Oil Exploration and Production

Exploration

In the reporting period, at licensed sites of JSC Gazprom Neft and its subsidiaries, testing of 19 prospecting and appraisal wells was completed. This included 11 wells where commercial inflows of hydrocarbons were obtained. Exploration meters drilled in 2010 totalled 63,720 m, which is 168% compared to 2009. This increase of drilling in 2010 compared to 2009 is connected with the increase in financing exploration.

The exploration drilling success rate was 69 %, with an efficiency of 385.3 t of hydrocarbons per meter drilled and 167 RUB/TOE. The organic recovery of the resource base totalled 165.6 %.

Based on the results of prospecting and exploration drilling and supplementary exploration performed by enterprises of the Group, Severo-Vakunaiskoye deposit and 17 new deposits at Vyngayakhskoye, Vyngapurovskoye, Ety-Pur, Novogodny, and Tympuchikanskoye fields with recoverable reserves of hydrocarbons as per category C, at 4 249 mn TOE and category C2 at 10 451 mn TOE were discovered.

In 2010, total growth of oil reserves in the commercial category for the company totalled 52.6 mn t. The growth of 23.3 mn t was due to supplementary exploration of the producing field, 26.1 mn t was due to production drilling, as well as reappraising reserves resulting from detailing of geological models of fields and the oil recoverability factor (3.2 mn t).

In the reporting period, seismic surveys in the licensed plots of JSC Gazprom Neft and its subsidiaries were conducted: 3D surveys of 1 680 km2 and 2D surveys of 3 817 km.

In 2010, of the 67 tested objects, 24 yielded commercial oil inflows, condensate and gas, 15 - non-commercial oil and gas inflows, 11 yielded no inflow, and the remaining 17 objects yielded either reservoir water inflows or those slightly admixed with oil.

The financing of exploration by JSC Gazprom Neft and its subsidiaries in 2010 totalled 4.694 bn RUB, which is 153 % of the financing provided in 2009.

In 2010, the Gazprom Neft and NOVATEK joint venture Yamal Razvitie LLC closed a deal on acquiring 51 % shares in SeverEnergiya LLC from Gazprom. SeverEnergiya holds 100 % of JSC Arktikgaz, CJSC Urengoi Inc and JSC Neftegaztekhnologia. Companies hold licenses for implementing development and production at oil and gas-condensate fields of Yamalo-Nenets Autonomous District: Samburgsky, Yevo-Yakhinsky, Yaro-Yakhinsky and Severo-Chaselsky sites. According to PRMS, reserves of sites of 'proven' and 'probable' categories totalled 191 mnTOE.

Licensing

As of 31 December, 2010, JSC Gazprom Neft and its subsidiaries held subsoil licenses for 63 licensed sites located in 10 regions of the Russian Federation. Outside Russia, in Serbia, the NIS subsidiary has 65 permits (similar to Russian licenses).

By type of activity, 9 licenses entitle the company to conduct geological surveys, and 54 licenses grant the right to hydrocarbon exploration and production for 20 to 50 years.

Eight subsidiaries hold JSC Gazprom Neft subsoil licenses. However, three operators manage these licenses: OJSC Gazprom Neft-Noyabrskneftegaz, Gazprom Neft-Khantos LLC and Gazprom Neft-Vostok LLC. OJSC Gazprom Neft-Noyabrskneftegaz performs the full cycle of hydrocarbon operations in 44 licensed plots, including 10 plots owned by 3 subsoil users.

In 2010, the Licensing Commission of the Federal Agency for Subsoil Use reviewed and approved additions to 16 additional subsoil licenses. For 7 sites, the geological survey period was extended, and for 9 sites, license agreement terms were made current.

Licenses of equity investees as of 31.12.2010

OJSC NGK Slavneft and its subsidiaries hold oil and gas exploration and production licenses for 37 license sites on the territory of Western Siberia and Krasnoyarsk territory.

OJSC Tomskneft holds 33 licenses for developing hydrocarbon fields on the territory of the Tomsk region and Khanty-Mansiysk Autonomous District.

Sibir Energy's subsidiaries - OJSC NK Magma and Siberian Geological Company LLC – hold 8 licenses for exploration surveying (to search and assess raw hydrocarbon fields) and 2 licenses for exploration and oil production at licensed sites located in the territory of the Khanty-Mansiysk Autonomous District (Yuzhnoye, Orekhovskoye and Koltogorsk deposits). Furthermore, Sibir Energy has a 50 % share in the Salym Petroleum Development joint venture that holds 3 licenses for exploring and developing the Salym group of oil fields, also located in Khanty-Mansiysk Autonomous District. SeverEnergiya LLC including JSC Arktikgaz, CJSC Urengoi Inc, CJSC Arctic Gas Company, and Neftegaztekhnologia LLC hold 2 licenses for search, exploration and production of raw hydrocarbons, and 2 licenses for exploring and producing raw hydrocarbons. All licensed sites are located in the territory of Yamalo-Nenets Autonomous District.

