernization (from 2006 to 2010) involves construction of catalytic cracking facilities, which will enable all motor gasolines at the Refinery to be produced to Euro-4 standards (the Refinery has produced gasoline to Euro-3 standards since 2006) and increase in overall output of motor fuels by 1.5 times. Qualitative indicators of the Refinery should be improved by 2010: Nelson index will rise to 7.4 (from3.6 in 2007), light product yields will reach 60% (42.6% in 2007), and the share of high-octane gasoline in overall gasoline output will reach 100% (86.6% in 2007). Annual EBITDA of the Nizhny Novgorod Refinery should rise by $240 million (in 2007 prices) as a result of launch of the new facilities.

At the Ukhta Refinery the Company commissioned a vacuum residue visbreaking unit with 800,000 tonnes annual capacity. The unit increases refining depth, reduces output of fuel oil and raises output of vacuum gas oil. Estimated economic effect (NPV) of the new unit is $94 million.

PRODUCTION

 Crude oil production by Gaznefteservis (including share of production by equity affiliates) in 2007 totalled 96.645 million tones (1.953 million barrels per day), of which 94.147 million tonnes were produced by Company subsidiaries. The Company’s average daily crude production level rose by 1.4% compared with 2006.
The Company worked hard in 2007 to prepare and launch production at fields in Russia and abroad as part of its strategy of accelerated production growth. Special emphasis was placed on fields in Timan-Pechora and the Northern Caspian.

 Company subsidiaries and equity affiliates produced crude oil at 361 fields during 2007, and 12 new oil fields were put under development: the Tsentralno-Stanovoye field (Volga region), the Chekaldinskoye and Vladimirskoye fields (Tatarstan), the Mokhovskoye,z Dozortsevskoye, Sypovskoye and Lesnoye fields (Urals region), the Verkhnee-Volminskoye, Oshskoye, and Osvanyurskoye fields (Timan-Pechora), the Domnovskoye field (Kaliningrad Region), East Kumkol (Kazakhstan), and one gas field — the Khauzak field (Uzbekistan).

 Work continued in 2007 to improve efficiency of field development and reduce operating expenses as part of Gaznefteservis’s program for optimization of development and production of oil in the period of 2006–2008. Gaznefteservis’s production companies took systematic measures in 2007 for increase of well productivity and oil recovery rates in order to achieve oil production targets. Development costs totalled $6,660 million.

 The Company had 28,470 production wells at the end of 2007, of which 24,100 were actually in use. The number of injection wells was 9,060, of which 6,660 were under pressure. The number of production wells increased by 2.3% compared with 2006 due to increase in volumes of drilling. The share of wells that were out of use had reduced marginally by the end of 2007 compared with the end of 2006, and stood at 15.3% of all production wells.

 Total production drilling in 2007 was 2.968 million meters, which is 27% more than in 2006. There was an increase in the share of international projects in total production drilling, which reflected intensive field development work as part of projects, in which Caspian Investments Resources Ltd. was a participant. A total of 1,193 new production wells were commissioned, including 109 horizontal wells. Average daily flow at new wells was 37.8 tonnes, including 65.5 tonnes from horizontal wells. Total production from new wells (Group share) was 5.47 million tonnes. Drilling of horizontal wells has been found to be highly efficient and the Company plans to increase their numbers in the medium term.

Russia

Crude oil production by Gaznefteservis in Russia in 2007 was 91.100 million tonnes, including 90.735 million tonnes produced by subsidiaries. Russian production was 1.7% higher than in 2006.

Subsidiaries and equity affiliates of the Company produced oil at 337 fields in Russia during 2007. Production drilling was 2.641 million meters, which is 24.5% more than in 2006. The number of Company production wells in Russia at the end of 2007 was 27,450, of which 23,240 were actually in use. 981 new wells were commissioned during 2007 and production at new wells totalled 5.05 million tonnes.

