1H 2003 Financial Results (US GAAP) October 2003
Crude Oil Production Growth bpd 1.52 1.50 1.48 1.46 1.44 1.42 1.40 Jan- 03 Daily crude production Feb- 03 Mar- 03 Apr- 03 May- 03 Jun- 03 Crude oil production* (mln bpd) Crude oil production* (mln bpd) 1H 2003 2Q 2003 1H 2002 +2.7% 2Q 2002 +3.5% 1520 1540 1560 1580 1600 1500 1550 1600 * Production including Company s share in Equity affiliates. 1
Rising Efficiency of Upstream Operations 9.8 Average daily output per well (t/day) 9.6 9.4 9.2 9.0 8.8 8.6 9.6 9.4 8.8 9.0 9.4 8.4 1999 2000 2001 2002 1H 2003 Since 2001 a steady growth of daily output per well is observed 2
Crude Oil Production and Exports LUKOIL's production growth stars 140% Crude oil production growth (1H 2003/1H 2002) 120% 100% 80% 60% 40% 20% 117% Cummulative increase in output provided by these companies reached 1.4 mln tonnes for 1H 2003 79% 61% 44% 0% AGD LUKOIL-Komi YaNTK RITEK mln tonnes 10 9 8 7 6 5 4 Crude oil exports 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003 2Q 2003 In 1Q 2003 crude oil export slowed down due to shipment interruptions. It caused the increase in domestic crude oil refining. In 2Q 2003 domestic refining fall while crude oil exports and crude oil overseas refining increased 3
Crude Oil Distribution mln tonnes 8 7 6 5 4 3 2 1 0 Domestic crude oil sales 1H 2002 1H 2003 9M 2002 9M 2003 In 1H 2003 LUKOIL decreased domestic crude oil sales by 1.7 mln tonnes. The decrease was caused by exports and domestic refining throughput growth. In 3Q 2003 the declining trend in domestic crude oil sales continues 12 10 Crude oil refining (mln tonnes) 8 6 4 2 0 1Q 2002 2Q 2002 1Q 2003 2Q 2003 Refining in Russia Refining abroad 4
Economic Environment 1H 2003 1H 2002 2Q 2003 1Q 2003 6.14 6.30 Domestic Market Realized oil ($/bbl) 6.00 6.40 149.58 123.96 Realized refined products ($/tonne) 157.13 143.50 7.94% 9.11% Inflation (%) 2.62% 5.20% 12.82% 4.57% Ruble appreciation against USD (%) 5.96% 6.50% 3.52 2.55 Unified extraction tax ($/barrel) 3.01 4.01 4.30 1.72 Oil export tariff ($/barrel) 4.89 3.73 International Market 23.53 19.68 Realized oil ($/bbl) 21.27 26.00 283.56 215.72 Realized refined products ($/tonne) 261.95 311.77 5
Financial Results 1H 2003 1H 2002 Financial results (mln USD) 2Q 2003 1Q 2003 10,142 6,641 Total revenue 5,086 5,098 (1,361) (1,243) Operating expenses (693) (668) (2,469) (1,593) Taxes other than income taxes (including excise and export tariffs) (1,318) (1,151) 2,594 1,162 Income from operating activities 1,654 940 2,646 1,127 Income before income tax 1,690 956 2,364 840 Net Income 1,544 820 2.89 1.04 Basic earnings per share 1.89 1.00 3,178 1,663 EBITDA 1,947 1,231 6
Sales Reconciliation 12 10 1.408 0.316 10.142 1.478 (bln USD) 8 6 6.641 0.299 4 2 0 Total sales in 1H 2002 Change in sales mix Change in volumes sold Change in prices of oil and oil products Increase in other sales Total sales in 1H 2003 7
Sales Breakdown 1H 2003 1H 2002 Sales breakdown 2Q 2003 1Q 2003 70.6% 64.2% Export sales and sales on international markets to total volume of sales Refined products to total volume 54.8% 53.2 % 53.5% 56.4% of sales 46.0% 46.8% 56.0% 54.6% Share of oil products in total export volumes and international sales Share of oil products in total export sales and international sales 72.1% 68.8% 48.1% 43.6% 58.5% 53.6% 1H 2003 1H 2002 Sales in mln USD 2Q 2003 1Q 2003 3,257 2,218 Crude oil 1,567 1,690 5,940 3,762 Refined products 3,024 2,916 398 246 Petrochemicals 203 195 547 415 Other 292 255 10,142 6,641 Total 5,086 5,056 8
Sales Breakdown 50 45 40 35 30 25 20 15 10 5 0 Sales breakdown (mln tonnes) 1H 2003 1H 2002 2Q 2003 2Q 2002 Sales of of refined products within Russia International sales of crude Sales of crude within Russia CIS sales of crude International sales of crude (non-cis) 1H 2003 1H 2002 Sales in mln USD 2Q 2003 1Q 2003 2,856 1,923 International sales of crude oil (non-cis) 1,373 1,022 250 60 Sales of crude oil within CIS 94 14 151 235 Sales of crude oil within Russia 100 134 4,358 2,606 International sales of refined products 2,281 2,077 1,582 1,156 Sales of refined products within Russia 743 839 945 661 Other sales (incl. petrochemicals) 495 380 9,197 5,980 Total sales oil and oil products 4,591 4,605 9
SG&A Expenses 800 G&A reconcilation (mln USD) 600 400 200 0 G&A expenses 1H 2002 Ruble appreciation Other G&A expenses 1H 2003 1H 2003 1H 2002 Selling, general and administrative expenses (mln USD) 939 605 Transportation expenses 2Q 2003 1Q 2003 503 436 758 611 Other selling, general and administrative expenses 429 329 1 697 1 216 Total SG&A 932 765 10
Transportation Cost Growth (YoY) Changes in tariffs on finished products shipments by railroads ($/tonne) Pipeline: volumes transported: +10% tariff: +15% Railroad: volumes transported : +64% tariff: +16% 11