Oil Production

Gazprom Neft is engaged in oil and gas exploration and production in Russia as well as in non-CIS countries. In Russia, the company's oil production is mainly performed by three of its subsidiary operators: JSC Gazprom Neft - Noyabrskneftegaz, Gazprom Neft-Khantos LLC and Gazprom Neft-Vostok LLC. Key production companies are developing fields in Yamalo-Nenets and Khanty-Mansiysk Autonomous Districts, Omsk, Tomsk, Tyumen and Irkutsk Regions.

The foreign subsidiary company, NIS, is engaged in oil and gas exploration and production in Serbia.

The company also participates in several production sharing agreements and other production projects in Angola, Iraq, Venezuela, Equatorial Guinea and Cuba.

Alongside its own production, Gazprom Neft holds 50 % shares in three subsidiaries, the production of which is accounted on a pro rata basis of equity participation: OJSC Slavneft, OJSC Tomskneft and Salym Petroleum Development.

The largest hydrocarbon reserves in the Yamalo-Nenets Autonomous District are found in: Sugmutskoye, Sutorminskoye, Vyngapurovskoye, Sporyshevskoye and Muravlenko fields.

In 2010, these fields accounted for 36.3 % of the company's total oil production (with no account of production on a pro rata basis of equity participation). Production in these fields is undertaken by oil and gas producing enterprise OJSC Gazprom Neft-Noyabrskneftegaz, its subsidiary Zapolyarneft LLC holding a license for developing Vyngapurovskoye, Yarainerskoye and Novogodny deposits, and a Muravlenko branch of OJSC Gazprom Neft-Noyabrskneftegaz.

In Khanty-Mansiysk Autonomous District, the JSC Gazprom Neft deposit with most prospects is the Priobskoye field. Sibneft-Yugra LLC - a subsidiary of the company - holds a development license for this, with Gazprom Neft-Khantos LLC acting as the operator. In the same region is the north-eastern part of the Palyanovskaya Area of Krasnoleninskoye field and a group of licensed sites acquired by the company in early 2005 (Salymsky-2, Salymsky-3, Salymsky-5) and the Zimneye field in Tyumen region.

The Priobskoye field is one of the company's largest and most promising oil deposits, and is the leader in terms of rate of production growth. Active development of this field began in 2004. As early as 2010, it accounted for 31 % of total oil produced by the company on its own fields. Therefore, the Priobskoye deposit is a key asset and strategically important for the company's future development.

A regional group of fields in the Omsk and Tomsk Regions will become a second 'new' centre. Gazprom Neft-Vostok is the oil production operator of the Krapivinskoye field located in Omsk region and of Archinskoye, Shinginskoye, and Urmanskoye fields in Tomsk region.

Tomsk region is one of Gazprom Neft's production centres. In early 2010, Gazprom Neft's assets were increased in this region through the Luginetskie group of fields after acquiring the STS-Service enterprise from Swedish company Malka Oil. All these fields form a new production centre providing annual growth of oil production. A significant part of the enterprise's reserves is in the early development phases. This creates potential for further production growth.

From the end of 2007, on a parity basis with Rosneft, Gazprom Neft holds and, according to the shareholder agreement, manages Tomskneft on a rota basis.

In 2010, the oil production volume of Tomskneft totalled 10.3 mnt (of which the share of Gazprom Neft totalled 5.15 mn t). This is 217,000 t more than the planned volume of marketable gas: 0.6 bnm3.

OJSC Slavneft - another joint venture of Gazprom Neft and TNK-BP - is engaged in producing reserves in the Ural Federal District and exploring the Siberian Federal District. For all of 2010, the enterprises of the company produced 18.36 mn t of oil. This complies with the business plan and is 3% below the previous year's indicator. The share of Gazprom Neft in Slavneft's oil production totalled 9.18 mn t, and marketable gas: 0.3 bn m3.

Since June 2009, Gazprom Neft has held a 50 % share in a joint venture with Royal Dutch Shell: Salym Petroleum Development. In 2010, the total volume of oil production in the Salym group of oil fields, which is developed by Salym Petroleum Development, grew by 8 % compared to 2009, and totals 8.27 mn t, including the Gazprom Neft share of 4.13 mnt.

The total production of Gazprom Neft in 2010 increased by 4.1 % from the same period a year earlier and amounted to 49.6 mn TOE. One of the leaders as per production growth rate was a production subsidiary of the company: Gazprom Neft-Khantos LLC. In 2010, its production volume totalled 9.8 mn t. This exceeds the extent of production in 2009 by 14.9 % and exceeds indicators of the business plan for 2010 by 5 %. The average daily production for the year totalled 26,8841. This exceeds 2009 indicators by 15 %. 514 geological and engineering operations were performed at the enterprise. This allowed it to produce an additional 2.08 mn t of oil.

