Oil Exploration and Production

Status of the Resource Base

For more than 10 years the Company’s reserves have been audited by SPE (Society of Petroleum Engineers) standards and more conservative SEC (US Securities and Exchange Commission) standards. The audit has been conducted for all fields based on the estimates of a representative sample of JSC Gazprom Neft’s fields accounting for 95-98% of Russian ABC1 category.

Gazprom Neft Groups Hydrocarbon Reserves Growth by SPE (PRMS)

According to independent reservoir engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 and 2006), as of December 31, 2009 JSC Gazprom Neft had total reserves of “proven” and “probable” categories (including the Company’s share in equity investees) by SPE standards of 1 568 mln t of hydrocarbons (11 531 mln bbl).

The current reserves-to-production ratio of Gazprom Neft’s SPE proven hydrocarbons is 20 years.

In 2009 additions to Gazprom Neft’s SPE proven hydrocarbon reserves (not taking into account the new acquisitions) totaled 97 mln TOE. By the results of 2009, the replacement of Gazprom Neft’s proven hydrocarbon reserves amounted to 265%.

Additions to Gazprom Neft’s SPE proven hydrocarbon reserves entailed by the new acquisitions amounted to 41 mln TOE in 2009.

Exploration

In the reporting period 11 exploration-and-appraisal wells were completed in the license plots of JSC Gazprom Neft and its subsidiaries, of which 10 yielded commercial hydrocarbon inflows. Total exploration meters drilled in 2009 - 17 037 line m, which is 26% compared to 2008. This decrease in exploration drilling metreage in 2009 as compared to 2008 was connected with the program on reducing capital expenses and with less investment in exploration activities in particular.

The exploration drilling success rate was 90.9% with efficiency of 561 tons of hydrocarbons per meter drilled and 121.6 rub/TOE.

The conducted exploration work resulted in the discovery of Nizhnevyngapurovskoye oil and gas condensate deposit in the Vyngapurovskoye license plot and 3 new oil reservoirs in the existing fields with total recoverable C1 and C2 oil reserves of 4.070 mln tons and 4.145 mln tons, respectively.

Overall in 2009 additions to the Company's reserves of commercial category totaled 105.6 mln tons, resulting mostly from additional exploration in the fields under development (65.9 mln tons) as well as from re-estimation of reserves due to the revision of the geological models of the fields and oil recovery factors, primarily for the Priobskoye and Sutorminskoye fields (39.7 mln tons).

In the reporting period 3D and 2D seismic surveys of 2 200 sq km and 1 234 line km, respectively, were conducted in the license plots of JSC Gazprom Neft and its subsidiaries.

In 2009 of the 60 tested zones 35 yielded commercial oil inflows, condensate and gas, 6 – non-commercial oil and gas inflows, 9 yielded no inflow, the remaining 10 zones yielded either reservoir water inflows or those slightly admixed with oil.

The financing of exploration by JSC Gazprom Neft and its subsidiaries in 2009 totaled 3.6 bn rub, which is 65% of the financing provided in 2008.

In the reporting period on the license plots OJSC NGK Slavneft conducted exploration costing 2.4 bn rub (excl. VAT), including exploration drilling of 13 960 meters costing 1.9 bn rub, 3D and 2D seismic data processing for 0.05 bn rub; research and other types of activities for 0.5 bn rub.

In the reporting period on the license plots OJSC Tomskneft VNK conducted exploration costing 0.4 bn rub (excl. VAT). Exploration drilling metreage in 2009 totaled 2 800 meters, the amount of 3D seismic exploration work was 233 sq km, the amount of 2D seismic exploration work – 414 line km.

In 2009 Gazprom Neft bought recoverable reserves of crude hydrocarbons of OJSC OC Magma and NIS-Naftagas (Serbia) totaling 25.7 mln tons (C1+C2 taken together), including 9.5 mln tons of NIS-Naftagas.

