Alfa-Bank - Alfa Group

Developing Gas ResourcesTNK-BP is actively developing its naturalgas business and is seeking to become asignificant player in Russia’s gas sector.In developing its gas business theCompany focuses on the Rospan licenseareas in the Yamal-Nenets AutonomousArea (Russia’s most prolific gas province)as well as the production of associatedpetroleum gas in its traditional upstreamoil regions.The Company’s resource base is about2.7 trillion cubic meters of gas according toSPE standards. These resources are capableof generating annual production of upto 50 billion cubic meters.Having initially acquired a 56% stake inRospan in 2004, TNK-BP now owns100% of this Company. Rospan developsdeep-seated gas reservoirs at the Novo-Urengoi and Vostochno-Urengoi gas-condensatefields in the Yamal-NenetsAutonomous Area. These fields are estimatedto have proved reserves at 950 billioncubic meters of gas and 180 milliontons of gas condensate. By SPE standards,Rospan’s additional probable andpossible natural gas reserves are estimatedat 325 billion cubic meters.Rospan International’s key achievement in2006 was a 82% production and salesgrowth for natural gas (2.5 billion cubicmeters). In the future Rospan plans togrow its production and sales based on itscurrent assets and assuming it receivesGazprom’s approval to start a full-scaledevelopment. This will raise production to15 billion cubic meters of natural gas andthree million tons of gas condensate.TNK-BP also holds approximately 62% inRUSIA Petroleum, the licenseholder to theKovykta gas and condensate field in IrkutskRegion, East Siberia. The field’s resourcesare 2 trillion cubic meters of gas and 103million tons of condensate. In 2006, TNK-BP commenced a regional gasification project,designed to bring gas to local customersin the Irkutsk region. RUSIAPetroleum and East Siberian Gas Co(equally owned by TNK-BP and the Irkutskregional administration) are constructingthe first phase of the regional pipeline.An international project to supply gas fromKovykta to the growing markets of Chinaand Korea has been under discussion, butits development remains subject to relevantgovernment approvals.TNK-BP sold 12 billion cubic meters ofassociated gas in 2006. The major event in2006 was the creation of a joint venturewith SIBUR-Holding based on theNizhnevartovsk and Belozerny gas processingplants. Yugragazpererabotka jointventure processes associated gas fromTNK-BP and other producers in theNizhnevartovsk area. TNK-BP suppliesthese plants with associated gas on a longtermbasis and TNK-BP receives 100% ofits dry stripped gas, while SIBUR receives100% of its liquid products from theseplants. This project provides TNK-BP witha good base from which it can develop itsassociated gas processing in the key regionof Nizhnevartovsk and this facility willmonetize associated gas and help toreduce the volumes of flared gas.Another part of TNK-BP’s gas business isimplementation of power generation. Itsdevelopment will be shaped by a numberof factors such as the availability of majorassociated gas volumes, the growth anddevelopment of a free electricity marketand the fact that TNK-BP is a major consumerof electric power.DOWNSTREAMBased primarily in European part of Russia and Ukraine, the Company’s downstream operationscover the refining, logistics, marketing and sale of oil and oil products on wholesale andretail markets. The Company’s primary downstream objective is to monetize TNK-BP’s crudeoil production. TNK-BP works to expand and widen its sales options while ensuring a constantsupply of its products to rapidly growing markets inside Russia and Ukraine.In Russia, TNK-BP operates two main refineries. The largest one is Ryazan refinery, locatedabout 180 kilometers south-east of Moscow, It is ideally situated to supply both the Moscowmarket and export markets in northwest Europe. The Company’s portfolio also includes twotopping plants and one lubricant blending plant. In Ukraine TNK-BP owns Lisichansk catalyticcracking refinery which supplies Kiev, the country’s largest market.In 2006 TNK-BP completed a major modernization project at the Ryazan refinery. This projectaimed to reduce the sulphur content in gasoline and diesel fuel. At present most gasolinegrades produced by the Ryazan refinery contain less than 50 ppm of sulphur, which also meetsthe requirements of the Company’s foreign customers. Ryazan refinery has also begun productionof premium gasoline and diesel fuel grades under the BP Ultimate brand. TheCompany expanded production of high-quality gas oil (50 ppm) for the European market andbegan supplying gasoline from the Lisichansk and Ryazan refineries to the United States market.In addition to these benefits the refinery’s modernization has helped to significantlydecrease sulphur emissions.Volumes of Oil Refining in Russia and UkraineIn September 2006, the BP Ultimateunleaded gasoline (with octanenumbers 95 and 98) went on sale atall BP service stations in Moscow andMoscow Region. The new fuel increasesengine power, cleans engine depositsand prevents such deposits from formingagain, provides fuel economy andreduces the sulphur content emitted by66%. Shortly after the launch, morethan 50% of existing (A95) customershad switched to Ultimate 95. Ultimate98 sales have also grown by more than30% compared with the period beforethe launch.TNK-BP is a market leader in the Russianlubricants market. A single business unit,based on TNK operations, comprises twobase oil manufacturing plants, threeblending plants and an integrated salesorganization.The Company’s retail sales outlets (about1,600 service stations) are mainly locatednear the refineries, which is typical inRussia and Ukraine. TNK-BP both ownsand operates about 600 service stations.TNK-BP’s retail strategy is focused oninvesting in Company-owned andCompany-operated sites in the largest andfastest growing metropolitan markets.The TNK brand has recently undergone amakeover resulting in a new look for theTNK retail sites. The goal was to create adistinct identity and position the brandin such a way as to increase customertrust and loyalty as the Companyimproves the quality of products and services.By the end of 2006, 68 TNK sites inRussia already had a new look and feeltogether with newly installed convenienceshops. In addition, another 150will carry the new livery in 2007.28,50028,00027,50027,00026,50026,00025,50025,00024,50024,000Annual Volume of Refining(‘000 tonnes)24,9602004Note: Excluding Slavneft27,26927,6602005 200648 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 49