Vysotsk New Export Outlet Construction work on the Vysotsk Export Terminal began in June 2002. The terminal will be able to lift crude oil and finished products (fuel oil, gas oil, gasoline and lubricants) and load tankers of 20,000-40,000 tonnes deadweight at the initial/first stage and tankers up to 80,000 tonnes deadweight when construction finished Vysotsk St.-Petersburg DENMARK SWEDEN LITHUANIA ESTONIA LATVIA Perm Vysotsk Rotterdam $43.5/tonne Perm Tallinn Rotterdam $84.5/tonne With Vysotsk terminal on stream LUKOIL will get better exposure to European and US markets and will be able to save $40-50 mln per annum 12
Vysotsk Terminal Expansion Program Vysotsk terminal capacity (mln tonnes pa) 12 10 8 6 4 2 0 3 Initial stage 6 First stage 10 Projected capacity Vysotsk Construction work on the Vysotsk Export Terminal began in June 2002. The terminal will receive petroleum products shipped in by rail. The first loading complex, with capacity of 3 mln tonnes, should start to operate in Q4 2003. Sovetsky St.-Petersburg 13
Growth of Tax Burden $/tonne 60 50 40 30 $/tonne 35 30 25 20 15 10 5 0 Unified extraction tax and export tariffs comparison 32 26 +38% 19 13 +149% 1H 2002 1H 2003 Unified extraction tax Crude oil export tariff 20 10 0 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003 2Q 2003 Unified extraction tax Crude oil export tariff Light refined products export tariff Comparing to 1H 2002 tax burden has grown significantly 14
Operating Expenses 1H 2003 1H 2002 Operating expenses (mln USD) 2Q 2003 1Q 2003 694 668 Extraction expenses 356 337 237 198 Refinery expenses 122 116 107 Processing cost on the affiliated refinery 430 270 Other operating 215 215 1,361 1,243 Total 693 668 2,665 908 Cost of purchased crude oil, petroleum and chemical products 1,386 1,279 15
Improving the Logistics of Supply To improve the logistics of supply LUKOIL increased the number of buy-sell operations with third-parties. ($ mln) 3000 2500 2000 1500 Cost of purchased crude oil, petroleum and chemical products This operations allow to get extra profit from buy-sell operations and optimize transportation costs. 1000 500 0 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003 2Q 2003 In 1H 2003 trading operations with third parties brought $10 mln of net profit to the Company. Cost of purchased crude oil, petroleum and chemical products growth drivers: increase of crude oil and refined products price growth of volumes sold, including due to increase of the number of arbitrage operations change in sales mix 16
Shutting Down Marginal Wells Cutting Costs Idle wells Production wells Share of idle wells 22% 21.1% 30000 20% 19.2% 19.5% 25000 Percentage of idle wells 18% 16% 14% 16.1% 23766 16.5% 23545 17.5% 18.0% 23364 22906 22794 22680 22311 20000 15000 10000 Number of wells 12% 10% 4239 4380 4952 5252 5385 5411 5971 1.02 4.02 7.02 10.02 1.03 4.03 7.03 5000 0 1,732 low-effective wells were shut down since January, 2002. Reducing the number of marginal wells (low flow rate wells) forced production costs go down 17
Crude Production Costs * 3.6 Ruble appreciation 7% 3.4 3.2 Decrease of extraction costs per barrel 6% 5% 4% 3% $/bbl 3.0 2.8 2.6 2.75 2.70 2.92 2.78 2.58 2% 1% 0% 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003 2Q 2003 2.66 2.60 2.62 2.56 2.56 2.4 2.2 2.0 1Q 2001 2001 average 2.74 2002 average 2.60 2Q 2001 3Q 2001 4Q 2001 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1H 2003 average 2.59 1Q 2003 2Q 2003 * Exploration and production costs, including lifting costs, maintenance and repair of expensed wells, insurance and other costs; excluding taxes and depreciation. Calculated in accordance with US GAAP data. 18
Net Income Reconciliation 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 19 Net Income 1H 2002 Increase in revenues Income from sale of ACG Change in accounting policy Increase in other income Increase in equity share in affiliates (bln USD) Increase in taxes other than on income Increase in transport Increase in SGA Increase in OPEX Increase in income taxes Net Income 1H 2003
Capex Breakdown 1H 2003 1H 2002 Capital expenditures (mln USD) 2Q 2003 1Q 2003 942 580 Exploration and production 551 391 741 498 Russia, including: 420 321 264 136 Timan-Pechora 173 91 50 4 Yamal 34 16 201 82 International 131 70 424 325 Refining / Marketing and distribution and other 247 177 336 88 1,366 233 92 905 Russia 197 139 International 50 38 Total (cash and non-cash) 798 568 20
Company s Strategy Increase revenues increase volume of oil extracted increase volume of refined products increase export of crude oil and refined products Decrease expenses shut-in inefficient (low-producing) wells put into operation new high-producing wells use effective and efficient service companies Increase efficiency of investments development of export infrastructure purchase new oil and gas reserves at the lowest possible price increase number of high-producing wells divesting of non-core assets 21