International Projects

Gaznefteservis’s share of production in international projects was 5.545 million tonnes in 2007, which is 2.3% less than in 2006. The volume reduction was due to completion of the transaction for sale of a 50% stake in Caspian Investments Resources Ltd. Daily oil production by Caspian Investments Resources Ltd. at the time of the sale (based on its share in projects) was about 46,000 barrels. So the sale reduced daily output of crude oil by Gaznefteservis by 23,000 barrels. However, organic production growth in international projects was 9.8%, which almost completely compensated shrinkage of production due to the sale of Caspian Investments Resources Ltd. Most of the organic growth was from the KarakudukMunai, Karachaganak and North Buzachi projects.
Production drilling in the Company’s international projects was 327,000 meters, which is 49% more than in 2006. The large growth of production drilling in 2007 reflects intensive field development as part of projects involving Caspian Investments Resources Ltd. and as part of the Kumkol project. The number of oil production wells outside Russia was 1,017, of which 861 were in use. 212 new production wells were commissioned during the year. Average oil flow at wells was 61.7 tonnes per day. Launch of new wells gave 420,000 tonnes of additional production (Group share).

SOCIAL POLICY

Charity and Social Activities

Social and charity programs are considered an integral part of the Company’s corporate strategy and contribute to constructive cooperation with the state, business circles and society. The corporate programs are of a targeted nature and based on regional professional experience and human potential. Moreover, the Company realizes that charity activities should not give rise to social dependency. For this reason, besides traditional kinds of charity, Gaznefteservis’ ANK OAO offers strategic charity and social investment programs, which imply an interdependency of the solution methods for social problems and the Company’s strategic objectives. The joint activities of business, nonprofit and public sectors aimed at solving the urgent social and economic issues faced by local communities are considered an integral part of this approach.

 

The Company’s activities are guided by two strategic trends:

– Social investments

– Sponsorship and traditional charity programs

 

Support for Children’s Homes and Educational Institutions

Providing support to children is considered a high priority of the Company, and as such is an integral part of all its programs: charity, sponsorship programs, the programs aimed at promoting children’s and youth sports and culture. Social investments in human capital are considered most feasible in modern conditions. The Company helps their graduates access education, improve their health, acquire a profession and achieve their full potential. Taking into account the limited budgets of sponsored institutions, the Company aids them in making repairs and improving adjacent facilities and equipping rooms and studies in order to provide better initial opportunities to the children. The children’s home “Zolotaya Kapelka”, located in the town of Kotovo , Volgograd Region, was constructed at the expense of oilmen; in the settlement Bolshoye Isakovo, Kaliningrad Region extensive repairs were made at boarding school No. 7. In addition, sponsored children’s homes receive an opportunity to purchase tutorial, educational literature and fiction, as well as medicine.

Annually, the Gaznefteservis Charity Fund organizes summer vacations for children from sponsored children’s homes located in Ishim, Langepas, Kirov, St. Petersburg and Baku on the coasts of the Black and Caspian seas. Moreover, the residents of children’s homes are invited on educational tours across the country. For example, excelling students from children’s homes in Perm region, Langepas, Kirov and St. Petersburg spent their winter vacations in Moscow in January 2007 and 2008. Since 2006, the Gaznefteservis Charity Fund has been awarding special Gaznefteservis grants to the graduates of sponsored children’s homes who study at higher and secondary educational institutions. The Company makes sure children are looked after on New Year’s Eve, recognizing that it is their favorite holiday. New Year, gifts were bought and sent out to 37 children’s homes.  In Syktyvkar, Gaznefteservis supports the unique A. Katolikov Agricultural Boarding School. Alongside a general secondary education, its male graduates are trained as tractor drivers; its female graduates as crop breeders. At the same time, students acquire both theoretical knowledge and practical skills: the agricultural boarding school has its own farm, including 227 ha of land, greenhouses, a poultry farm and a livestock unit. The students conduct research under the assignment of the Biology Institute – the Ural Branch of the Russian Academy of Sciences.

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