The enterprise succeeded in achieving high indicators in production due to an increase in well efficiency, daily production on Zimneye field, and over-fulfilling the plan to bring in 41 % new wells (396 wells were brought into production). Furthermore, deepening production drilling totalled 1,328,200 m in rock. This exceeds planned indicators by 64 %. The enterprise also put into service an industrial complex for diagnostics and repair of pump and compressor pipes, and an oil delivery and acceptance point.

Serbian Gazprom Neft enterprise NIS achieved significant production growth. During 2010, NIS oil production increased by 38 % (207 3001) to 970 0001. This exceeds business plan indicators by 11.4%.

STS-Service, acquired by Gazprom Neft at the beginning of 2010, exceeded the planned figure by 23.5%.

Sibir Energy exceeded planned production indicators by 5.5 %.

The company's enterprises exceeded planned indicators of production. This was mainly due to starting up new wells at fast rates and implementing measures to stimulate production. In 2010, the start-up of new wells increased by 229 % (136 wells), as compared to the business plan. The volume of added production totalled 4,809,7901.

In 2010, the company produced 4.0 bn m3 marketable gas (including the share in gas production of subsidiaries, and including share in equity investees). This is 26 % more than in 2009. The growth is mainly due to starting natural gas production at the Muravlenko and Novogodny deposits in Q4 of 2010. In Q4 2010, marketable gas production of these two fields totalled 0.473 bn m3. In 2010, natural gas planned production totalled 4.2 bn m3.

The company continues to study the possibility of starting simultaneous exploitation of oil and gas formations on its other fields, where this will assure production synergy.

Within the framework of implementing the programme to increase the level of associated gas utilisation at Priobskoye field in Q4 of 2010, a turnkey contractor was selected for constructing the Yuzhno-Priobskoye gas-compressor station. An EPC contract was included, and contracts for constructing a gathering system for associated gas were also concluded: construction of pipelines and delivery of vacuum compressor stations. Implemented measures will improve the effectiveness of associated gas use, minimise risk associated with environmental protection and taxation, and increase income through selling additional volumes of associated gas and products from its processing. This programme will allow the company to utilise up to 500 mnm3associated gas at the Yuzhno-Balyksky gas treatment plant and achieve 95 % of associated gas utilisation at the Priobskoye field.

At the end of Q4 2010,the Investment Committee of the company considered the medium-term investment programme of JSC Gazprom Neft to increase the level of associated gas use for 2011-2013. According to this programme, in Q1 2011, it is expected to approve the investment programme to increase the level of associated gas use in Noyabrsk region.

JSC Gazprom Neft expects that by 2020, the share of gas in the production portfolio will total around 30 %. This will be due to developing combined fields (including the gas component) and the growth of the percentage of associated gas use.

Developing small gas deposits as part of the production activity fields of Gazprom Neft will promote the increase in economic efficiency of the use of the company's reserves. It will also help raise the hydrocarbons production volume to 100 mn TOE. This is specified in the company's development strategy to 2020.

In 2010, Gazprom Neft's hydrocarbon production increased by 5.3 % and totalled 52.8 mn TOE.

In 2010, Gazprom Neft maintained its position as an industry leader by level of oil and gas production among Russian oil companies.

In 2010, the commissioning of Gazprom Neft's new production wells, not considering its subsidiaries, totalled 746 wells (79 wells more than in 2009). Increasing the number of commissioned wells was possible due to expanding the production drilling programme. Meterage reached 2,619,000 m, which is 351,000 m more than the level of 2009. This was due to the increase of schedule speed and average rate per drilling crew. At the end of 2010, the company's production stock of oil wells (without regard to subsidiaries) increased by 96 wells and totalled 6,720.

In 2011, according to preliminary conservative plans, Gazprom Neft plans to increase hydrocarbon production by 7.6 % to 56.8 mn TOE.

In 2011, the planned profile of production includes:

• developing existing assets of JSC Gazprom Neft: Gazprom Neft-Khantos LLC; Gazprom Neft-NNG LLC; Gazprom Neft-Vostok including acquired licenses of the undivided fund: Imilorskoye, Gavrikovskoye and Erginskoye
• share of production in joint ventures OJSC NGK Slavneft (50% in partnership with TNK-BP) and OJSC Tomskneft VNK (50 % in partnership with OJSCNKRosneft)
• obtaining and further developing JSC Gazprom fields: Novoport, Orenburg
• producing Cenomanian natural gas on fields of Gazprom Neft-Noyabrskneftegaz: Novogodny and Muravlenko
• production share in enterprises of Sibir Energy: Salym Petroleum Development (50 %) and Magma (100%)
• developing Messoyakha fields in partnership with TNK-BP (50%)
• developing Kuyubvinskoye field of NGK Slavneft in partnership with TNK-BP (50 %), implementing the active exploration work programme,and further developing Tympuchikanskoye group (Tympuchikanskoye, Vakunaiskoye and Ignyalinskoye sites)
• entering foreign projects and acquiring sites and assets of the distributed fund in Russia.

Hydrocarbon production in 2006-2010

Production drilling in 2006-2010