Licensing

As of 31.12.2009 JSC Gazprom Neft and its subsidiaries held sub¬soil licenses for 66 license plots located in 9 regions of the Russian Federation.

By type of operation, 12 licenses entitle the Company to a five year period of geological survey and 54 licenses grant the right to hydrocarbon exploration and production for a period of 20 to 50 years.

Subsoil licenses are held by 10 subsidiaries; however these licenses are managed by three operators: OJSC Gazpromneft - Noyabrskneftegaz, Gazpromneft-Khantos LLC and Gazpromneft-Vostok LLC. OJSC Gazpromneft – Noyabrskneftegaz carries out a full cycle of hydrocarbon operations in 46 license plots owned by 4 subsoil users.

In 2009 the Licensing Committee of the Federal Agency for Subsoil Use reviewed and approved additions to 16 subsoil licenses of the Company: for five plots – the geological survey period was extended, for seven plots license agreement terms were actualized, the term of geological exploration was extended for the Srednetaimurinsky plot, for the Sugmutsky plot the right for injection of bottom water, wastewater, surface water and underground saltwater for pressure maintaining was registered, for the Shinginsky plot belonging of a part of subsoil was specified, and a new survey layout was approved for the Vorgensky plot.

In 2009 the license on discovery of the Vorgenskoye oil field was issued.

Outside Russia, in Serbia, NIS Company has 65 resolutions (the same as Russia’s licenses).

Licenses of equity investees as of 31.12.2009

OJSC NGK Slavneft and its subsidiaries hold oil and gas exploration and production licenses on 38 license plots on the territory of Western Siberia and the Krasnoyarsk Krai.

OJSC Tomskneft holds 31 licenses for the development of more than 30 oil and gas deposits on the territory of the Tomsk Region and the Khanty-Mansi Autonomous District. Additionally a subsidiary of Tomskneft, Tomsk Petroleum und Gaz, holds licenses for exploration and development of 2 more plots in the Tomsk Region.

Sibir Energy’s subsidiaries, OJSC OC Magma and Siberian Geological Company LLC, hold 10 licenses for exploration and development of license plots located on the territory of the Khanty-Mansi Autonomous District (Yuzhnoye, Orekhovskoye and Koltogorskiye fields). Moreover, Sibir Energy has a 50% share in Salym Petroleum Development JV that holds 3 licenses for additional exploration and development of the Salym group of oil fields, also located in the Khanty-Mansi Autonomous Distric

Oil Production

Gazprom Neft is engaged in oil and gas exploration and production primarily in the fields located in the Yamal-Nenets and Khanty-Mansi Autonomous Districts, Omsk, Tomsk and Irkutsk Regions.

The Company’s oil production is carried out predominantly by three of its subsidiary operators: OJSC Gazpromneft-Noyabrskneftegaz, OJSC Gazpromneft-Khantos, and Gazpromneft – Vostok LLC. In 2007 the Company set up two new operators: Gazpromneft-Yamal LLC engaged in the exploration and development of JSC Gazprom’s oil fields and Gazpromneft-Angara LLC engaged in the exploration and development of the Company’s new oil deposits in Eastern Siberia.

The largest hydrocarbon reserves in the Yamal-Nenets Autonomous District are found in: Sugmutskoye, Sutorminskoye, Vyngapurovskoye, Sporyshevskoye and Muravlenkovskoye fields. In 2009 these fields accounted for 39.2% of total oil production by the Company. Production in these fields is carried out by oil and gas producing enterprises: OJSC Gazpromneft-Noyabrskneftegaz, its subsidiary Zapolyarneft LLC holding a license for the development of Vyngapurovskoye, Yarainerskoye and Novogodneye deposits, and a Muravlenkovsky branch of OJSC Gazpromneft-Noyabrskneftegaz.

In the Khanty-Mansi Autonomous District the most prospective deposit of JSC Gazprom Neft is the Priobskoye field, a development license for which is held by a subsidiary of the Company, Sibneft-Yugra LLC, with Gazpromneft-Khantos LLC acting as the operator. Located in the same region is the northeastern part of the Palyanovskaya Area of Krasnoleninskoye field and a group of license plots acquired by the Company in early 2005 (Salymsky-2, Salymsky-3, Salymsky-5) and the Zimneye field in the Tyumen Region. In 2008 Gazpromneft-Khantos won the bidding for a part of the Zimneye field located in the Khanty-Mansi Autonomous District.

The Priobskoye field is one of the largest and most promising oil deposits of the Company and is the leader in terms of rate of production growth. Active development of this field began in 2004 and as early as 2008 it already accounted for 23% of total oil produced by the Company, and in 2009 it accounted for 27.3% of total oil produced by the Company. The Priobskoye field is therefore a key asset which is strategically important for the Company’s future development.

A regional group of fields in the Omsk and Tomsk Regions will become a second “new” center. Gazpromneft-Vostok is the oil production operator of the Krapivinskoye field located in the Omsk Region, and of Archinskoye, Shinginskoye, and Urmanskoye fields in the Tomsk Region. All these fields are building up a new production center adding up to the annual growth of oil production.

Own production by JSC Gazprom Neft in 2009 was 32 441 thou. TOE, which is 122 thou. TOE more than in 2008 (+0.4%). It is explained by the acquisition of NIS and Sibir Energy (OJSC Magma).

The main achievement of 2009 is probably that the Company managed to find additional oil recovery reserves at existing assets with decreasing production. In the second half of 2009 due to active development of the Priobskoye field, renovation and restructuring of Gazpromneft-Noyabrskneftegaz the daily production of Gazprom Neft started to increase with the figures for August showing a 2.5% growth compared on January. On the whole judging by year-end results, one can see that total production exceeded the business plan by more than 1 mln tons.

In addition to its own production Gazprom Neft holds shares in production of OJSC Slavneft, OJSC Tomskneft and Salym Petroleum Development (SPD), and therefore Gazprom Neft consolidates their production output on a pro rata basis of the equity participation.

OJSC Tomskneft that is managed by Gazprom Neft and Rosneft on a parity basis holds licenses for development of fields in the Tomsk Region and Khanty-Mansi Autonomous District. Another joint venture of Gazprom Neft and TNK BP, OJSC Slavneft, develops reserves in the Urals Federal District and conducts exploration in the Siberian Federal District.

The share in oil production by OJSC Slavneft and OJSC Tomskneft in 2009 decreased by 4% and amounted to 15 750 thou. TOE, out of those: OJSC Slavneft - 9 748.0 thou. TOE and OJSC Tomskneft - 6 002 thou. TOE.

As a result of acquiring Sibir Energy in 2009, the Company at the same time obtained 50.0% of the asset of Salym Petroleum Development, a joint venture of Sibir Energy and Royal Dutch Shell. In 2009 Gazprom Neft’s share in the production of Salym Petroleum Development amounted to 1 984 thou. TOE.

The total production of Gazprom Neft in 2009 went up by 3.0% and amounted to 50 174 thou. TOE. As a result of the Company’s development strategy the amounts of oil production grew due to the purchase of new assets, NIS and Sibir Energy., The total additions to the Company’s production caused by this newly acquired assets amounted to 3.0 mln TOE.

In 2009 Gazprom Neft retained its positions as one of the leaders of the sector among Russia’s oil companies in terms of the amount of oil and gas production.

In 2009 some 656 new development wells of Gazprom Neft were put on production (not taking into account the equity investees), which is 45 wells more than in 2008. This increase was possible due to an expansion of the development drilling program and secondly as a result of increased commercial drilling speed and average metreage drilled per crew. Specifically the meters drilled reached 2 158.1 thou. m, which is 125 thou. m. more than in 2008. By the end of 2009 the number of operating oil wells of the Company (excluding equity investees) had risen by 205 wells to a total of 5 729 wells.